<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED DECEMBER 31, 1997 COMMISSION FILE NUMBER 0-22804
ACTIVE VOICE CORPORATION
(Exact name of registrant as specified in its charter)
WASHINGTON 91-1235111
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2901 THIRD AVENUE, SUITE 500 98121-9800
SEATTLE, WASHINGTON (Zip Code)
(Address of principal executive offices)
(206) 441-4700
(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, as of the latest practicable date.
OUTSTANDING AT
CLASS FEBRUARY 2, 1997
Common Stock, No Par Value 4,648,062
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ACTIVE VOICE CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED DECEMBER 31, 1997
INDEX
PART I - FINANCIAL INFORMATION PAGE
----
Item 1. Financial Statements (Unaudited) 3
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 7
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURE PAGE 16
EXHIBITS 17
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ACTIVE VOICE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
----------------------- -----------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $14,063 $13,355 $40,365 $36,591
Cost of goods sold 5,402 5,662 16,739 15,137
------- ------- ------- -------
Gross profit 8,661 7,693 23,626 21,454
Operating expenses:
Research and development 2,191 1,743 6,605 4,951
Sales and marketing 3,813 3,290 10,984 9,571
General and administrative 1,884 1,159 4,436 3,339
------- ------- ------- -------
Total operating expenses 7,888 6,192 22,025 17,861
------- ------- ------- -------
Operating income 773 1,501 1,601 3,593
Interest income 142 197 469 580
------- ------- ------- -------
Income before income taxes and
minority interest 915 1,698 2,070 4,173
Income tax provision (270) (538) (621) (1,330)
Minority interest in (earnings) loss
of consolidated subsidiary (27) 35
------- ------- ------- -------
Net income $ 618 $ 1,160 $ 1,484 $ 2,843
------- ------- ------- -------
------- ------- ------- -------
Net income per common share $ 0.13 $ 0.25 $ 0.32 $ 0.62
------- ------- ------- -------
------- ------- ------- -------
Net income per common share -
assuming dilution $ 0.13 $ 0.25 $ 0.32 $ 0.61
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
ACTIVE VOICE CORPORATION
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
December 31, March 31,
1997 1997
------------ ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 850 $ 1,542
Marketable securities 3,681 6,223
Accounts receivable, less allowances 11,393 10,410
Inventories 8,015 7,009
Deferred tax asset 1,269 1,008
Prepaid expenses and other assets 3,518 1,258
------- -------
Total current assets 28,726 27,450
Marketable securities 6,090 7,531
Furniture and equipment, net 3,462 2,408
Other assets 2,518 1,552
------- -------
Total assets $40,796 $38,941
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,021 $ 2,342
Accrued compensation and benefits 1,014 1,682
Other accrued expenses 1,362 933
Income taxes payable 754 4
------- -------
Total current liabilities 5,151 4,961
Commitments
Minority interest (134) (104)
Stockholders' equity:
Preferred stock, no par value:
Authorized shares - 2,000,000 - none outstanding
Common stock, no par value:
Authorized shares - 10,000,000
Issued shares, including repurchased shares
- 4,976,933 17,187 17,003
Retained earnings 20,338 19,026
Unrealized gain on marketable securities 36 3
Accumulated translation adjustments 7 4
Less 328,871 repurchased shares (358,859 at
March 31, 1997), at cost (1,789) (1,952)
------- -------
Total stockholders' equity 35,779 34,084
Total liabilities and stockholders' equity $40,796 $38,941
------- -------
------- -------
</TABLE>
Note: The consolidated balance sheet at March 31, 1997 has been derived from
the audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. See notes to consolidated financial
statements.
4
<PAGE>
ACTIVE VOICE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended December 31,
------------------------------
1997 1996
------------- ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $1,484 $2,843
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 958 644
Provisions for accounts receivable 340 510
Deferred income taxes (250) (282)
Loss on disposal of equipment 12 11
Minority interest in loss of consolidated
subsidiary (35)
Changes in operating assets and liabilities:
Increase in accounts receivable (1,323) (1,790)
Increase in inventories (1,006) (1,707)
Decrease (increase) in prepaid expenses
and other assets (2,884) 121
Increase (decrease) in accounts payable (321) 319
Increase (decrease) in other liabilities 604 (542)
------ ------
Net cash provided by (used in)
operating activities (2,421) 127
INVESTING ACTIVITIES
Purchases of marketable securities (1,886) (4,079)
Proceeds from sale and maturity of marketable
securities 5,891 4,651
Acquisition of business (467)
Purchases of furniture and equipment (1,899) (791)
------ ------
Net cash provided by (used in)
investing activities 1,639 (219)
FINANCING ACTIVITIES
Repurchase of common stock (416)
Proceeds from employee stock option and stock
purchase plans 498 226
------ ------
Net cash provided by financing
activities 82 226
Effect of exchange rate changes on cash and
cash equivalents 8
------ ------
Increase (decrease) in cash and cash equivalents (692) 134
Cash and cash equivalents at beginning of period 1,542 3,390
------ ------
Cash and cash equivalents at end of period $ 850 $3,524
------ ------
------ ------
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
ACTIVE VOICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 1997
1. INTERIM FINANCIAL STATEMENTS
The accompanying consolidated financial statements of Active Voice Corporation
and subsidiaries (the Company) are unaudited. In the opinion of the Company's
management, the financial statements include all adjustments, consisting only of
normal recurring adjustments, necessary to state fairly the financial
information set forth therein. Results of operations for the three month and
nine month periods ended December 31, 1997 are not necessarily indicative of
future financial results.
Certain notes and other information have been condensed or omitted from the
interim financial statements presented in this Quarterly Report on Form 10-Q.
Accordingly, these financial statements should be read in conjunction with the
Company's annual report on Form 10-K for the year ended March 31, 1997.
2. INVENTORIES
Inventories are comprised of the following (in thousands):
<TABLE>
<CAPTION>
December 31, 1997 March 31, 1997
----------------- --------------
<S> <C> <C>
Computer equipment $4,456 $3,602
Custom component parts 2,946 2,730
Supplies 613 677
----------------- --------------
$8,015 $7,009
----------------- --------------
----------------- --------------
</TABLE>
3. NEW ACCOUNTING PRONOUNCEMENTS
In October 1997, the AICPA issued SOP 97-2, Software Revenue Recognition, which
changes the requirements for revenue recognition effective for transactions that
the company will enter into beginning April 1, 1998. The Company has not yet
assessed what the impact of the SOP will be on its financial condition or
results of operations.
In 1997, the Financial Accounting Standards Board issued Statement No. 128,
EARNINGS PER SHARE. Statement 128 replaced the calculation of primary and
fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effect of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported primary
earnings per share. All earnings per share amounts for all periods have been
presented, and where appropriate, restated to conform to the Statement 128
requirements.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Active Voice Corporation (the Company) is a leading manufacturer of voice
processing systems and computer-telephone integration (CTI) products. The
Company's products are sold worldwide through a network of independent
telecommunications dealers, telephone equipment manufacturers and computer
resellers. The Company markets four principal products: Repartee, Replay Plus,
Replay and Lingo. Repartee, the Company's flagship and most feature-rich
product, offers the largest call handling capacity. In addition, Repartee serves
as the base for TeLANophy, a suite of the Company's CTI modules which provides
complete call management and unified messaging capabilities. Replay Plus, the
Company's mid-priced product, offers most of the voice processing features found
in Repartee with the exception of the CTI functionality. The Company's Replay
product provides basic voice processing features at a price point attractive to
the small business market. In September 1997, the Company introduced Lingo.
Lingo, targeted at the small office market, offers all basic voice processing
features in a single proprietary hardware unit. Lingo is an affordable solution
for small businesses as it does not utilize PC hardware and requires minimal
dealer effort in its installation.
CERTAIN STATEMENTS IN THIS QUARTERLY REPORT (FOR EXAMPLE, STATEMENTS USING THE
EXPRESSIONS, "THE COMPANY BELIEVES" OR "THE COMPANY ANTICIPATES" AND OTHER
SIMILAR STATEMENTS) CONTAIN "FORWARD LOOKING" INFORMATION (AS DEFINED IN THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995) INVOLVING RISKS AND
UNCERTAINTIES, INCLUDING WITHOUT LIMITATION, PROJECTIONS FOR SALES AND
EXPENDITURES, TREND PROJECTIONS AND DEVELOPMENT SCHEDULES. ACTUAL FUTURE RESULTS
AND TRENDS MAY DIFFER MATERIALLY DEPENDING ON A VARIETY OF FACTORS, INCLUDING,
BUT NOT LIMITED TO, THE RISKS DISCUSSED IN DOCUMENTS FILED BY THE COMPANY WITH
THE SECURITIES AND EXCHANGE COMMISSION. INVESTORS ARE ENCOURAGED TO CONSIDER
THE RISKS DETAILED IN THOSE FILINGS. THE COMPANY ASSUMES NO OBLIGATION TO
RELEASE PUBLICLY ANY CHANGES TO THESE "FORWARD LOOKING STATEMENTS" THAT MAY
ARISE FROM THE DEVELOPMENT OF UNANTICIPATED EVENTS OR CIRCUMSTANCES THAT OCCUR
AFTER THE DATE OF THE ORIGINAL PROJECTION. (REFER TO THE SECTION ENTITLED
"FACTORS AFFECTING FUTURE OPERATING RESULTS" FOR A FURTHER DISCUSSION ON SOME OF
THE INVOLVED RISKS AND UNCERTAINTIES.)
RESULTS OF OPERATIONS
NET SALES
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
1997 1996 Change 1997 1996 Change
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Net sales $14,063 $13,355 5.3% $40,365 $36,591 10.3%
- --------------------------------------------------------------------------------
</TABLE>
Effective April 1, 1997, the Company rearranged its domestic and international
distribution channels and certain sales personnel who support them. The
Company's Canadian customers, which were previously under the umbrella of
international sales, joined with the U.S. dealer channel to create the North
America dealer channel. The new corporate sales channel replaces the OEM channel
and includes both international strategic partners, which were previously
included in the international sales channel, and value-added resellers (VARs)
which were previously included in the domestic dealer channel. The Company made
this adjustment to better focus its resources on meeting the unique product and
service needs of its diverse customer base. For comparison purposes, the
following discussion assumes the adjustment had been made on April 1, 1996.
Announced in September 1997, Lingo began shipping in the quarter ended December
31, 1997. The Company believes that Lingo's ease of installation and low price
will make this product particularly
7
<PAGE>
appealing to the North America dealer market. The new version of Repartee,
released February 4, 1998, is divided into two offerings: Repartee VP and
Repartee CTI. The Repartee VP model provides small businesses wanting PC-based
voice processing with a product that can grow with the customer. The Repartee
CTI model is targeted to businesses desiring TeLANophy or larger capacity for
unlimited subscribers. Both models offer the customer a solution providing more
features than Replay and Replay Plus as well as the option to grow as the
business requires. With the introductions of Lingo and the new version of
Repartee, the Company intends to discontinue offering Replay and Replay Plus in
the North America dealer channel on February 4, 1998.
THREE MONTHS ENDED DECEMBER 31, 1997
Net sales to the Company's North America dealer network during the quarter
ended December 31, 1997 increased by 1.7% from the comparable period in the
prior fiscal year. Net sales to the North America dealers represented 62% of
total net sales for the three months ended December 31, 1997 compared to 64%
of total net sales in the three months ended December 31, 1996. The increase
in net sales to the North America dealer channel is largely attributable to
increased unit sales of turnkey Repartee systems and the new Lingo offering,
mitigated by decreases in unit sales and revenue of Replay Plus and Replay.
As expected by the Company, Lingo sales have begun replacing some unit sales
of Replay at the low end of the market. The Company also continues to
experience a shift in product mix toward Repartee and TeLANophy, the
Company's CTI product offerings, particularly from the Replay Plus
traditional voice processing system. As mentioned above, the release of the
latest version of Repartee will complete this transition, by eliminating
Replay Plus and Replay sales in this channel altogether. The decrease in
sales to the North America dealer channel as a percentage of total net sales
can be credited to the success of the Company's strategic partner
relationships as some dealers now purchase the Company's products through
these corporate sales customers.
Net sales to the corporate sales channel increased by approximately 32% for the
three months ended December 31, 1997 over the comparable period in the prior
fiscal year. Net sales to corporate sales customers represented 23% and 22% of
total net sales for the three month periods ended December 31, 1997 and 1996,
respectively. The increase in net sales to corporate sales customers was
attributable to increased unit sales of the Repartee and Replay Plus class of
products and a new offering to a major customer in this channel. This new
product ( "In-switch") combines Active Voice software with a single board that
slides into the PBX. The board, which is purchased directly by the customer
from a third party vendor, assimilates the functionality of both a PC and a
voiceboard. By loading Active Voice software on the board, the Company can offer
more integration features as a less expensive alternative than traditional voice
processing systems with a separate PC and voice board. During the quarter, the
customer had difficulty in securing enough of the hardware components to satisfy
demand for the product. The Company believes that the hardware vendor has taken
measures to address this problem. The largest corporate customer accounted for
approximately 41.2% of total corporate sales and approximately 9.5% of total net
sales during the three months ended December 31, 1997.
Net sales to international customers increased by approximately 12% during the
three months ended December 31, 1997 in comparison to the prior year's same
quarter, reflecting increased penetration of international voice mail markets.
International sales represented 15% and 14% of total net sales for the three
month periods ended December 31, 1997 and 1996, respectively. This year over
year growth occurred despite the latter quarter's unusually high sales volume,
primarily due to record kit and TeLANophy sales which occurred during the three
months ending December 31, 1996. The increase in international net sales can
mainly be ascribed to the acquisition of the Company's European distributor in
September 1997 and, to a lesser extent, to higher unit sales of Replay. The
Company's HTML interface for the Replay Plus and Replay product lines has proven
extremely popular in the international marketplace due to the ease with which it
allows products to be localized for foreign customers. This benefit has become
particularly pronounced in its impact on Replay Plus in the quarter ended
December 31, 1997, as revenue per unit on this product have increased when
contrasted to the prior year's
8
<PAGE>
comparable quarter. The Company believes its localization efforts have improved
product acceptance and demand in the international marketplace.
Sales of Visual Basic-based voice application tools by the Company's
majority-owned Pronexus, Inc. subsidiary, acquired in January 1997, have also
contributed to the sales increase when compared to the quarter ended December
31, 1996. Another factor contributing to the sales increase was the recognition
of patent license fees related to the Company's stutter detect patent.
NINE MONTHS ENDED DECEMBER 31, 1997
Net sales to the Company's North America dealer network were essentially
unchanged for the nine months ended December 31, 1997 over the comparable period
in the prior fiscal year. Net sales to the North America dealers represented
approximately 63% of total net sales for the nine months ended December 31, 1997
compared to approximately 69% of total net sales for the nine months ended
December 31, 1996. The increase in revenue from higher unit sales of Repartee
systems and TeLANophy software was offset by reduced unit sales of Replay Plus
and Replay and by sales price promotions on Repartee and Replay Plus.
Net sales to the Company's corporate sales channel during the nine months ended
December 31, 1997 increased by approximately 57% from the comparable period in
the prior fiscal year. Net sales to corporate sales customers represented 23%
and 19% of total net sales for the nine month periods ended December 31, 1997
and 1996, respectively. The increase in net sales to corporate sales customers
was attributable to increased unit sales of Repartee, Replay Plus and Replay,
all of which were partially offset by lower average revenues per unit. The
release of the In-switch product during the third quarter of fiscal 1998 also
contributed to the increase. The largest corporate customer accounted for
approximately 41% of total corporate sales and approximately 9% of total net
sales during the nine months ended December 31, 1997.
Net sales to international customers increased by approximately 31% during the
nine months ended December 31, 1997, reflecting increased penetration of
international voice mail markets. International sales represented 14% and 12% of
total net sales for the nine month periods ended December 31, 1997 and 1996,
respectively. The increase in international net sales is due to the acquisition
of the Company's European distributor, as well as increased revenue and unit
sales of Replay, which was offset by declining unit sales of Repartee systems
and kits.
GROSS MARGIN
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
1997 1996 Change 1997 1996 Change
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Gross profit $8,661 $7,693 12.6% $23,626 $21,454 10.1%
Percentage of net sales 61.6% 57.6% 58.5% 58.6%
- --------------------------------------------------------------------------------
</TABLE>
The Company's gross margin varies in part depending upon the mix of
higher-margin voiceboard-and-software kit sales (offered to all customers) and
software-only sales (available only to strategic partner accounts) as opposed to
turnkey system sales (which include the cost of a PC and other related
hardware). The proportion of sales contributed by each distribution channel
also affects the overall gross margin, as international sales have historically
had higher gross margins than sales in the other distribution channels.
The increase in gross margin as a percentage of net sales between the comparable
three month periods is primarily attributable to three factors: a sales mix
shift to the higher margin Lingo and Inswitch products, the receipt of the
aforementioned patent license fees, and the settlement of third-party vendor
hardware
9
<PAGE>
problems which occurred during the quarter. For the nine month periods ended
December 31, 1997 and 1996, margins were slightly lower due to lower average
selling prices of turnkey Replay Plus and Replay systems primarily in the North
America dealer channel, mitigated by the factors affecting the three month
period mentioned above as well as increased sales of TeLANophy software in all
sales channels. Also, in the quarter ended September 30, 1997 the Company
increased allowances for surplus and obsolete inventory, which lowered margins
for the nine month period ended December 31, 1997. The increased reserves were
attributable to isolated PC component problems and anticipated product platform
changes.
RESEARCH AND DEVELOPMENT
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
1997 1996 Change 1997 1996 Change
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Research and development $2,191 $1,743 25.7% $6,605 $4,951 33.4%
Percentage of net sales 15.6% 13.1% 16.4% 13.5%
- --------------------------------------------------------------------------------
</TABLE>
The increases in research and development expenses, both in dollar amount and as
a percentage of net sales between the three month and nine month periods ending
December 31, 1997 and 1996 were primarily attributable to an increase in
compensation-related costs associated with additional engineering and
development personnel and project-based contract development staff and
associated recruiting costs. The increase in engineering personnel is
attributable to the Company's development of new Windows NT-based products as
well as to the addition of the Pronexus, Inc. development staff. In addition,
engineering salaries have increased due to the competitive nature of the labor
market and the Company's effort to attract and retain skilled employees. The
shipment of Lingo systems in the quarter ended December 31, 1997 also required
dedicated development personnel to ensure the quality of the released product.
The Company continues to allocate significant resources to the localization of
products for international markets and customization of products for strategic
partner accounts. Included in the three months ended December 31, 1997 is the
benefit of the modification of terms of a third party development contract,
which reduced previously incurred expenditures.
The Company believes that in order to remain competitive in a rapidly changing
technological environment, it will continue to be necessary to allocate
significant resources to the development of new products. The Company expects
the dollar amount of research and development expenditures to continue to
increase for the foreseeable future, and that these expenses as a percentage of
sales will vary from period to period.
SALES AND MARKETING
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
1997 1996 Change 1997 1996 Change
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Sales and marketing $3,813 $3,290 15.9% $10,984 $9,571 14.8%
Percentage of net sales 27.1% 24.6% 27.2% 26.2%
- --------------------------------------------------------------------------------
</TABLE>
The increases in sales and marketing expenses during the three month and nine
month periods ended December 31, 1997 over the comparable periods in the prior
fiscal year, both in dollar amount and as a percentage of net sales, were
primarily attributable to increased compensation-related expenses associated
with growth in sales and marketing personnel and higher commission expense due
to increased sales levels. Trade show expenditures and other promotional
efforts also increased in an effort to establish awareness of the Lingo product
and other current and future offerings. Increases in sales and marketing
expenses in the nine months ended December 31, 1997 were also related in part to
the addition of sales and marketing personnel and associated costs from Pronexus
and the recently acquired Netherlands sales office. Sales and marketing expenses
include both costs that are essentially fixed as well as costs that vary
10
<PAGE>
relative to sales volume and thus can be expected to fluctuate both in dollar
amount and as a percentage of net sales from period to period.
GENERAL AND ADMINISTRATIVE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
1997 1996 Change 1997 1996 Change
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
General and administrative $1,884 $1,159 62.6% $4,436 $3,339 32.9%
Percentage of net sales 13.4% 8.7% 11.0% 9.1%
- --------------------------------------------------------------------------------
</TABLE>
The increases in general and administrative expenses, both in dollar amount and
as a percentage of net sales, between comparable periods was primarily
attributable to increased compensation-related and consulting expenses
associated with the Company's investment in its management information systems
infrastructure. Furthermore, the Company bolstered the ranks of its management
personnel over the last year to be positioned for future growth opportunities.
The strength of the US Dollar also gave rise to foreign exchange losses,
particularly in Australia, when compared to the prior year period. General and
administrative expenses, being relatively fixed in nature, can be expected to
fluctuate as a percentage of net sales from period to period.
INTEREST INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
1997 1996 Change 1997 1996 Change
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Interest income $142 $197 (27.9%) $469 $580 (19.1%)
- --------------------------------------------------------------------------------
</TABLE>
The decrease in interest income during the three month and nine month periods
ended December 31, 1997 in comparison to the corresponding periods in the prior
fiscal year were primarily attributable to lower average invested cash and
marketable security balances. Average cash and marketable security balances
decreased due to increased inventory holdings, vendor prepayments and certain
business combinations. See "Liquidity and Capital Resources."
INCOME TAX PROVISION
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
1997 1996 Change 1997 1996 Change
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Income tax provision $270 $538 (49.8%) $621 $1,330 (53.3%)
Effective tax rate 29.5% 31.7% 30.0% 31.9%
- --------------------------------------------------------------------------------
</TABLE>
Variations in the customary relationship between the income tax provision and
the statutory income tax rate of 34% result from certain nondeductible expenses,
tax exempt investment income, research and development tax credits, and the
benefit provided by the Company's foreign sales corporation. The Company expects
the effective tax rate to fluctuate in the future due to the impact of changing
research and development tax credits, tax exempt interest income, and foreign
sales corporation benefits as a percentage of taxable income. In addition, the
Company anticipates that it may fall under the jurisdiction of additional taxing
authorities as its operations expand into new geographical areas, which would
cause the effective tax rate to increase.
11
<PAGE>
The decreases in the Company's effective tax rate for the three month and nine
month periods ended December 31, 1997 over the comparable period in the prior
fiscal year were primarily attributable to increases in the research and
development tax credit and foreign sales corporation benefit as a percentage of
taxable income.
NET INCOME AND NET INCOME PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31,
1997 1996 Change 1997 1996 Change
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands,
except per share data)
Net income $618 $1,160 (46.7%) $1,484 $2,843 (47.8%)
Percentage of net sales 4.4% 8.7% 3.7% 7.8%
Net income per common
share - assuming
dilution $0.13 $0.25 (48.0%) $0.32 $0.61 (47.5%)
- --------------------------------------------------------------------------------
</TABLE>
The decreases in net income and net income per share for the three month and
nine month periods ended December 31, 1997 in comparison to the corresponding
periods in the prior fiscal year were primarily attributable to the increased
operating expenses, as discussed above under the individual income statement
captions. The current market conditions of the Company's industry are extremely
competitive, leading to notable pricing pressures. In addition, the Company has
entered a significant investment period as it prepares for new product direction
and future growth. The Company believes that these conditions will continue for
the next several quarters. The number of common and common equivalent shares
outstanding was comparable in the three month and nine month periods ended
December 31, 1997, and 1996, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents, and marketable securities and investments
decreased to $10.6 million or 26% of total assets at December 31, 1997 from
$15.3 million or 39% of total assets at March 31, 1997. Cash flow used in
operations totaled $2.4 million during the nine months ended December 31, 1997.
The Company had net working capital of $23.6 million at December 31, 1997.
During the quarter ended September 30, 1997, the Company repurchased 40,000
shares of its common stock for approximately $416,000 under its previously
announced share repurchase program. During September, 1997, the Company acquired
its European distributor, Active Voice B.V. based in The Netherlands. The
purchase price of $467,000 was paid in cash and the acquisition was recorded
under the purchase method of accounting. In addition, the Company made a
one-time vendor prepayment of approximately $827,000 in the quarter ended June
30, 1997 to secure future inventory deliveries at a favorable discount price. To
accommodate increased development personnel, during the nine months ended
December 31, 1997 the Company effectively incurred $250,000 of prepaid rent by
paying certain architectural fees and costs on behalf of the lessor in exchange
for reduced future lease payments on new office space.
Accounts receivable, net of allowances, increased to $11.4 million at December
31, 1997 from $10.4 million at March 31, 1997. The increase in accounts
receivable balances was due to higher net sales in the three months ended
December 31, 1997 compared to net sales in the three months ended March 31,
1997. Days' sales outstanding at December 31, 1997 was essentially unchanged
from March 31, 1997. Inventory levels increased to $8.0 million at December 31,
1997 from $7.0 million at March 31, 1997. The increase in inventory levels was
primarily attributable to increasing raw materials requirements needed to meet
the Company's growing sales base as well as initial inventory stocking for the
Company's Lingo product.
12
<PAGE>
The Company made $1.9 million in capital expenditures during the nine months
ended December 31, 1997, compared to $791,000 during the comparable period of
the prior fiscal year. The majority of the capital expenditures during the nine
months ended December 31, 1997 consisted of computer hardware and software used
to augment the Company's management information systems infrastructure, as well
as purchases of furniture for the additional development personnel. Additional
computer equipment was also purchased for use in research and development. The
Company currently has no specific commitments with respect to additional capital
expenditures during the remainder of fiscal 1998.
The Company has a $10,000,000 revolving credit line from a bank for financing
working capital. No borrowings were outstanding under this agreement during the
nine months ending December 31, 1997. The agreement expires on November 30,
1998.
The Company believes that ongoing maturity of securities in its investment
portfolio, together with funds from operations and the revolving credit line,
will provide sufficient resources to finance operations for the next several
years.
FACTORS AFFECTING FUTURE OPERATING RESULTS
Certain statements contained herein are dependent upon numerous factors,
circumstances and contingencies. The following factors, while not all
inclusive, could cause actual results to differ materially from historical
results or those anticipated:
- - Competitive pressure from new entrants to the CTI market, including large
software companies and telephone switch manufacturers with greater
resources, could adversely affect the Company's business. Introduction of
new products by the Company or its competitors and the extent of their
success or failure could produce significant fluctuations in market demand
for the Company's products.
- - Increasing price competition in the Company's marketplace could influence
the amount and timing of changes in the Company's prices to its customers,
and therefore negatively impact the Company's gross margins. Gross margins
may also either increase or decrease as a result of further shifts in
product mix depending upon the percentage of net sales contributed by
software only sales in comparison to turnkey system sales.
- - The extent and timing of new product development and the need or desire to
modify existing products may cause notable increases in research and
development spending. Increasing international sales may require notable
increases in development spending associated with localization of products
for foreign markets.
- - If the Company experiences delays in shipments (whether it is due to delays
from customers or as a result of the timing of new product introductions by
the Company) in a given quarter, or if new order bookings do not meet
anticipated levels, substantial fluctuations in operating results will
occur. Frequently, these developments may not become apparent to the
Company until near or at the end of the quarter. In addition, changes in
the product and channel mix, and the timing of customer orders, will
continue to affect the variability of quarterly results of operations in
future quarters.
- - Dependence on continued sales to significant customers could have a
significant impact on the Company's operations as there is no assurance
that any particular customer will continue to purchase similar volumes of
the Company's products.
- - Risks associated with the Company's movement into the larger end-user
market, such as product acceptance and demand and failure to attract
sufficient market share, could affect the Company's future performance.
- - Growth strategies involving acquisitions and strategic relationships may
encounter legal and/or unforeseeable delays beyond the Company's control.
- - Risks associated with foreign operations such as gains and losses on the
conversion of foreign currencies to U.S. dollars; export-import
regulations; customs matters; foreign collection problems;
13
<PAGE>
and military, political and transportation risks may significantly affect
the company's operating results. In addition, the Company's international
sales involve additional risks associated with governmental regulation,
product adaptation to local languages and switching systems, and
uncertainties arising from local business practices and cultural
considerations.
- - The Company has taken actions to understand the nature and extent of the
work required to make its systems and products Year 2000 compliant. The
Company has and will continue to make certain investments to modify or
convert its software and hardware systems and applications to ensure that
the Company's systems are Year 2000 compliant. The Company is still
evaluating its product line and programs for assisting customers obtain
Year 2000 compliance. Although the Company expects some costs associated
with compliance, the financial impact to the Company has not been and is
not anticipated to be material to its financial position or results of
operations in any given year. However, if the modifications or programs
are not made or introduced in a timely or cost effective manner, the
Company or its customers may be unable to implement appropriate Year 2000
solutions, which could have a material adverse affect on the Company's
business, financial condition or results of operations.
14
<PAGE>
PART II. OTHER INFORMATION
ITEM 2(d). CHANGES IN SECURITIES AND USE OF PROCEEDS
At March 14, 1997, the Company had remaining net proceeds from
its December 1993 initial public offering of $6,349,000. During
the period from March 15, 1997 to December 30, 1997, the Company
used $467,000 for the acquisition of a business, leaving
remaining net proceeds of $5,882,000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10. 1998 Stock Option Plan
11. Computation of Earnings Per Share
27. Financial Data Schedule
(b) Reports on Form 8-K
On October 17, 1997 the Company filed a report on SEC Form
8-K, reporting in Item 5 thereof the appointment of Doug
Beighle as a director of the registrant.
15
<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.
Active Voice Corporation
(Registrant)
Date: February 12, 1998 By: /s/ Jose S. David
----------------------------
Jose S. David
Chief Financial Officer
Signing on behalf of registrant and
as principal financial officer
16
<PAGE>
ACTIVE VOICE CORPORATION
1998 STOCK OPTION PLAN
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1 PURPOSE AND EFFECTIVENESS. . . . . . . . . . . . . . . . . . . . 1
1.1 Purpose. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 2 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 3 ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.1 Committee. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.2 Appointment of Committee . . . . . . . . . . . . . . . . . . . . 4
3.3 Powers; Regulations. . . . . . . . . . . . . . . . . . . . . . . 4
3.4 Exercise of Authority. . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 4 SHARES SUBJECT TO THE PLAN . . . . . . . . . . . . . . . . . . . 5
4.1 Number of Shares . . . . . . . . . . . . . . . . . . . . . . . . 5
4.2 Adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 5 ELIGIBILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 6 STOCK OPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . 6
6.1 Grant of Options . . . . . . . . . . . . . . . . . . . . . . . . 6
6.2 Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . 6
6.3 Term of Options. . . . . . . . . . . . . . . . . . . . . . . . . 6
6.4 Option Agreement . . . . . . . . . . . . . . . . . . . . . . . . 6
6.5 Exercise of Options. . . . . . . . . . . . . . . . . . . . . . . 6
6.6 Legends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.7 Nontransferability . . . . . . . . . . . . . . . . . . . . . . . 7
6.8 Authority of Executive Officers to Grant Options . . . . . . . . 7
ARTICLE 7 GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . 7
7.1 Termination of Service . . . . . . . . . . . . . . . . . . . . . 8
7.2 Certain Events . . . . . . . . . . . . . . . . . . . . . . . . . 8
7.3 Right to Terminate Service . . . . . . . . . . . . . . . . . . . 9
7.4 Nonalienation of Benefits. . . . . . . . . . . . . . . . . . . . 10
7.5 Termination and Amendment. . . . . . . . . . . . . . . . . . . . 10
7.6 Government and Other Regulations . . . . . . . . . . . . . . . . 10
7.7 Withholding. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
7.8 Plan Not Exclusive . . . . . . . . . . . . . . . . . . . . . . . 11
7.9 Exclusion from Pension and Profit-Sharing Computation. . . . . . 11
7.10 No Shareholder Rights. . . . . . . . . . . . . . . . . . . . . . 11
7.11 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . 11
7.12 Company's Rights . . . . . . . . . . . . . . . . . . . . . . . . 11
-i-
<PAGE>
ACTIVE VOICE CORPORATION
1998 STOCK OPTION PLAN
ARTICLE 1
PURPOSE AND EFFECTIVENESS
1.1 PURPOSE. The purpose of the 1998 Stock Option Plan (the "Plan") is to
provide a method by which selected individuals performing services for Active
Voice Corporation, a Washington corporation (the "Company"), or any of its
Affiliates, may be offered an opportunity to invest in capital stock of the
Company, thereby increasing their personal interest in the growth and success of
the Company and its Affiliates.
1.2 EFFECTIVE DATE. The Plan shall be effective as of January 22, 1998.
ARTICLE 2
DEFINITIONS
Capitalized terms in the Plan shall have the following meanings (whether
used in the singular or plural):
"Affiliate" of the Company means any corporation, partnership or other
entity which, through one or more intermediaries, directly or indirectly
controls, is controlled by, or is under common control with the Company.
"Applicable Percentage" means, at any time, the quotient (expressed as a
percentage) calculated by dividing (a) the sum of --
(i) the aggregate number of shares of Common Stock issuable upon
exercise of all Options that at that time are outstanding under this
Plan, and
(ii) the aggregate number of shares of Common Stock issuable upon
exercise of all options or other rights that at that time are
outstanding or available for grant under any other plan or arrangement
of the Company or its Affiliates (other than a plan that meets the
requirements of an employee stock purchase plan under Section 423(b)
of the Code) providing for the issuance of options or other rights to
acquire Common Stock to persons who are performing or have performed
Service for the Company or any of its Affiliates --
by (b) the aggregate number of shares of Common Stock outstanding at that time.
"Approved Transaction" means any of the following transactions consummated
with the approval, recommendation or authorization of the Board:
(a) any merger, consolidation, statutory or contractual share
exchange, or other transaction to which the Company or any of its
Affiliates or shareholders is a party if, immediately following the
transaction, the persons who held Common Stock (or securities
convertible into Common Stock) immediately prior to the transaction
hold less than a majority of the combined Common Equity of the Company
(or if, pursuant to the transaction, shares of Common Stock are
changed or converted into
-1-
<PAGE>
or exchanged for, in whole or part, securities of another corporation or
entity, the combined Common Equity of that corporation or entity);
(b) any liquidation or dissolution of the Company; and
(c) any sale, lease, exchange or other transfer not in the
ordinary course of business (in one transaction or a series of related
transactions) of all, or substantially all, of the assets of the
Company.
"Board" means the Board of Directors of the Company.
"Cause" means, in connection with the termination of the Service of a
Holder (a) repeated failures to carry out directions of the Board or the
Holder's supervisors with regard to material matters reasonably consistent with
the Holder's duties; (b) knowing violation of a state or federal law involving
the commission of a crime against the Company or any of its Affiliates or a
felony; (c) any misrepresentation, deception, fraud or dishonesty that is
materially injurious to the Company or any of its Affiliates; and (d) any act or
omission in willful disregard of the interests of the Company or any of its
Affiliates that substantially impairs the goodwill, business or reputation of
the Company or any of its Affiliates, including but not limited to any violation
of any proprietary rights or confidentiality agreement between the Company and
the Holder.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor statute or statutes thereto. Reference to any specific
section of the Code shall include any successor section.
"Committee" is defined in Section 3.1.
"Common Equity" means the capital stock of a corporation (or corresponding
securities of a noncorporate entity) ordinarily, and apart from rights accruing
under special circumstances, having the right to vote in an election for
directors (or for members of the governing body of the noncorporate entity).
"Common Stock" means the Common Stock, no par value, of the Company.
"Company" is defined in Section 1.1.
"Continuing Option" is defined in Section 7.2(b)(v).
"Control Purchase" means any transaction (or series of related
transactions), consummated without the approval, recommendation or authorization
of the Board, in which any person, corporation or other entity (including any
"person" as defined in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act)
purchases any Common Stock (or securities convertible into Common Stock),
pursuant to a tender offer or a request or invitation for tenders (as those
terms are defined in Section 14(d)(1) of the Exchange Act) or otherwise, and
thereafter is the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act) of securities of the Company representing at least twenty-five
percent (25%) of the combined Common Equity of the Company.
"Disability" means the inability to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment
that can be expected to result in death or that has lasted or can be expected to
last for a continuous period of not less than twelve (12) months.
"Eligible Person" is defined in Article 5.
-2-
<PAGE>
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time, or any successor statute or statutes thereto. Reference to any
specific section of the Exchange Act shall include any successor section.
"Fair Market Value" for the Common Stock (or any other security) on any day
means, if the Common Stock (or other security) is publicly traded, the last
sales price (or, if no last sales price is reported, the average of the high bid
and low asked prices) for a share of Common Stock (or unit of the other
security) on that day (or, if that day is not a trading day, on the next
preceding trading day), as reported by the principal exchange on which the
Common Stock (or other security) is listed, or, if the Common Stock (or other
security) is publicly traded but not listed on an exchange, as reported by The
Nasdaq Stock Market, or, if such prices or quotations are not reported by The
Nasdaq Stock Market, as reported by any other available source of prices or
quotations selected by the Committee. If the Common Stock (or other security) is
not publicly traded, or if the Fair Market Value is not determinable by any of
the foregoing means, the Fair Market Value on any day shall be determined in
good faith by the Committee on the basis of such considerations as the Committee
determines to be appropriate.
"Good Reason" means, with respect to a Holder, the occurrence in connection
with an Approved Transaction, without the Holder's express written consent, of
one of the following events or conditions:
(a) A material reduction in the level of the Holder's
responsibilities in comparison to the level thereof at the time of the
Approved Transaction;
(b) The assignment to the Holder of a job title that is not
of comparable prestige and status as the Holder's job title at the
time of the Approved Transaction;
(c) The assignment to the Holder of any duties inconsistent
with the Holder's position at the time of the Approved Transaction,
other than pursuant to the Holder's promotion;
(d) A material reduction in the Holder's salary level;
(e) A material reduction in the overall level of employee
benefits or perquisites available to the Holder at the time of the
Approved Transaction, or the Holder's right to participate therein,
unless such reduction is nondiscriminatory as to the Holder;
(f) Requiring the Holder to be based anywhere more than
fifty (50) miles from the business location to which the Holder
normally reported for work at the time of the Approved Transaction,
other than for required business travel not significantly greater than
the Holder's business travel obligations at the time of the Approved
Transaction; or
(g) Any of the foregoing events and conditions occurring
prior to the Approved Transaction which the Holder reasonably
demonstrates was at the request of a third party or otherwise arose in
connection with or in anticipation of the Approved Transaction.
"Holder" means an Eligible Person who has received an Option or, if rights
under the Option continue following the death of the Eligible Person or are
transferred in a manner permitted by Section 6.7, the person who succeeds to
those rights by will or by the laws of descent and distribution or by such
transfer.
-3-
<PAGE>
"Option" means an option with respect to shares of Common Stock awarded
pursuant to Article 6.
"Option Agreement" is defined in Section 6.4.
"Plan" is defined in Section 1.1.
"Securities Act" means the Securities Act of 1933, as amended from time to
time, or any successor statute or statutes thereto. Reference to any specific
section of the Securities Act shall include any successor section.
"Service" means the performance of services on a periodic basis for the
Company or any of its Affiliates in the capacity of an employee, a nonemployee
member of a board of directors or other governing body, or an independent
consultant or advisor.
"Transaction Date" is defined in Section 7.2(b)(i).
"10% Shareholder" means a person who owns (or is considered as owning
within the meaning of Section 424 of the Code) stock possessing more than 10% of
the total combined voting power of all classes of capital stock of the Company.
ARTICLE 3
ADMINISTRATION
3.1 COMMITTEE. The Plan shall be administered by the Board unless the
Board appoints a separate committee of the Board to administer the Plan pursuant
to Section 3.2 (the Board, or such committee, if it is administering the Plan,
will be referred to as the "Committee"). The Committee shall select one of its
members as its chairman and shall hold its meetings at such times and places as
it shall deem advisable. A majority of its members shall constitute a quorum and
all determinations shall be made by a majority of that quorum. Any determination
reduced to writing and signed by all of the members of the Committee shall be as
effective as if it had been made by a majority vote at a meeting duly called and
held.
3.2 APPOINTMENT OF COMMITTEE. The Board may appoint a committee
consisting of two or more of its members to administer the Plan. Once appointed,
the committee shall continue to serve until otherwise directed by the Board.
From time to time the Board may increase the size of the committee and appoint
additional members, remove members (with or without cause) and appoint new
members in their place, fill vacancies however caused, and/or remove all members
of the committee and thereafter directly administer the Plan.
3.3 POWERS; REGULATIONS. The Committee shall have full power and
authority, subject only to the provisions of the Plan (a) to administer or
supervise the administration of the Plan; (b) to interpret the provisions of the
Plan and the Option Agreements; (c) to correct any defect, supply any
information and reconcile any inconsistency in such manner and to such extent as
it determines to be necessary or advisable to carry out the purpose of the Plan;
and (d) to take such other actions in connection with the Plan as it determines
to be necessary or advisable. The Committee is authorized to adopt, amend and
rescind such rules, regulations and procedures not inconsistent with the
provisions of the Plan as it determines to be necessary or advisable for the
proper administration of the Plan, and each Option shall be subject to all such
rules, regulations and procedures (whether the Option was granted before or
after promulgation thereof). Without limiting the authority of the Committee to
interpret the provisions of the Plan, the Committee
-4-
<PAGE>
shall have the right to determine that a transaction (or series of related
transactions) is not a Control Purchase, even though literally included within
the definition of that term, if the Committee determines that the transaction
(or series of related transactions) does not have the effect of significantly
changing or influencing the control of the Company on a permanent basis.
3.4 EXERCISE OF AUTHORITY. Each action and determination made or taken by
the Committee, including but not limited to any interpretation of the Plan and
the Option Agreements, shall be final, conclusive and binding for all purposes
and upon all persons. No member of the Committee shall be liable for any action
or determination made or taken by the member or the Committee in good faith.
ARTICLE 4
SHARES SUBJECT TO THE PLAN
4.1 NUMBER OF SHARES. Subject to the provisions of this Article 4, the
maximum number of shares of Common Stock for which Options may be granted during
the term of the Plan shall be six hundred thousand (600,000). Shares of Common
Stock will be made available from the authorized but unissued shares of the
Company or from shares reacquired by the Company. If an Option terminates for
any reason without having been exercised in full, the shares of Common Stock for
which the Option has not been exercised shall again be available for purposes of
the Plan.
4.2 ADJUSTMENTS. If the Company subdivides its outstanding shares of
Common Stock into a greater number of shares (by stock dividend, stock split,
reclassification or otherwise) or combines its outstanding shares of Common
Stock into a smaller number of shares (by reverse stock split, reclassification
or otherwise), or if the Committee determines that any stock dividend,
extraordinary cash dividend, reclassification, recapitalization, reorganization,
split-up, spin-off, combination, exchange of shares, rights offering, or other
transaction or event that is not an Approved Transaction or Control Purchase
affects the Common Stock such that an adjustment is required in order to
preserve the benefits or potential benefits intended to be made available under
the Plan, then the Committee shall, in such manner as it determines to be
equitable and appropriate, adjust any or all of (a) the number of shares of
Common Stock (or number and kind of other securities or property) for which, and
the time or times when, outstanding Options may thereafter be exercised; (b) the
purchase price for the shares (or other securities or property) under
outstanding Options; and (c) the number of shares of Common Stock (or number and
kind of other securities or property) for which Options may thereafter be
granted. In connection with any adjustment made pursuant to this Section 4.2,
the Committee may, if deemed equitable and appropriate, provide for a cash
payment to be made to the Holder of an Option, in cancellation of the Option, of
such amount as the Committee determines represents the value the Option would
then have if it were exercisable for all of the shares under the Option.
ARTICLE 5
ELIGIBILITY
The persons eligible to participate in the Plan and to receive Options
("Eligible Persons") shall be persons, other than officers and directors of the
Company, performing Service for the Company or any of its Affiliates.
-5-
<PAGE>
ARTICLE 6
STOCK OPTIONS
6.1 GRANT OF OPTIONS. The Committee shall from time to time determine
(a) the Eligible Persons to whom Options are to be granted; (b) the number of
shares of Common Stock for which the Options are exercisable and the purchase
price of such shares; and (c) all of the other terms and conditions (which need
not be identical) of the Options; PROVIDED, HOWEVER, that (i) the Committee
shall not grant an Option if, following the grant of the Option, the Applicable
Percentage would exceed twenty-two percent (22%), and (ii) all determinations by
the Committee under this Section 6.1 shall be subject to the express limitations
of the Plan. The Company intends that none of the Options shall be an incentive
stock option within the meaning of Section 422 of the Code.
6.2 PURCHASE PRICE. The price at which shares of Common Stock may be
purchased upon exercise of an Option may be more than, less than or equal to the
Fair Market Value of the shares on the date the Option is granted.
6.3 TERM OF OPTIONS. Subject to the provisions of the Plan with respect
to termination of Options upon or following death, Disability or other
termination of Service, the Committee shall determine the term of each Option.
6.4 OPTION AGREEMENT. Each Option shall be evidenced by an agreement (the
"Option Agreement") containing the terms and conditions of the Option as
determined by the Committee. Each grantee of an Option shall be notified
reasonably promptly of the grant, an Option Agreement shall be executed and
delivered by the Company to the grantee within sixty (60) days after the date
the Committee approves the grant, and the Committee may terminate the grant if
the Option Agreement is not signed by the grantee and delivered to the Company
within sixty (60) days after it is delivered to the grantee. An Option Agreement
may contain (but shall not be required to contain) such terms and conditions as
the Committee determines to be necessary or appropriate to ensure that the
penalty provisions of Section 4999 of the Code will not apply to any stock
received by the Holder from the Company. An Option Agreement may be amended from
time to time pursuant to Section 7.5(c).
6.5 EXERCISE OF OPTIONS.
(a) TIME EXERCISABLE. An Option shall become and remain exercisable
to the extent provided in its Option Agreement and in the Plan. If an Option is
scheduled to become exercisable on one or more dates specified in its Option
Agreement, and its Holder has a leave of absence without pay, such date or dates
shall be postponed for a period equal to the duration of the leave unless the
Committee determines otherwise.
(b) MANNER OF EXERCISE. An Option shall be exercised by written
notice to the Company in compliance with the terms and conditions of its Option
Agreement and such procedures for exercise of Options as the Committee may adopt
from time to time. The method or methods of payment of the purchase price of the
shares to be purchased upon exercise of the Option and of any amounts required
by Section 7.7 shall be determined by the Committee and set forth in the Option
Agreement for the Option. Such method or methods may consist of (i) check for
United States funds, (ii) whole shares of Common Stock already owned by the
Holder, (iii) the delivery, together with a properly executed exercise notice,
of irrevocable instructions to a broker to deliver promptly to the Company the
amount of sale or loan proceeds
-6-
<PAGE>
required to pay the purchase price, (iv) any combination of the foregoing
methods of payment, or (v) such other consideration and method of payment as may
be permitted for the issuance of shares under applicable securities and other
laws. The Committee may specify a minimum number of shares of Common Stock for
which an Option must be exercised, but such minimum shall not prevent exercise
of an Option for the full number of shares for which it is exercisable.
(c) VALUE OF SHARES. Shares of Common Stock delivered in payment of
all or any part of the amounts payable upon exercise of an Option, and shares of
Common Stock withheld for such payment, shall be valued at their Fair Market
Value on the exercise date of the Option.
(d) ISSUANCE OF SHARES. The Company shall issue the shares of Common
Stock purchased under an Option as soon as practicable after the Option has been
duly exercised; PROVIDED, HOWEVER, that no fractional shares shall be issuable
under the Plan, and any fractional shares that would otherwise be issuable shall
be disregarded.
6.6 LEGENDS. Each certificate representing shares of Common Stock issued
upon exercise of an Option shall contain any legends that the Committee
determines to be necessary or appropriate. The Company may cause the transfer
agent for the Common Stock to place a stop transfer order with respect to such
shares.
6.7 NONTRANSFERABILITY. Unless the Committee determines otherwise at the
time an Option is granted (or at any later time when the Committee, by written
notice to the Holder, releases in whole or in part the restrictions under this
Section 6.7), an Option shall not be transferable other than by will or the laws
of descent and distribution and may be exercised during the lifetime of the
Holder thereof only by the Holder (or his or her court appointed legal
representative).
6.8 AUTHORITY OF EXECUTIVE OFFICERS TO GRANT OPTIONS. Either the Chief
Executive Officer of the Company, acting alone, or the Chief Operating Officer
and Chief Financial Officer of the Company, acting jointly, shall have the
authority to determine from time to time (a) the Eligible Persons to whom
Options are to be granted; (b) the number of shares of Common Stock for which
the Options are exercisable and the purchase price of such shares; and (c) all
of the other terms and conditions (which need not be identical) of the Options;
PROVIDED, HOWEVER, that (i) the authority delegated to such officer or officers
under this Section 6.8 shall not exceed that of the Committee under the
foregoing provisions of this Article 6 and shall be subject to any limitations,
in addition to those specified in this Section 6.8, as may be specified by the
Board from time to time; (ii) the purchase price of each share of Common Stock
under an Option granted under this Section 6.8 shall not be less than the Fair
Market Value of such share on the date of grant of the Option; and (iii) such
officer or officers shall promptly provide a report to the Committee of each
person to whom an Option has been granted under this Section 6.8 and the
material terms and conditions of the Option.
ARTICLE 7
GENERAL PROVISIONS
The provisions of this Article 7 shall apply to all Options, except to the
extent that one or more Option Agreements expressly provide otherwise.
-7-
<PAGE>
7.1 TERMINATION OF SERVICE.
(a) GENERAL. If a Holder's Service terminates without Cause prior to
the full exercise of an Option, then the Option shall thereafter be exercisable,
to the extent the Holder was entitled to exercise the Option on the date of such
termination, for a period of thirty (30) days following such termination (but
not later than the end of the term of the Option); PROVIDED, HOWEVER, that, if
the Holder's Service terminates by reason of death or Disability, the Option
shall be exercisable for a period of one (1) year following such termination
(but not later than the end of the term of the Option). At the end of such
period, the Option shall terminate.
(b) TERMINATION FOR CAUSE. If a Holder's Service is terminated for
Cause, then all Options held by the Holder shall immediately terminate.
Following termination of a Holder's Service, if the Holder engages in any act
that would have constituted Cause if the Holder had remained in the Service of
the Company or any of its Affiliates, then the Company shall be entitled to
terminate any Options held by the Holder.
(c) MISCELLANEOUS. The Committee may determine whether a leave of
absence of a Holder constitutes a termination of the Holder's Service; PROVIDED,
HOWEVER, that neither (i) a leave of absence, duly authorized in writing by the
Company or any of its Affiliates for military service or sickness, or for any
other purpose approved by the Company or any of its Affiliates, if the period of
the leave does not exceed ninety (90) days, nor (ii) a leave of absence in
excess of ninety (90) days, duly authorized in writing by the Company or any of
its Affiliates, provided the Holder's right to return to Service with the
Company or the Affiliate is guaranteed either by statute or by contract, shall
be deemed a termination of the Holder's Service. An Option shall not be affected
by any change in the Holder's Service so long as the Holder continues to be in
the Service of the Company or any of its Affiliates. If a Holder is in the
Service of an Affiliate of the Company that ceases to be an Affiliate, such
event shall, for purposes of any Option held by the Holder, be deemed to
constitute a termination of the Holder's Service for a reason other than death
or Disability.
7.2 CERTAIN EVENTS.
(a) CONTROL PURCHASE. Effective upon a Control Purchase, if the
Holder of an Option is in the Service of the Company or any of its Affiliates at
that time, the Option shall become exercisable for all of the shares under the
Option.
(b) APPROVED TRANSACTION. The following provisions shall apply if an
Approved Transaction occurs:
(i) The Company shall provide each Holder with notice of the
pendency of the Approved Transaction at least fifteen (15) days prior to the
expected date of consummation thereof (the date on which the Approved
Transaction is consummated will be referred to as the "Transaction Date").
(ii) Effective immediately prior to the Transaction Date, if the
Holder of an Option is in the Service of the Company or any of its Affiliates on
the Transaction Date, the Option shall become exercisable for the number of
shares for which it would have been exercisable if the Holder had remained in
Service until --
(A) the first (1st) anniversary of the Transaction
Date, if the Holder on the Transaction Date has been in Service for
less than two (2) years; or
-8-
<PAGE>
(B) the second (2nd) anniversary of the Transaction
Date, if the Holder on the Transaction Date has been in Service for at
least two (2) years but less than three (3) years;
and the Option shall become exercisable for all of the shares under the Option
if the Holder on the Transaction Date has been in Service for at least three (3)
years.
(iii) Following notice of the Approved Transaction, any
exercise of an Option may be contingent upon consummation of the Approved
Transaction, if so elected by the Holder in the notice of exercise, and shall be
contingent upon such consummation with respect to any portion of the Option that
will only become exercisable immediately prior to the Transaction Date.
(iv) Upon consummation of the Approved Transaction, all Options
shall terminate.
(v) Section 7.2(b)(ii) through Section 7.2(b)(iv) shall not
apply to an Option, if the Committee determines that the Company or another
party to the Approved Transaction has made equitable and appropriate provision
for continuation of the Option, or for replacement of the Option with a new
award on terms which are, as nearly as practicable, the financial equivalent of
the Option, taking into account the consideration that holders of Common Stock
will receive in the Approved Transaction (any Option so continued or replaced
shall be referred to as a "Continuing Option"). An equitable and appropriate
replacement of an Option shall include, but not be limited to, the making of a
cash payment to the Holder, in cancellation of the Option, of such amount as the
Committee determines represents the value the Option would then have if it were
exercisable for all of the shares under the Option.
(c) TERMINATION AFTER CERTAIN APPROVED TRANSACTIONS. If there are
one or more Continuing Options following an Approved Transaction and the Service
of the Holder of a Continuing Option is terminated without Cause within a period
of eighteen (18) months following the Transaction Date, or if the Holder
voluntarily terminates his or her Service for Good Reason during such period,
then (i) all Continuing Options held by the Holder shall become exercisable for
all of the shares thereunder; (ii) all restrictions under the Plan or any Option
Agreement with respect to Common Stock issued pursuant to exercise of any such
Continuing Option (other than restrictions on transfer under applicable
securities laws), including but not limited to contractual restrictions on
transfer, rights of repurchase or first refusal in favor of the Company and
restrictions on certificates for the Common Stock (other than restrictions on
certificates designed to promote compliance with applicable securities laws)
shall automatically terminate; and (iii) each such Continuing Option shall
remain exercisable until a period of eighteen (18) months has elapsed following
the Transaction Date or until the date on which the Continuing Option would have
terminated if the Service of the Holder had not terminated, whichever occurs
first.
7.3 RIGHT TO TERMINATE SERVICE. Nothing contained in the Plan or in any
Option Agreement, and no action of the Company or the Committee with respect
thereto, shall confer on any Holder any right to continue in the Service of the
Company or any of its Affiliates or interfere in any way with the right of the
Company or any of its Affiliates, subject to the terms and conditions of any
agreement between the Holder and the Company or any of its Affiliates, to
terminate at any time, with or without Cause, the Service of the Holder.
-9-
<PAGE>
7.4 NONALIENATION OF BENEFITS. Except as permitted pursuant to
Section 6.7, no right or benefit under the Plan or any Option shall be
(a) subject to anticipation, alienation, sale, assignment, hypothecation,
pledge, exchange, transfer, encumbrance or charge (and any attempt to
anticipate, alienate, sell, assign, hypothecate, pledge, exchange, transfer,
encumber or charge the same shall be void); or (b) liable for or subject to the
debts, contracts, liabilities or torts of the person entitled to the right or
benefit.
7.5 TERMINATION AND AMENDMENT.
(a) TERMINATION. The Plan shall terminate on January 22, 2008;
PROVIDED, HOWEVER, that the Board or the Committee may terminate the Plan at any
earlier time. No Options may be granted following termination of the Plan, but
the provisions of the Plan shall continue in effect until all Options terminate
or are exercised in full and all rights of all persons with any interest in the
Plan expire.
(b) AMENDMENT OF PLAN. The Board or the Committee may from time to
time amend the Plan, whether before of after termination of the Plan, in such
respects as it shall deem advisable; PROVIDED, HOWEVER, that any such amendment
shall comply with all applicable laws and stock exchange listing requirements.
No amendment of the Plan may adversely affect the rights of the Holder of an
Option in any material way unless the Holder consents thereto.
(c) AMENDMENT OF OPTIONS. The Committee may amend the Option
Agreement for an Option in such respects as it shall deem advisable, including
but not limited to any amendment that would accelerate the time or times at
which the Option may be exercised or extend the scheduled termination date of
the Option; PROVIDED, HOWEVER, that (i) no amendment may adversely affect the
rights of the Holder of the Option in any material way unless the Holder
consents thereto, and (ii) the Option Agreement, as amended, shall satisfy all
of the requirements of the Plan at the time of the amendment. Nothing in this
Section 7.5 shall prevent the Committee from adopting, amending or rescinding
rules, regulations and procedures pursuant to Section 3.3.
7.6 GOVERNMENT AND OTHER REGULATIONS. The obligation of the Company with
respect to Options and the issuance of Common Stock upon the exercise thereof
shall be subject to all applicable laws, rules and regulations and such
approvals by any governmental agencies as may be required, including but not
limited to the effectiveness of any registration statement required under the
Securities Act, and the rules and regulations of any securities exchange or
over-the-counter market on which the Common Stock may be listed or quoted. The
Company shall have no obligation to register shares of Common Stock issuable
upon exercise of Options under the Securities Act or to register, qualify or
list such shares under the laws of any state or other jurisdiction or the rules
of any securities exchange or over-the-counter market.
7.7 WITHHOLDING. By accepting an Option, the Holder shall be deemed to
have agreed to pay, or make arrangements satisfactory to the Committee for
payment to the Company of, all taxes required to be withheld by the Company in
connection with the exercise of the Option or any sale, transfer or other
disposition of any shares of Common Stock acquired upon exercise of the Option.
If the Holder shall fail to pay, or make arrangements satisfactory to the
Committee for the payment of, all such taxes, then the Company or any of its
Affiliates shall, to the extent not prohibited by law, have the right to deduct
from any payment of any kind otherwise due to the Holder an amount equal to any
taxes of any kind required to be withheld by the Company or any of its
Affiliates with respect to the Option.
-10-
<PAGE>
7.8 PLAN NOT EXCLUSIVE. Neither the adoption of the Plan by the Board nor
any submission of the Plan to the shareholders of the Company for approval shall
be construed as creating any limitations on the power of the Board to adopt such
other incentive arrangements as it may deem desirable, including but not limited
to the granting of stock options and the awarding of stock and cash outside of
the Plan, and such arrangements may be either generally applicable or applicable
only in specific cases.
7.9 EXCLUSION FROM PENSION AND PROFIT-SHARING COMPUTATION. By accepting
an Option, the Holder shall be deemed to have agreed that the Option is special
incentive compensation that will not be taken into account, in any manner, as
salary, compensation or bonus in determining the amount of any payment or other
benefit under any pension, retirement or other employee benefit plan, program or
policy of the Company or any of its Affiliates.
7.10 NO SHAREHOLDER RIGHTS. No Holder or other person shall have any
voting or other shareholder rights with respect to shares of Common Stock under
an Option until the Option has been duly exercised, full payment of the purchase
price has been made, all conditions under the Option and the Plan to issuance of
the shares have been satisfied, and a certificate for the shares has been
issued. No adjustment shall be made for cash or other dividends or distributions
to shareholders for which the record date is prior to the date of such issuance.
7.11 GOVERNING LAW. The Plan and all Options shall be governed by, and
interpreted in accordance with, the laws of the State of Washington.
7.12 COMPANY'S RIGHTS. The grant of Options shall not affect in any way
the right or power of the Company to make reclassifications, reorganizations or
other changes of or to its capital or business structure or to merge,
consolidate, liquidate, sell or otherwise dispose of all or any part of its
business or assets.
-11-
<PAGE>
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement") is entered into, effective
as of [DATE OF GRANT], by ACTIVE VOICE CORPORATION, a Washington corporation
(the "Company"), and [NAME OF HOLDER] (the "Holder").
R E C I T A L S
A. The Company has adopted the Active Voice Corporation 1998 Stock Option
Plan (the "Plan"). Capitalized terms that are used but not defined in this
Agreement will have the meanings given those terms in the Plan.
B. The Holder has been designated to receive an option under the Plan.
NOW, THEREFORE, the Company and the Holder agree as follows:
1. GRANT OF THE OPTION. The Company grants to the Holder an option (the
"Option") to acquire from the Company [NUMBER OF SHARES ( )] shares of
Common Stock at the price of [PURCHASE PRICE] per share (the "Purchase Price").
The Option is subject to all of the provisions of the Plan and this Agreement.
2. TERM OF THE OPTION. Unless earlier terminated pursuant to the Plan,
the Option will terminate on the earliest to occur of the following: (a) the
date of termination of the Holder's Service for any reason other than death or
Disability; (b) the expiration of six (6) months following the date of
termination of the Holder's Service by reason of death or Disability; and (c)
[OPTION TERMINATION DATE].
3. EXERCISABILITY. The Option will become exercisable in accordance with
the following schedule:
<TABLE>
<CAPTION>
CUMULATIVE NUMBER
OF SHARES FOR WHICH
DATE OPTION IS EXERCISABLE
<S> <C>
__/__/__ [20%]
__/__/__ [40%]
__/__/__ [60%]
__/__/__ [80%]
__/__/__ [100%]
</TABLE>
If the Holder's Service terminates by reason of death or Disability, then the
Option shall become exercisable for all of the shares under the Option.
4. OTHER LIMITATIONS ON THE OPTION. The Option is subject to all of the
provisions of the Plan, including but not limited to Section 4.2 (which permits
adjustments to the Option upon the occurrence of certain corporate events such
as stock dividends, stock splits, reclassifications, recapitalizations,
reorganizations, split-ups, spin-offs, combinations, exchanges of shares, and
rights offerings) and Section 7.2 (which will apply if an Approved Transaction
or Control Purchase occurs).
<PAGE>
5. EXERCISE OF THE OPTION. In order to exercise the Option, the Holder
must do the following:
(a) deliver to the Company a written notice, in substantially
the form of the attached Exhibit A, specifying the number of shares of
Common Stock for which the Option is being exercised;
(b) surrender this Agreement to the Company;
(c) tender payment in cash or by check of the aggregate Purchase
Price for the shares for which the Option is being exercised;
(d) pay, or make arrangements satisfactory to the Committee for
payment to the Company of, all taxes required to be withheld by the
Company in connection with the exercise of the Option; and
(e) execute and deliver to the Company any other documents
required from time to time by the Committee in order to promote
compliance with applicable laws, rules and regulations.
Unless the Option has terminated or been exercised in full, the Company shall
affix to this Agreement an appropriate notation indicating the number of shares
for which the Option was exercised and return this Agreement to the Holder.
6. ACCEPTANCE OF OPTION; FURTHER ASSURANCES. By executing this Agreement,
the Holder accepts the Option, acknowledges receipt of a copy of the Plan, and
agrees to comply with and be bound by all of the provisions of the Plan and this
Agreement. The Holder agrees to from time to time execute such additional
documents as the Company may reasonably require in order to effectuate the
purposes of the Plan and this Agreement.
7. ENTIRE AGREEMENT; AMENDMENTS; BINDING EFFECT. This Agreement,
together with the Plan, constitutes the entire agreement and understanding
between the Company and the Holder regarding the subject matter hereof. Except
as permitted by the Plan, no amendment of the Option or this Agreement, or
waiver of any provision of this Agreement or the Plan, shall be valid unless in
writing and duly executed by the Company and the Holder. The failure of any
party to enforce any of that party's rights against the other party for breach
of any of the terms of this Agreement or the Plan shall not be construed as a
waiver of such rights as to any continued or subsequent breach. This Agreement
shall be binding upon the Holder and his or her heirs, successors and assigns.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
"Company" ACTIVE VOICE CORPORATION
By
----------------------------------
Robert L. Richmond, Chairman of
the board and Chief Executive
Officer
"Holder" ----------------------------------
[NAME OF HOLDER]
-2-
<PAGE>
FORM OF EXERCISE OF OPTION
To: ACTIVE VOICE CORPORATION
Suite 500
2901 Third Avenue
Seattle, Washington 98121
The undersigned holds Option Number NQO98-___ (the "Option"), represented
by a Stock Option Agreement dated effective as of [DATE OF GRANT] (the
"Agreement"), granted to the undersigned pursuant to the Active Voice
Corporation 1998 Stock Option Plan (the "Plan"). The undersigned hereby
exercises the Option and elects to purchase _______________ shares (the
"Shares") of Common Stock of Active Voice Corporation (the "Company") pursuant
to the Option. This notice is accompanied by full payment of the Purchase Price
for the Shares in cash or by check or in another manner permitted by
Section 5(c) of the Agreement. The undersigned has also paid, or make
arrangements satisfactory to the Committee for payment of, all taxes, if any,
required to be withheld by the Company in connection with the exercise of the
Option.
Date:
--------------, -----.
---------------------------------------
Name of Holder
EXHIBIT A
<PAGE>
EXHIBIT 11
ACTIVE VOICE CORPORATION
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31, December 31,
------------------------- -------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
BASIC
Average shares outstanding 4,633,753 4,583,352 4,621,668 4,573,841
--------- ---------- ---------- ----------
--------- ---------- ---------- ----------
Net income $618 $1,160 $1,484 $2,843
--------- ---------- ---------- ----------
--------- ---------- ---------- ----------
Per share amount $0.13 $0.25 $0.32 $0.62
--------- ---------- ---------- ----------
--------- ---------- ---------- ----------
DILUTED
Average shares outstanding 4,633,753 4,583,352 4,621,668 4,573,841
Net effect of dilutive stock options 66,121 59,300 51,648 56,399
--------- ---------- ---------- ----------
Total 4,699,874 4,642,652 4,673,316 4,630,240
--------- ---------- ---------- ----------
--------- ---------- ---------- ----------
Net income $618 $1,160 $1,484 $2,843
--------- ---------- ---------- ----------
--------- ---------- ---------- ----------
Per share amount $0.13 $0.25 $0.32 $0.61
--------- ---------- ---------- ----------
--------- ---------- ---------- ----------
</TABLE>
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 850
<SECURITIES> 3,681
<RECEIVABLES> 12,514
<ALLOWANCES> (1,891)
<INVENTORY> 8,015
<CURRENT-ASSETS> 28,726
<PP&E> 7,548
<DEPRECIATION> (4,086)
<TOTAL-ASSETS> 40,796
<CURRENT-LIABILITIES> 5,151
<BONDS> 0
0
0
<COMMON> 17,187
<OTHER-SE> 18,592
<TOTAL-LIABILITY-AND-EQUITY> 40,796
<SALES> 40,365
<TOTAL-REVENUES> 40,365
<CGS> 16,739
<TOTAL-COSTS> 16,739
<OTHER-EXPENSES> 22,025
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,070
<INCOME-TAX> (610)
<INCOME-CONTINUING> 1,484
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,484
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.32
</TABLE>
