SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended June 30, 1996 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: 33-59598
DIALOGIC CORPORATION
(Exact name of registrant as specified in its charter)
New Jersey 22-2476
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1515 Route 10
Parsippany, New Jersey 07054
(Address of principal executive office, including zip code)
201-993-3000
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since
last report)
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.
At June 30, 1996, there were 15,676,884 shares of Common Stock, no par
value, outstanding.
<PAGE>
DIALOGIC CORPORATION
INDEX
Page Number
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1996 1
and December 31, 1995 (Unaudited)
Consolidated Statements of Income for the Three and Six 2
Months Ended June 30, 1996 and 1995 (Unaudited)
Consolidated Statements of Cash Flows for the Six Months 3
Ended June 30, 1996 and 1995 (Unaudited)
Notes to Consolidated Financial Statements (Unaudited) 5
Item 2. Management's Discussion and Analysis of Financial 6
Condition and Results of Operations
Part II. Other Information
Item 1. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
-i-
<PAGE>
Item 1. Financial Statements
<TABLE>
<CAPTION>
DIALOGIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except share amounts)
June 30, December 31,
ASSETS 1996 1995
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 6,817 $ 5,987
Short term investments 24,646 24,689
Convertible note, options and shares recorded at fair market value 9,277 12,777
Accounts receivable (net of allowance for doubtful
accounts of $1,105 in 1996 and $894 in 1995) 27,959 25,727
Inventory 30,903 23,969
Deferred income taxes 3,340 3,067
Other current assets 5,642 3,107
------- -------
Total current assets 108,584 99,323
PROPERTY AND EQUIPMENT - Net 17,488 15,126
GOODWILL 3,718 79
DEPOSITS AND OTHER ASSETS 2,736 2,834
------- -------
TOTAL ASSETS $132,526 $117,362
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 8,492 $ 9,232
Accrued expenses 5,801 7,199
Deferred income taxes 4,096 5,320
Current maturities of long-term liabilities 535 595
------- -------
Total current liabilities 18,924 22,346
LONG-TERM LIABILITIES 2,964 2,259
SHAREHOLDERS' EQUITY:
Preferred stock, no par value--10,000,000 shares authorized; none issued:
Common stock, no par value--60,000,000 shares authorized;
15,676,884 and 15,491,965 shares outstanding, respectively 202 199
Additional paid-in capital 43,778 38,697
Retained earnings 61,900 46,723
Unrealized gains/losses on available for sale securities 4,799 6,765
Cumulative translation adjustment (41) 373
---------- --------
Total shareholders' equity 110,638 92,757
------- ------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $132,526 $117,362
======== ========
</TABLE>
See Notes to Consolidated Financial Statements
-1-
<PAGE>
<TABLE>
<CAPTION>
DIALOGIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
Three months ended Six months ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES $50,054 $40,625 $98,786 $76,437
------- ------- ------- -------
COSTS AND EXPENSES:
Cost of goods sold 19,908 16,210 39,659 30,546
Research and development expenses 9,366 7,053 18,243 13,690
Selling, general and administrative expenses 13,909 11,260 27,392 21,945
Merger costs --- --- --- 1,294
Interest expense 66 8 69 15
Interest income (422) (387) (1,179) (813)
Net realized (gains) on available
for sale securities 25 (79) (9,219) (88)
-------- -------- ------ --------
Total costs and expenses 42,852 34,065 74,965 66,589
-------- -------- ------ --------
INCOME BEFORE PROVISION FOR
INCOME TAXES 7,202 6,560 23,821 9,848
PROVISION FOR INCOME TAXES 2,636 2,546 8,643 3,784
------ ------- ------ ------
NET INCOME $ 4,566 $ 4,014 $ 15,178 $ 6,064
======= ======= ======= ======
Income Per Share $ 0.28 $ 0.25 $ 0.93 $ 0.38
======== ======== ======== =======
Weighted average shares outstanding 16,489 16,003 16,369 15,992
====== ====== ====== ======
</TABLE>
See Notes to Consolidated Financial Statements
-2-
<PAGE>
<TABLE>
DIALOGIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended June 30,
CASH FLOWS FROM OPERATING ACTIVITIES: 1996 1995
---- ----
<S> <C> <C>
Net income $15,178 $6,064
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization 2,549 1,742
Provision for inventory obsolescence 306 208
Provision for bad debts 455 385
Tax benefit from exercise of stock options 1,350 1,056
Minority interest 24 ---
Compensation expense on issuance of options at below
fair market value --- 609
Deferred income taxes (263) 273
Deferred rent 309 279
Non-cash interest income (318) ---
Realized (gains)/losses on available for sales securities (9,220) ---
Changes in operating assets and liabilities,
net of effects of acquisition of business:
(Increase) in accounts receivable (2,218) (3,772)
(Increase) in inventory (6,905) (5,495)
(Increase) in other assets (2,466) (1,155)
(Decrease) increase in accounts payable (944) 84
(Decrease) in accrued expenses (1,666) (181)
Other (187) 794
--------- --------
Net cash (used in) provided by operating activities (4,016) 891
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,856) (3,786)
Purchases of available for sale securities (40,945) (10,071)
Proceeds from available for sale securities 50,862 8,790
Acquisition of business, net of cash acquired (820) 378
------- --------
Net cash provided by (used in) investing activities 4,241 (4,689)
------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under capital lease obligations (60) (84)
Payments of current maturities of long term liabilities (375) (125)
Proceeds from short-term borrowings 11,150 1,757
Payments on short-term borrowings (11,150) (1,757)
Exercise of stock options 451 413
Issuance of common stock 589 ---
Proceeds of note receivable for stock --- 285
--------- -----
Net cash provided by financing activities 605 489
--------- -----
NET INCREASE/DECREASE IN CASH AND CASH EQUIVALENTS 830 (3,309)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 5,987 8,281
------- ------
CASH AND CASH EQUIVALENTS, END OF PERIOD $6,817 $4,972
====== ======
</TABLE>
(continued)
-3-
<PAGE>
<TABLE>
DIALOGIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended June 30,
1996 1995
---- ----
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
<S> <C> <C>
Cash paid during the period for:
Interest $ 66 $ 15
======= =======
Income taxes $ 9,631 $ 1,968
======= =======
SUPPLEMENTAL INFORMATION OF NON CASH INVESTING
AND FINANCING ACTIVITIES:
Unrealized gain(losses) on available for
sale securities $(1,966) $ 30
======= =======
Acquisition of business:
Fair value of assets acquired $ 5,022 $ --
Liabilities assumed 1,234 --
--- --
Net assets acquired 3,788 --
Value of stock issued to effect combination 2,694 --
--- --
Cash paid 1,094 --
Cash acquired (274) (378)
------ -----
$ 820 $ (378)
====== =======
</TABLE>
See Notes to Consolidated Financial Statements
-4-
<PAGE>
DIALOGIC CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The 1996 and 1995 financial statements have been prepared by Dialogic
Corporation (the "Company" or "Dialogic") and are unaudited. In the opinion
of the Company's management, all adjustments (consisting solely of normal
recurring adjustments) necessary to present fairly the financial position,
results of operations and cash flows for the interim periods have been
made. Certain information and footnote disclosures required under generally
accepted accounting principles have been condensed or omitted from the
consolidated financial statements pursuant to the rules and regulations of
the Securities and Exchange Commission. The consolidated financial
statements presented herein should be read in conjunction with the year-end
consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
The results of operations for the three and six months ended June 30, 1996
are not necessarily indicative of the results to be expected for any other
interim period or the entire fiscal year
2. In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-
Based Compensation," which is effective for the Company beginning
January 1, 1996. SFAS No. 123 requires expanded disclosures in annual
financial statements of stock-based compensation arrangements with
employees and encourages (but does not require) compensation cost to
be measured based on the fair value of the equity instrument awarded.
Companies are permitted, however, to continue to apply APB Opinion No. 25,
which recognizes compensation cost based on the intrinsic value of the
equity instrument awarded. The Company will continue to apply APB Opinion
No. 25 to its stock based compensation awards to employees and will
disclose the required pro forma effect on net income and earnings per share
in its annual financial statements.
3. Inventory consisted of the following (in thousands):
June 30,1996 December 31,1995
Raw materials $15,565 $11,900
Work-in process 2,546 2,784
Finished goods 12,792 9,285
------- -------
$30,903 $ 23,969
======= =======
4. On June 27, 1996, the Company acquired all of the outstanding common
stock of Dianatel Corporation in exchange for 55,424 shares of Dialogic
common stock, and $1.1 million in cash. Additionally, options to purchase
shares of Dianatel stock were exchanged for options to purchase 29,874
shares of Dialogic common stock. The merger has been accounted for as a
purchase. The merger resulted in goodwill of approximately $3.6 million
and is being amortized over five years. Pro forma results of operations
have not been presented since the effect of the acquisition on Dialogic's
consolidated financial position and results of operations is not
significant.
-5-
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
A. Results of Operations
The following table sets forth, for the periods indicated, the percentage
relationship to net sales of certain items included in the Company's
consolidated statements of income.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 100.0%
Cost and expenses:
Cost of goods sold 39.8 39.9 40.1 40.0
Research and development expenses 18.7 17.4 18.5 17.9
Selling, general and administrative expenses 27.8 27.7 27.7 28.7
Merger costs --- --- --- 1.7
Interest expense (income) - net (0.7) (0.9) (1.1) (1.1)
Realized (gains)losses on available --- (0.2) (9.3) (0.1)
for sales securities
Income before provision for income taxes 14.4 16.1 24.1 12.9
Provision for income taxes 5.3 6.2 8.7 5.0
Net income 9.1% 9.9% 15.4% 7.9%
===== ===== ==== ====
</TABLE>
The following table sets forth, for the periods indicated, the percentage
increase of certain items included in the Company's consolidated
statements of income.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1996 June 30, 1996
Compared With Compared With
Three Months Ended Six Months Ended
June 30, 1995 June 30, 1995
------------- ----------------
<S> <C> <C>
Revenues 23.2% 29.2%
Costs and expenses:
Cost of goods sold 22.8 29.8
Research and development expenses 32.8 33.3
Selling, general and administrative expenses 23.5 24.8
Merger costs NSM(1) NSM(1)
Interest expense (income) - net NSM(1) NSM(1)
Realized (gains)losses on available
for sales securities NSM(1) NSM(1)
Income before provision for income taxes 9.8 141.9
Provision for income taxes 3.5 128.4
Net income 13.8 150.3
- ----------------
(1) Not statistically meaningful.
-6-
</TABLE>
<PAGE>
The Company's revenues increased by 23% during the second quarter of 1996 and
by 29% during the first six months of 1996, as compared with the same periods
in 1995. These revenue gains were primarily attributable to growth in domestic
sales. Domestic sales increased by 29% and 35% for the three and six month
periods, reflecting sales of several new products, design "wins" during 1995
that resulted in shipments to new customers during 1996 and increased unit
sales of existing products to new and existing customers. During the second
quarter of 1996, the international markets did not perform as expected,
reflecting only 11% growth over the second quarter of 1995. The shortfall in
international sales reflected weaknesses in international markets, principally
in central Europe, where economic issues (recessionary pressures) and regulatory
issues (generally, a slowdown in the deregulation of the telecom industry)
appear to be impeding the deployment of computer telephony projects. In
addition, sales from Dialogic's Spectron Microsystems division were less than
anticipated.
The following table allocates the Company's revenues between domestic and
international markets for the periods presented:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
(Dollars in millions)
Domestic:
<S> <C> <C> <C> <C>
Amount $ 36.0 $27.9 $70.2 $52.0
Percentage of total revenues 71.8% 68.7% 71.0% 68.1%
International:
Amount $ 14.1 $12.7 $28.6 $24.4
Percentage of total revenues 28.2% 31.3% 29.0% 31.9%
</TABLE>
The Company maintained consistent margins, comparing both the three and six
months ended June 30, 1996 and 1995. Minor changes in the margins principally
reflect the product mix for the particular periods involved.
During the third quarter of 1996, the Company has entered into certain
arrangements and may enter into other arrangements relating to patent license
matters. These arrangements provide for certain non-recurring payments to be
made by Dialogic. Depending primarily upon whether an agreement currently being
negotiated is ultimately signed in the third quarter, such payments are expected
to range between $1.1 million and $2.0 million during the third quarter. Such
payments will be reflected in cost of goods sold during the third quarter.
Research and development expenses grew by 33% for both the three and six month
periods. These increases primarily reflect continued expansion of the Company's
engineering staff, allowing the Company to release fourteen new products into
the newer emerging markets and applications. The Company believes that
investment in research and development is critical to future growth and
anticipates investing at current or greater levels throughout 1996 in an effort
to enable the Company to maintain its technological leadership in the market.
Selling, general and administrative expenses grew by 25% from the first six
months of 1995 to the first six months of 1996 and by 24% for the second quarter
periods. As a percentage of sales, such expenses have remained at consistent
levels for the periods presented, reflecting the Company's marketing and sales
efforts.
-7-
<PAGE>
Six month results were affected by certain steps taken by Dialogic during the
first quarter of 1996 with respect to its investments in Voice Control Systems,
Inc. ("VCS"). An election to convert accrued interest on a convertible
promissory note into capital stock of VCS and the sale by Dialogic of VCS' stock
in VCS' public offering resulted in increased interest income and a $9.2 million
realized gain on available for sale securities during the first quarter of 1996.
Net income for the quarter was $ 4.6 million or $.28 per share, and $15.2
million or $0.93 per share for the six month period ended June 30, 1996. On an
operating basis (i.e., in 1996, excluding the effect of realized gains on
available for sale securities and in 1995, excluding $1.3 million of
merger-related expense attributable to the February 1995 acquisition of Spectron
Microsystems), net income was $9.4 million during the first six months of 1996,
up 36% from $6.9 million during the first six months of 1995. Earnings per share
on an operating basis were $.58, up 35% from $.43 on an operating basis for the
first six months of 1995. Weighted average shares increased from 16.0 million at
June 30, 1995 to 16.5 million at June 30, 1996.
B. Financial Condition
As of June 30, 1996, Dialogic had working capital of $89.7 million and a current
ratio (i.e., the ratio of current assets to current liabilities) of 5.7 to 1, as
compared with working capital of $77.0 million and a current ratio of 4.4 to 1
at December 31, 1995.
For the six months ended June 30, 1996, Dialogic's cash and cash equivalents
increased by $0.8 million. Cash flows used in operating activities amounted to
$4.0 million, consisting primarily of net income (including realized gains)
offset by increases in inventory ($6.9 million) and accounts receivable ($2.2
million). Cash flow provided by investing activities was $4.2 million, resulting
from the proceeds from sales of securities offset by purchases of securities and
by capital expenditures ($4.9 million). Cash provided by financing activities
was $0.6 million, consisting primarily of proceeds from the exercise of stock
options and the issuance of common stock offset by debt repayments. The increase
in inventory reflects product levels for existing products as well as many newly
released or "to be" released products - which the Company feels are necessary in
order to satisfy customer requirements. The average period during which accounts
receivable are outstanding has increased slightly during the second quarter to
47 days compared to 43 days as of June 30, 1995; inventory turns also decreased
slightly with the transition to several new products. Capital expenditures
reflect the expansion of the Company associated with the Company's growth.
Dialogic believes that its current liquidity, coupled with cash generated from
operations and credit available under its credit lines, will be sufficient to
meet its liquidity and capital requirements for at least the next twelve months.
-8-
<PAGE>
PART II. Other Information
Item 1. Legal Proceedings
A complaint has been filed in New Jersey Superior Court against the Company
and certaon of its directors alleging that the defendants breached principles of
common law fraud in connection with certain public statements made prior to the
Company's July 8, 1996 press release announcing preliminary results for the
quarter ended June 30, 1996. The complaint seeks monetary damages on behalf of a
class of purchasers of the Company's Common Stock. The defendants have not been
served in this matter. The Company believes that it has meritorious defenses to
the substantive assertions made in the complaint. If the Company is served with
the complaint, the Company intends to vigorously defend this matter.
Reference is also made to Item 3 of the Company's Annual Report on Form
10-K for the year ended December 31, 1995.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's 1996 annual meeting of shareholders was held on April 25, 1996.
At that meeting, the shareholders re-elected Francis G. Rodgers and Nicholas
Zwick to the Board and approved certain amendments to the Company's 1988
Incentive Compensation Plan, including a 400,000 share increase in the number
of shares covered by that plan.
The following table sets forth the voting at such annual meeting:
I. Election of Directors:
Name For Authority Withheld
Francis G. Rodgers 12,058,407 20,050
Nicholas Zwick 12,058,407 20,050
II. Approval of Proposed Amendments to the 1988 Incentive Compensation Plan
For . . . . . . ..10,709,452 Abstentions . .. . . . .40,163
Against . . . . . .1,242,751 Broker Non-votes . . . .86,091
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
11.1 - Calculation of income per share
11.2 - Calculation of income per share
27.1 - Financial Data Schedule
(b) Current Reports on Form 8-K filed during the quarter ended
June 30, 1996: None
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.
DIALOGIC CORPORATION
By: /s/Edward B. Jordan
Edward B. Jordan
Vice President,
Chief Financial Officer and
Chief Accounting Officer
Dated: August 14, 1996
-9-
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Page
11.1 Calculation of Income Per Share E-1
11.2 Calculation of Income Per Share E-2
27.1 Financial Data Schedule E-3
<PAGE>
Exhibit 11.1
DIALOGIC CORPORATION AND SUBSIDIARIES
CALCULATION OF INCOME PER SHARE
(In thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30, 1996 June 30, 1996
Income applicable to shares used in
calculation of income per share $ 4,566 $ 15,178
====== =======
Shares used in calculation of income per share:
Weighted average shares outstanding 15,601 15,557
Dilutive effect of stock options after
application of treasury stock method 888 812
Number of shares used in calculation
of income per share 16,489 16,369
====== ======
Income per share $ 0.28 $ 0.93
-------- --------
E-1
Exhibit 11.2
DIALOGIC CORPORATION AND SUBSIDIARIES
CALCULATION OF INCOME PER SHARE
(In thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30, 1995 June 30,1995
Income applicable to shares used in
calculation of income per share $ 4,014 $ 6,064
===== ========
Shares used in calculation of income per share:
Weighted average shares outstanding 15,337 15,275
Dilutive effect of stock options after
application of treasury stock method 666 717
Number of shares used in calculation _____ _____
of income per share 16,003 15,992
====== ======
Income per share $ 0.25 $ 0.38
------- -------
E-2
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> This financial data schedule contains summary financial
information extracted from Dialogic Corporation's financial
statements and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Jun-30-1996
<CASH> 6,817
<SECURITIES> 33,923
<RECEIVABLES> 27,959
<ALLOWANCES> 1,105
<INVENTORY> 30,903
<CURRENT-ASSETS> 108,584
<PP&E> 17,488
<DEPRECIATION> 2,549
<TOTAL-ASSETS> 132,526
<CURRENT-LIABILITIES> 18,924
<BONDS> 0
0
0
<COMMON> 202
<OTHER-SE> 110,436
<TOTAL-LIABILITY-AND-EQUITY> 132,526
<SALES> 98,786
<TOTAL-REVENUES> 98,786
<CGS> 39,659
<TOTAL-COSTS> 39,659
<OTHER-EXPENSES> 45,635
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 66
<INCOME-PRETAX> 23,821
<INCOME-TAX> 8,643
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,178
<EPS-PRIMARY> 0.93
<EPS-DILUTED> 0
</TABLE>
