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 September 30, 1997 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 22-2476114
(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)
973-993-3000
(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 September 30, 1997, there were 16,034,606 shares of Common Stock, par
value $0.01, outstanding.
<PAGE>
DIALOGIC CORPORATION
INDEX
Page Number
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of September 30, 1997 (unaudited) 3
and December 31, 1996
Consolidated Statements of Income for the Three and Nine 4
Months Ended September 30, 1997 and 1996 (unaudited)
Consolidated Statements of Cash Flows for the Nine Months 5
Ended September 30, 1997 and 1996 (unaudited)
Notes to Consolidated Financial Statements (unaudited) 6-7
Item 2. Management's Discussion and Analysis of Financial 8
Condition and Results of Operations
Part II. Other Information
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
<PAGE>
PART I. Financial Information
Item 1. Financial Statements
DIALOGIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
September 30, December 31,
1997 1996
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $16,632 $ 11,848
Marketable securities 43,401 37,473
Accounts receivable (net of
allowance for doubtful
accounts of $1,353 in 1997
and $829 in 1996) 39,669 34,706
Inventory:
Raw materials 9,026 10,399
Work in process 9,598 4,607
Finished goods 13,010 12,756
---------- ----------
31,634 27,762
Deferred income taxes 4,301 3,806
Other current assets 8,198 5,161
----------- -----------
Total current assets 143,835 120,756
Property and equipment - net 21,698 20,408
Excess cost of net assets acquired 3,688 4,434
Other assets 2,750 2,661
----------- -----------
TOTAL ASSETS $171,971 $148,259
=========== ========
LIABILITIES
Current liabilities:
Accounts payable $ 9,729 $ 7,043
Accrued expenses 16,432 7,911
Income taxes payable 1,500 420
Current maturities of
long-term liabilities 525 559
-------- --------
Total current liabilities 28,186 15,933
Long-term liabilities 2,622 2,926
Deferred income taxes 1,989 4,558
SHAREHOLDERS' EQUITY:
Preferred stock, par value
$0.01--10,000,000 shares
authorized; none issued
Common stock, par value $0.01--60,000,000
shares authorized; 16,034,606 and
15,774,222 shares outstanding,
respectively 206 203
Additional paid-in capital 50,677 46,740
Retained earnings 86,628 72,271
Net unrealized gains on available for
sale securities 2,051 5,614
Cumulative translation adjustments (388) 14
--------- --------
Total shareholders' equity 139,174 124,842
--------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $171,971 $148,259
========= ========
See Notes to Unaudited Consolidated Financial Statements
<PAGE>
DIALOGIC CORPORATION
Consolidated Statements of Income
(Unaudited)
(In thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
Revenues $68,760 $55,432 $189,045 $154,218
Cost of goods sold 25,882 22,733 71,021 62,392
-------- ------- --------- --------
Gross profit 42,878 32,699 118,024 91,826
Research and development expenses 13,542 10,743 38,391 28,986
Selling, general and
administrative expenses 19,610 15,093 57,612 42,485
Amortization of goodwill 245 187 735 187
--------- -------- ------ ------
Operating income 9,481 6,676 21,286 20,168
Interest expense 26 58 82 127
Interest income 470 764 1,234 1,943
Net realized (losses) gains on
available for sale securities --- --- (4) 9,219
--------- -------- ------ ------
Income before provision for
income taxes 9,925 7,382 22,434 31,203
Provision for income taxes 3,573 2,589 8,076 11,232
--------- -------- ------- ------
Net income $ 6,352 $ 4,793 $ 14,358 $ 19,971
========= ======== ======= =========
Net income per share $ 0.38 $ 0.29 $ 0.87 $ 1.22
========= ======== ======== =========
Weighted average number
of common shares 16,623 16,400 16,499 16,387
========= ======== ======== =========
See Notes to Unaudited Consolidated Financial Statements
<PAGE>
DIALOGIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended September 30,
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $14,358 $19,971
Adjustments to reconcile net income
to net cash provided by (used in)
Operating activities:
Depreciation and amortization 7,004 4,225
Deferred income taxes (1,550) (650)
Changes in operating assets
and liabilities 836 (15,482)
Other 1,285 (8,451)
-------- --------
Net cash provided by (used in)
operating activities 21,933 (387)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (7,548) (7,415)
Purchases of available for sale securities (17,386) (43,441)
Proceeds from available for sale
securities sold 5,951 51,862
Acquisition of business --- ( 820)
-------- --------
Net cash (used in) provided by
investing activities (18,983) 186
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments under capital
lease obligations (34) (72)
Payments of current maturities of long
term liabilities (500) (500)
Repayment of notes payable (63) ---
Proceeds from short-term borrowings --- 12,625
Payments on short-term borrowings --- (12,625)
Exercise of stock options 1,126 805
Issuance of common stock 1,305 989
------- -------
Net cash provided by
financing activities 1,834 1,222
------- ------
NET INCREASE IN CASH AND CASH EQUIVALENTS 4,784 1,021
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 11,848 5,987
------- ------
CASH AND CASH EQUIVALENTS, END OF PERIOD $16,632 $ 7,008
======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest $ 82 $ 127
Income taxes $8,938 $10,315
SUPPLEMENTAL INFORMATION OF NON CASH INVESTING
AND FINANCING ACTIVITIES:
Change in net unrealized gains on
available for sale securities $ (3,563) $ (4,006)
Stock and options issued for
acquisition of business --- $ 3,795
See Notes to Unaudited Consolidated Financial Statements
<PAGE>
DIALOGIC CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Unaudited Condensed Consolidated Financial Statements
In the opinion of management, the unaudited condensed consolidated
balance sheet at September 30, 1997, and the unaudited consolidated
statements of income and unaudited consolidated condensed statements of
cash flows for the interim periods ended September 30, 1997 and 1996
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair statement of results for the interim periods
presented.
In accordance with the rules of the Securities and Exchange Commission,
certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. The year-end
balance sheet data was derived from audited financial statements, but
does not include disclosures required by generally accepted accounting
principles. It is suggested that these condensed statements be read in
conjunction with the Company's most recent Annual Report on Form 10-K for
the fiscal year ended December 31, 1996.
Certain prior year amounts have been reclassified to conform to the 1997
presentation.
2. Accounting Policies
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share," which is effective for the Company beginning December 15, 1997.
This statement establishes standards for computing and presenting
earnings per share (EPS), and replaces the presentation of primary EPS
(previously defined in Accounting Principles Board (APB) No. 15), with a
presentation of basic EPS. The Company does not expect the adoption of
this statement will have a material effect on its consolidated earnings
per share.
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income," which is effective for the Company
beginning January 1, 1998. This statement establishes standards for
reporting and display of comprehensive income and its components
(revenues, expenses, gains and losses) in a full set of general-purpose
financial statements. The Company believes that the information to be
included in deriving comprehensive income, although not currently
presented in a separate financial statement, is disclosed as a part of
these financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related
Information" which is effective for the Company beginning January 1,
1998. This statement establishes standards for the way that public
business enterprises report information about operating segments in
annual financial statements and requires that these enterprises report
selected information about operating segments in interim financial
reports issued to shareholders. This Statement supersedes SFAS No. 14 and
amends SFAS No. 94. The Company is currently evaluating the impact to its
current financial statements of the implementation of SFAS 131.
<PAGE>
3. Available for Sale Securities
The following is a summary of the available for sale securities as of
September 30, 1997 and December 31, 1996 ($000's):
<TABLE>
<CAPTION>
September 30, 1997 Cost Gross Gross Estimated
Unrealized Unrealized Fair Value
Gains Losses
<S> <C> <C> <C> <C>
Municipal bonds $37,826 151 --- $37,977
Equity investments 1,954 3,738 (268) 5,424
- ---------------------------------------------------------------------------------------
Total marketable securities $39,780 3,889 (268) $43,401
- ---------------------------------------------------------------------------------------
December 31, 1997 Cost Gross Gross Estimated
Unrealized Unrealized Fair Value
Gains Losses
Municipal bonds $26,395 48 --- $26,443
Convertible note; options 1,954 9,083 (7) 11,030
- ----------------------------------------------------------------------------------------
Total marketable securities $28,349 9,131 (7) $37,473
- ----------------------------------------------------------------------------------------
</TABLE>
On January 1, 1997 the Company converted its note with Voice Control Systems
Inc. (VCS) into 1,264,474 shares of capital stock of VCS, after which the
Company's total holdings in VCS amounted to 1,399,715 shares of capital stock.
The shares were classified as available for sale under SFAS No. 115, "Accounting
for Certain Investments in Debt and Equity Securities". The fair value of the
Company's investment in VCS has been determined by reference to the market price
for VCS stock as quoted on publicly traded exchanges on the representative
valuation dates. The price per share of VCS stock had declined to $3.88 at
September 30, 1997 as compared to $7.88 at December 31, 1996.
Unrealized gains/losses are reported net of tax in the equity section of the
Company's balance sheet per SFAS No. 115.
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
A. General
The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements, the related Notes to Consolidated Financial
Statements and Management's Discussion and Analysis of Results of Operations and
Financial Condition incorporated by reference in the Company's Annual Report on
Form 10-K for the year ended December 31, 1996 and the Unaudited Consolidated
Financial Statements and related Notes to Consolidated Financial Statements
included in Item 1 of Part 1 of this Quarterly Report on Form 10-Q. This Form
10-Q contains forward-looking statements made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995
("Forward-Looking Statements"), which involve risks and uncertainties. The
Company's actual results may differ significantly from the results discussed in
the forward-looking statements. Factors that might cause such a difference
include, but are not limited to, product demand and market acceptance risks, the
effect of economic conditions, the impact of competitive products and pricing,
product development, effects of competitive forces and pace of deregulation in
the telecommunications industry, the status of intellectual property rights,
commercialization and technological difficulties, capacity and supply
constraints or difficulties, consolidating of capital resources, general
business conditions, the effect of the Company's accounting policies, and other
risks detailed in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996. Such factors may also cause substantial volatility in the
market price of the Company's common stock.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amount of costs and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Significant estimates in the Company's financial statements include
allowances for accounts receivable, product returns and net realizable values of
inventories. Actual results could differ from these estimates.
B. Results of Operations
Consolidated revenues increased 24.0% and 22.6% for the three and nine months
ended September 30, 1997, respectively, compared to the equivalent prior year
periods. Americas' revenue increased 21.4% to $46.9 million and 15.7% to $125.9
million for the three and nine months ended September 30, 1997 as compared to
the prior periods. Dialogic's products for large Telco and network service
applications continue to lead the growth experienced in the Americas. In
addition, Dialogic's DM3 media stream processor and development platform began
shipment of beta product during the quarter ended September 30, 1997.
International revenues continue strong,
<PAGE>
increasing 30.2% and 39.2% for the three and nine month periods ended September
30, 1997. International revenue growth was particularly strong in the Company's
Asia/Pacific and Latin American markets for the nine month period ended
September 30, 1997. Gross margins increased for the three and nine months ended
September 30, 1997, to 62.4%, as compared to 59.0% and 59.5% for the three and
nine months ended September 30, 1997. The increase in margins reflects the
continued effects of Dialogic's cost reductions. The Company anticipates
sustaining the current cost reduction level for the balance of 1997, facilitated
via its move of production to a selected turnkey manufacturing subcontractor.
The move is anticipated to be substantially complete by the end of the fourth
quarter 1997. These statements regarding the timing and cost-savings of the move
represent Forward-Looking Statements. The actual efficiencies and cost savings
could differ materially from the Company's expectations as a result of a variety
of factors, including the time required to complete such transition, the
Company's relationship with the manufacturer, the manufacturing process,
component availability, or the effect of issues internal to the manufacturer.
Research and development expenses as a percentage of sales represented 19.7% and
20.3% for the three and nine month period ended September 30,1997 as compared to
19.4% and 18.8% for the preceding year. The increase in research and development
expenditures during 1997 in significant part reflects the continued substantial
investment of engineering resources related to Dialogic's DM3 Mediastream
Resource Architecture ("DM3") announced in the first quarter of 1997. The
Company believes that investment in research and development is critical to
future growth and anticipates investing at current levels throughout the
remainder of 1997 in an effort to enable the Company to maintain its
technological leadership in the marketplace. This estimate regarding future
research and development as a percentage of revenue represents a Forward-Looking
Statement; actual results could differ materially from the Company's
expectations as a result of a variety of factors, including variations in
revenue, product market and competitive conditions, the availability of required
resources and the Company's technological needs.
Selling, general and administrative expenses represented 28.5% and 30.5% of
sales for the three and nine month periods ended September 30, 1997 as compared
to 27.2% and 27.5% for the comparable periods ended September 30, 1996. The
increase in selling, general and administrative expenses is partially
attributable to the continuing growth of domestic and international sales and
marketing efforts, nonrecurring consulting charges and increasing costs
associated with internal technology. In addition during the nine months ended
September 30, 1997 the Company recognized amortization expense of goodwill
associated with the acquisition of Dianatel Corporation on June 27,1996.
Amortization will continue to be expensed over the useful life not to exceed
sixty months.
Net interest income for the nine month period decreased $664,000 over the
comparable period ended September 30, 1996. The decrease reflects the loss of
interest income due to the conversion of the VCS (Voice Control Systems Inc.)
note into capital stock of VCS in January of 1997. Dialogic will no longer
receive interest income benefits for this transaction as the Company no longer
holds an interest bearing obligation from VCS. Future gains or losses will be
realized on disposition of the VCS equity. During the first quarter of 1996, the
Company realized a pretax gain of $ 9.1 million on the sale of VCS stock.
<PAGE>
Net income for the third quarter of 1997 was $6.4 million or $.38 per share, and
$14.4 million or $.87 per share for the nine month period ended September 30,
1997. For the comparable three and nine month periods ended September 30, 1996,
excluding the after tax effect of realized gains on available for sale
securities in the first quarter of 1996, net income was $4.8 million or $.29 per
share and $14.1 million or $.87 per share, respectively. Earnings for the nine
months ended September 30,1996 including the above mentioned item were $20.0
million or $1.22 per share. Management believes that this additional measurement
of earnings is useful and meaningful to an understanding of the operating
performance of the Company. However, this measurement of earnings should not be
considered by the reader as an alternative to net income as an indicator of the
Company's operations or performance, or to cash flows as an indicator of
liquidity. Weighted average shares outstanding represented 16.5 and 16.4 million
respectively at September 30, 1997 and 1996.
C. Financial Condition
As of September 30, 1997 and December 31, 1996, Dialogic had working capital of
$116 million and $105 million respectively, and a current ratio (i.e., the ratio
of current assets to current liabilities) of 5.1 to 1 and 7.6 to 1,
respectively. For the nine months ended September 30, 1997, Dialogic's cash and
cash equivalents increased by $3.3 million (net of unsettled security
transactions of $1.5 million). Cash flows provided by operating activities
amounted to $21.9 million including $14.4 million from net income and $7.0
million from depreciation and amortization. Cash flow used in investing
activities was $8.9 million (net of investing excess cash of $10 million)
primarily for capital expenditures. Capital expenditures reflect the expansion
of the Company's headquarters and costs associated with Dialogic's move of its
GammaLink and Dianatel operations from Sunnyvale to Santa Clara, California.
Cash provided by financing activities was $1.8 million, consisting primarily of
proceeds from the exercise of stock options and the issuance of common stock,
offset by debt repayments. 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. This statement constitutes a Forward-Looking Statement.
The actual sufficiency of such capital resources could differ materially from
the Company's expectations, depending among other things upon the extent to
which unanticipated capital requirements may arise and the extent to which
unanticipated events may have a materially adverse effect on the Company's
profitability.
<PAGE>
PART II. Other Information
Item 1. Legal Proceedings
For information regarding certain pending legal proceedings, see Item
3 of the Company's Annual Report on Form 10-K for the year ended
December 31, 1996.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
11.1 - Calculation of net income per share September 30, 1997
11.2 - Calculation of net income per share September 30, 1996
27.1 - Financial Data Schedule
(b) No current reports on form 8-K were filed by the registrant
during the quarter ended September 30, 1997.
<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.
DIALOGIC CORPORATION
By: /s/Thomas G. Amato
Thomas G. Amato
Vice President,
Chief Financial Officer
Dated: November 5, 1997
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Page
11.1 Calculation of Net Income Per Share E-1
11.2 Calculation of Net Income Per Share E-2
27.1 Financial Data Schedule E-3
<PAGE>
Exhibit 11.1
DIALOGIC CORPORATION AND SUBSIDIARIES
CALCULATION OF NET INCOME PER SHARE
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1997 September 30, 1997
------------------- -------------------
<S> <C> <C>
Net income applicable to shares used in
calculation of net income per share $6,352 $14,358
====== =======
Shares used in calculation of net income per share:
Weighted average shares outstanding 15,994 15,888
Dilutive effect of stock options after
application of treasury stock method 629 611
------- -------
Number of shares used in calculation
of net income per share 16,623 16,499
====== ======
Net income per share $ .38 $ .87
======== ========
</TABLE>
E-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit 11.2
DIALOGIC CORPORATION AND SUBSIDIARIES
CALCULATION OF NET INCOME PER SHARE
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, 1996 September 30, 1996
<S> <C> <C>
Net income applicable to shares used in
calculation of net income per share $ 4,793 $ 19,971
======= ========
Shares used in calculation of net income per share:
Weighted average shares outstanding 15,714 15,616
Dilutive effect of stock options after
application of treasury stock method 686 771
-------- -----------
Number of shares used in calculation
of net income per share 16,400 16,387
======== ==========
Net income per share $ .29 $ 1.22
======== ==========
</TABLE>
E-2
<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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 16,632
<SECURITIES> 43,401
<RECEIVABLES> 41,022
<ALLOWANCES> 1,353
<INVENTORY> 31,634
<CURRENT-ASSETS> 143,835
<PP&E> 43,779
<DEPRECIATION> (22,081)
<TOTAL-ASSETS> 171,971
<CURRENT-LIABILITIES> 28,186
<BONDS> 0
0
0
<COMMON> 206
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 171,971
<SALES> 189,045
<TOTAL-REVENUES> 189,045
<CGS> 71,021
<TOTAL-COSTS> 71,021
<OTHER-EXPENSES> 96,738
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 22,434
<INCOME-TAX> 8,076
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,358
<EPS-PRIMARY> 0
<EPS-DILUTED> .87
</TABLE>
