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 March 31, 1999 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 Identification No.)
incorporation or organization)
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 March 31, 1999, there were 16,901,936 shares of Common Stock, no
par value, stated value $0.01, outstanding.
<PAGE>
DIALOGIC CORPORATION
INDEX
Page Number
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1999
(unaudited) and December 31, 1998 3
Consolidated Statements of Income for the Three Months 4
Ended March 31, 1999 and 1998 (unaudited)
Consolidated Statements of Cash Flows for the Three Months 5
Ended March 31, 1999 and 1998 (unaudited)
Notes to Condensed Consolidated Financial
Statements (unaudited) 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-13
Item 3. Quantitative and Qualitative Disclosure About Market Risk 14
Part II. Other Information
Item 1. Legal Proceedings 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
<PAGE>
PART I. Financial Information
Item 1. Financial Statements
<TABLE>
<CAPTION>
DIALOGIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
March 31, December 31,
1999 1998
-------------- -----------------
(Unaudited)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 75,556 $ 39,774
Marketable securities 44,374 44,594
Accounts receivable (net of allowance for doubtful
accounts of $2,049 and $1,871, respectively) 52,454 55,094
Inventory:
Raw materials 3,753 3,939
Work in process 6,382 5,073
Finished goods 13,163 12,835
------ ------
23,298 21,847
Deferred income taxes 7,704 9,130
Other current assets 6,470 7,295
------- -------
Total current assets 209,856 177,734
Property and equipment, net 26,698 27,404
Other assets 13,626 11,845
------- -------
TOTAL ASSETS $ 250,180 $ 216,983
======= =======
LIABILITIES
Current liabilities:
Accounts payable $ 7,876 $ 13,746
Accrued salaries and benefits 10,603 8,683
Accrued royalties 1,849 1,289
Accrued expenses 9,067 9,211
Income taxes payable 5,516 5,088
Current maturities of long term liabilities 164 158
------ ------
Total current liabilities 35,075 38,175
Long term liabilities 7,394 2,475
Deferred income taxes 344 732
SHAREHOLDERS' EQUITY
Preferred stock, no par value, stated value $0.01-10,000,000 shares
authorized: None issued - -
Common stock, no par value, stated value $0.01-60,000,000 shares
authorized: 16,901,936 and 16,287,541 shares outstanding,
respectively 230 217
Additional paid-in capital 72,102 56,575
Treasury stock, at cost 10,000 and 400,000 shares, respectively (307) (11,799)
Retained earnings 135,651 130,631
Unearned compensation - restricted stock (1,744) (702)
Accumulated other comprehensive income 1,435 679
------- -------
Total shareholders' equity 207,367 175,601
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $250,180 $216,983
======= =======
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
DIALOGIC CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
Three Months Ended
March 31,
1999 1998
---- ----
<S> <C> <C>
Revenues $ 72,348 $66,388
Cost of goods sold 25,477 24,657
------ ------
Gross profit 46,871 41,731
Research and development expense 17,613 13,759
Selling, general and administrative expenses 22,235 18,975
Asset impairment - 5,297
------ ------
Operating income 7,023 3,700
Interest income, net 820 647
Gain on sale of subsidiary - 23,384
------ ------
Income before provision for income taxes 7,843 27,731
Provision for income taxes 2,823 12,158
----- ------
Net income $ 5,020 $15,573
======= ======
Net income per share:
Basic $ 0.31 $ 0.97
Diluted $ 0.30 $ 0.93
Weighted average number of common shares outstanding:
Basic 16,252 16,061
Diluted 16,899 16,825
</TABLE>
See Notes to Unaudited Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
DIALOGIC CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended March 31,
1999 1998
Cash flows from operating activities:
<S> <C> <C>
Net Income $ 5,020 $15,573
Adjustments for non-cash items included in net income:
Depreciation and amortization 2,681 2,014
Asset impairment - 5,297
Deferred income taxes 250 (1,738)
Gain on sale of subsidiary - (23,384)
Other 903 677
Changes in operating assets and liabilities 2,765 4,034
------ ------
Net cash provided by operating activities 11,619 2,473
------ ------
Investing Activities:
Capital expenditures (2,199) (2,229)
Purchase of available for sale securities (2,100) (3,446)
Purchase of investments (cost method) (1,500) -
Proceeds from sales of available for sale securities 4,358 4,868
Proceeds from sale of subsidiary, net of cash disposed - 25,869
------ ------
Net cash flows provided by (used in) investing activities (1,441) 25,062
------ ------
Financing Activities:
Exercise of stock options 918 352
Purchase of treasury stock (489) (1,705)
Issuance of common stock 24,495 479
Other (33) (185)
------- -------
Net cash provided by (used in) financing activities 24,891 (1,059)
------- -------
Effect of exchange rate on cash 713 649
Increase in cash and cash equivalents 35,782 27,125
Cash and cash equivalents, beginning of period 39,774 18,764
------- ------
Cash and cash equivalents, end of period $ 75,556 $ 45,889
======= ======
Supplemental disclosures of cash flow information
Cash paid during the period for:
Interest $ 28 $ 24
Income taxes $ 747 $ 192
Supplemental disclosures of non-cash investing and
Financing activities
Tax benefit from exercise of stock options $ 950 $ 576
Issuance of restricted common stock $ 1,158 $ -
</TABLE>
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 March 31, 1999, and the unaudited condensed consolidated
statements of income and unaudited condensed consolidated statements of
cash flows for the interim periods ended March 31, 1999, and 1998 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, 1998.
Certain prior year amounts have been reclassified to conform to the 1999
presentation.
2. Accounting Pronouncements
In June of 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes
accounting and reporting standards for derivative instruments and
requires recognition of all derivatives as assets or liabilities in the
statement of position and measurement of these instruments at fair value.
The statement is effective for fiscal years beginning after June 15,
1999. Management believes that adopting this statement will not have a
material impact on the financial position, results of operations, or cash
flows of the Company.
<PAGE>
3. Available for Sale Securities
<TABLE>
The following is a summary of the available for sale securities as of March 31, 1999 and December 31, 1998
($000's):
March 31, 1999 Cost Gross Gross Estimated
Unrealized Unrealized Fair Value
Gains Losses
----------------------------------------- ---------------- ----------------------------------- --------------
<S> <C> <C> <C> <C>
Municipal bonds $ 39,640 $ 272 $ - $ 39,912
Equity investments 1,954 2,508 4,462
-------------------------------------------------------------------------------------------------------------
Total marketable securities $ 41,594 $ 2,780 $ - $ 44,374
-------------------------------------------------------------------------------------------------------------
December 31, 1998 Cost Gross Gross Estimated
Unrealized Unrealized Fair Value
Gains Losses
-------------------------------------------------------------------------------------------------------------
Municipal bonds $ 41,898 $ 246 $ - $ 42,144
Equity investments 1,954 496 2,450
-------------------------------------------------------------------------------------------------------------
Total marketable securities $ 43,852 $ 742 $ - $ 44,594
------------------------------------------------------------------------------------------------------------
</TABLE>
The Company's equity investment is in shares of Voice Control Systems,
Inc. (VCS) common stock. The fair value of the Company's investments in
VCS have been determined by reference to the market prices for VCS stock
as quoted on publicly traded exchanges on the respective valuation dates.
At March 31, 1999 and December 31, 1998, the Company held 1,399,715
shares of VCS common stock.
Unrealized gains/losses are reported net of tax in the shareholders'
equity section (as a component of accumulated other comprehensive income)
of the Company's balance sheet per SFAS No. 115.
4. Comprehensive Income
The following is a summary of Comprehensive Income as of March 31, 1999
and March 31, 1998. Comprehensive earnings include foreign currency
translation adjustments and the unrealized gains and losses on marketable
securities classified as available for sale.
<TABLE>
<CAPTION>
Three Months Ended March 31,
(In millions of dollars)
1999 1998
---- ----
<S> <C> <C>
Net income $ 5,020 $15,573
Other comprehensive income, net of tax 756 3,837
------ ------
Total net comprehensive income $ 5,776 $19,410
====== ======
</TABLE>
<PAGE>
5. Strategic Partnership
On March 2, 1999, Dialogic and Microsoft Corporation announced that they
have entered into a strategic alliance relating to Dialogic's CT server
initiative and Dialogic's CT Media for Windows NT middleware product.
Under the terms of a license and development agreement, Microsoft will
become a nonexclusive licensee of Dialogic's CT Media for Windows NT
middleware product. Dialogic will enter into development activities to
create specific applications in the telephony space which will be owned
by Microsoft and will provide other support and development services.
Under the license and development agreement, Microsoft payments to
Dialogic over the next four years are expected to be $20 million for the
initial licenses for CT Media for Windows NT, the development services,
and certain support. Microsoft's license to CT Media is subject to
certain contractual limitations, and Dialogic will continue to own and
remains free to license CT Media. In the first quarter, $5.0 million was
received by the Company from Microsoft under this Agreement, all of which
has been recorded as deferred revenue.
In a separate transaction, also occurring March 2, 1999, Microsoft
agreed, for an aggregate purchase price of $24.2 million, to acquire
860,681 newly issued shares of Dialogic common stock and a warrant
entitling Microsoft to purchase 279,869 shares of Dialogic common stock.
The warrant has a term of four years and is exercisable at a price of
$35.19 per share. Both the issued shares and the shares resulting from
the exercise of the warrant are subject to a lockup period beginning on
the transaction date. During the first year of the lockup period,
Microsoft may sell none of the shares, and may only sell 50% of the
shares in the second year of the lockup period. Thereafter, all shares
may be freely sold. On March 2, 1999, Dialogic issued the shares and
warrant to Microsoft.
6. Divestment
On February 17, 1998, the Company completed the sale of the principal
assets of Spectron Microsystems Inc., a wholly owned subsidiary, to Texas
Instruments for $26.0 million, resulting in a pre-tax gain of $23.4
million. The disposition of these assets will not have a significant
effect on the revenues or earnings of the Company in future periods.
7. Asset Impairment
During the first quarter of 1998, the Company undertook a strategic
review of its business and product offerings. At the conclusion of this
review, the Company determined it would discontinue its Dianatel product
line. Activities to sell and upgrade Dianatel products were ceased and
employees working on Dianatel related products were diverted to other
activities. As the result of this decision, management has concluded that
the carrying value of the goodwill that arose on the purchase of Dianatel
Corporation was no longer justifiable, and the Company recorded a
non-cash impairment charge of $3.5 million related to the write-down of
goodwill. The discontinuance of this product line will not have a
significant effect on the revenues or earnings of the Company in future
periods.
<PAGE>
During the first quarter of 1998, the Company upgraded certain internal
information technology systems. Accordingly, the Company took a $1.8
million charge ($1.3 million after-tax) to reduce the carrying value of
the internal information technology assets that will no longer be
utilized and therefore provide no future benefit to the Company.
8. Segment Information
The Company operates and manages its business under one segment,
"Computer Telephony" (See note 9 in the Company's 1998 Annual Report).
There have been no material changes in the basis in which the Company
operates since December 1998.
<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, 1998 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 product demand and market acceptance risks, the effect of worldwide
economic conditions, the impact of competitive products and pricing, the
Company's ability to enter new markets, the adoption of new standards and the
Company's ability to meet those standards, 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, the impact of
acquisitions or mergers on customers, competitors, or suppliers, consolidation
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, 1998. 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.
Results of Operations
Revenue reported in the United States represented $51.3 million for the three
months ended March 31, 1999, as compared to $50.6 million for the comparable
prior year period. Revenue reported in the United States includes export sales
primarily to Canada, Latin America, Korea, China, Southeast Asia, Middle East,
Australia and New Zealand. Modest revenue growth from the United States was
impacted by general market weakness and economic weakness in Brazil. Revenues
generated from Japan and Belgium (including all of Western Europe) increased
33.5% to $21.1 million from $15.7 million for the three months ended March 31,
1999 and 1998. The increase in international revenue was primarily due to a
38.1% growth to $17.8 million in revenue from Belgium.
<PAGE>
Gross margins increased to 64.8% for the three months ended March 31, 1999,
compared to 62.9% for the three months ended March 31, 1998. The increase in
margins reflects the continued effects of Dialogic's cost reductions and
favorable product mix.
Research and development expenses as a percentage of revenues represented 24.3%
for the quarter ended March 31, 1999, as compared to 20.7% for the three months
ended March 31, 1998. The Company continues to invest engineering resources in
the development of the Dialogic DM3 Mediastream Resource Architecture ("DM3") as
well as development of IP telephony and open switch hardware and software
products. The Company believes that investment in research and development is
critical to future growth and anticipates investing at current levels throughout
the remainder of 1999 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 increased to $22.2 million for the
three months ended March 31, 1999, as compared to $19.0 million in the
comparable prior year period. As a percentage of total revenues, selling,
general and administrative expenses increased to 30.7% in the first quarter
compared to 28.6% for the comparable prior year period. The increase in
expenditures is primarily attributable to costs associated with increased
international revenues and marketing initiatives.
Asset impairment charges for the three months ended March 31, 1998, included the
write-down of goodwill associated with the 1996 acquisition of Dianatel
Corporation of $3.5 million and a $1.8 million pre-tax charge primarily
associated with the write-down of certain information technology assets. (See
Note 7 to the Unaudited Condensed Consolidated Financial Statements).
Net interest income for the quarter increased $173,000 over the comparable
period ended March 31, 1998. The increase primarily reflects the growth in the
Company's short-term bank deposits due in part to the proceeds from the sale of
860,681 shares of common stock to Microsoft Corporation.
The Company's effective income tax rate for the quarter ended March 31, 1999, is
36.0% as compared to 43.8% for the period ended March 31, 1998. The higher rate
for the three months ended March 31, 1998, is primarily attributable to the
write-down of the non-tax deductible goodwill of Dianatel Corporation in the
amount of $3.5 million, as well as the higher effective tax rate on the gain on
the Spectron sale, in 1998.
Net income for the quarter ended March 31, 1999, was $5.0 million or $.30 per
share on a diluted basis, compared to $15.6 million or $0.93 per share on a
diluted basis, for the comparable period ended March 31, 1998. Results for the
equivalent prior year period include an after-tax gain of $14.0 million or $0.83
per share from the asset sale of a subsidiary and charges related to asset
impairment of $4.8 million after-tax or $0.29 per diluted share for the
write-down of certain assets.
<PAGE>
Management believes that this additional information regarding 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 diluted shares outstanding represented 16,899,000 and
16,825,000 for the three months ended March 31, 1999, and 1998, respectively.
C. Financial Condition
As of March 31, 1999, the Company had working capital of $175 million and a
current ratio (i.e., the ratio of current assets to current liabilities) of 6.0
to 1, compared with working capital of $140 million and a current ratio of 4.7
to 1 at December 31, 1998. The Company's consolidated cash, cash equivalents and
marketable securities increased by $35.6 million during the three months ended
March 31, 1999. Cash provided from operations was $11.6 million, while $1.4
million was used in investing activities and $24.9 million provided by financing
activities.
The Company's investing activities for the three months ended March 31, 1999,
included expenditures of $2.4 million for the property and equipment and $1.5
million for investments in companies Dialogic believes to be strategic partners.
Net cash provided by financing activities was $24.9 million. The Company
received $24.2 million on March 2, 1999, from the sale of 860,681 shares of
common stock to Microsoft Corporation. Cash expended for the repurchase of
treasury stock of $489,000 was offset by the proceeds from the exercise of stock
options of approximately $918,000. Dialogic believes that the combination of its
current liquidity, cash generated from operations and the credit available under
its existing bank line of $30 million, 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.
D. Year 2000
The Year 2000 issue is primarily the result of computer programs or databases
using a two-digit format, as opposed to four digits, to represent a calendar
year. Some computer systems will be unable to correctly interpret dates beyond
the year 1999, which could cause a system failure or other computer errors,
leading to a disruption in the operation or accuracy of such systems. The
Company has undertaken a company-wide study and testing program to locate and
cure any Year 2000 issues in the products or systems on which it relies and in
the products it offers for sale or license. The Company believes its internal
systems, including both its financial operating (information technology) systems
and non-information technology systems are Year 2000 compliant. The Company's
financial operating systems have been upgraded to a Year 2000 compliant release
within the context of its normal operating environment. Such upgrade was not
accelerated in anticipation of Year 2000 issues. No material additional costs
were incurred in upgrading the Company's internal systems. This phase of the
Company's Year 2000 study is completed. The Company has been and anticipates
<PAGE>
continuing to work jointly with strategic vendors and business partners to
identify any Year 2000 issues that may impact the Company. The Company
anticipates that evaluation and corrective actions, if any, will be ongoing
throughout 1999. To date, the Company has not identified any such problems
requiring corrective action that will result in a material adverse impact on the
Company. However, there can be no assurance that the companies with which the
Company does business will achieve Year 2000 compliance in a timely fashion, or
that such failure to comply by another company will not have a material adverse
effect on the Company. The Company believes the products it currently offers for
sale or license are all Year 2000 compliant, and that the cost to remediate any
previously sold product that is not Year 2000 compliant will not be material.
The Company has and will incur internal staff costs related to the above
initiative. The Company maintains a web site and has responded to many inquiries
from customers regarding Year 2000 compliance of its products. These costs are
not considered to have a material impact on the Company's operating results and
have not been quantified.
Based on the assessment effort to date, the Company does not believe that the
Year 2000 issue will have a material adverse effect on its financial condition,
results of operations, or cash flows. This represents a forward-looking
statement under the Private Securities Litigation Reform Act of 1995. Actual
results could differ materially from the Company's belief and expectations,
which are based on certain assumptions and expectations that ultimately may
prove to be inaccurate. Potential sources of risk include (a) the inability of
principal suppliers to be Year 2000 ready, which could result in delays in
product deliveries from such suppliers; (b) disruption of the distribution
channel, including transportation vendors; (c) customer problems which could
affect revenue demand; (d) undiscovered issues related to Year 2000
compatibility which could have a material adverse impact. The Company's Year
2000 assessment is ongoing and the consideration of contingency plans will
continue to be evaluated as new information becomes available. At this stage,
however, the Company has not developed a comprehensive contingency plan to
address situations that may result if any of the third parties upon which the
Company is dependent is unable to achieve Year 2000 compliance. The need for
such a contingency plan will be evaluated throughout 1999.
E. New Accounting Pronouncements
In June of 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments and requires recognition of all
derivatives as assets or liabilities in the statement of financial position and
measurement of these instruments at fair value. The statement is effective for
fiscal years beginning after June 15, 1999. Management believes that adopting
this statement will not have a material impact on the financial position,
results of operations, or cash flows of the Company.
<PAGE>
Item 3.
QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISKS
The Company was not a party to any agreements involving derivative financial
instruments at March 31, 1999. The Company's primary market risk exposures are
in the areas of interest rate risk and foreign currency exchange rate risk. The
Company's investment portfolio of cash equivalents is subject to interest rate
fluctuations, but the Company believes this risk is immaterial due to the
short-term nature of these investments. The Company's investment portfolio of
marketable debt securities is comprised primarily of fixed rate municipal bonds.
The Company has classified all of these securities as available-for-sale, which
reduces income statement exposure to interest rate risk. The Company mitigates
risk in its investment portfolios by placing its investments with high-quality
issuers it believes are credit worthy. The Company's exposure to foreign
currency exchange rate fluctuations has historically been modest. The majority
of the Company's revenue and receivables are denominated in US dollars. Based on
the foreign currency exposure of nonfunctional currency denominated receivables
and payables at March 31, 1999, a 10% adverse change in currency rates would not
materially affect the Company's financial position, results of operations, or
cash flows. As the Company continues to expand its presence internationally,
there can be no assurance that foreign currency exposures will remain
insignificant.
<PAGE>
PART II. Other Information
Item 1. Legal Proceedings
For other 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, 1998. As previously
disclosed, the Company and Brooktrout Technology, Inc. reached
a settlement in their litigation in which all parties
dismissed their claims with prejudice, and Dialogic received a
"pass through" license to certain Brooktrout patents.
Separately, the Company's Spectron subsidiary had sued
Brooktrout for patent infringement. This case was transferred
to the District of Massachusetts. Dialogic believes it has
retained the rights to maintain this lawsuit despite the
February 1998 sale of the Spectron assets. Brooktrout has
moved to dismiss this case, claiming that Dialogic no longer
has standing to enforce the patents. Trial in this case is now
scheduled for the late summer of 1999.
Item 5. Other Matters
(a) A Registration Statement on Form S-3 was filed on April
30, 1999. The registration statement covers the resale of
720,550 shares of the Company's common stock issued to
Microsoft Corporation pursuant to the Company's March 2, 1999
sale of 860,681 newly issued shares of Dialogic common stock
and a warrant entitling Microsoft to purchase 279,869 shares
of Dialogic common stock.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27.1 - Financial Data Schedule
(b) A Current Report on Form 8-K was filed on March 22, 1999,
disclosing (under Item 5) the Company's strategic alliance
with Microsoft relating to Dialogic's CT Media for Windows NT
middleware product.
(c) A Current Report on Form 8-K was filed on April 20 1999,
disclosing (under Items 5 and 7) the Company's press releases
dated April 12, 1999 and April 15, 1999.
<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
By: /s/Jean M. Beadle
_________________________
Jean M. Beadle
Chief Accounting Officer,
Controller
Dated: May 13, 1999
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Page
27.1 Financial Data Schedule E-1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM DIALOGIC CORPORATIONS'S FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000899042
<NAME> DIALOGIC CORPORATION
<MULTIPLIER> 1,000
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0
0
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</TABLE>
