UNITED STATES
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, 1998
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to .
----------- -----------
Commission File Number: 0-22046
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Bogen Communications International, Inc.
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(Exact name of registrant as specified in its charter)
Delaware 38-3114641
- ------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
50 Spring Street, Ramsey, New Jersey 07446
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(201) 934-8500
----------------------------------------------------
(Registrant's telephone number, including area code)
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(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
--- ---
As of August 17, 1998, 6,654,471 shares of the registrant's common stock, par
value $.001 per share, were outstanding.
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1998
and December 31, 1997 3
Consolidated Statements of Operations for the three and six
months ended June 30, 1998 and 1997 5
Consolidated Statement of Changes in Stockholders' Equity
for the six months ended June 30, 1998 6
Consolidated Statements of Cash Flows for the six months
ended June 30, 1998 and 1997 7
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings 17
Item 2. Changes in Securities 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 18
</TABLE>
2
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars, Except Share and Per Share Amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,157 $ 964
Accounts receivable (less allowance for doubtful
accounts of $368 and $376 at June 30, 1998
and December 31, 1997, respectively) 6,053 6,291
Inventories, net 8,181 8,285
Prepaid expenses and other current assets 481 468
------ -------
TOTAL CURRENT ASSETS 16,872 16,008
Property, equipment and leasehold improvements, net 2,244 2,136
Goodwill and intangible assets, net 17,673 13,569
Other assets 259 257
------- --------
TOTAL ASSETS $37,048 $31,970
======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars, Except Share and Per Share Amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
---------- -----------
(Unaudited)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Amounts outstanding under revolving credit agreement $ 1,519 $ 2,891
Accounts payable 1,961 2,376
Accrued expenses 2,677 3,084
Income taxes payable 588 238
Advances and notes payable to related parties -- 6
------- -------
TOTAL CURRENT LIABILITIES 6,745 8,595
Amounts outstanding under revolving credit agreement,
net of current portion 4,700 --
Advances and notes payable to related parties 203 212
Preferred dividends payable 1,078 178
Other liabilities 330 433
Minority interest -- 1,130
------- -------
TOTAL LIABILITIES
13,056 10,548
------- -------
STOCKHOLDERS' EQUITY
Preferred stock - $.001 par value; 1,000,000 shares
authorized; 200,000 shares issued and outstanding
at June 30, 1998 and December 31, 1997,
(Liquidation preference of $100 per share
plus accrued dividends-$21,078) -- --
Common stock -$.001 par value; 50,000,000 shares
authorized; 2,731,994 and 2,118,226 shares issued
and outstanding at June 30, 1998 and December 31,
1997, respectively 3 2
Additional paid-in-capital 28,356 23,468
Accumulated deficit (4,012) (1,690)
Accumulated other comprehensive loss (355) (358)
------- -------
TOTAL STOCKHOLDERS' EQUITY 23,992 21,422
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $37,048 $31,970
======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands of Dollars, Except Share and Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------- -----------------------------
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 13,202 $ 12,537 $ 24,634 $ 24,045
Cost of goods sold 6,691 6,745 12,778 12,933
----------- ----------- ----------- -----------
Gross profit 6,511 5,792 11,856 11,112
Operating expenses:
Research and development 682 689 1,308 1,375
Purchased in-process research
and development 2,905 -- 2,905 --
Selling, general and administrative 3,975 3,698 7,630 7,316
Amortization of goodwill and intangible assets 141 112 253 221
----------- ----------- ----------- -----------
Income (loss) from operations (1,192) 1,293 (240) 2,200
Other (income) expenses:
Interest expense, net 63 107 105 223
Interest expense to related parties -- 4 -- 21
Minority interest of consolidated subsidiaries 97 135 254 274
Other income (59) (8) (100) (34)
----------- ----------- ----------- -----------
Income (loss) before provision for income taxes (1,293) 1,055 (499) 1,716
Provision for income taxes 586 407 923 743
----------- ----------- ----------- -----------
Net income (loss) $ (1,879) $ 648 $ (1,422) $ 973
Preferred dividends 450 -- 900 --
----------- ----------- ----------- -----------
Net income (loss) available to common shareholders $ (2,329) $ 648 $ (2,322) $ 973
=========== =========== =========== ===========
Net income (loss) per common share -
Basic and Diluted (0.94) $ 0.11 $ (1.00) $ 0.17
=========== =========== =========== ===========
Weighted average number of common
shares outstanding - Basic and Diluted 2,477,103 5,758,850 2,314,964 5,758,850
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS'EQUITY
(In Thousands of Dollars, Except Share and Per Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Preferred Stock Common Stock Additional Other
Number of Number of Paid-In Accumulated Comprehensive
Shares Amount Shares Amount Capital Deficit Loss Total
--------------- ------ ------------ ------ ---------- ----------- ------------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 200,000 -- 2,118,226 $2 $ 23,468 $ (1,690) $ (358) $ 21,422
Acquisition costs of Common
Stock held by Geotek -- -- -- -- (33) -- -- (33)
Sale of Common Stock -- -- 155,768 -- 857 -- -- 857
Purchase of Speech Design
minority interest -- -- 458,000 1 4,064 -- -- 4,065
Translation adjustments -- -- -- -- -- -- 3 3
Preferred dividends -- -- -- -- -- (900) -- (900)
Net loss -- -- -- -- -- (1,422) -- (1,422)
------- -- --------- -- -------- -------- ------ --------
Balance at June 30, 1998 200,000 -- 2,731,994 $3 $ 28,356 $ (4,012) $ (355) $ 23,992
======= == ========= == ======== ======== ====== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
6
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars, Except Share and Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
--------------------------
June 30, June 30,
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(1,422) $ 973
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 477 531
Amortization of goodwill and intangible assets 253 221
Provisions for doubtful accounts and
inventory obsolescence 74 (794)
Utilization of pre-acquisition NOL charged to goodwill 249 119
Minority interest 254 274
Purchased in-process research and development 2,905 --
Change in operating assets and liabilities
Accounts receivable 202 265
Inventories 29 353
Prepaid expenses and other current assets (17) 379
Payables and accrued expenses (455) (1,565)
Other (103) (79)
------- -------
Net cash provided by operating activities 2,446 677
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Speech Design minority interest (4,780) --
Purchase of property, equipment and leasehold improvements (594) (637)
------- -------
Net cash used in investing activities (5,374) (637)
------- -------
CASH FLOW FROM FINANCING ACTIVITIES
Acquisition costs of common stock held by Geotek (33) --
Proceeds from sale of common stock 857 --
Amounts paid under revolving credit agreements (1,354) (486)
Borrowings under revolving credit agreements 4,700 --
Advances and notes payable - related parties 27 179
------- -------
Net cash provided by (used in) financing activities 4,197 (307)
------- -------
Effects of Foreign Exchange Rate on Cash (76) (46)
------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,193 (313)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 964 885
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $2,157 $ 572
======= =======
NONCASH INVESTING AND FINANCING ACTIVITIES:
Preferred stock dividends accrued $ 900 --
Stock issued in purchase of Speech Design minority interest 4,065 --
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
7
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars, Except Share and Per Share Amounts)
(Unaudited)
1. Basis of Presentation
The consolidated balance sheet of Bogen Communications International, Inc.
and Subsidiaries (the "Company") as of December 31, 1997 has been derived
from the audited consolidated balance sheet contained in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997 and is presented for
comparative purposes. The consolidated balance sheet as of June 30, 1998, the
consolidated statements of operations and cash flows for the six months ended
June 30, 1998 and 1997 and the consolidated statement of changes in
stockholders' equity for the six months ended June 30, 1998 have been
prepared by the Company without audit. In the opinion of management, all
significant adjustments, including normal recurring adjustments necessary to
present fairly the financial position, results of operations and cash flows
for all periods presented have been made. The results of operations for
interim periods are not necessarily indicative of the operating results for
the full year.
Footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
substantially omitted in accordance with the published rules and regulations
of the Securities and Exchange Commission. These consolidated financial
statements should be read in conjunction with the financial statements and
notes thereto included in the Company's Annual Report on Form 10-K.
2. Principles of Consolidation
The consolidated financial statements of the Company include the accounts of
the Company's 99% owned subsidiary, Bogen Corporation ("Bogen"), and Bogen's
wholly-owned subsidiary, Bogen Communications, Inc. ("BCI"), BCI's
wholly-owned subsidiary, New England Audio Resource Corp. ("NEAR"), as well
as Speech Design GmbH, a 67% owned subsidiary ("Speech Design") through May
19, 1998 when it became a wholly-owned subsidiary of the Company, Speech
Design's 67% owned subsidiary Satelco AG ("Satelco"), and Speech Design's
wholly-owned subsidiaries, Speech Design (Israel), Ltd. and Speech Design
(UK), Ltd. All significant intercompany balances and transactions have been
eliminated in consolidation.
The ownership interest of minority owners in the equity and earnings of the
Company's less than 100 percent-owned consolidated subsidiaries are recorded
as minority interest.
3. Acquisition
On May 20, 1998, the Company acquired the remaining 33% equity interest in
Speech Design not previously owned by the Company. As a result of this
acquisition, Speech Design became a wholly-owned subsidiary of the Company.
The aggregate purchase price of $8,845, including direct acquisition costs
(estimated at $482), consisted of approximately $4,780 in cash and 458,000
shares of common stock of the Company valued at approximately $4,065 ($8.875
per share).
The acquisition has been accounted for by the purchase method of accounting
and accordingly, the purchase price has been allocated to the assets acquired
and liabilities assumed based on estimates of fair values at the date of
acquisition. The allocation of purchase price among the identifiable
intangible assets was based on an independent appraisal of the fair market
value of those assets. Such appraisal allocated $2,905 to purchased
in-process research and development which has been reflected as a charge in
the accompanying consolidated statement of operations for the three and six
months ended June 30, 1998. Other intangible assets acquired include existing
technology, tradenames, workforce and goodwill totaling approximately $4,653.
8
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars, Except Share and Per Share Amounts)
(Unaudited)
The following table presents unaudited pro forma results of operations as if the
acquisition of the minority interest of Speech Design had occurred at the
beginning of the three and six month periods presented. These pro forma results
have been prepared for comparative purposes only and do not purport to be
indicative of what would have occurred had the acquisition been made at the
beginning of the periods presented or the results which may occur in the future.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Revenues 13,202 12,537 24,634 24,045
Net income (loss) (1,765) 748 (1,186) 1,178
Net income (loss) available to
common shareholders (2,215) 748 (2,086) 1,178
Net income (loss) per common share -
Basic and Diluted (0.75) 0.12 (0.75) 0.19
</TABLE>
On July 1, 1997, the Company, through its 99% owned subsidiary Bogen, acquired
substantially all of the net assets of NEAR, a leading manufacturer of high
performance, weather-proof speakers. The total purchase price, including direct
costs incurred as result of the acquisition, amounted to $242 in cash and
assumption of certain liabilities. Excess of the purchase price over the
estimated fair values of the net assets acquired was $236 and has been recorded
as goodwill, which is being amortized over 20 years. The Company is currently
evaluating the recoverability of this goodwill. As part of this evaluation, the
Company is considering among other factors, the strategic position, which NEAR
will take as part of the Company's previously announced acquisition strategy.
The acquisition has been accounted for by the purchase method of accounting, and
accordingly, the purchase price has been allocated to the assets acquired based
on estimates of fair values at the date of acquisition. The operating results of
this acquisition are included in the Company's consolidated statements of
operations from the date of acquisition.
4. Inventories
Inventory, at lower of cost (first in, first out) or market, as of June 30, 1998
and December 31, 1997, is as follows:
1998 1997
------- -------
Raw materials and supplies $ 1,814 $ 1,874
Work in progress 1,198 742
Finished goods 5,169 5,669
------- -------
Total $ 8,181 $ 8,285
======= =======
The inventory balances are net of a reserve for inventory valuation and
obsolescence of $581 and $529 at June 30, 1998 and December 31, 1997,
respectively.
9
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars, Except Share and Per Share Amounts)
(Unaudited)
5. Income (Loss) Per Common Share
Income (loss) per common share ("EPS") has been computed based upon Financial
Accounting Standards No. 128, "Earnings Per Share" ("FAS 128"). Basic EPS is
calculated by dividing net income (loss) available to common shareholders by the
weighted-average number of common shares outstanding for the periods presented.
Diluted EPS gives effect to all dilutive potential common shares that were
outstanding during the period. At June 30, 1998, the Company had outstanding
convertible preferred stock which were converted into 3,921,477 shares of common
stock on July 1, 1998. Included in the conversion were 3,721,000 shares of
common stock issuable upon conversion of 200,000 shares of preferred stock and
200,477 shares of common stock issuable in respect of dividends payable on the
preferred stock as of June 30, 1998. See Note 9. Potential common shares
attributable to the preferred stock, options and warrants have not been included
in the calculation of diluted net income (loss) per common share for the periods
presented since their inclusion would be anti-dilutive.
6. Revolving Credit Agreements
In the first quarter of 1997, Bogen Communications, Inc. ("BCI"), a wholly-owned
subsidiary of Bogen, entered into a revolving credit facility (the "Facility")
with a bank, which was scheduled to mature on February 5, 1999. The Facility
provided, subject to certain terms and conditions, for borrowings up to a
maximum of $7,000 with a $700 sub-limit for letters of credit, unreimbursed time
drafts and/or bankers acceptances, and were limited to specified levels of
eligible accounts receivable and inventory. Borrowings under the Facility were
available for working capital and general corporate purposes and accrued
interest at the bank's prime rate plus .50% (9.00% at December 31, 1997).
Obligations under the Facility were collateralized by all of the accounts
receivable, inventory, property and equipment, and general intangibles of BCI
and was guaranteed by the Company. The Facility contained certain covenants,
which limited the ability of BCI to declare or pay dividends, return capital to
its stockholders or redeem or repurchase any of its outstanding capital stock.
Net assets of BCI restricted under the Facility were $9,710 at December 31,
1997.
On April 21, 1998, the Company entered into a $27 million credit facility (the
"New Facility") with KeyBank N.A., which matures on April 30, 2000. The New
Facility replaces the previous borrowing Facility. The New Facility provides,
subject to certain criteria, a $20 million revolving line for acquisition
financing and a $7 million working capital line with a $1 million sub-limit for
letters of credit, unreimbursed time drafts and/or bankers acceptances. The
working capital line is limited to specified levels of eligible accounts
receivable and inventory. The New Facility bears interest at either the bank's
prime rate or, at the Company's option, Libor plus 125 to 200 basis points,
based on certain financial conditions. At June 30, 1998, $5,500 was outstanding
under the New Facility, of which $4,700 was used to finance the acquisition of
the remaining 33% equity interest in Speech Design not previously owned by the
Company and $800 was outstanding under the working capital line.
10
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars, Except Share and Per Share Amounts)
(Unaudited)
7. Income Tax
Domestic and foreign earnings before taxes on income from operations include
income derived from operations in the respective U.S. and foreign geographic
areas, whereas provisions for taxes on income include all income taxes payable
to U.S., foreign and other governments as applicable, regardless of the sites in
which the taxable income is generated. Income tax expense for the second quarter
and six months ended June 30, 1998 and 1997 differs from the amount computed by
applying the U.S. federal statutory rates due to non-deductible purchased
in-process research and development, higher tax rates in Europe for which no
U.S. tax benefit has been provided and the utilization of U.S. preacquisition
loss carryforwards for which the benefit has been charged to goodwill. In
accordance with SFAS No. 109, the Company has established a valuation allowance
covering substantially all of its net deferred tax assets as of June 30, 1998
and December 31, 1997. The valuation allowance was established due to the
uncertainty of the realization of the deferred tax assets. A significant portion
of the deferred tax assets, which are currently subject to a valuation
allowance, may be allocated to reduce goodwill or other noncurrent intangible
assets when subsequently recognized.
8. Stockholders' Equity
In connection with the Company's initial public offering of its units (the
"Units"), the Company granted to GKN Securities Corp. and its affiliates
(collectively, "GKN") an option to purchase (the "UPO") an aggregate of 150,000
Units at $6.60 per Unit. Each Unit issuable upon exercise of the UPO will
consist of one share of Common Stock and warrants to purchase two shares of
Common Stock at $5.50 per share. The UPO contains certain anti-dilution
provisions and the Company and GKN are currently in discussions regarding the
interpretation of such anti-dilution and other provisions. Management of the
Company believes that the outcome of such discussions will not have a material
adverse effect on the Company or stockholders' equity.
9. Comprehensive Income (Loss)
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130
establishes standards for the reporting and display of comprehensive income and
its components. SFAS 130 requires the unrealized losses on the Company's foreign
currency translation adjustments, which prior to adoption were reported
separately in stockholders' equity, to be included in other comprehensive income
(loss).
The following presents a reconciliation of the net income (loss) to
comprehensive income (loss) for the three and six months ended June 30, 1998 and
1997:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------- --------------------
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
-------- -------- --------- --------
<S> <C> <C> <C> <C>
Net income (loss) $(1,879) $ 648 $ (1,422) $ 973
Other comprehensive income (loss):
Foreign currency translation adjustment 102 (75) 3 (268)
------- ------- -------- ------
Comprehensive income (loss) $(1,777) $ 573 $ (1,419) $ 705
======= ======= ======== ======
</TABLE>
11
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars, Except Share and Per Share Amounts)
(Unaudited)
10. Subsequent Event
On July 1, 1998, the Company issued 3,921,477 shares of its common stock upon
conversion of all of the issued and outstanding shares of the Company's Series A
Preferred Stock by the holders thereof. Included in such issuance were 200,477
shares of common stock, which represented the payment of accrued dividends in
shares of common stock through the date of conversion.
On August 5, 1998, the Company's common stock and warrants to purchase common
stock commenced trading on the NASDAQ National Market System under the symbols
BOGN and BOGNW. Previously, the Company's common stock and warrants to purchase
common stock were traded on the American Stock Exchange, under the symbols BGN
and BGNW.
12
<PAGE>
All statements contained herein that are not historical facts, including,
but not limited to statements regarding the Company's current business strategy,
the Company's projected sources and uses of cash, and the Company's plans for
future development and operations, are based upon current expectations. These
statements are forward-looking in nature and involve a number of risks and
uncertainties. Actual results may differ materially. Among the factors that
could cause actual results to differ materially are the following: competitive
factors, including the fact that the Company's competitors are highly focused
and may have greater resources and/or name recognition than the Company; changes
in technology and the Company's ability to develop or acquire new or improved
products and/or modify and upgrade its existing products; changes in labor,
equipment and capital costs; changes in access to suppliers; currency
fluctuations; changes in regulations affecting the Company's business; future
acquisitions or strategic partnerships; the availability of sufficient capital
to finance the Company's business plans on terms satisfactory to the Company;
general business and economic conditions; political instability in certain
regions; and other factors described from time to time in the Company's reports
filed with the Securities and Exchange Commission. The Company wishes to caution
readers not to place undue reliance on any such forward-looking statements which
statements are made pursuant to the Private Litigation Reform Act of 1995 and,
as such, speak only as of the date made.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(All Amounts In Thousands of Dollars)
The following discussion addresses the financial condition of the Company as of
June 30, 1998 and the results of its operations for the three and six-month
periods ended June 30, 1998, compared to the same period last year. The
discussion should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations for the fiscal year
ended December 31, 1997 included in the Company's 1997 Annual Report on Form
10-K.
Results of Operations
Three Months Ended June 30, 1998, Compared to the Three Months
Ended June 30, 1997
Net Sales.
Net sales increased by $665, or 5.3% to $13,202, for the three months ended June
30, 1998, as compared to $12,537 for the same period in 1997. The increase in
sales primarily resulted from increased sales of $1,074 in the Company's Telco
product line and increased sales of $311 in the Company's Commercial Sound
product line. These increases were offset by a decrease in sales in the
Engineered Systems product line of $720.
Net sales from the Commercial Sound products increased to $3,920 for the three
months ended June 30, 1998, or 8.6% over net sales of $3,609 for the same period
in 1997. Net sales from the Engineered Systems products decreased to $2,075 for
the three months ended June 30, 1998, or 25.8% from net sales of $2,795 for the
same period in 1997. Net sales from the Telco product line increased to $7,207
for the three months ended June 30, 1998, or 17.5% from net sales of $6,133 for
the same period in 1997. The Telco product line includes foreign sales from
Speech Design. Domestic sales increased to $2,109 for the three months ended
June 30, 1998, or 27.5% from net sales of $1,654 for the three months ended June
30, 1997. Foreign sales translated into U.S. dollars increased to $5,098 for the
three months ended June 30, 1998, or 13.8% over net sales of $4,479 for the same
period in 1997. However, foreign sales stated in local currency increased to
9,149 Deutsche Marks ("DM") for the three months ended June 30, 1998, or 19.2%
over net sales of 7,675 DM for the three months ended June 30, 1997.
Gross Profi
Gross profit, as a percentage of total net sales, increased by 3.1% to 49.3% for
the three months ended June 30, 1998, compared to 46.2% for the same period in
1997. The increase in gross profit is attributable to cost reduction measures
primarily through the renegotiation of certain purchase agreements which were
implemented during late 1997 and early 1998.
13
<PAGE>
Selling, General and Administrative Expenses
Selling, General and Administrative Expenses ("SG&A") increased by $277, or 7.5%
for the three months ended June 30, 1998, as compared to the three months ended
June 30, 1997. SG&A was $3,975, or 30.1% of net sales for the three months
ended June 30, 1998, as compared to $3,698, or 29.5% of net sales for same
period in 1997. The increase is primarily attributable to expenses incurred as
part of the Company's plans to implement a new marketing focus and to grow
through acquisitions and joint ventures.
Research and Development
The Company's Research and Development ("R&D") programs are designed to
efficiently introduce innovative products in a timely manner. R&D expense was
$682, or 5.2% of net sales for the three months ended June 30, 1998, as compared
to $689, or 5.5% of net sales for the three months ended June 30, 1997. The
decrease is primarily attributable to refocusing R&D on specific projects during
the latter part of 1997 as well as changes in personnel which have been cost
efficient to the Company without sacrificing the integrity of the Company's R&D
department.
Purchased in-process research and development
Purchased in-process research and development represents a one-time non cash
charge of $2,905 of in-process research and development in connection with the
acquisition of the remaining 33% equity interest of Speech Design not previously
owned by the Company.
Interest Expense
Interest expense was $63, or 0.5% of net sales for the three months ended June
30, 1998, as compared to $111, or 0.9% of net sales for the three months ended
June 30, 1997. The decrease of $48, or 43.2%, primarily relates to reductions in
amounts outstanding under revolving lines of credit, as well as the final
repayment of a $500 note to Geotek on July 3, 1997, which accrued interest at a
rate of 11% per annum.
Income Taxes
Income tax expense increased for the three months ended June 30, 1998 to $586,
as compared to $407 for the comparable period in 1997. The increase of $179 is
due to increased profit before the non-deductible charge for purchased
in-process research and development, which was partially offset by a 4% decrease
in the effective foreign tax rate relating to Speech Design.
Six Months Ended June 30, 1998, Compared to the Six Months Ended June 30, 1997
Net Sales.
Net sales increased by $589, or 2.4% to $24,634, for the six months ended June
30, 1998, as compared to $24,045 for the same period in 1997. The increase in
sales primarily resulted from increased sales of $700 in the Company's
Commercial Sound product lines and $355 in the Company's Telco product lines.
This increase was offset by a decrease in sales in the Engineered Systems
product lines of $466.
Net sales from the Commercial Sound product line increased to $6,364 for the six
months ended June 30, 1998, or 12.4% over net sales of $5,664 for the same
period in 1997. Net sales from the Engineered Systems products decreased to
$3,498 for the six months ended June 30, 1998, or 11.8% from net sales of $3,964
for the same period in 1997. Net sales from the Telco product line increased to
$14,772 for the six months ended June 30, 1998, or 2.5% from net sales of
$14,417 for the same period in 1997. The Telco product line includes foreign
sales from Speech Design. Domestic sales decreased to $4,918 for the six months
ended June 30, 1998, or 9.8% from net sales of $5,453 for the six months ended
June 30, 1997. Foreign sales translated into U.S. dollars increased to $9,854
for the six months ended June 30, 1998, or 9.9% over net sales of $8,964 for the
same period in 1997. However, foreign net sales stated in local currency
increased to 17,830 Deutsche Marks ("DM") for the six months ended June 30,
1998, or 17.8% over net sales of 15,134 DM for the same period in 1997.
14
<PAGE>
Gross Profit
Gross profit as a percentage of total net sales increased by 1.9% to 48.1% for
the six months ended June 30, 1998, compared to 46.2% for the same period in
1997. The increase in gross profit is attributable to cost reduction measures
primarily through the renegotiation of certain purchase agreements which were
implemented during late 1997 and early 1998.
Selling, General and Administrative Expenses
Selling, General and Administrative Expenses ("SG&A") increased by $314, or 4.3%
for the six months ended June 30, 1998, as compared to the six months ended June
30, 1997. SG&A was $7,630, or 31.0% of net sales for the six months ended June
30, 1998, as compared to $7,316, or 30.4% of net sales for same period in 1997.
The increase is primarily attributable to expenses incurred as part of the
Company's plans to implement a new marketing focus and to grow through
acquisitions and joint ventures.
Research and Development
The Company's Research and Development ("R&D") programs are designed to
efficiently introduce innovative products in a timely manner. R&D expense was
$1,308, or 5.3% of net sales for the six months ended June 30, 1998, as compared
to $1,375, or 5.7% of net sales for the six months ended June 30, 1997. The
decrease is primarily attributable to refocusing R&D on specific projects during
the latter part of 1997 as well as changes in personnel which have been cost
efficient to the Company without sacrificing the integrity of the Company's R&D
department.
Purchased in-process research and development
Purchased in-process research and development represents a one-time non cash
charge of $2,905 of in-process research and development in connection with the
acquisition of the remaining 33% equity interest of Speech Design not previously
owned by the Company.
Interest Expense
Interest expense was $105, or 0.4% of net sales for the six months ended June
30, 1998, as compared to $244, or 1.0% of net sales for the six months ended
June 30, 1997. The decrease of $139, or 57.0%, primarily relates to reductions
in amounts outstanding under revolving lines of credit, as well as the final
repayment of a $500 note to Geotek on July 3, 1997, which accrued interest at a
rate of 11% per annum.
Income Taxes
Income tax expense increased for the six months ended June 30, 1998 to $923, as
compared to $743 for the comparable period in 1997. The increase of $180 is due
to increased profits before the non-deductible charge for purchased in-process
research and development, which were partially offset by a 4% decrease in the
effective foreign tax rate relating to Speech Design.
Liquidity and Capital Resources
During the six months ended June 30, 1998, cash utilization focused on current
working capital requirements, the paydown of related party debt and subordinated
notes, and the purchase of equipment and leasehold improvements.
The Company's operating activities provided $2,446 of cash. The Company's net
loss of $1,422 includes net non-cash charges of $4,212, which principally
consisted of (i) depreciation and amortization of $730, (ii) increased inventory
and doubtful account reserves of $74, (iii) minority interest of consolidated
subsidiaries of $254, (iv) utilization of acquired tax benefits credited to
goodwill of $249, and (v) purchased in-process research and development of
$2,905. Further, net changes in operational assets and liabilities used $344 in
cash. Additionally, accounts receivable increased by $202, inventory increased
by $29, prepaid expenses and other assets decreased by $17, accounts payable and
accrued expenses decreased by $455 and net changes in other operating assets and
liabilities used $103 in cash.
15
<PAGE>
Net cash used in investing activities amounted to $5,374. The purchase of
equipment and other fixed assets used $594 and the remaining balance of $4,780
was used in the purchase of the remaining 33% equity interest in Speech Design
not previously owned by the Company.
Net cash provided from financing activities amounted to $4,197. The Company paid
down $1,354 of revolving credit agreement debt and related party debt. The
Company received $824 from the sales of certain equities (net of $33 of
acquisition expenses).
As of June 30, 1998, the Company's total liabilities were $13,056, of which
$6,745 is due and payable within one year. Under the New Facility, the Company
borrowed $4,700 to acquire the remaining 33% equity interest in Speech Design,
and received $27 from advances and notes payable from related parties.
In the first quarter of 1997, BCI obtained, from a bank, a $7,000 revolving
credit line for a period of two years. This line was collateralized by the
accounts receivable, inventory, property and equipment and general intangibles
of BCI and was guaranteed by the Company.
In April 1998, the Company obtained, from a bank, a $27,000 revolving credit
facility, which matures on April 30, 2000. The new facility replaces the
previous borrowing facility. This facility includes a $20,000 revolving credit
line for acquisition financing and a $7,000 revolving credit line for working
capital requirements. The interest rate under the new revolving line is at the
bank's prime rate, or at the Company's option, LIBOR plus 125 to 200 basis
points, based on certain financial criteria. As of June 30, 1998, the Company
had borrowings outstanding under the revolving credit facility of $5,500, of
which $4,700 was used to finance the acquisition of the remaining 33% equity
interest in Speech Design not previously owned by the Company and $800 was
outstanding under the revolving credit line for working capital.
Speech Design, has credit lines and overdraft facilities of approximately 6
million DM, or $3.3 million. At June 30, 1998 borrowings and availability under
these lines amounted to 1.3 million DM, or $718 and 4.7 million DM, or $2,582,
respectively. These lines are collateralized by all of Speech Design's accounts
receivable and inventory.
The Company believes that it has adequate liquidity to finance its normal
business activities and capital expenditures for the near term.
Recently Issued Accounting Pronouncements
In June 1997, the FASB issued Statement 131, Disclosures about Segments of an
Enterprise and Related Information, effective for fiscal years beginning after
December 15, 1997. This statement establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The Company will
comply with the disclosure requirements of the statement in its 1998 Annual
Report on Form 10-K.
In June 1998, the FASB issued Statement 133, Accounting for Derivative
Instruments and Hedging Activities. Statement 133 standardizes the accounting
for derivative instruments, including certain derivative instruments embedded in
other contracts. Under the standard, entities are required to carry all
derivative instruments in the statement of financial position at fair value. The
Company has not determined the impact that Statement 133 will have on its
financial statements and believes that such determination will not be meaningful
until closer to the date of initial adoption.
Year 2000
The Company has engaged consultants to evaluate the effect of modifying computer
software systems to accommodate year 2000 transactions. The Company expects to
expend up to $1,000,000, which may be necessary for systems upgrade projects
that will, among other things, address concerns about the Year 2000. The Company
plans to complete such modification and conversions prior to June 30, 1999.
16
<PAGE>
PART 11 - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Not applicable.
Item 2. CHANGES IN SECURITIES
Not applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On April 22, 1998, the Company held an annual meeting of
shareholders. At the meeting, the following matters were
approved by the shareholders by the following votes:
1. Election of Directors:
For Withheld
--------- --------
Jonathan Guss 4,190,867 10,000
Michael P. Fleischer 4,190,867 10,000
Daniel A. Schwartz 4,187,867 13,000
David Jan Mitchell 4,189,867 11,000
2. Ratification of appointment of KPMG Peat Marwick LLP as
auditors for fiscal year ending December 31, 1998:
For Against Abstain
--------- ------- -------
4,193,367 6,050 1,450
Item 5. OTHER INFORMATION
Not applicable.
17
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
27.1 Financial Data Schedule
(b) Reports on Form 8-K
One report on Form 8-K was filed during the second
quarter 1998. No financial statements were included
with such Form 8-K. The following describes the Form
8-K filed and the date thereof.
(i) A Form 8-K dated May 20, 1998, was filed on June
4, 1998 reporting, among other things, that the
Company had consummated the acquisition of the
remaining 33% equity interest in Speech Design not
previously owned by the Company. The Company amended
the Current Report on Form 8-K, dated May 20, 1998,
by filing a Form 8-K/A containing pro forma financial
statements relating to the Speech Design acquisition.
18
<PAGE>
EXHIBIT INDEX
The following exhibits are filed as part of this report (Exhibit numbers
correspond to the exhibits required by Item 601 of Regulation S-K for an Annual
Report on Form 10-K):
Exhibit
No.
-------
3.1 Certificate of Incorporation(1)
3.2 By-laws(1)
3.3 Certificate of Correction to the Certificate of Incorporation,
dated March 8, 1995 and filed with the Secretary of State of
the State of Delaware on March 10, 1995(2)
3.4 Certificate of Amendment to the Certificate of Incorporation,
dated August 21, 1995 and filed with the Secretary of State of
the State of Delaware on August 21, 1995.(3)
3.5 Certificate of Designation, Preferences and Rights of
Convertible Preferred Stock of Bogen Communications
International, Inc.(7)
3.6 Certificate of Correction to the Certificate of Designation,
Preferences and Rights of Convertible Preferred Stock of
Bogen Communications International, Inc.(7)
4.1 Form of Common Stock Certificate(1)
4.2 Form of Warrant Certificate(1)
4.3 Unit Purchase Option Granted to GKN Securities Corp(1)
4.4 Warrant Agreement between Continental Stock Transfer & Trust
Company and the Company(1)
4.5 Bogen Communications, International, Inc. 1996 Incentive Stock
Option Plan(5)
10.1 Form of Agency Agreement, dated as of June 28, 1993, between
the Company and GKN Securities Corp. (without schedules)(1)
10.2 Form of Indemnification Agreement between the Company and its
officers, directors and advisors.(4)
10.3 Summary of Agreement for Business Credit between Speech Design
GmbH and Statelparkasse Munchen(6)
10.4 Asset Purchase Agreement, dated as of July 1, 1997, between
Bogen Communications International, Inc. Bog-Comm Acquisition
Corporation, New England Audio Resource, Inc., Mr. William
Kieltyka and Mr. Lee Lareau.(9)
10.5 Stock Purchase Agreement, dated November 26, 1997, between the
Company and Geotek(7)
10.6 Convertible Preferred Stock Purchase Agreement, dated November
26, 1997, between the Company and the Investors.(7)
10.7 Employment Agreement, dated November 26, 1997, between the
Company and Mr. Jonathan Guss.(7)
10.8 Employment Agreement, dated November 26, 1997, between the
Company and Mr. Michael Fleischer.(7)
10.9 Option Agreement, dated November 26, 1997, between the Company
and Mr. Jonathan Guss.(7)
10.10 Option Agreement, dated November 26, 1997, between the Company
and Mr. Michael Fleischer.(7)
10.11 Common Stock and Warrant Purchase Agreement, dated November 26,
1997 between the Company and D&S Capital, LLC.(7)
19
<PAGE>
10.12 Warrant, dated November 26, 1997, issued by the Company to D&S
Capital, LLC.(7)
10.13 Mergers and Acquisition Engagement Agreement, dated August,
1997, as amended as of November 28, 1997 between Helix Capital
Services, LLC and Bogen Communications International, Inc.(8)
10.14 Warrant Purchase Agreement, dated as of November 28, 1997,
between Helix Capital II, LLC and Bogen Communications
International, Inc.(8)
10.15 Warrant, dated November 28, 1997, issued by Bogen
Communications International, Inc. to Helix Capital II, LLC.(8)
10.16 Share Transfer Agreement, dated May 20, 1998, by and among
Bogen Communications International, Inc., Kasimir Arciszewski
and Hans Meiler.(10)
10.17 Management Agreement, dated May 20, 1998, between Speech Design
GmbH and Kasimir Arciszewski.(10)
10.18 Management Agreement, dated May 20, 1998, between Speech Design
GmbH and Hans Meiler.(10)
10.19 Credit Agreement, dated as of April 21, 1998, among Bogen
Communications International, Inc., Bogen Communications, Inc.,
various financial institutions and KeyBank National
Association.(10)
10.20 Guaranty of Payment and Performance, dated April 21, 1998, by
Bogen Corporation.(10)
10.21 Guaranty of Payment and Performance, dated April 21, 1998, by
New England Audio Resource Corp.(10)
10.22 Security Agreement, dated April 21, 1998, by Bogen
Communications International, Inc. in favor of KeyBank National
Association.(10)
10.23 Security Agreement, dated April 21, 1998, by Bogen
Communications, Inc. in favor of KeyBank National
Association.(10)
10.24 Security Agreement, dated April 21, 1998, by Bogen Corporation
in favor of KeyBank National Association.(10)
10.25 Security Agreement, dated April 21, 1998, by New England Audio
Resource Corp. in favor of KeyBank National Association.(10)
10.26 Borrower Pledge Agreement, dated April 21, 1998, by and between
Bogen Communications International, Inc. and KeyBank National
Association.(10)
10.27 Borrower Pledge Agreement, dated April 21, 1998, by and between
Bogen Communications International, Inc. and KeyBank National
Association.(10)
10.28 Guarantor Pledge Agreement, dated April 21, 1998, by and
between Bogen Corporation and KeyBank National Association.(10)
10.29 Guarantor Pledge Agreement, dated April 21, 1998, by and
between Bogen Communications, Inc. and KeyBank National
Association.(10)
*27.1 Financial Data Schedule
- -------------
*Filed Herewith
20
<PAGE>
(1) Incorporated by reference to the Exhibits to the Company's
Registration Statement on Form S-1 (File No. 33-65294),
dated October 7, 1993.
(2) Incorporated by reference to the Exhibits to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1994.
(3) Incorporated by reference to the Exhibits to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1995.
(4) Incorporated by reference to the Exhibits to the Company's
Current Report on form 8-K dated August 21, 1995.
(5) Incorporated by reference to the Exhibits to the Company's
Registration Statement on Form S-8 (File No. 333-21245),
dated February 4, 1997.
(6) Incorporated by reference to the Exhibits to the Company's
Annual report on Form 10-K for the year ended December 31,
1996.
(7) Incorporated by reference to the Exhibits to the Company's
Current Report on Form 8-K, dated November 25, 1997,
(8) Incorporated by reference and the Exhibits to the Company's
Current report on Form 8-K, dated December 12, 1997.
(9) Incorporated by reference to the Exhibits to the Company's
Annual report on Form 10-K for the year ended December 31,
1997.
(10) Incorporated by reference to the Exhibits to the Company's
Current Report on Form 8-K, dated May 20, 1998.
21
<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.
BOGEN COMMUNICATIONS INTERNATIONAL, INC.
(Registrant)
Date: August 19, 1998 By: /s/ Michael P. Fleischer
-------------------------------------
Name: Michael P. Fleischer
Title: President
Date: August 19, 1998 By: /s/ Yoav M. Cohen
------------------------------------
Name: Yoav M. Cohen
Title: Chief Financial Officer
22
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