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 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: 0-22046
Bogen Communications International, Inc.
(Exact name of registrant as specified in its charter)
Delaware 38-3114641
- ------------------------------ -----------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
50 Spring Street, Ramsey, New Jersey 07446
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(201) 934-8500
-----------------------------------------------------------
(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 [_]
As of May 12, 1999, 6,706,971 shares of the registrant's common stock, par value
$.001 per share, were outstanding.
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES
INDEX
PAGE
----
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1999
and December 31, 1998 3
Consolidated Statements of Operations for the three months
ended March 31, 1999 and 1998 4
Consolidated Statement of Changes in Stockholders' Equity
for the three months ended March 31, 1999 5
Consolidated Statements of Cash Flows for the three months
ended March 31, 1999 and 1998 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3. Market Risk Discussion 14
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8K 15
2
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars, Except Share and Per Share Amounts)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 240 $ 1,048
Accounts receivable (less allowance for doubtful accounts of $344 and $424
at March 31, 1999 and December 31, 1998, respectively) 6,135 5,889
Inventories, net 8,363 8,229
Prepaid expenses and other current assets 684 759
Deferred income taxes 366 470
-------- --------
TOTAL CURRENT ASSETS 15,788 16,395
Property, equipment and leasehold improvements, net 2,383 2,414
Goodwill and intangible assets, net 18,457 18,740
Other assets 218 198
-------- --------
TOTAL ASSETS $ 36,846 $ 37,747
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Amounts outstanding under revolving credit agreement $ 2,505 $ 2,225
Accounts payable 2,269 2,060
Accrued expenses 2,583 3,634
Income taxes payable 603 1,168
-------- --------
TOTAL CURRENT LIABILITIES 7,960 9,087
Advances and notes payable to related parties 208 227
Deferred income taxes 1,081 1,100
Other liabilities 460 278
-------- --------
TOTAL LIABILITIES 9,709 10,692
-------- --------
STOCKHOLDERS' EQUITY
Preferred stock - $.001 par value; 1,000,000 shares authorized; none issued
and outstanding at March 31, 1999 and December 31, 1998
Common stock- $.001 par value; 50,000,000 shares authorized; 6,670,471
and 6,654,471 shares issued and outstanding at March 31, 1999 and
and December 31, 1998, respectively 7 7
Additional paid-in-capital 29,507 29,433
Accumulated deficit (1,777) (2,248)
Accumulated other comprehensive loss (600) (137)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 27,137 27,055
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 36,846 $ 37,747
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
3
<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
March 31, March 31,
1999 1998
--------- ---------
<S> <C> <C>
Net sales $ 12,522 $ 11,432
Cost of goods sold 6,109 6,087
----------- -----------
Gross profit 6,413 5,345
Operating expenses:
Research and development 920 626
Selling, general and administrative 4,450 3,655
Amortization of goodwill and intangible assets 187 112
----------- -----------
Income from operations 856 952
Other (income) expenses:
Interest expense, net 63 42
Minority interest of consolidated subsidiaries -- 157
Other expense (income) 11 (41)
----------- -----------
Income before provision for income taxes 782 794
Provision for income taxes 311 337
----------- -----------
Net income $ 471 $ 457
Preferred dividends -- 450
----------- -----------
Net income available to common shareholders $ 471 $ 7
=========== ===========
Basic net income per common share $ 0.07 $ 0.00
=========== ===========
Diluted net income per common share $ 0.06 $ 0.00
=========== ===========
Weighted average number of common
shares outstanding-Basic 6,663,671 2,151,023
=========== ===========
Weighted average number of common
shares outstanding-Diluted 7,761,498 3,618,860
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
4
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands of Dollars, Except Share and Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Accumulated
----------------------- Additional Other
Number of Paid-In Accumulated Comprehensive
Shares Amount Capital Deficit Loss Total
--------- ------ ---------- ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 6,654,471 $ 7 $ 29,433 $ (2,248) $ (137) $ 27,055
Sale of common stock 16,000 -- 74 -- -- 74
Comprehensive income:
Net income -- -- -- 471 -- --
Translation adjustments -- -- -- -- (463) --
Comprehensive income -- -- -- -- -- 8
--------- --------- --------- --------- --------- ---------
Balance at March 31, 1999 6,670,471 $ 7 $ 29,507 $ (1,777) $ (600) $ 27,137
========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
5
<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>
Three Months Ended
March 31, March 31,
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 471 $ 457
Adjustments to reconcile net income to net
cash (used in) provided by operating activities:
Depreciation and amortization 251 339
Amortization of goodwill and intangible assets 187 119
Provisions for doubtful accounts and
inventory obsolescence (51) 13
Utilization of pre-acquisition NOL charged to goodwill 27 76
Deferred income taxes 104 --
Minority interest -- 157
Change in operating assets and liabilities
Accounts receivable (356) 963
Inventories (454) (102)
Prepaid expenses and other current assets 61 (44)
Payables and accrued expenses (1,139) (356)
Other 171 (69)
------- -------
Net cash (used in) provided by operating activities (728) 1,553
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, equipment and leasehold improvements (340) (335)
------- -------
Net cash used in investing activities (340) (335)
------- -------
CASH FLOW FROM FINANCING ACTIVITIES
Advances under revolving credit agreements 1,928 --
Payments under revolving credit agreements (1,486) (1,712)
Proceeds from sale of common stock and warrants 74 675
Payments of advances and notes payable - related parties -- (12)
Acquisition costs of common stock held by Geotek -- (30)
------- -------
Net cash provided by (used in) financing activities 516 (1,079)
------- -------
Effects of foreign exchange rate on cash (256) (99)
------- -------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (808) 40
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,048 964
------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 240 $ 1,004
======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 56 $ 66
Cash paid for income taxes 590 180
NON CASH FINANCING ACTIVITIES
Preferred stock dividends accrued -- 450
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
6
<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 its subsidiaries (the "Company") as of December 31, 1998 has
been derived from the audited consolidated balance sheet contained in
the Company's Annual Report on Form 10-K and is presented for
comparative purposes. The consolidated balance sheet as of March 31,
1999, the consolidated statements of operations and cash flows for the
three months ended March 31, 1999 and 1998 and the consolidated
statement of changes in stockholders' equity for the three months ended
March 31, 1999 are unaudited. 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 ("SEC"). 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 for the year ended December 31, 1998.
2. Principals of Consolidation
The consolidated financial statements of the Company include the
accounts of the Company's 99% owned subsidiary, Bogen Corporation
("Bogen"); Bogen's wholly-owned subsidiary, Bogen Communications, Inc.
("BCI"); BCI's wholly-owned subsidiary, New England Audio Resource
Corp. ("NEAR"); the Company's wholly-owned subsidiary, Speech Design
GmbH ("Speech Design"), which was a 67% owned subsidiary through May
19, 1998; Speech Design's 67% owned subsidiary Satelco AG ("Satelco")
and Speech Design's wholly-owned subsidiaries: Speech Design (Israel),
Ltd., Speech Design (UK), Ltd. and Digitronic Computersysteme GmbH
("Digitronic"). All significant inter-company 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 is recorded as minority
interest.
3. Comprehensive Income
Comprehensive income has been calculated in accordance with Financial
Accounting Standards Board (FASB) No. 130, "Reporting Comprehensive
Income". The Company has determined total comprehensive income to be $8
and $358 for the three months ended March 31, 1999 and 1998,
respectively. The Company's total comprehensive income represents net
income plus the change in the cumulative translation adjustment equity
account for the periods presented.
4. Segments
The Company operates in two reportable business segments, Bogen
(domestic) and Speech Design (foreign). The domestic segment is
primarily engaged in commercial and engineered sound equipment and
telecommunication peripherals. The foreign segment focuses on digital
voice processing systems for the mid-sized PBX market, targeting the
rapidly growing European voice processing market.
7
<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 information about the Company by segment
area. Inter-segment revenues and transfers are not considered material:
Bogen Speech Design
----- -------------
March 31, 1999:
Revenue from external customers $7,479 $5,067
Operating profit 570 400
Bogen Speech Design
----- -------------
March 31, 1998:
Revenue from external customers $6,676 $4,756
Operating profit 736 414
A reconciliation of reportable segment operating profit to the
Company's consolidated totals for the quarter ended March 31, 1999 and
1998 are as follows:
Three months ended
March 31, March 31,
1999 1998
---- ----
Operating profit
Total operating profit for
reportable segments $970 $1,150
Other corporate expenses (114) (198)
---- ------
Operating profit $856 $ 952
==== ======
5. Inventories
Inventories are stated at the lower of cost or market and are valued
using the first-in, first-out method. As of March 31, 1999 and December
31, 1998, inventories are as follows:
March 31, December 31,
1999 1998
---- ----
Raw materials and supplies $ 3,014 $ 2,490
Work in progress 1,027 880
Finished goods 4,322 4,859
------- -------
Total $ 8,363 $ 8,229
======= =======
6. Income Per Share
Income per common share ("EPS") has been computed based upon FASB No.
128, "Earnings Per Share". Basic EPS is calculated by dividing net
income available to common shareholders by the weighted-average number
of common shares outstanding for the periods presented. Diluted EPS is
calculated by dividing net income available to common shareholders by
the weighted-average number of common shares outstanding and all
potential common shares, consisting of outstanding warrants and stock
options, for the periods presented.
8
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO 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 first quarter of fiscal 1999 and
1998 differs from the amount computed by applying the U.S. federal
statutory rates due to higher tax rates in Europe for which no U.S. tax
benefit has been provided and the utilization of U.S. pre-acquisition
loss carryforwards for which the benefit reduces goodwill. In
accordance with SFAS No. 109, "Accounting for Income Taxes", the
Company has established a valuation allowance covering certain of its
net deferred tax assets as of March 31, 1999 and December 31, 1998. The
valuation allowance was established due to the uncertainty of the
realization of the deferred tax assets. A portion of the deferred tax
assets, which are currently subject to a valuation allowance, may be
allocated to reduce goodwill or other non-current intangible assets
when subsequently recognized.
9
<PAGE>
All statements contained herein that are not historical facts, including, but
not limited to, statements regarding Bogen Communications International, Inc.
and its subsidiaries', collectively the "Company", current business strategy,
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 the Company's actual results to differ materially are the following:
competitive factors, including the fact that the Company's competitors 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 the Company's existing products, including,
but not limited to, the introduction and development of the Company's Thor
product; changes in labor, equipment and capital costs; changes in access to
suppliers and sub-contractors, including the current instability in Asia which
may adversely affect the Company's suppliers and subcontractors; 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; employee turnover; issues relating to the Company's internal systems,
including Year 2000 issues 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 the readers not to place undue reliance on any such
forward-looking statements, which 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
March 31, 1999 and the results of its operations for the three month period
ended March 31, 1999, 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, 1998, included in the Company's 1998 Annual Report on Form 10-K for the year
ended December 31, 1998.
Results of Operations
Three Months Ended March 31, 1999 Compared to the Three Months Ended March
31, 1998
Net Sales.
Net sales increased by $1,090, or 9.5% to $12,522, for the three months ended
March 31, 1999, as compared to $11,432 for the same period in 1998. The increase
in sales primarily resulted from increased sales of $374, $392 and $324, in the
Company's Engineered Systems, Telco and Commercial Sound product lines,
respectively.
Net sales from the Commercial Sound products increased to $2,767 for the three
months ended March 31, 1999, or 13.3%, over net sales of $2,443 for the same
period in 1998. Net sales from the Engineered Systems products increased to
$1,797 for the three months ended March 31, 1999, or 26.3%, over net sales of
$1,423 for the same period in 1998. Net sales from the Telco product increased
to $7,958 for the three months ended March 31, 1999, or 5.2%, from net sales of
$7,566 for the same period in 1998. The Telco product line includes foreign
sales from Speech Design. Domestic sales increased to $2,891 for the three
months ended March 31, 1999, or 2.9% from net sales of $2,810 for the three
months ended March 31, 1998. Foreign sales translated into U.S. dollars
increased to $5,067 for the three months ended March 31, 1999, or 6.5%, over net
sales of $4,756 for the same period in 1998. However, foreign net sales stated
in local currency increased to 9,131 Deutsche Marks ("DM") for the three months
ended March 31, 1999, or 5.2%, over net sales of 8,683 DM for the three months
ended March 31, 1998.
10
<PAGE>
Gross Profit
Gross profit, as a percentage of total net sales, increased to 51.2% for the
three months ended March 31, 1999, compared to 46.8% for the same period in
1998.
Bogen's gross profit increased from $2,855, or 42.8% of sales in the first
quarter of 1998 to $3,356, or 44.9% of sales in the first quarter of 1999. The
increase is attributable primarily to cost reduction of direct materials
resulting from successful negotiation of certain purchase agreements in late
1997, which were implemented in the first quarter of 1998.
Speech Design's gross profit increased from $2,490, or 52.4% of sales in the
first quarter of 1998 to $2,996, or 59.2% of sales in the first quarter of 1999.
The increase is partially attributable to better margins on Speech Design's
Teleserver Pro.
Selling, General and Administrative Expenses
Selling, General and Administrative Expenses ("SG&A") increased by $795, or
21.8%, for the three months ended March 31, 1999, as compared to the three
months ended March 31, 1998. SG&A was $4,450, or 35.6% of net sales for the
three months ended March 31, 1999, as compared to $3,655, or 32.0% of net sales
for same period in 1998. The increase is primarily attributable to marketing
expenses incurred as part of the Company's implementation of new marketing
programs for existing and newly developed product lines for its U.S. operations
and the marketing of Speech Design's new Teleserver Pro and Thor(TM) platforms
in Europe. Additionally, sales expenses increased as the U.S. operations is
implementing Bogen's sales strategy of increasing market share through increased
coverage.
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
$920, or 7.4% of net sales for the three months ended March 31, 1999, as
compared to $626, or 5.5% of net sales for the three months ended March 31,
1998. The increase is primarily attributable to the development of additional
new products in the U.S. and the development of additional features for the
Teleserver Pro and the Thor platforms in Europe.
Interest Expense
Interest expense was $63, or 0.5% of net sales for the three months ended March
31, 1999, as compared to $42, or 0.4% of net sales for the three months ended
March 31, 1998. The increase of $21, or 50.0%, primarily relates to the
acquisition of Digitronic and other working capital requirements.
Income Taxes
Income tax expense decreased by $26 for the three months ended March 31, 1999 to
$311, as compared to $337 for the comparable period in 1998. The decrease is
primarily as a result of lower foreign profits and the utilization of a portion
of the U.S. operations' valuation allowance.
Minority Interest & Goodwill Amortization
On May 20, 1998, the Company consummated the acquisition of the remaining 33%
equity interest in Speech Design, held by Mr. Kasimir Arciszewski and Mr. Hans
Meiler, the founders and managing directors of Speech Design. The aggregate
consideration paid by the Company for the 33% equity interest approximated $8
million before acquisition costs, consisting of 7,570 DM (approximately $4,300)
in cash and 458,000 restricted shares of the Common Stock. This transaction
added an additional $4,653 to goodwill and other intangible assets subsequent
11
<PAGE>
to the May 20, 1998 acquisition. This transaction eliminated the minority
interest, which was $157 in the first quarter of 1998.
On December 31, 1998, Speech Design acquired 100% of Digitronic, located in
Northern Germany. Digitronic is a developer and manufacturer of LAN and Internet
based unified messaging products. The aggregate purchase price, including direct
costs of $145 amounted to approximately $1,200 in cash and assumption of certain
liabilities. The terms of the acquisition agreement also provide for additional
cash consideration up to 2,800 DM (or approximately $1,700) to be paid if
Digitronic's sales during the next two years exceed certain targeted levels.
Targeted levels have been set substantially above the historical experience of
Digitronic at the time of acquisition. No goodwill was added as a result of the
acquisition, however $424 of other intangibles were recorded.
Liquidity and Capital Resources
During the three months ended March 31, 1999, cash utilization focused on
current working capital requirements, pay-down of accounts payable and accrued
expenses, tax payments and the purchase of equipment and leasehold improvements.
The Company's operating activities utilized $728 of cash. The Company's net
income of $471 includes net non-cash charges of $518, which principally
consisted of (i) depreciation and amortization of $438, (ii) a net decrease in
inventory reserves and allowance for doubtful accounts of $51, (iii) utilization
of acquired tax benefits credited to goodwill of $27 (iv) deferred income taxes
of $104. Further, net changes in operational assets and liabilities utilized
$1,717 in cash, consisting of an accounts receivable increase of $356; inventory
increase of $454; prepaid expenses and other assets decrease of $61; accounts
payable and accrued expenses decrease of $1,139 and net changes in other
operating assets and liabilities use of $171 in cash.
Net cash used in investing activities amounted to $340 and was used solely for
the purchase of equipment and other fixed assets.
Net cash provided by financing activities amounted to $516. The Company's
net borrowings were $442 under its short term credit lines.
As of March 31, 1999, the Company's total liabilities were $9,709, of which
$7,960 is due and payable within one year.
On April 21, 1998, BCI and the Company entered into a $27,000 credit facility
(the "New Facility") with KeyBank N.A., which matures on April 30, 2001. The New
Facility replaces a previous facility. The New Facility provides, subject to
certain criteria, a $20,000 revolving line for acquisition financing and a
$7,000 working capital line. 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 March 31, 1999, $400 was
outstanding under the working capital line of the New Facility. There were no
borrowings under the acquisition revolving line.
Speech Design has short-term credit lines and overdraft facilities of
approximately 6,000 DM, or $3,240, from 3 banks. These lines of credit are
collateralized by all of Speech Design's accounts receivable and inventory. At
March 31, 1999, 3,828 DM (approximately $2,105) was outstanding under the
short-term credit lines.
Speech Design has also secured a 15,000 DM (currently $8,260) credit facility
for acquisition financing from D.G. Bank of Frankfurt. The interest rate under
the new credit facility is up to 200 basis points above the German LIBOR rate,
which was 3.75% at March 31, 1999. There were no borrowings under the
acquisition financing line at March 31, 1999.
12
<PAGE>
The Company believes that it has adequate liquidity to finance its normal
business activities and capital expenditures for the near term.
YEAR 2000
The Year 2000 ("Y2K") readiness issue is the result of information technology
("IT") system programs being written using two digits rather than four digits to
define the application year. Any of the Company's IT systems that have
date-sensitive software may recognize a date using "00" for the applicable year
as the year 1900 and not the year 2000. This could result in miscalculations,
system failures, or other business disruptions.
The Company is implementing a plan which addresses Y2K technology compliance for
its IT and non-IT systems. The plan includes a review of the Company's suppliers
and customers to assure that they are working toward Y2K compliance.
The Company uses IT systems in various aspects of its business, including
manufacturing, research and development, distribution and many administrative
functions. A significant amount of the Company's software and systems may need
to be updated, modified or replaced to address the Y2K readiness issue. In that
regard, the Company has retained consultants to assist it in modifying and
upgrading its IT systems and the Company has projects underway to address the
Y2K readiness of its IT systems and the IT systems of material third parties.
The Company has prioritized its IT systems into three categories: critical,
necessary or other. The Company currently expects that critical and necessary
systems, the loss or failure of which could result in a serious disruption of
revenue or serious processing delay, respectively, will be Y2K complaint by the
third quarter of 1999, with modifications to the existing software and or
conversions to new software. The Company currently expects that the remainder of
the Company's IT systems will be Y2K compliant within such timeframe or shortly
thereafter. There can be no assurance, however, that the Company's critical,
necessary and other IT systems will become Y2K compliant by the projected time.
The Company's non-IT systems include embedded technology such as
micro-controllers included in production equipment, office equipment,
environmental control equipment and time locks. All of the Company's non-IT
systems are already Y2K ready except for some products that were discontinued by
the Company. With respect to such products, the Company is evaluating its
alternatives and expects this review to be completed by the second quarter of
1999. Material third party vendors have been contacted and asked to attest to
Y2K compliance. Alternate vendors will be evaluated as potential replacements
for non-compliant or non-responsive vendors.
Currently, management estimates that the Company will expend up to $1,000
(including capital lease obligations) on system upgrade and replacement
projects, which upgrades and replacements will, among other things, make the
Company's IT systems Y2K compliant. Most of these upgrades, and the costs
relating thereto, will be made during 1999. Y2K remediation programs and ongoing
systems upgrade and replacement projects are funded through the Company's
operations. In the first quarter ended March 31, 1999, the Company spent $64 on
Y2K on system upgrades and replacements, mainly through operating lease
agreements.
If IT systems affected by the Y2K readiness issue were not addressed as the
Company is doing, they could conceivably cause technological failures throughout
the Company, disrupting normal business operations. These risks are similar to
those faced by other manufacturing companies. Management does not believe that
the Company's business will be materially affected by Y2K readiness issues.
Nevertheless, the Company expects to have contingency plans that address the
most reasonably likely worst case Y2K scenarios. In the event that the Company
can not complete its system upgrade and replacement projects in a timely manner,
the Company will use a software patch to make its IT systems Y2K compliant.
If non-IT systems affected by the Y2K were not addressed as the Company is
doing, they could disrupt normal business operations. These theoretical
consequences are generally shared with other manufacturing companies.
13
<PAGE>
Nevertheless, the Company expects to have contingency plans that address the
most reasonably likely worst case Y2K scenarios.
The Company has contacted its key suppliers and vendors to assess the potential
impact on the Company's operations if those third parties fail to become Y2K
compliant in a timely manner. While certain of the Company's suppliers and
vendors have provided the Company with written certification that the IT systems
used by such third parties will be Y2K compliant prior to the Year 2000, the
Company is currently in the process of identifying the potential risks of
external business relationships with those third parties who have not certified
to the Company as to the status of their Y2K compliance. Action steps and
contingency plans related to significant third party relationships are expected
to be completed by mid to late 1999.
ITEM 3. MARKET RISK DISCUSSION
Since the Company operates on a global basis, it is exposed to various foreign
currency risks, primarily from the operations of the Company's German
subsidiary, Speech Design. The Company's consolidated financial statements are
denominated in U.S. dollars, whereas Speech Design and its subsidiaries are
denominated in different foreign currencies, as follows: Speech Design's
currency is the DM, Satelco's currency is the Swiss Franc, Speech Design U.K.'s
currency is the British Pound and Speech Design Israel's currency is the Israeli
Shekel. All Speech Design subsidiaries' financial statements are first
translated into DM, and then, Speech Design's consolidated financial statements
are then translated into the U.S. dollar.
Accordingly, changes in exchange rates between the applicable foreign currency
and the DM, and changes in the exchange rates between the DM and the U.S. dollar
will affect the translation of each foreign subsidiary's financial results into
U.S. dollars for the purposes of reporting the Company's consolidated financial
results.
In general, the Company does not use derivative instruments or hedging to manage
its exposure and does not currently hold any material risk sensitive instruments
for trading purpose at March 31, 1999. During the quarter ending March 31, 1999,
the Company has no material changes of its market risk assessment.
The above discussion should be read in conjunction with Management's discussion
of market risk as reported on Form 10-K for the year ended December 31, 1998,
filed with the Securities and Exchange Commission on March 31, 1999.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 19, 1999, a complaint was filed in Landericht Dusseldorf Court (4th
Civil Chamber) claiming patent infringement and unfair competition by Speech
Design and its managing directors. Since the second quarter of 1998, Speech
Design has been contesting the plaintiffs' patent, which is the subject of the
complaint, in the German Patent Office. The case entitled Wolfgang Beyer KG and
COM Electronic GmbH v. Speech Design GmbH, Hans Mieler and Kasimir Arciszewski,
4-0-87/99. This case is currently scheduled for a hearing on February 29, 2000.
The plaintiffs have temporarily estimated, but have not limited, the damages at
DM500,000 (or approximately $272,000) and are also requesting restraining order.
The Company intends to defend this lawsuit vigorously and management does not
believe it will have a material adverse effect on the Company.
The Company is not aware of any other material pending or threatened legal
proceedings to which it is a party or of which any of its property is subject.
14
<PAGE>
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
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
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
None
15
<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. Description
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)
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)
4.6 Amendment to Unit Purchase Option Granted to GKN Securities Corp.
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)
16
<PAGE>
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)
10.12 Warrant, dated November 26, 1997, issued by the Company to D&S
Capital, LLC. (7)
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.
10.19 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)
17
<PAGE>
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)
10.30 Term Sheet for Acquisition Line, dated September 18, 1998, between
Speech Design GmbH and DG Bank. (11)
10.31 Amended and Restated Mergers and Acquisition Engagement Agreement,
dated as of October 1, 1998, between Helix Capital Services, Inc.
and Bogen Communications International, Inc. (11)
10.32 Mergers and Acquisition Engagement Agreement, dated as of October
1, 1998, between Speech Design GmbH and Helix Capital Services,
Inc. (11)
*27.1 Financial Data Schedule
------------
*Filed Herewith
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 to 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 Registration Form 8-K, dated May 20, 1998.
11. Incorporated by reference to the Exhibits to the Company's
Annual Report on Form 10-K for the year ended December 31,
1998.
18
<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: May 14, 1999 By: /s/ Michael P. Fleischer
------------------------------------------
Name: Michael P. Fleischer
Title: President
Date: May 14, 1999 By: /s/ Yoav M. Cohen
------------------------------------------
Name: Yoav M. Cohen
Title: Chief Financial Officer
(Principal Financial and Accounting
Officer)
19
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