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, 1999
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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)
(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 11, 1999, 6,709,971 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> <C>
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1999
and December 31, 1998 3
Consolidated Statements of Operations for the three and six months
ended June 30, 1999 and 1998 4
Consolidated Statement of Changes in Stockholders' Equity
for the six months ended June 30, 1999 5
Consolidated Statements of Cash Flows for the six months
ended June 30, 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 15
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings 16
Item 2. Changes in Securities 16
Item 3. Defaults Upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8K 16
</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,
1999 1998
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 82 $ 1,048
Accounts receivable (less allowance for doubtful accounts of $325 and $424
at June 30, 1999 and December 31, 1998, respectively) 6,727 5,889
Inventories, net 8,577 8,229
Prepaid expenses and other current assets 827 759
Deferred income taxes 366 470
-------- -------
TOTAL CURRENT ASSETS 16,579 16,395
Property, equipment and leasehold improvements, net 2,315 2,414
Goodwill and intangible assets, net 18,425 18,740
Other assets 223 198
-------- -------
TOTAL ASSETS $ 37,542 $37,747
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Amounts outstanding under revolving credit agreements $ 2,165 $ 2,225
Accounts payable 2,044 2,060
Accrued expenses 2,316 3,634
Income taxes payable 785 1,168
-------- -------
TOTAL CURRENT LIABILITIES 7,310 9,087
Advances and notes payable to related parties 199 227
Deferred income taxes 1,081 1,100
Other liabilities 415 278
-------- -------
TOTAL LIABILITIES 9,005 10,692
-------- -------
STOCKHOLDERS' EQUITY
Preferred stock - $.001 par value; 1,000,000 shares authorized; none issued
and outstanding at June 30, 1999 and December 31, 1998
Common stock- $.001 par value; 50,000,000 shares authorized; 6,709,971
and 6,654,471 shares issued and outstanding at June 30, 1999 and
and December 31, 1998, respectively 7 7
Additional paid-in-capital 29,667 29,433
Accumulated deficit (642) (2,248)
Accumulated other comprehensive loss (495) (137)
-------- -------
TOTAL STOCKHOLDERS' EQUITY 28,537 27,055
-------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 37,542 $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 Six Months Ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 13,761 $ 13,202 $ 26,283 $ 24,634
Cost of goods sold 6,664 6,691 12,773 12,778
---------- ---------- ---------- ----------
Gross profit 7,097 6,511 13,510 11,856
Operating expenses:
Research and development 1,067 682 1,987 1,308
Purchased in-process research and development -- 2,905 -- 2,905
Selling, general and administrative 4,220 3,975 8,670 7,630
Amortization of goodwill and intangible assets 166 141 353 253
Income from operations 1,644 (1,192) 2,500 (240)
Other (income) expenses:
Interest expense, net 22 63 85 105
Minority interest of consolidated subsidiaries -- 97 -- 254
Other expense (income) (8) (59) 3 (100)
---------- ---------- ---------- ----------
Income before provision for income taxes 1,630 (1,293) 2,412 (499)
Provision for income taxes 495 586 806 923
---------- ---------- ---------- ----------
Net income $ 1,135 $ (1,879) $ 1,606 $ (1,422)
Preferred dividends -- 450 -- 900
---------- ---------- ---------- ----------
Net income available to common shareholders $ 1,135 $ (2,329) $ 1,606 $ (2,322)
========== ========== ========== ==========
Basic net income per common share $ 0.17 $ (0.94) $ 0.24 $ (1.00)
========== ========== ========== ==========
Diluted net income per common share $ 0.14 $ (0.94) $ 0.20 $ (1.00)
========== ========== ========== ==========
Weighted average number of common
shares outstanding-Basic 6,772,854 2,477,103 6,681,145 2,314,964
========== ========== ========== ==========
Weighted average number of common
shares outstanding-Diluted 8,134,104 2,477,103 7,910,215 2,314,964
========== ========== ========== ==========
</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
----------------------- Additional Accumulated
Number of Paid-In Accumulated Other 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 55,500 -- 234 -- -- 234
Comprehensive income:
Net income -- -- -- 1,606 -- --
Translation adjustments -- -- -- -- (358) --
Comprehensive income -- -- -- -- -- 1,248
--------- --- -------- -------- ------ --------
Balance at June 30, 1999 6,709,971 $ 7 $ 29,667 $ (642) $ (495) $ 28,537
========= === ======== ======== ====== ========
</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>
Six Months Ended
June 30, June 30,
1999 1998
------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 1,606 $ (1,422)
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities:
Depreciation and amortization 529 477
Amortization of goodwill and intangible assets 353 253
Provisions for doubtful accounts and inventory obsolescence (187) 74
Utilization of pre-acquisition NOL charged to goodwill 34 249
Purchased in-process research and development -- 2,905
Deferred income taxes 105 --
Minority interest -- 254
Change in operating assets and liabilities:
Accounts receivable (1,055) 202
Inventories (685) 29
Prepaid expenses and other current assets (95) (17)
Payables and accrued expenses (1,338) (455)
Other 125 (103)
------- --------
Net cash (used in) provided by operating activities (608) 2,446
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Speech Design minority interest -- (4,780)
Purchase of property, equipment and leasehold improvements (599) (594)
------- --------
Net cash used in investing activities (599) (5,374)
------- --------
CASH FLOW FROM FINANCING ACTIVITIES
Advances under revolving credit agreements 2,692 4,700
Payments under revolving credit agreements (2,547) (1,354)
Proceeds from sale of common stock and warrants 234 857
Payments of advances and notes payable - related parties (1) 27
Acquisition costs of common stock held by Geotek -- (33)
------- --------
Net cash provided by financing activities 378 4,197
------- --------
Effects of foreign exchange rate on cash (137) (76)
------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (966) 1,193
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,048 964
------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 82 $ 2,157
======= ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 75 $ 98
Cash paid for income taxes 930 380
NON CASH FINANCING ACTIVITIES
Preferred stock dividends accrued -- 900
Stock issued in purchase of Speech Design -- 4,065
</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 June 30,
1999, the consolidated statements of operations and cash flows for the
three and six months ended June 30, 1999 and 1998 and the consolidated
statement of changes in stockholders' equity for the six months ended
June 30, 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. Principles 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 the
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income". The Company has determined total comprehensive
income to be $1,240 and $1,248 for the three and six months ended June
30, 1999, respectively, and total comprehensive loss to be $1,777 and
$1,419 for the three and six months ended June 30, 1998, respectively.
The Company's total comprehensive income (loss) represents net income
(loss) plus the change in the cumulative translation adjustment equity
account for the periods presented.
7
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars, Except Share and Per Share Amounts)
(Unaudited)
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.
The following table presents information about the Company by segment
area. Inter-segment revenues and transfers are not considered material:
<TABLE>
<CAPTION>
Three Months Ended June 30, 1999 June 30, 1998
------------------------------ ----------------------------
Bogen Speech Design Bogen Speech Design
------- ------------- ------ -------------
<S> <C> <C> <C> <C>
Revenue from customers $ 8,423 $ 5,363 $8,350 $ 5,098
Operating profit 1,004 741 949 956
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 1999 June 30, 1998
------------------------------ -----------------------------
Bogen Speech Design Bogen Speech Design
------- ------------- ------- -------------
<S> <C> <C> <C> <C>
Revenue from customers $15,902 $10,430 $15,026 $9,854
Operating profit 1,524 1,176 1,364 1,692
</TABLE>
A reconciliation of reportable segment operating profit to the
Company's consolidated totals for the three and six months ended June
30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
------- -------- -------- --------
<S> <C> <C> <C> <C>
Operating profit
Total operating profit for reportable segments $ 1,745 $ 1,905 $ 2,700 $ 3,056
Unallocated amounts - Purchased in-process
research and development (2,905) (2,905)
Other corporate expenses (101) (192) (200) (391)
------- -------- ------- -------
Operating profit $ 1,644 $ (1,192) $ 2,500 $ (240)
======= ========= ======= =======
</TABLE>
5. Inventories
Inventories are stated at the lower of cost or market and are valued
using the first-in, first-out method. As of June 30, 1999 and December
31, 1998, inventories are as follows:
June 30, December 31,
1999 1998
---------- ------------
Raw materials and supplies $ 2,550 $ 2,490
Work in progress 752 880
Finished goods 5,275 4,859
------- -------
Total $ 8,577 $ 8,229
======= =======
8
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars, Except Share and Per Share Amounts)
(Unaudited)
6. Income Per Share
Income per common share ("EPS") has been computed based upon SFAS 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.
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 six months 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 June 30, 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 Teleserver
Pro and Thor(TM) platforms; the ability of the Company to reengineer products to
reduce manufacturing costs; costs 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; the ability of the Company to locate and consummate suitable
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
June 30, 1999 and the results of its operations for the three and six months
ended June 30, 1999, compared to the same periods 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 June 30, 1999 Compared to the Three Months
Ended June 30, 1998
Net Sales
Net sales increased by $559, or 4.2% to $13,761, for the three months ended June
30, 1999, as compared to $13,202 for the same period in 1998. The increase in
sales primarily resulted from increased sales in the Company's Engineered
Systems of $361 and Telco of $695 and was partially offset by a decrease in
sales of $497 from Commercial Sound product lines.
Net sales from the Commercial Sound products decreased to $3,098 for the three
months ended June 30, 1999, or 13.8% less than net sales of $3,595 for the same
period in 1998. Net sales from the Engineered Systems products increased to
$2,420, or 17.5%, for the three months ended June 30, 1999 over net sales of
$2,059 for the same period in 1998, where a strong demand in the school market
is attributed to this increase. Net sales from the Telco product increased to
$8,243 for the three months ended June 30, 1999, or 9.2%, from net sales of
$7,547 for the same period in 1998. The Telco product line includes foreign
sales from Speech Design. Domestic sales increased to $2,880, or 17.6%, for the
three months ended June 30, 1999, from net sales of $2,449 for the three months
ended June 30, 1998. Foreign sales translated into U.S. dollars increased to
$5,363 for the three months ended June 30, 1999, or 5.2%, over net sales of
$5,098 for the same period in 1998. However, foreign net sales stated in local
currency increased to 9,926 Deutsche Marks ("DM") for the three months ended
June 30, 1999, or 8.5%, over net sales of 9,148 DM for the three months ended
June 30, 1998.
10
<PAGE>
Gross Profit
Gross profit, as a percentage of total net sales, increased to 51.6% for the
three months ended June 30, 1999, compared to 49.3% for the same period in 1998.
Bogen's gross profit increased from $3,712, or 45.8% of sales in the second
quarter of 1998, to $3,927, or 46.8% of sales in the second quarter of 1999. The
increase is attributable primarily to cost reduction of direct materials
resulting from successful negotiation of certain purchase agreements in late
1998, which were implemented in the first and second quarter of 1999.
Additionally, re-engineering of certain products contributed to further cost
reductions.
Speech Design's gross profit increased from $2,799, or 54.9% of sales in the
second quarter of 1998 to $3,170, or 59.1% of sales in the second quarter of
1999. The increase is partially attributable to better margins on Speech
Design's new platforms for the Teleserver Pro and Thor(TM) product lines.
Selling, General and Administrative Expenses
Selling, General and Administrative Expenses ("SG&A") increased by $245, or
6.2%, for the three months ended June 30, 1999, as compared to the three months
ended June 30, 1998. SG&A was $4,220, or 30.7% of net sales for the three months
ended June 30, 1999, as compared to $3,975, or 30.1% of net sales for same
period in 1998. The increase is primarily attributable to sales and 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 with the implementation in the U.S of
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
increased to $1,067, or 7.8% of net sales for the three months ended June 30,
1999, as compared to $682, or 5.2% of net sales for the three months ended June
30, 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(TM) platforms in Europe.
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 $22, or 0.2% of net sales for the three months ended June
30, 1999, as compared to $63, or 0.5% of net sales for the three months ended
June 30, 1998. The decrease of $41, or 65.1%, primarily relates to the
repayment of part of the amounts borrowed under the Company's credit line for
the Speech Design acquisition.
Income Taxes
Income tax expense decreased by $91 for the three months ended June 30, 1999 to
$495, as compared to $586 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
$8,000 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 to
the May 20, 1998 acquisition. This transaction eliminated the minority interest,
which was $157 in the first quarter of 1998.
11
<PAGE>
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.
Six Months Ended June 30, 1999, Compared to the Six Months Ended June 30, 1998
Net Sales
Net sales increased by $1,649, or 6.7% to $26,283, for the six months ended June
30, 1999, as compared to $24,634 for the same period in 1998. The increase in
sales primarily resulted from increased sales of $854 in the Engineered Systems
product line and $1,213 in the Company's Telco product line offset by decreased
sales of $418 in the Company's Commercial Sound product line.
Net sales from the Commercial Sound product line decreased to $6,174 for the six
months ended June 30, 1999, or 6.3% less than net sales of $6,592 for the same
period in 1998. Net sales from the Engineered Systems products increased to
$4,217 for the six months ended June 30, 1999, or 25.4% from net sales of $3,362
for the same period in 1998, where a strong demand in the school market is
attributed to this increase. Net sales from the Telco product line increased to
$15,892 for the six months ended June 30, 1999, or 8.3% from net sales of
$14,679 for the same period in 1998. The Telco product line includes foreign
sales from Speech Design. Domestic sales increased to $5,461 for the six months
ended June 30, 1999, or 13.2% from net sales of $4,825 for the six months ended
June 30, 1998. Foreign sales translated into U.S. dollars increased to $10,430
for the six months ended June 30, 1999, or 5.8% over net sales of $9,854 for the
same period in 1998. However, foreign net sales stated in local currency
increased to 19,057 Deutsche Marks ("DM") for the six months ended June 30,
1999, or 6.9% over net sales of 17,828 DM for the same period in 1998.
Gross Profit
Gross profit as a percentage of total net sales increased by 3.3% to 51.4% for
the six months ended June 30, 1999, compared to 48.1% for the same period in
1998. The increase in gross profit is attributable to cost reduction measures
primarily through the renegotiations of certain purchase agreements which were
implemented during late 1998 and early 1999.
Selling, General and Administrative Expenses
Selling, General and Administrative Expenses ("SG&A") increased by $1,040, or
13.6% for the six months ended June 30, 1999, as compared to the six months
ended June 30, 1998. SG&A was $8,670, or 33.0% of net sales for the six months
ended June 30, 1999, as compared to $7,630, or 31.0% of net sales for same
period in 1998. The increase is primarily attributable to expenses incurred as
part of the Company's implementation of a new sales and 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 with the implementation in the U.S. of
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
$1,987, or 7.6% of net sales for the six months ended June 30, 1999, as compared
to $1,308, or 5.3% of net sales for the six months ended June 30, 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.
12
<PAGE>
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 $85, or 0.3% of net sales for the six months ended June 30,
1999, as compared to $105, or 0.4% of net sales for the six months ended June
30, 1998. The decrease of $20, or 19.0%, primarily relates to repayment of part
of the amounts borrowed under the Company's credit line for the Speech Design
acquisition.
Income Taxes
Income tax expense decreased for the six months ended June 30, 1999 to $806, as
compared to $923 for the comparable period in 1998. The decrease is primarily
due to a reduction of $170 in income tax expenses in Speech Design due to lower
profits in 1999, offset by an increase of $53 in tax expenses in the Company's
domestic operations due to higher profits in 1999.
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
$8,000 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 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 six months ended June 30, 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 $608 of cash. The Company's net
income of $1,606 includes net non-cash charges of $834, which principally
consisted of (i) depreciation and amortization of $882, (ii) a net decrease in
inventory reserves and allowance for doubtful accounts of $187, (iii)
utilization of acquired tax benefits credited to goodwill of $34 (iv) deferred
income taxes of $105. Further, net changes in operational assets and liabilities
utilized $3,048 in cash, consisting of an accounts receivable increase of
$1,055; inventory increase of $685; prepaid expenses and other assets increase
of $95; accounts payable and accrued expenses decrease of $1,338 and net
increase in other operating assets and liabilities use of $125.
Net cash used in investing activities amounted to $599 and was used solely for
the purchase of equipment and other fixed assets.
Net cash provided by financing activities amounted to $378. The Company's net
borrowings were $145 under its short-term credit lines. Net proceeds from
issuance of common stock, primarily through exercise of stock options, totaled
$234.
As of June 30, 1999, the Company's total liabilities were $9,005, of which
$7,310 is due and payable within one year.
13
<PAGE>
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 June 30, 1999, $750 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 $3,160, from 3 banks. These lines of credit are
collateralized by all of Speech Design's accounts receivable and inventory. At
June 30, 1999, 2,687 DM (approximately $1,415) was outstanding under the
short-term credit lines.
Speech Design has also secured a 15,000 DM (currently $7,899) 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 June 30, 1999. There were no borrowings under the acquisition
financing line at June 30, 1999.
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") 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, products and test
equipment 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 has implemented a substantial part of its plan to address Y2K
technology compliance for its Management Information Systems ("MIS"), products
and test equipment. The plan included a review of the Company's suppliers and
customers to assure that they are working toward Y2K compliance.
MIS
The Company uses MIS systems in various aspects of its business, including
manufacturing, research and development, distribution and many administrative
functions. On July 6, 1999, the Company successfully implemented a new
Enterprise Resource Planning (ERP) system. This system is comprised of both new
hardware and software and is Y2K compliant. Additional modifications will be
implemented during the third and fourth quarter of this year, providing enhanced
functionality. Furthermore, the Company's U.S. subsidiary's PABX (telephone
system) is not Y2K ready, and is scheduled for replacements in the fourth
quarter of 1999.
The Company has prioritized its MIS system into three categories: critical,
necessary or other. The Company's critical and necessary systems, the loss or
failure of which could result in a serious disruption of revenue or serious
processing delay, respectively, are now Y2K complaint. The Company currently
expects that the remainder of the Company's MIS systems will be Y2K compliant in
the early part of the fourth quarter. There can be no assurance, however, that
the Company's other MIS systems will become Y2K compliant by the projected time.
Currently, management estimates that the Company will incur up to $1,000
(including payments under operating leases) on system upgrade and replacement
projects, which will, among other things, make the Company's MIS systems Y2K
compliant. Most of these upgrades 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 six months ended June 30, 1999, the
Company spent $435 on Y2K related system upgrades and replacements, mainly
through operating lease agreements.
If MIS systems and testing equipment affected by the Y2K 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
issues. Nevertheless, the Company expects to have contingency plans that address
the most reasonably likely worst case Y2K scenarios.
14
<PAGE>
Products
Less than 5% of the Company's products include embedded technology such as
micro-controllers. All of the Company's current products are already Y2K ready.
The Company has notified its customers via its website of some discontinued
products which may not be Y2K ready. These products may not be supported by the
Company. Material third party vendors have been contacted and asked to attest to
Y2K compliance. Responses have been received and are being evaluated. Alternate
vendors will be evaluated as potential replacements for non-compliant or
non-responsive vendors.
If products 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. 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 the fourth quarter of 1999.
Test Equipment and other non-MIS Systems
The Company's testing equipment and other non-MIS systems contain embedded
technology such as micro-controllers included in test equipment, office
equipment, environmental control equipment and time clocks. All of the Company's
test equipment and non-MIS equipment, except time clocks, are Y2K ready. All
time clocks are scheduled for an upgrade in the early part of the 4th quarter
1999.
If testing equipment and other non-MIS equipment 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.
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 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 June 30, 1999. During the quarter ending June 30, 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.
15
<PAGE>
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 $273,000) 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.
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 27, 1999, 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
--------- --------
Yoav Stern 5,131,371 2,650
Jeffrey Schwartz 5,130,871 3,150
Zivi R. Nedivi 5,131,371 2,650
Kasmir Arciszewski 5,131,371 2,650
2. Ratification of appointment of KPMG LLP as auditors for
fiscal year ending December 31, 1999:
For Against Abstain
--------- ------- -------
5,124,071 3,550 6,400
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
16
<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)
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)
17
<PAGE>
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 d 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)
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)
18
<PAGE>
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.
19
<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 16, 1999 By: /s/ Michael P. Fleischer
---------------------------------
Name: Michael P. Fleischer
Title: President
Date: August 16, 1999 By: /s/ Yoav M. Cohen
---------------------------------
Name: Yoav M. Cohen
Title: Chief Financial Officer
(Principal Financial and
Accounting Officer)
20
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