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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
for the quarterly period ended June 30, 1996
Commission File Number 0-25186
APPLIED VOICE TECHNOLOGY, INC.
---------------------------------------------
(Name of Registrant as Specified in Its Charter)
Washington 91-1190085
(State of incorporation) (I.R.S. Employer
Identification Number)
11410 NE 122nd Way
Kirkland, WA 98034
(Address of principal executive offices)
Registrant's telephone number, including area code: (206) 820-6000
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
---- ----
The number of outstanding shares of the Registrant's Common Stock as of July 22,
1996 was 5,405,622.
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<PAGE>
APPLIED VOICE TECHNOLOGY, INC.
FORM 10-Q
For the Quarter Ended June 30, 1996
Table of Contents
Page
----
PART I. Financial Information
Item 1. Financial Statements (unaudited)... ................... 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.................... 8
PART II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders ... 11
Item 6. Exhibits and Reports on Form 8-K....................... 11
Signatures................................................................. 12
Exhibit Index.............................................................. 13
2
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
APPLIED VOICE TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------------- -----------------
ASSETS (in thousands)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 20,082 $ 12,249
Short-term investments 4,324 12,197
Accounts receivable, net 5,146 4,755
Inventories 2,236 1,728
Deferred income taxes 990 891
Prepaid expenses and other 948 994
----------------- ----------------
Total current assets 33,726 32,814
----------------- -----------------
Equipment and leasehold improvements, net 1,205 954
Intangibles, net 4,860 3,164
----------------- -----------------
$ 39,791 $ 36,932
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,051 $ 1,103
Accrued compensation and benefits 1,020 644
Other accrued liabilities 1,103 849
Note payable - current portion 561 537
Federal income taxes payable 15 11
----------------- -----------------
Total current liabilities 4,750 3,144
----------------- -----------------
Note payable 612 899
Shareholders' equity:
Preferred stock, par value $.01 per share, 1,000,000
authorized; none outstanding
Common stock, par value $.01 per share, 30,000,000
authorized; 5,405,622 and 5,144,040 shares outstanding 54 51
Additional paid-in capital 27,328 24,222
Retained earnings 7,029 8,628
Less deferred compensation - (34)
Unrealized gain on investments 18 22
----------------- -----------------
Total shareholders' equity 34,429 32,889
----------------- -----------------
$ 39,791 $ 36,932
================= =================
See accompanying notes to consolidated financial statements.
3
</TABLE>
<PAGE>
APPLIED VOICE TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
Quarter ended June 30, June 30,
------------------------- -------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 10,680 $ 7,647 $ 20,236 $ 14,924
Cost of sales 4,105 3,207 7,882 6,276
---------- ---------- ---------- ----------
Gross profit 6,575 4,440 12,354 8,648
Operating expenses:
Research and development 1,001 640 1,936 1,260
Sales, general and administrative 3,538 2,156 6,846 4,191
Write-off of in-process research and
development - - 4,140 -
---------- ---------- ---------- ----------
Total operating expenses 4,539 2,796 12,922 5,451
Operating income (loss) 2,036 1,644 (568) 3,197
Other income, net 225 294 398 641
---------- ---------- ---------- ----------
Income (loss) before income tax expense 2,261 1,938 (170) 3,838
Income tax expense 821 636 1,429 1,301
---------- ---------- ---------- ----------
Net income (loss) $ 1,440 $ 1,302 $(1,599) $ 2,537
========== ========== ========== ==========
Net income (loss) per common share $ 0.24 $ 0.23 $ (0.27) $ 0.44
Weighted average common shares
outstanding 6,033 5,750 5,978 5,758
See accompanying notes to consolidated financial statements.
</TABLE>
4
<PAGE>
APPLIED VOICE TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended June 30,
-------------------------------------
1996 1995
----------------- -----------------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net(loss)income $ (1,599) $ 2,537
----------------- -----------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 650 350
Write-off of in-process research and development 4,140 -
Stock compensation expense 34 43
Changes in current assets and liabilities:
Accounts receivable 965 (561)
Inventories (329) (159)
Deferred income tax asset (49) (191)
Prepaid expenses and other assets (160) (249)
Accounts payable 259 400
Accrued compensation and benefits 282 (142)
Other accrued liabilities 45 (329)
Federal income taxes payable (594) (870)
----------------- -----------------
Total adjustments 5,243 (1,708)
----------------- -----------------
Net cash provided by operating activities 3,644 829
----------------- -----------------
Cash flows from investing activities:
Purchase of equipment and leasehold improvements (362) (479)
Cash paid in acquisition, net of cash acquired (3,318) -
Purchase of short-term investments - (16,127)
Net proceeds from the sale of investments 7,869 -
Purchase of intangibles and other long-term assets - (1,808)
----------------- -----------------
Net cash used by investing activities 4,189 (18,414)
----------------- -----------------
Cash flows from financing activities:
Repayment of long-term debt (263) -
Net proceeds from exercise of overallotment - 2,040
Proceeds from exercise of stock options 263 11
----------------- -----------------
Net cash provided by financing activities - 2,051
----------------- -----------------
Net change in cash 7,833 (15,534)
Cash and cash equivalents at beginning of period 12,249 22,685
================= =================
Cash and cash equivalents at end of period $ 20,082 $ 7,151
================= =================
Noncash transactions:
Unrealized loss on investments $ (4) $ -
Stock issued in acquisition 2,846 -
See accompanying notes to consolidated financial statements.
</TABLE>
5
<PAGE>
APPLIED VOICE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Interim Financial Statements
The accompanying consolidated financial statements of Applied Voice
Technology, Inc. and subsidiaries (the Company) are unaudited. In the opinion of
the Company's management, the financial statements include all adjustments,
consisting only of normal recurring adjustments, necessary to state fairly the
financial information set forth therein. Results of operations for the six month
period ended June 30, 1996 are not necessarily indicative of future financial
results.
Certain notes and other information have been condensed or omitted from
the interim financial statements presented in this quarterly report on Form
10-Q. Accordingly, these financial statements should be read in conjunction with
the Company's annual report on Form 10-K for the year ended December 31, 1995.
2. Short-Term Investments
In accordance with FAS 115, the Company has classified its investments
as "available-for-sale" and recorded these investments at estimated fair value
with unrealized gains and losses reported as a separate component of
Shareholders' Equity.
Interest income is recorded using an effective interest rate, with the
associated premium or discount amortized to interest income over the term of the
investment. The cost of securities sold is based upon the specific
identification method. Available-for-sale securities as of June 30, 1996
consisted of:
Amortized Unrealized Estimated
Cost Gain Fair Value
------------- ------------ -------------
(in thousands)
Municipal notes/bonds $ 4,306 $ 18 $ 4,324
3. Inventories
Inventories consisted of the following:
June 30, December 31,
1996 1995
-------------- -------------
(in thousands)
Raw materials and service parts $ 1,972 $ 1,477
Finished goods 264 251
-------------- -------------
$ 2,236 $ 1,728
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6
<PAGE>
APPLIED VOICE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Business Acquired
On January 2, 1996, the Company acquired Cracchiolo and Feder,
Inc. (d/b/a RightFAX), a privately-held developer of fax server software for
local area networks. As previously reported on Form 8-K dated January 2, 1996,
the purchase price for the acquisition was $4.3 million in cash plus 163,291
shares of the Company's common stock. In addition, the Company may pay up to an
additional $3.8 million in a combination of cash and common stock over the next
three years, contingent upon certain future results. The shareholders of
RightFAX will further be entitled to receive additional consideration if the
Company sells RightFAX prior to October 1, 1996 or to the extent the value of
the Company's common stock issued to the shareholders of RightFAX is less than
$2.8 million at the end of 1996.
7
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Founded in 1982, the Company develops, manufactures, markets and
supports a broad line of open systems-based advanced computer telephony
integration (CTI) software products and basic call answering and voice messaging
systems. CTI encompasses a wide range of products that unite two of the most
essential business instruments - PCs and telephones. The Company's product lines
include CallXpress3, the Company's premier CTI product; RightFAX, a
high-performance local area network-based enhanced fax server CTI product;
PhoneXpress, a high-performance call answering and routing and voice mail
system; and px100, a basic voice mail and call answering system for the small
business market.
When used in this discussion, the words "believes," "anticipates" and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those projected. Factors which could
affect the Company's financial results are described below and in Item 1
(Business) of the Company's Annual Report on Form l0-K for the year ended
December 31, 1995. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date hereof. The Company
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrences of
unanticipated events.
Results of Operations
Net sales. Sales of the Company's products fall into the following
categories: advanced CTI applications, "CTI-ready" systems, basic messaging
systems, and installed base add-ons and service. Advanced CTI application sales
include CallXpress3 systems and kits which include at least one advanced CTI
module (unified messaging applications such as Desktop for Windows, E-mail
Access, and Faxmail; interactive voice response such as Automated Agent; and
enhanced fax products such as Faxtext) installed upon initial shipment, advanced
CTI application modules sold as add-ons to existing CallXpress3 systems, and the
RightFAX line of high-performance, LAN-based fax servers. "CTI-ready" systems
represent CallXpress3 systems and kits sold initially with only call answering
and routing and voice messaging capabilities, but whose architecture provides
for easy upgrade to an advanced CTI application. Basic messaging systems perform
only call answering and routing and voice messaging capabilities, and include
the Company's PhoneXpress and px100. The final category consists of capacity
upgrades, feature add-ons, spare parts, and services to its customers.
Net sales increased 40% to $10,680,000 in the quarter ended June 30,
1996, from $7,647,000 in the comparable 1995 quarter. The increase resulted
primarily from sales of advanced CTI applications, which increased 160% from the
comparable prior-year quarter, and represented 49% of total sales, as compared
with 27% in the comparable prior-year quarter. Sales of basic messaging systems
increased 16% in the current quarter as compared to the comparable prior-year
quarter and represented 27% of total sales. The basic messaging market continues
to be affected by price pressures from competitive offerings. International
sales for the second quarter of 1996 increased 73% compared to the second
quarter of 1995, and represented 16.7% of total net sales.
For the six months ended June 30, 1996 net sales increased 36% to
$20,236,000 from $14,924,000 in the comparable prior-year period, due primarily
to increased sales of advanced CTI
8
<PAGE>
applications which increased 147% during that period. International sales
for the first six months of 1996 increased 62% compared to the comparable
prior-year period, and represented 16.7% of total sales.
Gross profit. Gross profit as a percentage of sales improved to 61.6% in
the quarter ended June 30, 1996 as compared with 57.9% in the comparable
prior-year quarter, due to the favorable sales mix of advanced CTI applications
as compared with basic messaging systems. Because advanced CTI application
products contain a higher software content, gross margins are typically higher
than other sales. Also, the basic messaging market continues to be very
competitive, putting pressure on prices and resulting margins.
For the six months ended June 30, 1996 gross profit as a percentage of
sales improved to 61.0% from 58.0% in the comparable prior-year period, due to
the favorable mix of advanced CTI application sales.
Research and development. Research and development expenses increased to
$1,001,000 in the quarter ended June 30, 1996 from $640,000 in the comparable
prior-year period, due primarily to increased personnel costs relating to
acceleration of certain development projects begun in late 1995 and the
inclusion of RightFAX operations. Research and development expenses for the
current quarter represented 9.4% of net sales as compared with 8.4% of net sales
in the comparable prior-year quarter. For the six months ended June 30, 1996
research and development expenses increased to $1,936,000 from $1,260,000 in the
comparable prior-year period and represented 9.6% of sales.
Sales, general and administrative. Sales, general and administrative
expenses increased to $3,538,000 in the quarter ended June 30, 1996 from
$2,156,000 in the comparable prior-year period, due primarily to increased
personnel-related costs of domestic and international distribution development
programs and inclusion of RightFAX operations. Sales, general and administrative
costs for the current quarter represented 33.1% of net sales as compared with
28.2% in the comparable prior-year period. For the six months ended June 30,
1996 sales, general and administrative expenses increased to $6,846,000 from
$4,191,000 in the comparable prior-year period.
Operating (loss) income. Operating income for the quarter ended June 30,
1996 increased to $2,036,000 (19.1% of sales) from $1,644,000 in the comparable
prior-year quarter. The Company recognized a nonrecurring charge of $4,140,000
in the first quarter of 1996 representing purchased in-process research and
development associated with the January 1996 acquisition of RightFAX, Inc.
Therefore, for the six months ended June 30, 1996 the Company recognized an
operating loss of $568,000. Excluding the nonrecurring charge, the Company's
operating income for the first six months of 1996 would have been $3,572,000 or
17.7% of net sales, as compared with $3,197,000 or 21.4% of net sales in the
comparable prior-year period.
Other income, net. Net other income decreased to $225,000 in the quarter
ended June 30, 1996 from $294,000 in the comparable prior-year quarter, due
primarily to the shift of short-term investments from taxable to tax-exempt
instruments. For the six months ended June 30, 1996 net other income was
$398,000 as compared to $641,000 in the comparable prior-year period.
Income tax expense. Income tax expense for the quarter ended June 30, 1996
was $821,000, an effective rate of 36.3% Because the nonrecurring charge of
in-process research and development and the amortization of goodwill associated
with the acquisition of RightFAX are not tax deductible, the Company has
recognized income tax expense of $1,429,000 in the six months ended June 30,
1996. For the remainder of 1996, the effective tax rate is expected to be
approximately 36%.
Net (loss) income. The Company recognized net income of $1,440,000 or
$0.24 per share for the quarter ended June 30, 1996 as compared to $1,302,000 or
$0.23 per share for the comparable prior-year quarter. Due to the nonrecurring
charge for purchased in-process research and
9
<PAGE>
development recognized in the first quarter 1996, the Company has
recognized a net loss of $1,599,000 or $0.27 per share for the first six months
of 1996. Excluding this nonrecurring charge net income for the first six months
of 1996 would have been $2,541,000 or $0.43 per share as compared with
$2,537,000 or $0.44 per share in the comparable prior-year period.
Liquidity and Capital Resources
Cash provided by operating activities in the six months ended June 30, 1996
was $3.6 million due primarily to continuing profitability and improvement in
average collections of accounts receivable. While accounts receivable increased
to $5.1 million at June 30, 1996 from $4.8 million at December 31, 1995 due to
higher sales volume, average collection period decreased by approximately 5
days. Inventories increased to $2.2 million at June 30, 1996 from $1.7 million
at December 31, 1995 due primarily to the acquisition of RightFAX.
In January 1996, the Company acquired Cracchiolo and Feder, Inc. (d/b/a
RightFAX), a developer of fax server software for local area networks. The
purchase price for the acquisition was $4.3 million in cash plus 163,291 shares
of the Company's common stock. In addition, the Company may pay up to an
additional $3.8 million in a combination of cash and common stock over the next
three years, contingent upon certain future results. The shareholders of
RightFAX will further be entitled to receive additional consideration if the
Company sells RightFAX prior to October 1, 1996 or to the extent the value of
the Company's common stock issued to the shareholders of RightFAX is less than
$2.8 million at the end of 1996.
The Company expects that its current cash, cash flow from operations, and
available bank line of credit will provide sufficient working capital for
operations.
10
<PAGE>
Part II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of Applied Voice Technology,
Inc. was held on May 14, 1996. A total of 4,881,561 shares of the
Company's common stock were represented in person or by proxy at
the meeting, which comprised 91.97% of the total number of shares
of the Company's common stock outstanding on March 25, 1996, the
record date for the meeting.
At the meeting Richard J. LaPorte and Robert L. Lovely were
re-elected to serve as directors of the Company for a term of
three years until the Company's Annual Meeting of Shareholders in
1999. The votes were as follows:
Votes For Votes Withheld
----------------- -----------------
Richard J. LaPorte 4,771,521 110,040
Robert L. Lovely 4,772,721 108,840
Continuing directors are James S. Campbell whose term expires in
1997 and Dennis F. King and William L. True whose term expires in
1998.
Also at the meeting, the Company's shareholders approved
amendments to the Applied Voice Technology, Inc. 1989 Restated
Stock Option Plan to increase the number of shares issuable under
the plan and to increase the maximum number of options that
may be granted under the plan to any one employee in a fiscal
year. The votes on this matter were as follows:
Votes For: 3,078,824
Votes Against: 531,973
Abstain: 36,800
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 Computation of Earnings Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
quarter ended June 30, 1996.
11
<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.
Applied Voice Technology, Inc.
(Registrant)
Roger A. Fukai
Date: August 13, 1996 By: --------------------------
Roger A. Fukai
Senior Vice President
Finance and Administration,
Chief Financial Officer
Signing on behalf of
registrant and as principal
financial officer
12
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
------- ---------------------------------
11.1 Computation of Earnings Per Share
27 Financial Data Schedule
13
Exhibit 11.1
APPLIED VOICE TECHNOLOGY, INC.
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
Quarter ended June 30, June 30,
------------------------- -------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income (loss) $ 1,440 $ 1,302 $(1,599) $ 2,537
========== ========== ========== ==========
Computation of common and common
equivalent shares outstanding:
Common Stock 5,367 5,076 5,336 5,072
Options 666 674 642 686
---------- ---------- ---------- ----------
Common and common equivalent shares
used in computing per amounts 6,033 5,750 5,978 5,758
========== ========== ========== ==========
Net income (loss) per share $ 0.24 $ 0.23 $ (0.27) $ 0.44
========== ========== ========== ==========
The fully diluted computation is not presented because the Company does not have
dilutive securities that are not common stock equivalents.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheets as of June 30,1996 (Unaudited) and the Consolidated
Statements of Income for the Six Months Ended June 30, 1996 (Unaudited) and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-START> Jan-01-1996
<PERIOD-END> Jun-30-1996
<CASH> 20,082
<SECURITIES> 4,324
<RECEIVABLES> 5,146
<ALLOWANCES> 0
<INVENTORY> 2,236
<CURRENT-ASSETS> 33,726
<PP&E> 1,205
<DEPRECIATION> 0
<TOTAL-ASSETS> 39,791
<CURRENT-LIABILITIES> 4,750
<BONDS> 0
0
0
<COMMON> 54
<OTHER-SE> 34,375
<TOTAL-LIABILITY-AND-EQUITY> 39,791
<SALES> 20,236
<TOTAL-REVENUES> 20,236
<CGS> 7,882
<TOTAL-COSTS> 7,882
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (170)
<INCOME-TAX> 1,429
<INCOME-CONTINUING> 1,429
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,599)
<EPS-PRIMARY> (0.27)
<EPS-DILUTED> (0.27)
</TABLE>
