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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
for the quarterly period ended March 31, 1997
Commission File Number 0-25186
APPLIED VOICE TECHNOLOGY, INC.
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(Name of Registrant as Specified in Its Charter)
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Washington 91-1190085
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(State of incorporation) (I.R.S. Employer
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Identification Number)
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11410 NE 122nd Way
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Kirkland, WA 98034
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(Address of principal executive offices)
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Registrant's telephone number, including area code: (206) 820-6000
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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.
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Yes X No
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The number of outstanding shares of the Registrant's Common Stock as of May 1,
1997 was 5,649,565 .
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<PAGE>
APPLIED VOICE TECHNOLOGY, INC.
FORM 10-Q
For the Quarter Ended March 31, 1997
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 6. Exhibits and Reports on Form 8-K..................... 11
Signatures............................................................... 12
Exhibits................................................................. 13
<PAGE>
Part I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
APPLIED VOICE TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
1997 1996
----------------- -----------------
ASSETS (in thousands)
Current assets:
Cash and cash equivalents $ 8,069 $ 12,195
Short-term investments 15,672 15,484
Accounts receivable, net 6,222 6,106
Inventories 4,031 2,458
Deferred income taxes 2,381 1,056
Prepaid expenses and other 845 502
----------------- -----------------
Total current assets 37,220 37,801
Equipment and leasehold improvements, net 1,899 1,479
Intangibles, net 6,575 6,847
----------------- -----------------
$ 45,694 $ 46,127
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,492 $2,033
Accrued compensation and benefits 740 1,252
Other accrued liabilities 2,038 2,715
Note payable - current portion 599 586
Federal income taxes payable 896 345
----------------- -----------------
Total current liabilities 6,765 6,931
----------------- -----------------
Note payable 158 313
Shareholders' equity:
Preferred stock, par value $.01
per share, 1,000,000
authorized; none outstanding - -
Common stock, par value $.01
per share, 30,000,000
authorized; 5,614,322 and 5,425,713
shares outstanding 56 54
Additional paid-in capital 29,348 28,267
Retained earnings 9,367 10,562
---------------- -----------------
Total shareholders' equity 38,771 38,883
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$ 45,694 $ 46,127
================= =================
See accompanying notes to consolidated financial statements.
<PAGE>
APPLIED VOICE TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Quarter ended March 31,
----------------------------------
1997 1996
----------------------------------
(in thousands, except per share data)
Net sales $ 12,062 $ 9,556
Cost of sales 4,590 3,777
------------- -----------
Gross profit 7,472 5,779
Operating expenses:
Research and development 1,498 935
Sales, general and administrative 4,183 3,308
Write-off of acquired in-process
research and development 3,898 4,140
------------- -----------
Total operating expenses 9,579 8,383
------------- -----------
Operating loss (2,107) (2,604)
Other income, net 240 173
------------- -----------
Loss before income tax expense (1,867) (2,431)
Income tax (benefit) expense (672) 608
------------- -----------
Net loss $ (1,195) $ (3,039)
============= ===========
Net (loss) per common share $ (0.21) $ (0.52)
Weighted average common shares
outstanding 5,574 5,793
See accompanying notes to consolidated financial statements.
<PAGE>
APPLIED VOICE TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Quarter ended March 31,
---------------------------------------
1997 1996
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(in thousands)
Cash flows from operating activities:
Net (loss) income $ (1,195) $ (3,039)
------------------- --------------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 476 321
Write-off of acquired, in-process
research an development 3,898 4,140
Stock compensation expense - 20
Changes in current assets and
liabilities, net of effects of
acquisitions:
Accounts receivable 162 1,274
Inventories (851) (126)
Deferred income tax asset (1,325) (20)
Prepaid expenses and other assets (344) (337)
Accounts payable 328 141
Accrued compensation and benefits (529) 616
Other accrued liabilities 99 (87)
Federal income taxes payable 550 (514)
------------------- --------------------
Total adjustments 2,464 5,428
------------------- --------------------
Net cash (used) provided by operating
activities 1,269 2,389
------------------- --------------------
Cash flows from investing activities:
Purchase of equipment and leasehold
improvements (396) (127)
Cash paid in acquisition, net of
cash acquired (5,052) (3,318)
Purchase of short-term investments (188) -
Net proceeds from the sale of investments - 4,180
------------------- --------------------
Net cash used by investing activities (5,636) 735
------------------- --------------------
Cash flows from financing activities:
Repayment of long-term debt (142) (131)
Proceeds from exercise of stock options 383 12
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Net cash (used) provided by financing
activities 241 (119)
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Net change in cash (4,126) 3,005
Cash and cash equivalents at
beginning of period 12,195 12,249
=================== ====================
Cash and cash equivalents at
end of period $ 8,069 $ 15,254
=================== ====================
Noncash transactions:
Stock and warrants issued in
business acquisitions $ 700 $ 2,846
See accompanying notes to consolidated financial statements.
<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 three
month period ended March 31, 1997 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, 1996.
2. Short-Term Investments
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 March 31, 1997
consisted of municipal notes and bonds whose amortized cost approximates
estimated fair value. The average maturity for these investments is four months.
3. Inventories
Inventories consisted of the following:
March 31, December 31,
1997 1996
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(in thousands)
Raw materials and service parts $ 3,693 $ 2,193
Finished goods 338 265
=================== ====================
$ 4,031 $ 2,458
=================== ====================
<PAGE>
APPLIED VOICE TECHNOLOGY, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Businesses Acquired
On January 3, 1997, the Company acquired selected assets and
liabilities of Telcom Technologies, Inc., a developer of NT-based
open-architecture automatic call distribution (ACD) systems. The purchase price
for the acquisition was $3.5 million in cash, plus warrants to purchase 100,000
shares of the Company's common stock exercisable at $13.36 per share, which may
be exercised at any time prior to January 3, 2002. The Company accounted for the
business combination as a purchase and recognized a nonrecurring charge of $3.9
million in the first quarter of 1997, representing the value of the purchased,
in-process research and development acquired.
On January 2, 1996, the Company acquired Cracchiolo & Feder, Inc.
(d/b/a RightFAX), a privately held developer of fax server software for local
area networks, through a merger of RightFAX into a wholly owned subsidiary of
the Company. The purchase price for the acquisition paid at the closing was $4.2
million in cash plus 163,000 shares of the Company's common stock. In addition,
the Company paid consideration of $1.4 million in cash and 95,000 shares of the
Company's common stock in 1997, relating to the 1996 earn out and guaranteed
value of the Company's common stock. As a result of the earn out, the Company
recorded an additional $2.0 million of goodwill at December 31, 1996. The former
shareholders of RightFAX will be further entitled to receive additional
consideration worth $1.8 million in a combination of cash and the Company's
common stock over the next two years, if certain revenue and profit margin goals
are achieved by RightFAX.
5. New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, Earnings Per Share (SFAS
128), and No. 129, Disclosure of Information About Capital Structure (SFAS 129),
which are effective for periods beginning after December 15, 1997. SFAS 128
establishes new standards for computing and presenting earnings per share (EPS).
Companies will now report basic EPS and diluted EPS compared to primary and
fully diluted EPS, which were previously reported. Under the new standard, the
Company's basic and diluted EPS for the quarter ended March 31, 1997, would be
both a net loss per share of $(0.21). SFAS 129 requires companies to disclose in
their financial statements details of their capital structure and EPS
calculations, both of which are currently disclosed in exhibits to the Company's
10-K and 10-Q filings.
<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 software products and systems for
the rapidly growing computer telephony integration (CTI) market. CTI encompasses
a wide range of products that allow two of the most essential business
instruments, telephones and personal computers (PCs), to work together. Some CTI
products let people access and control telephone functions through a PC; others
let people access and control computer functions through a telephone. The CTI
market has emerged from the convergence of these two powerful and useful tools;
each with a different technological origin and marketing orientation.
The Company has implemented a dual-pronged strategy to address the CTI
market; developing telephony-oriented products marketed through a
telephony-oriented distribution channel and computer-oriented products marketed
through a computer-oriented channel. The telephony-oriented products are:
CallXpress3, the Company's premier, multi-application, high capacity CTI
product; PhoneXpress, a high-performance call answering and routing and voice
mail system; px100, a basic voice mail and call answering system for the small
business market; and the recently-introduced AgentXpressNT, a call center
management system. The computer-oriented product line is RightFAX, the Company's
premier, high performance, LAN-based fax server.
These products address the needs of four segments of the CTI market:
advanced CTI applications, "CTI-ready" systems, basic messaging systems, and
installed base add-ons and service. Advanced CTI applications products include
CallXpress3 systems sold with at least one advanced CTI application module (in
addition to voice mail/automated attendant), RightFAX and AgentXpressNT servers.
"CTI-ready" systems are CallXpress3 systems sold initially with voice
mail/automated attendant capabilities only, but which can be easily upgraded to
full advanced CTI features. The basic messaging market is addressed by the
PhoneXpress and px100 products. Sales of non-CTI capability-enhancing add-ons,
capacity-increasing upgrades, and service parts to the installed base represent
the fourth market segment.
The Company's strategies are focused on addressing these market
segments, and results of operations are reported accordingly. In January 1997,
the Company acquired selected assets and liabilities of Telcom Technologies, a
developer of WindowsNT-based, open-architecture automatic call distribution
systems. The Company released AgentXpressNT in March 1997 utilizing the core
technology acquired from Telcom Technologies.
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, 1996. 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 results 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. Net sales increased 26% to $12,062,000 in the quarter ended
March 31, 1997, from $9,556,000 in the comparable 1996 quarter. The increase
resulted primarily from sales of advanced CTI applications, which increased 63%
from the comparable prior-year quarter, and represented 55% of total sales, as
compared with 43% in the comparable prior-year quarter. The low-margin basic
messaging market continues to be affected by price pressures from competitive
offerings. Basic messaging sales declined 17% in the first quarter of 1997 from
the comparable prior-year quarter. Sales to the installed base increased 68%
from the comparable prior-year quarter due to accelerated marketing efforts of
telephony-oriented products and the inclusion of maintenance and spare parts
sales related to the January 1997 acquisition of the assets of Telcom
Technologies, included for the first time. International sales for the quarter
increased 39% compared to the first quarter of 1996, and represented 18.5% of
total net sales.
Gross profit. Gross profit as a percentage of sales improved to 61.9% in
the first quarter 1997 as compared with 60.5% 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.
Research and development. Research and development expenses increased to
$1,498,000 in the first quarter of 1997 from $935,000 in the comparable
prior-year period, due primarily to increased personnel costs relating to
acceleration of certain development projects and the inclusion of the recently
formed call center development group, which was acquired from Telcom
Technologies. Research and development expenses for the current quarter
represented 12.4% of net sales as compared with 9.8% of net sales in the
comparable prior-year quarter.
Sales, general and administrative. Sales, general and administrative
expenses increased to $4,183,000 in the first quarter of 1997 from $3,308,000 in
the comparable prior-year period, due primarily to increased personnel-related
costs of domestic and international distribution development of both the
telephony-oriented and computer-oriented channels. Sales, general and
administrative costs for the current quarter represented 34.7% of net sales,
essentially unchanged from 34.6% in the comparable prior-year period.
Operating (loss). The Company recognized a nonrecurring charge of
$3,898,000 for the write-off of acquired, in-process research and development
resulting from the acquisition of Telcom Technologies in January 1997. In the
comparable prior-year period, the Company had recognized a $4,140,000 similar
charge resulting from the January 1996 acquisition of Cracchiolo & Feder, Inc.
(d/b/a/ RightFAX). Therefore, the Company recognized an operating loss of
$2,107,000 in the first quarter 1997, as compared to an operating loss of
$2,604,000 in the comparable prior-year period. Excluding these nonrecurring
charges, operating income for the first quarter 1997 would have been $1,791,000,
an increase of 17% as compared to operating income of $1,536,000 in the
comparable prior-year quarter.
Other income, net. Other income in the first quarter 1997 was $240,000 as
compared to $173,000 in the comparable prior-year quarter, due primarily to
higher average cash and short-term investment balances.
Income tax (benefit) expense. The Company recognized a $672,000 income tax
benefit for the first quarter of 1997, an effective rate of 36.0%. The
acquisition of Telcom Technologies was a taxable purchase of assets, and
therefore, the resulting excess of purchase price over net assets acquired is
deductible for income tax purpose. The first quarter 1996 nonrecurring charge of
in-process research and development and the amortization of goodwill associated
with the acquisition of RightFAX are not tax deductible, therefore the Company
recognized income tax expense of $608,000 in the first quarter 1996. For the
remainder of 1997, the effective tax rate is expected to continue to be
approximately 36.0%.
Net loss. Due to the nonrecurring charges discussed above, the Company
recognized net loss of $1,195,000 or $0.21 per share for the first quarter 1997
as compared to a net loss of $3,039,000 or $0.52 per share for the comparable
prior-year quarter. Excluding these nonrecurring charges net income for the
first quarter 1997 would have been $1,300,000 or $0.21 per share as compared
with $1,101,000 or $0.19 per share in the comparable prior-year period.
Liquidity and Capital Resources
Cash provided by operating activities in the first quarter of 1997 was
$1.3 million due primarily to continuing operating profitability. The average
accounts receivable collection period remained unchanged at approximately 40
days. Inventories increased to $4.0 million at March 31, 1997 from $2.5 million
at December 31, 1996 due primarily to the acquisition of assets of Telcom
Technologies.
In January 1997, the Company acquired selected assets and liabilities of
Telcom Technologies, Inc. a developer of WindowsNT-based, open-architecture
automatic call distribution systems. The purchase price for the January 1997
acquisition of Telcom Technologies was $3.5 million in cash, plus warrants to
purchase 100,000 shares of the Company's common stock exercisable at $13.36 per
share, which may be exercised any time prior to January 3, 2002. The Company
accounted for the business combination as a purchase and recognized a
nonrecurring charge of $3.9 million in the first quarter of 1997, representing
the value of the acquired, in-process research and development.
On January 2, 1996, the Company acquired Cracchiolo & Feder, Inc. (d/b/a
RightFAX), a privately held developer of fax server software for local area
networks, through a merger of RightFAX into a wholly owned subsidiary of the
Company. The purchase price for the acquisition paid at the closing was $4.2
million in cash plus 163,000 shares of the Company's common stock. In addition,
the Company paid consideration of $1.4 million in cash and 95,000 shares of the
Company's common stock in 1997, relating to the 1996 earn out and guaranteed
value of the Company's common stock. As a result of the earn out, the Company
recorded an additional $2.0 million of goodwill at December 31, 1996. The former
shareholders of RightFAX will be further entitled to receive additional
consideration worth $1.8 million in a combination of cash and the Company's
common stock over the next two years, if certain revenue and profit margin goals
are achieved by RightFAX.
The Company expects that its current cash, cash flow from operations, and
available bank line of credit will provide sufficient working capital for
operations.
<PAGE>
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 Computation of Earnings Per Share
27.1 Financial Data Schedule
(b) Reports on Form 8-K
On January 23, 1997 the Company filed a report on Form 8-K
dated January 3, 1997 relating to the acquisition of Telcom
Technologies, Inc. No financial statements were included
with such report on Form 8-K.
<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)
Date: May 9, 1997 By: /s/ Roger A. Fukai
------------------
Roger A. Fukai
Executive Vice President
Finance and Administration,
Chief Financial Officer
Signing on behalf of
registrant and as principal
financial officer
Exhibit 11.1
APPLIED VOICE TECHNOLOGY, INC.
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
----------------------
Quarter ended
March 31,
1997
------------------------
(in thousands, except
per share data)
------------------------
Net (loss) $ (1,195)
======================
Computation of common and common
equivalent shares outstanding:
Common Stock 5,574
Options -
----------------------
Common and common equivalent shares
used in computing per share amounts 5,574
======================
Net (loss) per share $ (0.21)
======================
The fully diluted computation is not presented because the Company does not have
dilutive securities that are not common stock equivalents.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheets as of March 31, 1997 (Unaudited) and the
Consolidated Statements of Income for the Three Months Ended March 31, 1997
(Unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-START> Jan-01-1997
<PERIOD-END> Mar-31-1997
<CASH> 8,069
<SECURITIES> 15,672
<RECEIVABLES> 6,854
<ALLOWANCES> 632
<INVENTORY> 4,031
<CURRENT-ASSETS> 37,220
<PP&E> 5,249
<DEPRECIATION> 3,350
<TOTAL-ASSETS> 45,694
<CURRENT-LIABILITIES> 6,765
<BONDS> 158
0
0
<COMMON> 56
<OTHER-SE> 38,715
<TOTAL-LIABILITY-AND-EQUITY> 45,694
<SALES> 12,062
<TOTAL-REVENUES> 12,062
<CGS> 4,590
<TOTAL-COSTS> 4,590
<OTHER-EXPENSES> 9,579
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,867)
<INCOME-TAX> (672)
<INCOME-CONTINUING> (1,195)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,195)
<EPS-PRIMARY> (0.21)
<EPS-DILUTED> (0.21)
</TABLE>
