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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 8-K/A No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
January 5, 1998
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Date of Report
(Date of earliest event reported)
APPLIED VOICE TECHNOLOGY, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Washington 0-25186 91-1190085
- ---------------------------- --------------------- -------------------
(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification No.)
11410 N.E. 122nd Way
Kirkland, Washington 98034
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(Address of principal executive offices, including zip code)
(425) 820-6000
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(Registrant's telephone number, including area code)
Page 1 of 4
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This Amendment No. 1 (this "Amendment") to the Current Report on Form 8-K
dated October 23, 1997 (the "Report") of Applied Voice Technology, Inc. (the
"Company"), relates to the Company's completion of an acquisition of 100% of the
outstanding capital stock of American International Facsimile Products, Inc.
("AIFP"), from Forest City Trading Group, Inc. ("Seller"), pursuant to a Stock
Purchase Agreement by and between the Company, Seller and AIFP (the "Purchase
Agreement"). AIFP's name was subsequently changed to CommercePath, Inc.
("CommercePath"). Item 7 of the Report stated that the following financial
information would be filed not later than 60 days after the date on which the
Report was required to be filed: (i) the financial statements of CommercePath
required under Item 7(a) of Form 8-K and (ii) the pro-forma financial
information required under Item 7(b) of Form 8-K. The purpose of this Amendment
is to amend Item 7 to file such financial information.
Page 2
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Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(a) Financial Statements of Business Acquired
COMMERCEPATH
FINANCIAL STATEMENTS
AS OF JANUARY 31, 1997
TOGETHER WITH AUDITORS' REPORT
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Applied Voice Technology, Inc.:
We have audited the accompanying balance sheet of American International
Facsimile Products, Inc. as of January 31, 1997, and the related statements of
income, shareholder's equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of American International
Facsimile Products, Inc. as of January 31, 1997, and the results of its
operations and cash flows for the year then ended in conformity with generally
accepted accounting principles.
Seattle, Washington,
December 12, 1997
COMMERCEPATH
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BALANCE SHEET
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YEAR ENDED JANUARY 31, 1997
---------------------------
<TABLE>
<S> <C>
ASSETS
Current assets:
Accounts receivable, less allowance for
doubtful accounts of $144,000 $1,081,250
Inventories 441,685
Deferred income taxes 313,519
Prepaid expenses and other 130,010
----------
Total current assets 1,966,464
Equipment and leasehold improvements, net 401,007
Deferred income taxes 37,568
----------
Total assets $2,405,039
==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Bank overdraft $ 174,550
Accounts payable 208,459
Other current liabilities 104,946
Due to Forest City Trading Group, Inc. 746,557
Deferred revenues 699,020
----------
Total current liabilities 1,933,532
----------
Commitments
Shareholder's equity:
Cumulative 8% preferred stock, par value $100 per share, 1,000,000
shares authorized, none outstanding -
Common stock, no par value, 1,000,000 shares authorized, 100,000 shares
outstanding 1,000
Retained earnings 470,507
----------
Total shareholder's equity 471,507
----------
Total liabilities and shareholder's equity $2,405,039
==========
</TABLE>
The accompanying notes are an integral part of this financial statement.
COMMERCEPATH
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STATEMENT OF INCOME
-------------------
YEAR ENDED JANUARY 31, 1997
---------------------------
<TABLE>
<S> <C>
Net sales $6,274,279
Cost of sales 1,981,214
----------
Gross profit 4,293,065
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Operating expenses:
General, administrative, research and development 1,571,010
Sales and marketing 1,851,390
----------
Total operating expenses 3,422,400
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Operating income 870,665
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Other income (expense):
Interest expense to Forest City Trading Group, Inc. (143,129)
Other 5,525
----------
Other expense (137,604)
----------
Income before income tax expense 733,061
Income tax expense (277,064)
----------
Net income $ 455,997
==========
</TABLE>
The accompanying notes are an integral part of this financial statement.
COMMERCEPATH
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STATEMENT OF SHAREHOLDER'S EQUITY
---------------------------------
YEAR ENDED JANUARY 31, 1997
---------------------------
<TABLE>
<CAPTION>
Common Stock Total
-------------- Retained Shareholder's
Shares Amount Earnings Equity
--------- --------- -------------- ------------------
<S> <C> <C> <C> <C>
Balance at February 1, 1996 100,000 $1,000 $ 344,060 $ 345,060
Net income - - 455,997 455,997
Dividends - - (329,550) (329,550)
------- ------ --------- ---------
Balance at January 31, 1997 100,000 $1,000 $ 470,507 $ 471,507
======= ====== ========= =========
</TABLE>
The accompanying notes are an integral part of this financial statement.
COMMERCEPATH
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STATEMENT OF CASH FLOWS
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YEAR ENDED JANUARY 31, 1997
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<TABLE>
<S> <C>
Cash flows from operating activities:
Net income $ 455,997
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 128,338
Changes in current assets and liabilities-
Accounts receivable 258,222
Inventories 32,561
Deferred income taxes 13,239
Prepaid expenses (118,994)
Accounts payable (19,298)
Other current liabilities 78,660
Deferred revenues (108,443)
---------
Total adjustments 264,285
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Net cash provided by operating activities 720,282
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Cash flows from investing activities:
Purchase of equipment and leasehold (369,278)
Net proceeds from sale of equipment 5,011
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Net cash used in investing activities (364,267)
---------
Cash flows from financing activities:
Net proceeds from bank overdraft 81,788
Repayments to Forest City Trading Group, Inc. (108,253)
Dividends (329,550)
---------
Net cash used in financing activities (356,015)
---------
Net change in cash and cash equivalents -
Cash and cash equivalents, beginning of year -
---------
Cash and cash equivalents, end of year $ -
=========
Supplemental cash flow disclosures:
Cash paid for interest $ 143,129
Cash paid to Forest City Trading Group, Inc. for income
taxes 462,450
</TABLE>
The accompanying notes are an integral part of this financial statement.
COMMERCEPATH
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NOTES TO FINANCIAL STATEMENTS
-----------------------------
YEAR ENDED JANUARY 31, 1997
---------------------------
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------------------------------
Nature of Business
- ------------------
American International Facsimile Products, Inc. (the Company), an Oregon
corporation, is a developer of high-performance, high-volume, enterprise-wide
solutions for electric commerce communication, including the business critical
delivery, receipt, conversion and transformation of fax, e-mail, Internet, EDI
and other types of information. These bundled hardware and software solutions
are installed in commercial customer sites in many industries, primarily in the
United States. As of January 31, 1997, the Company was a wholly owned
subsidiary of Forest City Trading Group, Inc. (Parent Company). Effective
October 22, 1997, the Company was purchased by Applied Voice Technology, Inc.
(See Note 5).
Basis of Presentation
- ---------------------
The preparation of the Company's financial statements, in conformity with
generally accepted accounting principles, requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Inventories
- -----------
Inventories consist primarily of computer assemblies, components and related
equipment, and are stated at the lower of cost (first-in, first-out) or market
(net realizable value). Inventory consists of the following:
<TABLE>
<S> <C>
Raw materials and service parts $360,588
Finished goods 81,097
--------
$441,685
========
</TABLE>
Equipment and Leasehold Improvements
- ------------------------------------
Equipment and leasehold improvements are stated at cost and are depreciated on
the straight-line method over the estimated useful lives of the assets, which
range from three to seven years. Equipment and leasehold improvements consist
of the following:
<TABLE>
<S> <C>
Computers and software $ 411,415
Leasehold improvements 27,063
Furniture, fixtures and equipment 228,991
---------
667,469
Less: Accumulated depreciation and amortization (266,462)
---------
Equipment and leasehold improvements, net $ 401,007
=========
</TABLE>
Bank Overdraft
- --------------
The bank overdraft is a result of the Company's cash management program through
the parent company, whereby any excess cash is transferred to the parent
company's bank accounts, and represents checks issued but not yet presented to
the bank for payment.
Revenue Recognition
- -------------------
Revenues from sales to customers are recognized when the products are shipped.
When the Company has an installation obligation, revenues are recognized when
product installation is complete. Revenues from extended warranty agreements
and post-contract customer support are recognized over the lives of the related
service contracts on the straight-line method.
Concentration of Credit Risk
- ----------------------------
The Company achieves broad U.S. market coverage for its products. For the year
ended January 31, 1997, no customer represented 10% or greater of the Company's
sales. The Company performs ongoing credit evaluations of its customers'
financial condition and, generally, no collateral is required.
Research and Development Costs
- ------------------------------
Research and development costs are expensed as incurred. The Company has not
capitalized any software development costs, as technological feasibility is not
generally established until substantially all development is complete.
2. INCOME TAXES:
-------------
The Company has been included in the consolidated federal and state income tax
returns filed by its Parent Company. The Parent Company generally allocates the
consolidated income tax provision to subsidiaries on a separate return basis.
Current federal and state income taxes payable, net of prepayments are included
in the amount due to the Parent Company. Amounts due to the Parent Company for
income taxes, at January 31, 1997 were approximately $277,000.
Income taxes are provided for in the statements of income using the asset and
liability method.
The following is a reconciliation from the U.S. statutory rate to the effective
tax rate:
<TABLE>
<CAPTION>
Amount Percent
-------- --------
<S> <C> <C>
Tax at statutory rate $256,571 35.0%
Other, net 20,493 2.8%
-------- ----
Income tax expense $277,064 37.8%
======== ====
</TABLE>
Deferred taxes result from temporary differences relating to bad debt and
obsolescence reserves, depreciation and amortization and other accruals that are
expensed for financial reporting, but are not currently deductible for income
tax purposes.
Income tax expense is as follows:
<TABLE>
Current:
<S> <C>
Federal $248,537
State 15,288
--------
Total current 263,825
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Deferred:
Federal 10,896
State 2,343
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Total deferred 13,239
--------
Total income tax expense $277,064
========
</TABLE>
Significant components of the Company's deferred tax asset as of January 31,
1997 are as follows:
<TABLE>
<S> <C>
Deferred tax assets:
Deferred revenue $280,000
Depreciation and amortization 37,568
Accruals and allowances 31,041
Other 2,478
--------
Net deferred tax assets $351,087
========
</TABLE>
3. DUE TO FOREST CITY TRADING GROUP, INC.:
---------------------------------------
Due to Forest City Trading Group, Inc., the sole shareholder of the Company,
represents amounts advanced to the Company for operating purposes including
interest, income taxes and administrative expenses from the parent company as
well as dividends. During fiscal 1997, approximately $329,550 was included in
the payable to parent related to dividends. The balance has no payment terms
and a variable interest rate (7.512% at January 31, 1997).
4. COMMITMENTS:
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Leases
- ------
The Company leases its office space under noncancelable operating leases. Rent
expense under the noncancelable leases amounted to $75,589 for the year ended
January 31, 1997. Future minimum fiscal year lease payments under noncancelable
operating leases are as follows:
<TABLE>
<S> <C>
1998 $135,298
1999 144,761
2000 155,473
2001 166,186
2002 43,109
--------
$644,827
========
</TABLE>
5. SUBSEQUENT EVENT:
-----------------
On October 22, 1997, the Company was acquired by Applied Voice Technology, Inc.
for $10.7 million in cash. Subsequent to the acquisition, the Company changed
its name to CommercePath, Inc.
(b) Pro Forma Financial Information
Applied Voice Technology, Inc.
Pro Forma Statement of Income (Unaudited)
As of December 31, 1996
(in thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma Adjustments
---------------------
AVT CommercePath (1) Other Pro Forma
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<S> <C> <C> <C> <C>
Net Sales $44,127 $6,274 $ 50,401
Cost of Sales 16,895 1,981 18,876
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Gross Profit 27,232 4,293 -- 31,525
Operating Expenses:
Research and development 4,149 260 (3) 4,409
Selling, general and administrative 14,509 3,162 256 (2) 17,927
Write-off of purchased, in-process
research and development 4,140 4,140
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Total operating expenses 22,798 3,422 256 26,476
Operating Income 4,434 871 (256) 5,049
Other income (expense)
Interest, net 909 (143) (415) (4) 351
Other, net 10 5 15
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Other income, net 919 (138) (415) 366
Income before income tax expense 5,353 733 (671) 5,415
Income tax expense 3,419 277 (92) 3,604
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Net income $ 1,934 $ 456 $ (256) $1,811
================================================
Net income per common share $ 0.33 $ 0.31
Weighted average common
shares outstanding 5,837 5,837
</TABLE>
Explanatory Notes
for
Pro Forma Adjustments
(1) Includes amounts from the CommercePath audited financial statements for the
year ended January 31, 1997.
(2) Assumes goodwill from the acquisition in the amount of $1,793 was recorded
on January 1, 1996 and is being amortized to expense on a straight-line
basis over seven years.
(3) Excludes the one-time write-off of purchased, incomplete research and
development in connection with the acquisition.
(4) Foregone interest income on net cash used in the acquisition.
Applied Voice Technology, Inc.
Pro Forma Balance Sheet (Unaudited)
As of Septemer 30, 1997
(in thousands, except per share data)
<TABLE>
<CAPTION>
ASSETS AVT AIFP Other Pro Forma
------ ------------------ ------- ---------
<S> <C> <C> <C> <C>
Current Assets
Cash & cash equivalents 9,902 -- (10,373)(2) (471)
Short-term investments 18,614 -- 18,614
Accounts receivable, net 6,940 1,768 8,708
Inventories 4,530 488 5,018
Deferred income taxes 2,605 2,605
Prepaid expenses & other assets 855 127 982
------------------ ------- -------
Total current assets 43,446 2,383 (10,373) 35,456
Equipment & leasehold improvements, net 2,027 439 2,466
Intangibles, net 6,021 -- 1,793 (3) 7,814
Deferred income taxes --
------------------ ------- -------
$51,494 $2,822 $(8,580) $45,736
================== ======= =======
LIABILITIES & SHAREHOLDERS' EQUITY
----------------------------------
Current liabilities:
Accounts payable 2,067 244 -- 2,311
Other current liabilities 3,347 1,125 4,472
Note payable - current portion 464 1,074 (1,074)(4) 464
Income taxes payable 1,893 -- 1,893
------------------ ------- -------
Total current liabilities 7,771 2,443 (1,074) 9,140
------------------ ------- -------
Note payable -- -- --
Shareholder's equity
Preferred stock -- -- --
Common stock 57 1 (1) 57
Additional paid-in capital 30,418 -- -- 30,418
Retained earnings 13,248 378 (7,505)(5) 6,121
Deferred compensation -- --
------------------ ------- -------
Total shareholders' equity 43,723 379 (7,506) 36,596
------------------ ------- -------
$51,494 $2,822 $(8,580) $45,736
================== ======= =======
</TABLE>
Applied Voice Technology, Inc.
Pro Forma Statement of Income (Unaudited)
For the Nine Months Ended September 30, 1997
(in thousands, except per share data)
<TABLE>
<CAPTION>
Pro Forma Adjustments
---------------------
AVT CommercePath (1) Other Pro Forma
------------------------------------------------
<S> <C> <C> <C> <C>
Net Sales $40,503 $5,377 $ 45,880
Cost of Sales 15,023 1,699 16,722
------------------------------------------------
Gross Profit 25,480 3,678 -- 29,158
Operating Expenses:
Research and development 4,747 270 (6) 5,017
Selling, general and administrative 13,422 3,234 192 (3) 16,848
Write-off of purchased, in-process
research and development 3,898 3,898
------------------------------------------------
Total operating expenses 22,067 3,504 192 25,763
Operating Income 3,413 174 (192) 3,395
Other income (expense)
Interest, net 634 (85) (311) 238
Other, net 149 (12) 137
------------------------------------------------
Other income, net 783 (97) (311) 375
Income before income tax expense 4,196 77 (503) 3,770
Income tax expense 1,510 28 (69) 1,469
------------------------------------------------
Net income $ 2,686 $ 49 $ (434) $2,301
================================================
Net income per common share $ 0.44 $ 0.37
Weighted average common
shares outstanding 6,160 6,160
Fully diluted net income per
common share 0.42 0.36
Weighted average common shares
outstanding 6,391 6,391
</TABLE>
Explanatory Notes
for
Pro Forma Adjustments
(1) Includes amounts from the unaudited AIFP income statement for the period
from February 1, 1997 to October 22, 1997 and unaudited AIFP balance sheet
as of October 22, 1997.
(2) Cash consideration given in acquisition.
(3) Assumes goodwill from the acquisition in the amount of $1,793 was recorded
on January 1, 1997 and is being amortized to expense on a straight-line
basis over seven years.
(4) Liabilities paid out in acquisition.
(5) Assumes the write-off of purchased, incomplete research and development of
$7,127 has been charged to retained earnings.
(6) Excludes the one-time write-off of purchased, incomplete research and
development in connection with the acquisition.
(7) Foregone interest income on net cash used in the acquisition.
Page 3
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
APPLIED VOICE TECHNOLOGY, INC.
Dated: January 5, 1998
By /s/ ROGER FUKAI
------------------------------------
Roger Fukai, Chief Financial Officer
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