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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required] for the fiscal year ended December 31, 1996 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] for the transition period from
__________ to ___________
Commission file number 0-22046
BOGEN COMMUNICATIONS INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
Delaware 38-3114641
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(State of Incorporation) (I.R.S. Employer Identification No.)
50 Spring Street, Ramsey, New Jersey 07446
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 934-8500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 Par Value
(Title of class)
Warrants to Purchase One Share of Common Stock
(Title of Class)
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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Registration S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or amendment
to this Form 10-K. [X]
As of March 27, 1997, 5,758,850 shares of the Registrant's Common Stock,
par value $.001 per share were outstanding. The aggregate market value of the
voting stock, based on the closing price of the Registrant's common stock on
March 27, 1997, as reported on the American Stock Exchange, held by
non-affiliates of the Registrant was approximately $5,685,505.
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Page 1 of 143
Exhibit Index Appears on Page 47 Hereof.
BOGEN COMMUNICATIONS INTERNATIONAL, INC.
FORM 10-K
TABLE OF CONTENTS
PAGE
----
PART I
Item 1. Business...................................................... 1
Item 2. Properties ................................................... 12
Item 3. Legal Proceedings ............................................ 13
Item 4. Submission of Matters to a Vote of Security Holders........... 13
PART II
Item 5. Market Price for Registrant's Common Equity and
Related Stockholder Matters............................... 14
Item 6. Selected Financial Data....................................... 16
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 17
Item 8. Financial Statements and Supplementary Data................... 23
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.................... 24
PART III
Item 10. Directors and Executive Officers of the
Registrant.................................................. 25
Item 11. Executive Compensation........................................ 27
Item 12. Security Ownership of Certain Beneficial
Owners and Management....................................... 34
Item 13. Certain Relationships and Related Transactions................ 36
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.................................................... 36
PART I
All statements contained herein that are not historical facts, including,
but not limited to, statements regarding the Company's current business
strategy, the Company's 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 actual results to differ materially are the
following: competitive factors, including the fact that the Company's
competitors are highly focused and 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 its
existing products; changes in labor, equipment and capital costs; changes in
access to suppliers; currency fluctuations; changes in regulations affecting the
Company's business; future acquisitions or strategic partnerships; the
availability of sufficient capital to finance the Company's business plans on
terms satisfactory to the Company; general business and economic conditions;
political instability in certain regions; 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 readers not to place undue reliance on
any such forward-looking statements which statements are made pursuant to the
Private Litigation Reform Act of 1995 and, as such, speak only as of the date
made.
Item 1. BUSINESS
Bogen Communications International, Inc., formerly European Gateway
Acquisition Corp., (the "Registrant", and, together with its subsidiaries, the
"Company"), develops, produces and sells sound processing equipment and
telecommunications peripherals, through its subsidiaries, Bogen Corporation, a
Delaware corporation ("Bogen"), and Speech Design GmbH, a German corporation
("Speech Design").
Bogen focuses on commercial and engineered sound equipment and
telecommunication peripherals for the voice and sound processing market. For
over six decades, Bogen has been a leader in commercial amplifiers and intercom
systems for background and foreground music applications, as well as for the
security and educational industry, and, since 1991, has produced voice
processing systems, including voice mail systems, message/music-on-hold systems,
digital announcers, call distributors and automated attendants.
Speech Design focuses on digital voice processing systems for the mid-sized
Private Branch Exchange ("PABX") market, targeting the rapidly growing European
voice processing market. With the launch, in late 1995, of its new product
family called "Memo", Speech Design has added innovative non-PC based voice mail
systems to its existing line of telecommunication peripheral products, which
includes voice-mail, automated attendants, digital announcers and message/music-
on-hold systems. The initial market reception for Memo has been positive and
approximately 1,500 systems were shipped in 1996.
Bogen's products are sold primarily through a network of distributors,
dealers and contractors. Speech Design sells directly, through leading European
telephone switch manufacturers in Germany, and through major independent dealers
outside Germany.
Suppliers and subcontractors, located primarily in the Republic of South
Korea, as well as Taiwan, Israel, Germany, and the United States, produce
sub-assemblies and finished products for the Company.
1
The Company is a Delaware corporation whose principal executive offices are
located at 50 Spring Street, Ramsey, New Jersey 07446 and its telephone number
is (201) 934-8500.
Company History
The Registrant was formed on May 6, 1993 as a Specified Purpose Acquisition
Company ("SPAC") with the objective of acquiring a medium-sized operating
business engaged in industrial manufacturing or industrial services and located
in Germany, Switzerland or Austria. On October 13, 1993, the Registrant
consummated an initial public offering (the "IPO")of 1,550,000 units, which
resulted in $8,120,000 in net proceeds to the Registrant. Each unit consisted of
one share of the Registrant's common stock, $.001 par value per share ("Common
Stock"), and two warrants (the "Warrants"), each entitling the holder thereof to
purchase one share of Common Stock for $5.50 per share (the "Units"). As of the
date hereof, there are 5,758,850 shares of Common Stock and 3,660,000 Warrants
outstanding.
Until April 6, 1995, the Registrant did not engage in any substantive
commercial business other than evaluating prospective companies for acquisition.
On such date, the Registrant entered into an agreement (as amended, the "Stock
Purchase Agreement") with Geotek Communications, Inc. ("Geotek"), to acquire
controlling interests in two communications products companies then held by
Geotek (the "Business Combination").
Pursuant to the Stock Purchase Agreement, on August 21, 1995, the
Registrant acquired from Geotek approximately 67% of the outstanding capital
stock of Speech Design GmbH and approximately 99% of the outstanding capital
stock of Bogen Corporation. As consideration for such acquisitions, Geotek
received from the Company: (i) 3,701,919 shares of Common Stock; (ii) 200,000
Warrants; (iii) $7,000,000; and (iv) a convertible promissory note in the
principal amount of $3,000,000 due in February, 1997. Furthermore, depending on
whether Speech Design and Bogen in the aggregate achieve or fail to achieve
certain earnings goals during the period from July 1, 1995 to June 30, 1997, the
Company may be obligated to make an additional payment to Geotek of up to $11
million in cash or Common Stock or Geotek may be obligated to make a payment to
the Company of up to $2.5 million in cash (or at Geotek's option, a ten-year, 4%
loan in the principal amount of up to $5 million). Based on management's review
of the earnout calculation, the anticipated contingent consideration payment, if
any, will not have a material effect on the Company's financial position and
operating results. Geotek also acquired the right to receive 70% of any cash
proceeds received by the Company upon exercise of the 3,660,000 Warrants
outstanding if exercised by June 30, 1997. As a result of the Business
Combination, Geotek acquired an approximately 64% controlling interest in the
Company.
In May 1996, the Company and Geotek entered into the most recent amendment
to the Stock Purchase Agreement effective January 1, 1996. Pursuant to such
agreement, (i) the $3,000,000 convertible promissory note payable by the Company
to Geotek, due February 1997, was reduced and restructured to a $500,000
non-convertible promissory note due July 1997, (ii) the earnout formula was
revised to reflect an increase in the amount the Company could be liable to pay
Geotek from $11,000,000 to $13,500,000 in connection with the reduction of the
principal amount of the promissory note, and (iii) Geotek was granted an option
to purchase, at any time through October 31, 1997, from the Company $3,000,000
worth of Common Stock with exercise prices ranging from 100% to 65% of market
price, depending on the date of exercise.
2
Bogen
Bogen develops, assembles and distributes sound processing equipment and
telecommunication peripherals through its wholly owned subsidiary, Bogen
Communications, Inc. ("BCI"). Since its founding in 1932, Bogen has been
involved in the commercial sound industry, concentrating its efforts on the
development and sale of equipment for commercial, industrial, professional and
institutional markets and applications.
Traditionally, Bogen's core products (which are sold through the Engineered
Systems and Commercial Sound product lines) include: commercial audio amplifiers
and related sound and intercom systems equipment for professional, industrial
and commercial system applications, including background and foreground music
applications, intercommunications and administrative communications systems for
the security and educational industry, and telephone paging.
During 1991, Bogen introduced its first product in a line of
telecommunications peripherals, the Telco product line. The first product in
this line was the MMT, a digital announcer with automatic microprocessor
controlled tape download for "on-hold" applications. During 1992, Bogen
introduced various products in the digital telephone peripherals area, including
the Automated Attendant and the Digital Announcer. These products are used in
message/music on-hold and voice mail systems.
During 1993, Bogen began marketing to the retail and end-user markets a new
product line, resulting in the Company's Office Automated Systems ("OAS"). In
December 1995, the Company's management decided to phase-out the OAS product
line and to concentrate on its traditional commercial and institutional customer
base. See also "Product Lines - OAS".
Product Lines
Telco
Bogen's Telco products consist of telephone paging systems and equipment,
digital message/music-on-hold players, one port voice mail systems and digital
telecommunication peripherals such as auto-attendants, digital announcers, call
buffers and others. These products allow installers to increase the value of
their telephone system offerings by providing users with enhanced efficiency and
convenience. Management believes that the Company's latest Telco product,
MiniMail, introduced in late 1996, is well positioned as the most economical yet
full featured voice mail system available today. MiniMail delivers many of the
features typically associated with high-end voice mail systems, yet is priced
competitively enough to appeal to owners of small telephone systems. MiniMail is
compatible with all leading PABX and key and hybrid key telephone systems.
Bogen Telco net sales were $13,122,000, $12,169,000, and $11,065,000 for
the years ended December 31, 1996, 1995 and 1994, respectively. Speech Design
also has a Telco line of products, see "Speech Design - Product Line". The
Company's combined Telco net sales through Bogen and Speech Design amounted to
$28,720,000, $26,010,000 and $19,242,000 for the years ended December 31, 1996,
1995 and 1994, respectively. Telco net sales through Bogen provided 28.4%,
27.3%, and 24.1% of the Company's net sales for these respective years. Combined
Telco sales provided 62.1%, 58.4%, and 41.9% of the Company's net sales for
these respective years.
3
Commercial Sound
Bogen's Commercial Sound product line consists of amplifiers, speakers,
microphones, intercom systems and other sound equipment used in non-consumer
applications, such as industrial public address systems, and background music in
offices. This line's newest product, the PROMATRIX amplifier, which was
introduced to the market in the third quarter 1996, incorporates three
independent amplifier channels in a single package. The Company believes that
the product's user interface sets new standards in ease of use and provides
customers with superior control over sophisticated background music and paging
applications. The PROMATRIX is a one-box solution for installations that usually
require a rack full of costly equipment.
Commercial Sound net sales for the years ended December 31, 1996, 1995 and
1994 were $9,315,000, $8,436,000, and $8,749,000, respectively. Commercial Sound
provided 20.1%, 19.0%, and 19.1% of the Company's net sales for the years ended
December 31, 1996, 1995 and 1994, respectively.
Engineered Systems
Bogen's Engineered Systems product line features custom designed
intercom/paging systems that are sold to contractors for installation in
schools. Introduced in late 1996, this line's newest product, MULTICOM-DCS(TM)
(Digital Communication System), provides system users with high quality control
speaker and telephony functions through a single user interphase.
MULTICOM-DCS(TM) provides full integration of the Company's MULTICOM paging
technology with COMDIAL PABX systems.
Engineered Systems net sales for the years ended December 31, 1996, 1995
and 1994 were $6,682,000, $5,629,000, and $5,679,000, respectively. Engineered
Systems net sales amounted to 14.4%, 12.6%, and 12.4% of the Company's net sales
for the years ended December 31, 1996, 1995 and 1994, respectively.
Office Automated Systems
The OAS line was designed for the small office/home office environment.
FRIDAY Home Office Receptionist, an all-digital office communications manager,
was Bogen's leading product in this category and was intended to serve as a hub
for phone messages, faxes and links to pagers and cellular phones. The OAS
product line targeted the retail and end-user marketplace in contrast to the
commercial and institutional focus for Bogen's other product lines.
For the years ended December 31, 1996, 1995 and 1994, OAS net sales
amounted to $1,552,000, $4,444,000, and $12,252,000, respectively. OAS net sales
were 3.4%, 10.0%, and 26.7% of the Company's net sales for the years ended
December 31, 1996, 1995 and 1994, respectively.
Due to intense competition from (i) central voice mail services offered by
local telephone companies and answering service companies and (ii) products
which benefited from better brand recognition in the marketplace and which were
frequently offered at lower retail prices than the Company's products, in
December 1995, the Company's management decided to phase out Bogen's entire OAS
product line and to concentrate on its traditional commercial and institutional
customer base.
4
Sales and Marketing
Telco
Bogen distributes its Telco products to approximately 12 distributors who
operate more than approximately 200 telecommunications distribution centers.
These distributors sell to hundreds of telecommunications installers or
interconnects across North America. The major distributors are Graybar Electric
Co., Inc. ("Graybar"), Alltel Corp. and Sprint/North Supply. In addition to its
distribution network, Bogen has a relationship with approximately 25
message/music-on-hold studios that specialize in creating custom messages. These
studios sell their services along with Bogen's Telco products. Bogen also has an
original equipment manufacturer (OEM) agreement to supply AT&T with AT&T-branded
on-hold systems.
Bogen markets its Telco products through a group of independent
manufacturer's representatives comprised of organizations with approximately 40
salespeople who sell Bogen's Telco and other complementary products to
distributors and interconnects in their territory on an exclusive basis. These
representatives are supported by a 4-person Bogen sales and support staff.
Commercial Sound and Engineered Systems
Bogen distributes its Commercial Sound products through a network of
approximately 2,000 distributors, dealers and contractors, often as complete
systems designed to satisfy an end-user's specific sound and communications
needs. In addition, a network of approximately 200 major contractors market
Bogen's school intercom systems on a territory-exclusive basis.
Bogen's Commercial Sound products are stocked by virtually every major
sound master distributor, industrial equipment distributor, and commercial
security products distributor in North America.
Bogen's Commercial Sound and Engineered Systems products are marketed
generally through a field sales organization and several independent
manufacturers representatives under the direction of Bogen's internal sales
force. Both the field sales group and the representatives are responsible for
assigned territories. The field sales personnel receive a salary and bonus based
on performance and the representatives are compensated on a commission basis.
Sales agreements are maintained with all of Bogen's independent sales
representatives and engineered systems contractors. The sales representative
agreements typically permit the sale of Bogen products by the representative in
a specific territory assigned to one or more sales representatives. Similarly,
the engineered systems contractor agreements typically allow the contractor to
purchase and install specific product lines in a designated territory.
The principal users of these products are industrial, professional and
commercial concerns and institutions such as schools, nursing homes and
correctional facilities. Bogen management believes that these user markets are
relatively stable and that Bogen has developed significant name recognition in
these markets.
OAS
Bogen sold its OAS products to nearly 2,000 retail outlets, distributors
and catalogers in North America, including major consumer electronic retailers.
Bogen marketed its OAS products through independent manufacturer's
representatives who sold Bogen's OAS and other complementary products to
5
distributors and retailers in their territory on an exclusive basis.
Sales Outside the U.S.
Although Bogen's sales are primarily in the United States, Bogen also sells
its products in Canada through a stocking representative that has its
headquarters in Ontario and branch offices throughout Canada. Export sales to
Europe are handled through the Company's subsidiaries in Europe. Export sales to
other foreign countries are handled in the same manner as sales within the
United States (i.e., through distributors, dealers and contractors that purchase
the products and sell them to an established account base overseas).
Operations
All components and materials used in the construction of Bogen's products
are of standard commercial quality or better, and are readily available from
overseas and United States suppliers. Bogen relies principally upon an
established network of suppliers and subcontractors primarily located in the
Republic of South Korea, and to a lesser extent Taiwan, Israel and the United
States. These suppliers and sub-contractors either produce sub-assemblies for
use in the final assembly of a finished product or produce the finished products
themselves. Products are based on Bogen designs and are built in accordance with
Bogen drawings and specifications. There can be no assurances that disruptions
in supplies will not occur from time to time, or that any such disruptions will
not have a material adverse effect on the Company.
Patents and Trademarks
"Bogen" is a trademark of the Company which is registered in the United
States and in certain foreign countries throughout the world. This trademark
expires in the United States in March 2000. Bogen has also obtained U.S.
trademark registration for the trade name "Multicom2000(TM)." This trademark is
utilized in connection with Engineered Systems and expires in July 2001. In
addition, during 1996, Bogen obtained a U.S. trademark for the tradename "Speech
Design", which will expire on December 31, 2006 and which can be renewed at that
time for an additional ten years.
Research and Development
Bogen's in-house engineering department is responsible for research and
development, production engineering and sales engineering. In 1997, the R&D
Department will focus on new innovative solutions for the Telco paging market by
developing a unified messaging system incorporating paging, voice messaging and
wireless peripherals into one integrated product. There can be no assurance
however, that Bogen will be able to develop such system, nor can there be any
assurance that it will be able to compete with similar products offered by other
manufacturers. Research and development expenditures for the years ended
December 31, 1996, 1995 and 1994 were $1,865,000, $1,415,000, and $1,463,000,
respectively.
Competition and Major Customers
Bogen's competition varies from market to market and product to product. In
areas in which it faces competition, Bogen competes on the basis of several
different factors, including name recognition, price, innovation and product
quality. However, such factors vary in relative importance depending on the
markets and products involved. Bogen's management has concentrated on markets in
which it believes that Bogen can obtain at least a 10% market share, be one
6
of the top two or three suppliers or which have substantial growth potential.
Bogen's key strength continues to be its distribution channels and name
recognition, especially in the school, background/foreground, and security
markets.
Bogen's Telco products compete in the voice processing and voice paging
niches of the Telco market.
In the voice processing market, Bogen's competitors are relatively small
companies that offer basic voice mail systems up to four ports. Competition also
comes from the many telephone system manufacturers which offer small voice mail
systems as options to their telephone equipment. The Message-On-Hold voice
processing market provides Bogen with three small but tough competitors, NelTech
Labs, Premier, Inc., and Mackenzie Labs.
In the voice paging market, Bogen's main competitor is Valcom, Inc., a
company which has been established in this market for several decades. Other
competition comes from several other U.S. companies which have been losing
market share over the past few years, and from several companies attempting to
enter the market. Bogen has increased its share in the voice paging market from
18% to 33% in recent years.
The Commercial Sound customer market is characterized by intense
competition, particularly from several overseas companies, with no one company
accounting for more than 10% of the U.S. market. Bogen's principal competitor is
TOA Electronics, a Japanese Company ("TOA"), and University Sound, a U.S. based
manufacturer ("University"). Bogen also competes with comparatively small
manufacturers that rely mainly on established account relationships. Bogen
concentrates on customer needs to design, manufacture and market tailored
packaged solutions for each particular vertical market. Bogen focuses on
durability and reliability as opposed to state-of-the-art performance in its
product design and positioning.
Bogen's Commercial Sound competition can be divided into two categories:
General Line/Master Distributor competitors, and competitors at the Sound and
Systems Contractor level.
In the distributor channel, Bogen faces full line competitors such as Paso,
Inc., University, Speco, Inc. and others, as well as specialized competitors
such as Atlas Soundolier, Inc., Quam Nichols, Inc., Lowell, Inc., Shure
Brothers, Inc., and CTI/Astatic who market and sell products such as
microphones, speakers, horns and other non-amplifier items. Bogen garners
greater than 50% market share versus all of these competitors selling to the
distributor channel.
At the contractor level, Bogen faces competition from many sources, a
number of them overseas companies. Bogen's principal competitor at the
contractor level is TOA, comprising approximately 10% of the U.S. market, which
invests considerable effort in developing sound systems. Bogen competes with a
number of other amplifier manufacturers such as QSC Electronics, none of which
has secured more than approximately 10% of the market. There are a number of
comparatively small manufacturers Bogen competes with, whose sales and market
share depend upon established reputation for quality and support and solid
relationships with their account base.
The Engineered System customer market is a highly specialized market
characterized by low unit volume and high dollar sales. Bogen's principal
competition comes from Rauland Borg Corp., the market leader in this area, and
Dukane Corporation, which, like Bogen, have been in the market for several years
7
and have well established name recognition and distribution channels. Rauland
Borg Corp. is currently the acknowledged market leader.
The OAS market is characterized by intense competition from central voice
mail services offered by local telephone companies and answering service
companies and other competitors with greater brand recognition in the
marketplace whose products are frequently offered at lower retail prices than
the Company's products. Accordingly, in late 1995, the Company's management
decided to phase out Bogen's entire OAS product line.
Graybar, Bogen's largest customer, accounted for more than 10% of the
Company's gross sales. The loss of Graybar as a customer is likely to have a
material adverse effect on the Company.
Backlog of Orders
As of December 31, 1996, Bogen had a backlog of firm orders of approximately
$425,000, all of which it expects to fill within 1997. As of December 31, 1995,
Bogen had a backlog of firm orders of approximately $1,090,000.
Speech Design
Speech Design, located in Munich, Germany, develops, manufactures and
markets telephone peripheral hardware utilizing digital voice processing
technologies. Speech Design products include voice mail systems, automated
attendants, digital announcers and message/music-on-hold systems. Until 1992,
Speech Design was engaged primarily in selling peripheral equipment for cellular
telephones utilized in connection with an analog network. With the advent of the
European GSM digital standard and the related decline in prices of ancillary
subscriber equipment, Speech Design's management decided to refocus its
activities from the cellular market to the telephone peripherals market.
In late 1995, Speech Design launched a new product family called "Memo",
which consists of stand-alone non-PC based voice mail peripherals for
small-to-medium PABXs. The high-end Memo-CDA model includes a CD based music and
information on hold system. Memo offers full integration with most of the
popular PABX models on the European market. Management expects Memo to
contribute significantly to Speech Design's strategic goal of becoming a market
leader in the rapidly growing European voice processing market. Memo has been
well-accepted in the marketplace and approximately 1,500 systems were shipped in
1996, contributing approximately 23% to Speech Design's 1996 net sales.
In 1994, Speech Design launched a major program to establish an
international market presence. Speech Design signed distribution contracts with
partners in ten European countries and gained national Post, Telegraph and
Telephone ("PTT") approval in most major markets. The Company believes that such
approval constitutes a major market entry barrier to non-European and small
European companies. Also on July 1, 1994, Speech Design acquired a 67% interest
in Satelco AG, a Swiss company, which is a marketer of telephone peripherals and
a distributor of Speech Design's and Bogen's products. In order to further
support its efforts to enter the UK market, Speech Design founded a sales
subsidiary, Speech Design (UK) Ltd., in early 1996. With a staff of four, the UK
branch has had some initial sales. In the last quarter of 1996, Speech Design
signed a distribution agreement with GEC, partially owned Siemens subsidiary,
the second largest distributor in the UK. Sales outside of Germany increased
from 11% of total sales in 1994 to 20% in 1995 to 24% in 1996 and are expected
to reach 40% of total sales within the next 3 years. There can be no assurance,
however, that Speech Design will achieve such goal and that Speech Design's
growth outside of
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Germany will continue.
In mid-1996, a manufacturing subsidiary, Speech Design (Israel) Ltd., was
founded in Israel. It has begun to assume the production of certain product
lines from Speech Design Germany, resulting in reduced manufacturing cost and
tax levels. The Israeli facility has been granted a 10-year tax exemption,
effective January 1, 1997.
Product Line
Speech Design's products are in the Telco line of products and include
voice mail, automated attendants, digital announcers and message/music-on-hold
systems. Telco net sales provided by Speech Design were $15,598,000,
$13,841,000, and $8,177,000 for the years ended December 31, 1996, 1995 and
1994, respectively. Speech Design Telco sales amounted to 33.7%, 31.1% and 17.8%
of the Company's net sales for these years.
Sales and Marketing
The general market for Speech Design's products is the under-developed, but
rapidly growing, European voice processing market for commercial and industrial
end users. According to the Company's estimates, the current penetration of such
applications as voice mail in Europe is less than 1% of the installed telephone
system PABX base and less than 5% of new PABX shipments (as compared to between
20%-40% in the U.S.A.). PABXs are multiple-line business telephone systems which
are installed at end users' businesses to facilitate internal and external
communications. The PABX is an alternative to providing each employee in a
company with his or her own direct line.
Speech Design markets its PABX peripherals to major manufacturers and
distributors of PABX systems throughout Europe for use by mid-size companies
consisting of approximately 20-200 employees. The major manufacturers integrate
Speech Design products with their PABXs for sale to the end-user as part of a
new system. The increased visibility of Speech Design's products had led to more
Speech Design peripherals being sold to owners of previously installed PABXs.
Speech Design attempts to differentiate itself both from high-end suppliers
of large customized systems and suppliers of semi-professional, price-sensitive
solutions for the small company sector by providing standard, high-quality,
affordable and easy-to-use products for the small to mid-size PABX.
Speech Design sells its products through resellers. In Germany, Speech
Design's main customers are sales organizations of leading PABX manufacturers
and major independent dealers. In other European countries, Speech Design has
exclusive agreements with national distributors, which in Switzerland and the UK
are Speech Design subsidiaries, which market to the reseller base in their
respective territories. In the United States, Bogen is the exclusive distributor
of Speech Design products.
Germany
In Germany, Speech Design has developed an effective approach for local
distribution of voice processing products. Speech Design sells directly to the
regional sales offices of the leading manufacturers of PABX equipment including
Alcatel, Siemens, Philips, Bosch Telecom and DeTeWe. Over 75% of Speech Design's
sales are to these customers (which percentage corresponds to these
manufacturers' approximate joint share of the PABX market). The loss of any one
of these customers is likely to have a material adverse effect on the Company.
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Speech Design has achieved central pricing agreements and technical as well as
commercial endorsements from the headquarters of each of the companies. The
regional offices of these companies consist of approximately 200 locations and a
combined sales force of approximately 3,000 people. Speech Design's own sales
and technical team of 15 individuals supports and motivates the regional sales
forces of the large PABX companies to actively market Speech Design's products.
Speech Design routinely updates its data bank of all PABX sales representatives
in Germany to help the sales team optimize communications and efficiency.
Speech Design considers its sales network in Germany, Europe's largest
telecommunications market, to be one of its most valuable assets and a major
market entry barrier to potential competitors.
Outside of Germany
Speech Design utilizes exclusive national distributors in all major
European markets (Austria, Belgium, Denmark, Finland, France, Italy, The
Netherlands, The United Kingdom, Sweden and Switzerland). These distributors,
other than Satelco AG, in which Speech Design holds approximately 67% of the
equity, and Speech Design's U.K. subsidiary, are independent resellers of
telecommunications equipment, who market Speech Design's products to local
manufacturers and distributors of PABXs. In the United States, Bogen is the
designated distributor. In order to achieve the Company's planned rate of growth
in export sales, Speech Design has employed some of the marketing methods used
in Germany to its other markets. There can be no assurance, however, that such
methods will prove successful in achieving further growth in these markets.
Operations
Speech Design manufactures its products in cooperation with a network of
German subcontractors and an Israeli subcontractor that was retained in 1995.
Speech Design purchases all mechanical and electronic components for its
products and ships them for board-level assembly work by its subcontractors.
Speech Design's own manufacturing group assembles finished products from
pre-tested modules and performs final quality tests. In mid-1996, Speech Design
(Israel) Ltd. assumed the production of certain product lines.
Speech Design maintains a computerized order processing and warehouse
system and a level of product availability that generally enables it to deliver
products in Germany an average of three days after receipt of an order and
within two weeks after receipt of an order for other countries.
Patents and Trademarks
"Speech Design" is a registered trademark in Germany and the U.S. Several
of Speech Design's products also have registered trademarks.
Research and Development
Speech Design's engineering group is responsible for the development,
production engineering and sales engineering of all Speech Design products.
Research and development expenditures for the years ended December 31, 1996,
1995 and 1994 were $1,027,000, $892,000, and $536,000, respectively.
Competition
In Germany, Speech Design is the acknowledged market leader in the small to
mid-size PABX peripherals, with an estimated market share of 60%. Speech
10
Design's main competitor in Germany is Beyer KG, a provider of telephone
peripherals primarily at the low-end of the Speech Design product range (simple
music-on-hold units and announcers). Speech Design's management believes that
its new Memo family of voice mail and related products will increase its
competitive advantage in Germany.
There is no single dominating company in the European market for small to
mid- size PABX peripherals. With the exception of Octel, Northern Telecom, AT&T
and a handful of other competitors who are highly focused on the large,
customized systems market, Speech Design's competition comes from a large number
of smaller companies offering PC-based voice mail systems. These companies tend
to be highly focused on their national markets and generally cannot afford to be
global players due to the cost of establishing distribution channels and gaining
regulatory approval for selling telecommunications products in each country.
Some of Speech Design's competitors include Beyer KG (Germany) and Vox S.A.
(France); the only company offering a non-PC-based solution similar to Speech
Design's is VOX S.A.of France.
Management believes that the combination of Speech Design's mid-size PABX
focus, broad and unique product range and Europe-wide distribution presence may
enable Speech Design to become a leading provider of telephone peripherals in
many European countries. There can be no assurance, however, that such results
will occur or that the Memo family of voice mail and related products will
increase Speech Design's competitive advantage in Germany, because this industry
is highly sensitive to general economic conditions and is characterized by rapid
technological change. Speech Design's ability to compete successfully may depend
in substantial measure on its ability to develop or acquire new or improved
equipment, techniques and products and/or to modify and upgrade its existing
equipment, techniques and products, none of which can be assured.
Backlog of Orders
As of December 31, 1996, Speech Design had a backlog of firm orders of
approximately $496,000, all of which it expects to fill in 1997. As of December
31, 1995, Speech Design had a backlog of firm orders of approximately $918,000.
Strategy for Growth and Expansion
Bogen's goal is to increase its market share in each niche market in which
it is operating. For the 1997 fiscal year, Bogen restructured its organization
into three separate Business Units (each a "BU"). The Commercial Sound BU, the
Telco Messaging BU and the School Systems BU with each BU assuming its own
profit and loss responsibility. Management believes that such structure will
enable Bogen to focus on each of the business segments. Bogen plans to achieve
growth through internal innovation and possible acquisitions.
Speech Design management believes that the growing demand for mid-size
voice mail in the rest of Western Europe will create opportunities for Speech
Design to export its product outside of Germany. Speech Design will focus its
efforts on duplicating its success in Germany into other West European countries
along with developing the Memo family to fit larger PBXs. There can be no
assurance, however, that it will be able to duplicate its success outside of
Germany or expand Memo's potential customer base.
Government Regulations and Industry Certifications
The federal government regulates domestic telecommunications equipment and
11
related industries. The federal agency vested with primary jurisdiction over the
telecommunication industry is the Federal Communications Commission (the "FCC").
Many telephone peripheral industries, while not directly regulated by the FCC,
are nevertheless substantially affected by the enforcement of its regulations
and changes in its regulatory policy.
The FCC has adopted regulations regarding attachments to the telephone
networks as well as regulations imposing radio frequency emanation standards for
computing and radio equipment and many of Bogen's products require certification
by the FCC. In addition, many of Bogen's products also require the approval of
the Underwriter's Laboratory. All such required certifications and/or approvals
have been obtained. As a result of modifications and improvements to Bogen's
products, Bogen will be obligated to seek new certifications and/or approvals
where there is a degradation in the radio frequency emissions. Failure to obtain
such certifications and/or approvals may preclude Bogen from selling its
products in the U.S. Bogen makes all reasonable efforts to ensure that its
products comply with such requirements.
To successfully access the Canadian market, Bogen must obtain Underwriters
Laboratory Canada and Canadian Standards Association approvals for all AC
powered products.
All Speech Design products have been adopted to the technical
(PTT-approvals) and commercial sound requirements of West European markets.
In 1995, Speech Design received the ISO 9001 Quality Certificate for its
research and development, production and customer support operations in Germany.
This certification is becoming an increasingly important international "Quality
Mark" and competitive advantage. In 1996, the Quality Mark was extended to
include Speech Design's Israel and U.K. subsidiaries.
Employees
As of December 31, 1996, the Company had approximately 173 full-time
employees engaged in its businesses. The Company also uses temporary and/or
part-time employees, as required. Twenty of Bogen's employees are subject to
collective bargaining agreements, which expire in mid-1997. The Company
considers its relationship with its employees to be good.
Item 2. PROPERTIES
The Registrant's principal place of business is located at 50 Spring
Street, Ramsey, New Jersey. Bogen also maintains its principal warehouse and
executive offices at that location which is subleased from an unaffiliated third
party. The lease, which covers approximately 70,000 square feet, commenced on
January 1, 1987 and expires on December 31, 2000. Annual base rental payments
over the remainder of the lease are approximately $670,000, plus taxes and other
expenses.
Bogen also maintains inventory in the State of Washington at a warehouse
managed by one of Bogen's independent sales representatives.
Speech Design leases its facilities in Munich, Germany under leases
expiring in 2005 and 1999. Speech Design also has subsidiaries which have leases
in Israel, the UK and Switzerland. Speech Design and subsidiaries' aggregate
annual rental payments are approximately $458,000.
Management of the Company believes that the facilities occupied by the
Company and its subsidiaries are adequate to meet current needs.
12
Item 3. LEGAL PROCEEDINGS
The Company is not aware of any material pending or threatened legal
proceedings to which it is a party or of which any of its property is subject.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 1996 Annual Meeting of Stockholders of the Registrant was held on
December 13, 1996 for the purpose of (i) electing three Class 1 Directors to
serve until the 1998 Annual Meeting of Stockholders, (ii) adopting the Company's
1996 Incentive Stock Option Plan, and (iii) ratifying the selection of Coopers &
Lybrand, LLP as the Company's auditors.
Set forth below are the names of the class 1 directors whose term of office
continued after the annual meeting:
For Against Abstain
--- ------- -------
Dr. Leonard Lodish 3,976,634 -0- -0-
Michael McCoy 3,976,634 -0- -0-
David Jan Mitchell 3,976,634 -0- -0-
Set forth below is the tabulation of the votes cast with reference to the
adoption of the Company's 1996 Incentive Stock Option Plan:
For Against Abstain
--- ------- -------
4,046,335 -0- -0-
Set forth below is the tabulation of the votes cast with reference to the
ratification of the selection of Coopers & Lybrand, LLP as the Company's
auditors.
For Against Abstain
--- ------- -------
3,921,385 131,250 1,000
13
PART II
Item 5. MARKET PRICE FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Registrant's Common Stock and Warrants currently trade on the American
Stock Exchange under the symbols "BGN" and "BGNW," respectively. Between October
7, 1993 and August 21, 1995, the Registrant's Common Stock, Warrants and Units
were quoted on the OTC Bulletin Board under the symbols EGAQ, EGAQW and EGAQU,
respectively. The Units were traded on the American Stock Exchange under the
symbol "BGNE" from August 21, 1995 until they were de-registered in December
1996.
The following table sets forth the range of high and low bid prices for the
Common Stock, Warrants and Units for each of the fiscal quarters during the
period from January 1, 1995 through December 31, 1996, as reported by the OTC
Bulletin Board. The quoted prices represent "inter-dealer" prices without retail
markups, markdowns or commissions and may not necessarily represent actual
transactions. Subsequent to August 21, 1995, the quotes represent the high and
low sales prices on the American Stock Exchange for BGN and BGNW and BGNE (from
August 21, 1995 until the Units were de-registered in December 1996).
January 1, 1995 to March 31, 1995
Security High ($) Low ($)
- -------- -------- -------
Common Stock 5 1/4 4 3/8
Warrants 1 1/16 1/8
Units 6 5 1/2
April 1, 1995 to June 30, 1995
Security High ($) Low ($)
- -------- -------- -------
Common Stock 5 3/16 4 7/8
Warrants 15/16 1/2
Units 7 6
July 1, 1995 to September 30, 1995*
Security High ($) Low ($)
- -------- -------- -------
Common Stock 5 1/2 5
Warrants 7/8 5/8
Units 7 1/4 5 3/4
14
October 1, 1995 to December 31, 1995
Security High ($) Low ($)
- -------- -------- -------
Common Stock 6 2 15/16
Warrants 1 3/16 1/4
Units 6 3/4 4 1/2
January 1, 1996 to March 31, 1996
Security High ($) Low ($)
- -------- -------- -------
Common Stock 4 1/2 2 7/8
Warrants 1 3/8
Units 4 4
April 1, 1996 to June 30, 1996
Security High ($) Low ($)
- -------- -------- -------
Common Stock 4 13/16 3 1/8
Warrants 1 3/16 7/16
Units 5 7/8 3 3/4
July 1, 1996 to September 30, 1996
Security High ($) Low ($)
- -------- -------- -------
Common Stock 5 3 3/4
Warrants 1 3/16 9/16
Units 4 3/4 4 1/4
October 1, 1996 to December 31, 1996
Security High ($) Low ($)
- -------- -------- -------
Common Stock 4 1/4 2 15/16
Warrants 15/16 1/2
Units 5 7/8 3 1/2
*Securities were exchanged on August 21, 1995, the date of the Business
Combination.
The Registrant has not declared or paid any cash dividends on its Common
Stock since commencing operations. In addition, Bogen's $7 million line of
credit with Summit Bank, obtained the first quarter of 1997, prohibits Bogen
from declaring or paying any dividends on its capital stock. The Registrant does
not anticipate
15
paying any dividends on the Common Stock in the foreseeable future and intends
to retain any earnings for possible future expansion of the Company's business.
As of March 1, 1997, there were 25 record holders of the Common Stock.
Item 6. SELECTED FINANCIAL DATA
For accounting purposes, the Business Combination was treated as a joint
acquisition of the Company by Bogen and Speech Design, companies that were under
the common control of Geotek. The transaction is considered a reverse
acquisition ("Reverse Acquisition") with Geotek as the acquiror for accounting
purposes. The selected financial data of the Company presented below reflect the
combination of Bogen and Speech Design in a manner similar to a
pooling-of-interests. Accordingly, the selected financial data of the Company
presented below reflects the operations of Bogen which was acquired by Geotek in
1991, and Speech Design which was acquired by Geotek in 1993.
In 1994, Speech Design acquired a 67% interest in Satelco AG, and its
financial statements are consolidated with the Company's financial statements in
accordance with pooling-of-interests.
The following table summarizes certain selected consolidated financial
information for the Company and should be read in conjunction with the more
detailed consolidated financial statements and the notes thereto. See "Item 8.
Financial Statements and Supplementary Data."
(In thousands, except per share data)
- ------------------------------------------------------------------------------
For the Year
Ended December 31, 1996 1995 1994 1993 1992(1)
- ------------------------------------------------------------------------------
Net Sales $ 46,269 $ 44,518 $ 45,922 $ 30,072 $ 19,501
Net income (loss) $ 2,008 $ (4,543) $ (355) $ (37) $ (214)
Net income (loss)
per common share $ 0.35 $ (1.37) $ (0.18) $ (0.04) $ --
- ------------------------------------------------------------------------------
As of December 31, 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------
Total Assets(2) $ 31,386 $ 31,304 $ 32,866 $ 14,420 $ 9,437
Long-term debt (net
of current
maturities) $ 370 $ 3,458 $ 5,039 $ 5,570 $ 5,809
(1) The net loss per common share for 1992 is not presented, because the Common
Stock was not issued until 1993. Accordingly, such calculations prior to
1993 are not meaningful.
(2) Refer to footnote 1G in the consolidated financial statements for a
discussion of the "Push-Down" of goodwill to Bogen.
The Company did not pay a cash dividend on the Common Stock during any
period indicated.
16
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The financial statements and the following discussion include Bogen, the
Company's 99% owned subsidiary, and Speech Design, its 67% owned subsidiary, as
well as the subsidiaries of Speech Design, which are Satelco, Speech Design
(Israel) Ltd. and Speech Design (UK) Ltd. All significant intercompany accounts
and transactions have been eliminated in consolidation.
RESULTS OF OPERATIONS 1996 COMPARED TO 1995
NET SALES
Net sales of $46,269,000 for 1996 increased 4% from net sales of
$44,518,000 for 1995. The increase in net sales is principally due to an
increase in net sales across all product lines (other than OAS, which was phased
out in 1995) as a result of the introduction of new products, increased sales
volume of the Company's products to existing and new customers, and an increase
in the sales price for most of the Company's domestic products, and was
partially offset by a decline in OAS sales.
Telco net sales in 1996 amounted to $28,720,000 compared to $26,010,000 in
1995, an increase of $2,710,000 or 10%. Domestic Telco sales increased $953,000
in 1996 or 8% over comparable sales in 1995. Foreign Telco sales increased
$1,757,000 in 1996 or 13% over comparable sales in 1995. The increase in both
markets is attributable to the release of new products as well as increased
volume to existing and new customers.
Net sales of Commercial Sound products amounted to $9,315,000 in 1996,
increased $879,000, or 10%, from net sales of $8,436,000 of such products in
1995. The increase of $879,000 is a result of an increase in the number of units
sold due to growth in the consumer sales market and a three percent sales price
increase implemented during the first quarter of 1996.
The Engineered System line of products also had an increase in net sales
for the year ended 1996 as compared to 1995. Net sales of the Engineered System
line increased $1,053,000 or 19% from $5,629,000 in 1995 to $6,682,000 in 1996.
This increase of $1,053,000 is attributed to the introduction of the
MULTICOM-DCS(TM).
Net sales for the OAS product line for 1996 were $1,552,000, a decrease of
$2,892,000 from sales of $4,444,000 for 1995. The decrease in 1996 as compared
to 1995 is primarily related to the phase-out of this product line. See "-Phase-
Out of OAS Product Line."
All of the Company's product lines are distributed domestically through
Bogen. Telco products are distributed in both domestic and overseas markets.
Overseas distributions are made through Speech Design.
GROSS PROFIT
The Company's gross profit in 1996 was $21,265,000, or approximately 46% of
sales, an increase of $4,085,000, compared to $17,180,000, or approximately 39%
of sales, in 1995.
The increase is mainly due to the following: (i)charges of $2.2 million in
1995 to reduce certain inventory to market value; (ii)an increase in 1996 in the
sales price of most of the Company's domestic products; (iii) a reduction in the
17
cost of direct materials due to successful renegotiation with suppliers.
Gross profit as a percentage of sales for all the Company's product lines
excluding OAS, amounted to 46% in 1996 and 44% in 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") decreased in absolute
dollars and as a percentage of sales in 1996 as compared to 1995. SG&A was
$14,360,000 or about 31% of sales in 1996 compared to $15,067,000 or 34% of
sales in 1995. This decrease of $707,000 is due to the decrease in selling costs
relating to OAS sales, which, in 1995, included an intense marketing effort.
This decrease was partially offset by an increase in administrative expenses
primarily due to additional administrative expenses at Speech Design in
connection with its expansion into Europe.
RESEARCH AND DEVELOPMENT
Research and Development expense ("R&D") was $2,892,000 or 6% of sales in
1996, compared to $2,307,000, or 5% of sales in 1995. This represents a $585,000
increase from 1995. The Company's R&D programs are designed to efficiently
introduce innovative products in a timely manner and support the Company's
planned growth. The Company anticipates introducing additional products to the
Telco and Engineered System product lines. There can be no assurance, however,
that the Company will be able to successfully introduce additional products. The
inability to introduce such additional products may have a material adverse
effect on the Company.
AMORTIZATION OF INTANGIBLES
Amortization expense increased less than 1%, or $2,000 to $445,000 in 1996
from $443,000 in 1995. The increase is mainly a result of amortization relating
to Speech Design's 1996 purchase of intangible assets.
INCOME (LOSS) FROM OPERATIONS
Operating income in 1996 amounted to $3,568,000, a $4,205,000 increase from
operating losses of $637,000 in 1995. The increase is due to a $1,751,000
increase in net sales; a 7% increase in gross profit margin percentage; and a 1%
decrease in operating expenses.
INTEREST EXPENSE
Interest expense, including interest expense payable to related parties,
was $668,000 in 1996, a decrease of $538,000, as compared to $1,206,000 in 1995.
This decrease was attributable to (i) a reduction in notes payable to Geotek in
August 1995 in connection with the Company's acquisition of Bogen, and (ii) the
reduction and restructuring of the $3,000,000 Geotek note in 1996.
TAXES ON INCOME
The Company incurred approximately $555,000 in taxes, a $707,000 decrease
from 1995. The decrease is due to more efficient tax planning at Speech Design
which resulted in a 14% decrease in the effective tax rate at Speech Design, as
well as a $214,000 refund of taxes paid in 1995.
NET INCOME(LOSS)
After deducting its minority interest in the earnings of its subsidiaries
of $337,000, the Company's net income for 1996 increased by $6,551,000 to
$2,008,000 in 1996 as compared to losses of $4,543,000 in 1995. The $6,551,000
increase is due to the following: (i) a $1,491,000 decrease in acquisition
costs; (ii) a $4,205,000 increase in income from operations; (iii) a $538,000
decrease in interest expense; and (iv) a $707,000 reduction in income taxes, and
was partially offset by a $237,000 reduction in other income.
18
EARNINGS PER SHARE
Primary earnings per common share for the year ended December 31, 1996 were
$0.35 compared to $(1.37) for the year ended December 31, 1995. The weighted
average number of shares outstanding in the calculation for primary earnings per
share was 5,759,075 in 1996 as compared to 3,311,668 in 1995.
PHASE-OUT OF OAS PRODUCT LINE
Effective December 31, 1995 the Company's management decided to phase-out
the OAS product line. This decision was based on the intense competition that
the Company faced from local telephone companies and answering service
companies, both of which offer central voice mail services. The Company's OAS
product line competed with products that were frequently offered at a lower
retail price than the Company's products. In addition, competitors' products
benefited from better brand recognition in the marketplace, which is dominated
by AT&T, Panasonic and PhoneMate.
Net OAS sales of $1,552,000 in 1996 decreased $2,892,000 from $4,444,000 of
sales in 1995. Gross profit (deficit) of OAS products of $630,000 in 1996
increased by $1,118,000 from a gross deficit of $(488,000) in 1995. Net income
(loss) from the OAS product line increased by $4,786,000 to $272,000 in 1996
from a net loss of $(4,514,000) in 1995.
RESULTS OF OPERATIONS 1995 COMPARED TO 1994
NET SALES
Net sales of $44,518,000 for 1995 decreased 3% from net sales of
$45,922,000 for 1994. The decrease in net sales is principally due to poor sales
in the Company's OAS product line, and to a lesser extent, due to poor sales in
the Commercial Sound and Engineered Systems product lines and was partially
offset by increased sales in the Telco product line.
Telco net sales in 1995 amounted to $26,010,000 compared to $19,242,000 in
1994, an increase in 1995 as compared to 1994 of $6,768,000 or 35%. Domestic
Telco sales increased $1,105,000 in 1995 or 10% over comparable sales in 1994.
Foreign Telco sales increased $5,664,000 in 1995 or 69% over comparable sales in
1994. The increase in both markets is attributable to the release of new
products as well as increased volume to existing and new customers.
Net sales of Commercial Sound products amounting to $8,436,000 in 1995,
decreased $313,000, or 4%, from net sales of $8,749,000 of such products in
1994.
Net sales of the Engineered System line decreased $50,000 or 1% from
$5,679,000 in 1994 to $5,629,000 in 1995.
Net sales for the OAS product line for 1995 were $4,444,000, a decrease of
$7,808,000 from sales of $12,252,000 for 1994. The decrease in 1995 as compared
to 1994 is primarily related to a one-time sale to AT&T during 1994 of
approximately $5,300,000. See "-Phase-Out of OAS Product Line."
All of the Company's product lines are distributed domestically through
Bogen. Telco products are distributed in both domestic and overseas markets.
Overseas distributions are made through Speech Design.
GROSS PROFIT
Gross profit was $17,180,000 in 1995, or 39% of sales compared to
$16,183,000, or 35% of sales in 1994. The increase is mainly due to a change in
product mix, see "-Net Sales," and was partially offset by the write-off of
certain inventories, the majority of which related to the OAS product line.
19
Sales from the Telco product line, which has the highest gross profit of
all of the Company's product lines, amounted to 58% of total sales in 1995 as
compared to 42% of total sales in 1994. However, the Telco product line's
positive contribution to gross profit was offset by a significantly lower gross
margin on OAS products, which resulted primarily from a $1,500,000 provision in
1995 to reduce OAS inventory to its market value. See "-Phase-Out of OAS Product
Line."
Gross profit as a percentage of sales for all the Company's product lines
excluding OAS, amounted to 44% in 1995 and 40% in 1994.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") increased in absolute
dollars and as a percentage of sales in 1995 as compared to 1994. SG&A was
$15,067,000 or about 34% of sales in 1995 compared to $12,555,000 or 27% of
sales in 1994. This increase of $2,512,000, or 20% is attributable primarily to
an intensive marketing campaign to promote declining sales of OAS products and
increased consulting and payroll expense required to facilitate the continued
growth and operations of a public company.
RESEARCH AND DEVELOPMENT
Research and Development expense ("R&D") was $2,307,000 or 5% of sales in
1995, compared to $1,999,000 or 4% of sales in 1994. This represents a $308,000
increase from 1994. Expenditures in 1995 were made in connection with the
development of additional products to the Telco and Engineered System product
lines.
INCOME (LOSS) FROM OPERATIONS
Operating losses in 1995 amounted to $637,000, a $1,842,000 decrease from
operating income of $1,205,000 in 1994. The decrease is due primarily to a
decrease in OAS sales and increases in R&D and OAS SG&A expenses. See " - Net
Sales; -Selling, General and Administrative Expenses."
TRANSACTION COSTS
In 1995, the Company incurred $1,491,000 in non-recurring transaction costs
for legal and other professional services in connection with the acquisition of
Bogen and Speech Design. A portion of these costs, approximately $740,000,
related to the issuance of the Common Stock and Warrants and for professional
fees incurred in facilitating the Business Combination.
AMORTIZATION OF INTANGIBLES
Amortization expense increased $19,000, or 5% to $443,000 in 1995 from
$424,000 in 1994. The increase reflects a full year of goodwill amortization
relating to Speech Design's investment in Satelco AG versus six months of
amortization in 1994.
TAXES ON INCOME
The Company incurred approximately $1,262,000 in foreign taxes, a
$1,183,000 increase from 1994. The increase is attributable to the utilization
of loss carryfowards in 1994, which offset most of the taxable income from that
year.
NET INCOME(LOSS)
After deducting its minority interest in the earnings of its subsidiaries
of $184,000, the Company's net loss for 1995 increased by $4,188,000 to
$4,543,000 in 1995 as compared to $355,000 in 1994. The increase in net loss is
mainly due to the lack of success of the OAS product line in the marketplace, an
increase in income taxes and the effect of non-recurring transaction costs in
connection with the Business Combination.
20
EARNINGS PER SHARE
Primary earnings per common share for the year ended December 31, 1995 were
$(1.37) compared to $(0.18) in the year ended December 31, 1994. The weighted
average number of shares outstanding in the calculation for primary earnings per
share was 3,311,668, respectively in 1995 as compared to 1,925,000, respectively
in 1994.
PHASE-OUT OF OAS PRODUCT LINE
Effective December 31, 1995 the Company's management decided to phase-out
the OAS product line. This decision was based on the intense competition that
the Company faced from local telephone companies and answering service
companies, both of which offer central voice mail services. The Company's OAS
product line competed with products that were frequently offered at a lower
retail price than the Company's products. In addition, competitors' products
benefited from better brand recognition in the marketplace, which is dominated
by AT&T, Panasonic and PhoneMate.
Net OAS sales of $4,444,000 in 1995 decreased $7,808,000 from $12,252,000
of sales in 1994, principally due to a one-time sale to AT&T during 1994 of
approximately $5,300,000. Losses on sales of OAS products of $488,000 in 1995
decreased by $3,309,000 from a gross profit of $2,821,000 in 1994. The decrease
in gross profit is attributable to a decrease in sales volume and a provision to
reduce certain OAS inventory to its market value. OAS research and development
expenditures decreased by 40% to $487,000 in 1995 from $815,000 in 1994, because
the Company focused its R&D efforts on other product lines during 1995. SG&A
expenses attributable to OAS of $3,539,000 in 1995 increased 20% from $2,958,000
in 1994 due to an intensive marketing program that the Company instituted during
1995 to improve lagging sales results. Due to the above factors, the operations
of the OAS product line resulted in a net loss of $4,514,000 in 1995, an
increase of 374% from the net loss of $952,000 in 1994.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
During 1996, the Company focused on long term growth. Accordingly, cash
utilization focused primarily on operations, investments in equipment and other
fixed assets and the pay down of debt.
There was a net decrease in the Company's cash and cash equivalents from
$1,276,000 at the end of 1995 to $885,000 at the end of 1996.
The Company's operating activities generated $1,262,000 of cash. The
Company's net income of $2,008,000 was reduced by non-cash adjustments for the
following items: (i) depreciation and amortization of $1,423,000; (ii)
reductions in reserves for accounts receivable and inventory obsolescence of
$1,362,000; and (iii) loss from minority interest of consolidated subsidiaries
of $337,000. Additionally, inventory decreased by $2,269,000, accounts payable
decreased by $1,040,000, accounts receivable increased by $1,703,000 and net
changes in other operating assets and liabilities amounted to $670,000.
Net cash used in investing activities amounted to $1,101,000. During 1996,
the Company purchased equipment and other fixed assets of $1,017,000 and
intangibles of $102,000. Other investing activities provided $18,000 in cash.
Net cash used in financing activities amounted to $773,000. The Company
paid down $502,000 of notes payable, of which $341,000 was paid to related
parties. Net borrowings of $23,000 were made under revolving credit agreements.
In addition, Speech Design made a $294,000 distribution to its minority
shareholders.
21
As of December 31, 1996, the Company's total liabilities were $13,810,000,
of which $12,312,000 was due and payable within one year. Such indebtedness
included loans from third parties and loans and advances from Geotek.
Bogen had a $10,000,000 asset based revolving credit line which would have
expired in August 1997. In the first quarter of 1997, BCI obtained, from Summit
Bank, a new $7,000,000 revolving credit line for a period of two years. This new
line is collateralized by the accounts receivable, inventory and general
intangibles of BCI. This line is guaranteed by the Company. This new line, which
meets Bogen's needs, is lower than the previous line thereby substantially
decreasing the associated fees to be paid on an annual basis. In addition, Bogen
has an established working capital line of credit with Geotek in the aggregate
amount of $2,000,000. At December 31, 1996, Bogen had no borrowings outstanding
under the working capital line with Geotek.
Speech Design has credit lines and overdraft facilities of approximately
$4,300,000. At December 31, 1996 borrowing and availability under these lines
amounted to $3,300,000 and $1,000,000, respectively. These lines are
collateralized by all of Speech Design's accounts receivable and inventory.
The Company believes that it has adequate liquidity to finance its ongoing
activities and capital expenditures for the near term but may be required to
seek additional capital in the event it wishes to expand its operations through
acquisitions or otherwise.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement 128, Earnings per Share, effective for financial statements issued for
periods ending after December 15, 1997. This statement establishes standards for
computing and presenting earnings per share ("EPS"), and replaces the current
presentation of primary EPS with basic EPS, which excludes the effect of common
stock equivalents. The Company will adopt this standard in 1997, and is
presently analyzing the impact of this new standard on its financial statements
and related disclosures.
INFLATION
Inflation did not have a material effect on the Company's results during
the periods discussed.
CURRENCY FLUCTUATIONS
Approximately one-third of the Company's revenues are derived outside of
the United States, mostly in Germany. Accordingly, currency fluctuations may
impact the Company's earnings. Over the course of 1996, the Deutsche Mark fell
steadily against the U.S. dollar. As a result, the earnings for Speech Design
and the Company are lower when translated into U.S. dollars. Local currencies
are considered to be the functional currencies of the Company and its
subsidiaries. Translation adjustments that arise from translation of the Company
and its subsidiaries' financial statements are accumulated in a separate
component of shareholder's equity. Transaction gains and losses that arise from
exchange rate changes on transactions denominated in a currency other than local
currencies are included in income as incurred.
22
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Information
The Company's consolidated operations are considered one segment, engaged
in the development and manufacturing of communication and telecommunication
products in the United States (Bogen) and Germany (Speech Design). Financial
information regarding the breakdown of the Company's foreign and domestic
operations is disclosed in footnote 13 to the Company's Consolidated Financial
Statements.
23
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Pages
-----
Financial Statements:
Report of Independent Accountants F-1
Consolidated Balance Sheets as of December 31, 1996 and 1995 F-2
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994 F-4
Consolidated Statements of Changes in Common Stock Subject
to Possible Redemption and Stockholders' Equity for the years
ended December 31, 1996, 1995 and 1994 F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 F-7
Notes to Consolidated Financial Statements F-9
24
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
of Bogen Communications International, Inc.:
We have audited the consolidated financial statements and the financial
statement schedules of BOGEN COMMUNICATIONS INTERNATIONAL, INC. and SUBSIDIARIES
(formerly European Gateway Acquisition Corp.) (the "Company") listed in Item
14(a)(2) of this Form 10-K. These financial statements and financial statement
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedules based on our audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Bogen
Communications International, Inc. and Subsidiaries as of December 31, 1996 and
1995, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedules referred to above, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all material respects,
the information required to be included therein.
COOPERS & LYBRAND L.L.P.
March 7, 1997
New York, New York
F-1
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 and 1995
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
ASSETS
1996 1995
------- -------
CURRENT ASSETS:
Cash and cash equivalents $885 $ 1,276
Accounts receivable (less allowance
for doubtful accounts of $470
and $424 at December 31, 1996 and
1995, respectively) 6,517 4,992
Inventory, net 6,519 7,598
Prepaid expenses and other current
assets 780 366
------ -------
TOTAL CURRENT ASSETS 14,701 14,232
Property and equipment, net 2,130 2,191
Goodwill and intangible assets, net 14,308 14,706
Other assets 247 175
------- -------
TOTAL ASSETS $31,386 $31,304
======= =======
The accompanying notes are an integral part of these
consolidated financial statements
F-2
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 and 1995
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
LIABILITIES
1996 1995
------- -------
CURRENT LIABILITIES:
Amounts outstanding under revolving credit
agreements $4,828 $4,944
Accounts payable 3,707 2,861
Accrued expenses 3,026 3,610
Income taxes payable - 1,353
Advances and notes payable to related parties 746 537
Current maturities of notes payable to
non-related parties 5 174
------- -------
TOTAL CURRENT LIABILITIES 12,312 13,479
Advances and notes payable to related parties 361 3,458
Notes payable to non-related parties 8 -
Other long term liabilities 536 674
Minority interest 593 550
------- -------
TOTAL LIABILITIES 13,810 18,161
------- -------
Commitments and contingencies (Note 8)
STOCKHOLDERS' EQUITY
Preferred stock - $.001 par value; 1,000,000 shares
authorized; none issued and outstanding at
December 31, 1996 and 1995, respectively - -
Common stock - $.001 par value; 50,000,000 shares
authorized; 5,758,850 and 5,759,350 shares issued
and outstanding at December 31, 1996 and 1995,
respectively. 6 6
Additional paid-in capital 21,774 19,175
Accumulated deficit (4,177) (6,185)
Currency translation adjustments (27) 147
------- -------
TOTAL STOCKHOLDERS' EQUITY 17,576 13,143
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $31,386 $31,304
======= =======
The accompanying notes are an integral part of these
consolidated financial statements
F-3
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 and 1994
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
1996 1995 1994
------- ------- ------
Net sales $ 46,269 $ 44,518 $ 45,922
Cost of goods sold 25,004 27,338 29,739
--------- --------- ---------
Gross profit 21,265 17,180 16,183
Operating expenses:
Research and development 2,892 2,307 1,999
Selling, general and administrative 14,360 15,067 12,555
Amortization of goodwill and
intangible assets 445 443 424
--------- --------- ---------
Income (loss) from operations 3,568 (637) 1,205
Other (income) expenses:
Other (income) - (237) (39)
Interest expense, net 596 587 498
Interest expense - related parties 72 619 696
Transaction costs - 1,491 -
Minority interest of consolidated
subsidiaries 337 184 326
--------- --------- ---------
Income(loss) before provision
for income taxes 2,563 (3,281) (276)
Provision for income taxes 555 1,262 79
--------- --------- ---------
Net Income (loss) $2,008 $(4,543) $(355)
========= ========= =========
Net Income (loss) per common share:
Net Income (loss) $ 0.35 $ (1.37) $ (0.18)
========= ========= =========
Weighted average number of common
shares outstanding 5,759,075 3,311,668 1,925,000
========= ========= =========
The accompanying notes are an integral part of these
consolidated financial statements
F-4
BOGEN COMMUNICATIONS INTERNATIONAL, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK SUBJECT TO
POSSIBLE REDEMPTION AND STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
COMMON STOCK COMMON STOCK
SUBJECT TO ------------ ADDITIONAL CURRENCY
POSSIBLE NUMBER OF PAID-IN ACCUMULATED TRANSLATION
REDEMPTION SHARES AMT CAPITAL DEFICIT ADJUSTMENTS
---------- ------ --- ------- ------- -----------
Balance at December 31, 1994 $ 1,575 1,615,155 $ 2 $ 12,638 $ (2,428) $ 37
Recapitalization by foreign subsidiary -- -- -- (967) 967 --
Accretion of redemption value
of common stock 52 -- -- (52) -- --
Reclass of common stock subject to
redemption to common stock
upon the Company's acquisition
of Bogen and Speech Design (1,627) 309,845 -- 1,627 -- --
Forgiveness of Bogen inter-
company debt by Geotek -- -- -- 7,155 -- --
Issuance of common stock and other
adjustments to effect combination
of Bogen and Speech Design -- 3,701,919 4 (1,966) -- --
Issuance of common stock and warrants
to purchase 60,000 shares of
common stock for services provided
to facilitate the acquisition of
Bogen and Speech Design -- 132,431 -- 740 -- --
Dividend paid by subsidiary to minority
shareholders -- -- -- -- (181) --
Translation adjustments -- -- -- -- -- 110
Net loss -- -- -- -- (4,543) --
--------- --------- -------- --------- --------- --------
Balance at December 31, 1995 $ -- 5,759,350 $ 6 $ 19,175 $ (6,185) $ 147
The accompanying notes are an integral part of these
consolidated financial statements
F-5
BOGEN COMMUNICATIONS INTERNATIONAL, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK SUBJECT TO
POSSIBLE REDEMPTION AND STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
COMMON STOCK COMMON STOCK
SUBJECT TO ------------ ADDITIONAL CURRENCY
POSSIBLE NUMBER OF PAID-IN ACCUMULATED TRANSLATION
REDEMPTION SHARES AMT CAPITAL DEFICIT ADJUSTMENTS
---------- ------ --- ------- ------- ----------
Restructuring of $3,000 related
party note with related interest -- -- -- 2,602 -- --
Repurchased and canceled common
stock -- (500) -- (3) -- --
Translation adjustments -- -- -- -- -- (174)
Net Income -- -- -- -- 2,008 --
----------- --------- ---------- -------- -------- --------
Balance at December 31, 1996 $ -- 5,758,850 $ 6 $ 21,774 $ (4,177) $ (27)
=========== ========= ========== ======== ======== ========
The accompanying notes are an integral part of these
consolidated financial statements
F-6
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS OF DOLLARS)
1996 1995 1994
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,008 $(4,543) $ (355)
Adjustments to reconcile net income (loss)to net
cash provided by(used in)operating activities:
Non-cash transaction costs -- 740 --
Depreciation and amortization 978 868 574
Amortization of goodwill and intangible assets 445 443 424
Provisions for doubtful accounts and
inventory obsolescence (1,362) 1,344 1,281
Minority interest 337 184 326
Change in operating assets and liabilities
(net of effects from acquisitions):
Accounts receivable (1,703) 984 (405)
Inventories 2,269 (49) (2,914)
Prepaid expenses and other current assets (532) 200 (230)
Payables and accrued expenses (1,040) 1,901 412
Other (138) -- 145
------- ------- -------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 1,262 2,072 (742)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (1,017) (1,035) (892)
Acquisition of Satelco -- -- (392)
Cash obtained in the acquisition of
Speech Design and Bogen -- 8,149 --
Proceeds on the sale of property, plant and
equipment 3 -- --
Acquisition of investments and intangibles (102) (60) --
Collection of notes receivable 15 37 38
------- ------- -------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (1,101) 7,091 (1,246)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Amounts(paid to) non-related parties, net (161) (688) (509)
Amounts borrowed (paid) under revolving credit
agreements, net 23 (691) 1,875
Dividend paid to Geotek related to combination
of Bogen and Speech Design -- (7,000) --
Dividend paid by subsidiary to minority shareholders (294) (181) --
Amounts borrowed from (paid to) related parties, net (341) 415 552
Cash overdraft receipts -- -- 118
------- ------- -------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (773) (8,145) 2,036
------- ------- -------
INCREASE (DECREASE) IN CASH (612) 1,018 48
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,276 148 87
Effects of Exchange Rate on Cash 221 110 13
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 885 $ 1,276 $ 148
======= ======= =======
The accompanying notes are an integral part of these
consolidated financial statements
F-7
BOGEN COMMUNCATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 and 1994
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
1996 1995 1994
---- ---- ----
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest $ 609 $ 829 $ 654
Cash paid for income taxes 2,175 4 6
Non Cash Investing and Financing Activities:
Restructuring of $3,000 debt by Geotek
treated as equity contribution 2,602 -- --
Forgiveness of Bogen debt by
Geotek treated as an equity
contribution -- 7,155 --
Goodwill pushed down from parent -- -- 14,252
Adjustments to combine companies -- 1,966 --
Notes payable to Geotek in
consideration for acquiring
Bogen and Speech Design -- 3,000 --
Common stock issued to Geotek in
consideration for acquiring Bogen
and Speech Design -- 4 --
Common stock and warrants issued as
consideration for certain services
provided to the Company in connection
with the acquisition of Bogen and
Speech Design -- 740 --
Assets acquired (net of cash):
Prepaid assets -- 8 --
Intangible assets -- 34 --
Liabilities assumed:
Accrued expenses -- 160 --
Note payable to non-related party -- 115 --
Advances from Geotek -- 33 --
------- ------- -------
Net liabilities assumed $ -- $ (266) $ --
======= ======= =======
The accompanying notes are an integral part of these
consolidated financial statements
F-8
(All Footnote information is in thousands of dollars, except share amounts)
1. Summary of Significant Accounting Policies
A. Principles of Consolidation
The consolidated financial statements of Bogen Communications
International, Inc., formerly European Gateway Acquisition Corp. (the
"Company"), include the accounts of Bogen Corporation ("Bogen") and Bogen's
wholly owned subsidiary, Bogen Communications, Inc. ("BCI"), as well as
Speech Design GmbH ("Speech Design"), its 67%-owned subsidiary Satelco AG,
and its wholly owned subsidiaries, Speech Design (Israel), Ltd. And Speech
Design (UK), Ltd. All significant intercompany balances and transactions
have been eliminated in consolidation. Certain 1995 and 1994 balances have
been reclassified to conform with the 1996 presentation.
B. Nature of Operations
The Company's operations are conducted in one segment engaged in
developing, manufacturing, and marketing sound and communication products.
Product lines sold by the company are as follows:
Telephone Products ("Telco"), Commercial Audio Products, ("Commercial
Sound"), and Intercom/Paging Equipment, ("Engineered Systems")
C. Use of Estimates
The preparation of consolidated 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 periods. Actual results could differ from
those estimates.
D. Basis of Presentation
On August 21, 1995, the Company acquired a 99% interest in Bogen
Corporation ("Bogen") and a 67% interest in Speech Design GmbH ("Speech
Design") from Geotek Communications, Inc. ("Geotek"). The Company paid
Geotek $7,000 in cash, a convertible promissory note in the aggregate
principal amount of $3,000, 3,700,000 shares of the Company's common stock
and warrants to acquire 200,000 shares of common stock of the Company. As a
result, Geotek acquired approximately 64% of the stock of the Company,
thereby giving it a controlling interest in the Company. Geotek, in
addition, contributed approximately $7,155 of intercompany indebtedness
from Bogen to equity as part of the transaction. Further, as contingent
consideration, the Company could be liable to pay Geotek an amount up to
$11,000, based upon a calculation of operating results of Bogen and Speech
Design during the two years after the acquisition. Based on management's
review of the earnout calculation, which takes into account Speech Design
and Bogen's operating results for the last two quarters of 1995, all of
1996 and the first two quarters of 1997, the anticipated contingent
consideration payment, if any, will not have a material effect on the
Company's financial position and operating results.
In May 1996, the Company and Geotek entered into the most recent amendment
to the Stock Purchase Agreement effective January 1, 1996. Pursuant to such
agreement, (i) the $3,000 convertible promissory note payable by the
Company to Geotek, due February 1997, was reduced and restructured to a
$500 non-convertible promissory
The accompanying notes are an integral part of these
consolidated financial statements
F-9
note due July 1997, (ii) the earnout formula was revised to reflect an
increase in the amount the Company could be liable to pay Geotek from
$11,000 to $13,500 in connection with the reduction of the principal amount
of the promissory note, and (iii) Geotek was granted an option to purchase,
at any time through October 31, 1997, from the Company $3,000 worth of
Common Stock with exercise prices ranging from 100% to 65% of market price,
depending on the date of exercise.
For accounting purposes, the acquisition is being treated as a joint
acquisition of the Company by Bogen and Speech Design, companies under the
common control of Geotek. The transaction is considered a reverse
acquisition with Geotek as the acquiror for accounting purposes. The
historical financial statements reflect the combination of Bogen and Speech
Design in a manner similar to a pooling of interests. Accordingly, the
historical financial statements reflect the combined operations of Bogen
and Speech Design prior to the transaction.
E. Transaction Costs
The Company incurred transaction costs of $1,491 in connection with the
acquisition of Bogen and Speech Design which have been charged to
non-operating expenses for the year ended December 31, 1995. These costs
consist of non-recurring legal and other professional fees and other costs
of the transaction amounting to $751 and a non-cash charge of $740 for the
estimated fair value of 132,400 shares of common stock of the Company and
warrants to purchase 60,000 shares of the Company's common stock at $5.25
per share, for services provided to the Company by various unrelated
parties in connection with facilitating the acquisition of Bogen and Speech
Design.
F. Revenue Recognition
Sales, net of expected returns, are recognized upon shipment.
G. Goodwill
Goodwill represents the excess of cost over the fair value of net assets
acquired. Goodwill also includes the effect of push-down accounting
described below, by which Bogen recorded in its financial statements
Geotek's goodwill associated with its purchase of Bogen. Goodwill is being
amortized using the straight-line method over 40 years at Bogen and over 20
years at Speech Design. The Company periodically evaluates the
recoverability of goodwill and measures any impairment by comparison to
estimated undiscounted cash flows from future operations.
H. Cash and Cash Equivalents
Cash includes cash on-hand and all highly-liquid debt instruments purchased
with original maturities of three months or less.
I. Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Reserves are established for valuation purposes or determined by
management on a periodic basis, as required by conditions of obsolescence.
The accompanying notes are an integral part of these
consolidated financial statements
F-10
J. Property and Equipment
Property and equipment is recorded at cost. Depreciation is provided on a
straight-line basis over the estimated useful lives of the asset which
generally ranges from three to ten years. Leasehold improvements are
amortized ratably over their remaining lease terms, or estimated useful
lives, if shorter.
Expenditures for maintenance, repairs and renewals of minor items are
charged to operations as incurred. Major renewals and improvements are
capitalized. Upon disposition, the cost and related accumulated
depreciation is removed from the accounts and the resulting gain or loss is
reflected in operations for the period.
K. Income Taxes
The Company follows Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (FAS 109). FAS 109 is an asset and liability
approach that requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have
been recognized in the Company's financial statements or tax returns.
L. Net Income (Loss) Per Share
Net income (loss) per common share is computed by dividing net income
(loss) by the weighted average number of shares of common stock and common
stock equivalents outstanding during the year, (unless anti-dilutive).
M. Credit Risk
The Company develops, produces, markets and sells commercial audio,
electronic, paging, communications and other equipment and
telecommunications peripherals. The Company performs on-going credit
evaluations of its customers. The accounts receivable resulting from its
sales transactions generally are not collateralized. The Company provides
reserves for potential losses from these receivables.
N. Translation of Foreign Currencies
Foreign denominated assets and liabilities of the Company are translated
from local currencies into U.S. dollars at the exchange rates in effect at
the end of the period. Revenues and expenses are translated at average
exchange rates prevailing during the period. Local currencies are
considered to be the functional currencies of the Company and its
subsidiaries. Translation adjustments that arise from translation of the
Company and its subsidiaries' financial statements are accumulated in a
separate component of shareholder's equity. Transaction gains and losses
that arise from exchange rate changes on transactions denominated in a
currency other than local currencies are included in income as incurred.
O. Fair Value of Financial Instruments
The recorded amount of cash, cash equivalents, notes payable and advances,
approximates fair value due to the short term maturities of these assets
and liabilities.
The accompanying notes are an integral part of these
consolidated financial statements
F-11
P. Recently Issued Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement 128, Earnings per Share, effective for periods ending after
December 15, 1997. This statement establishes standards for computing and
presenting earnings per share ("EPS"), and replaces the current
presentation of primary EPS with basic EPS, which excludes the effect of
common stock equivalents. The Company will adopt this standard in 1997, and
is presently analyzing the impact of this new standard on its financial
statements and related disclosures.
2. Inventory
Inventory, at the lower of cost (first in, first out) or market, as of
December 31, 1996 and 1995, is as follows:
1996 1995
------- ------
Raw materials and supplies $1,525 $1,864
Work in progress 701 1,155
Finished goods 4,293 4,579
----- -----
TOTAL $6,519 $7,598
====== ======
The inventory balances are net of a reserve for inventory valuation and
obsolescence of $1,126 and $2,552 at December 31, 1996 and 1995,
respectively.
3. Property and Equipment
Property and equipment at December 31, 1996 and 1995 is comprised of the
following items:
1996 1995
------- ------
Machinery, equipment and tooling $ 3,581 $ 3,363
Furniture and office equipment 1,774 1,485
Leasehold improvements 694 600
------- -------
6,049 5,448
Less: accumulated depreciation
and amortization, net of
disposals (3,919) (3,257)
------- -------
$ 2,130 $ 2,191
======= =======
Depreciation and amortization expense was approximately $978, $868, and
$574 for the years ended December 31, 1996, 1995 and 1994, respectively.
4. Goodwill and Intangible Assets
Goodwill and intangible assets consist of the following, at December 31,
1996 and 1995:
1996 1995
------- ------
Goodwill $16,295 $16,345
Other intangibles 220 123
------- --------
Total intangibles 16,515 16,468
The accompanying notes are an integral part of these
consolidated financial statements
F-12
Less: accumulated amortization (2,207) (1,762)
------- -------
$14,308 $14,706
======= =======
As explained above in Note 1D, the acquisition of Bogen and Speech Design
was accounted for as a reverse acquisition by Geotek. No goodwill was
recorded in connection with this transaction.
In January 1994 Geotek acquired a greater than 95% interest in Bogen, and
pursuant to the rules of push-down accounting, the acquisition gave rise to
a new basis of accounting and the goodwill related to Geotek's acquisition
was "pushed-down" to the financial statements of Bogen. Accordingly, Bogen
recorded net goodwill in the amount of $14,300 in the first quarter of
1994. The goodwill is being amortized over its then remaining life of
approximately 38 years. The related amortization expense for the pushed
down goodwill was approximately $378 for the year ended December 31, 1996,
and $376 for the years ended December 31, 1995 and 1994.
Goodwill in the amount of $685 represents the excess of cost over the fair
value of net assets acquired by Speech Design related to the acquisition of
its 67% owned subsidiary Satelco. This Goodwill is being amortized using
the straight-line method over 20 years.
Amortization of goodwill and other intangibles was approximately $445,
$443, and $424 for the years ended December 31, 1996, 1995 and 1994,
respectively.
5. Revolving Credit Agreements
In August 1995, Bogen Communications, Inc. ("BCI"), a wholly owned
subsidiary of Bogen, extended a $10,000 domestic revolving senior line of
credit for a two year term expiring August 1997. The line is collateralized
by substantially all the assets of Bogen and is guaranteed by Geotek.
Advances bear interest at the rate of 2% to 2.75% over the lender's prime
rate. At December 31, 1996, the lender's prime rate was 8.25%. Advances to
Bogen were made based on a percentage of accounts receivable and inventory.
As of December 31, 1996 and 1995, Bogen had short term domestic borrowings
outstanding under the line of credit of $1,545 and $3,670, respectively.
The amounts available under the credit line, based upon accounts receivable
and inventory, were $2,126 and $437 at December 31, 1996 and 1995,
respectively. Under the terms of the line of credit, Bogen cannot, among
other actions, declare or pay any dividends, return capital to its
stockholders or redeem or repurchase any of its outstanding capital stock.
Net assets of Bogen restricted under this agreement were $16,655 and
$14,910 at December 31, 1996 and 1995, respectively.
In the first quarter of 1997, BCI obtained a new revolving senior credit
line for a period of two years. The new credit line has a maximum line of
borrowing of $7,000 and bears an annual interest rate of .75% over the
lenders prime rate, and replaces Bogen's previous line of $10,000 which had
an annual interest rate of 2.5% over the lender's prime rate. The senior
loan is collaterized by all of the accounts receivable, inventory,
property, plant and equipment, and general intangibles of BCI and is
guaranteed by the Company. Under the terms of this line of credit, BCI
cannot, among other actions, declare or pay dividends, return capital to
its stockholders or redeem or repurchase any of its outstanding capital
stock.
The accompanying notes are an integral part of these
consolidated financial statements
F-13
In August 1995, in connection with the Company's acquisition of Bogen and
Speech Design, Geotek also agreed to provide Bogen with a working capital
line of credit for two years in the aggregate principal amount of $2,000.
Amounts drawn under the line bear interest at 1% per annum above the rate
Bogen pays for its then largest credit facility. There were no borrowings
under this facility at December 31, 1996 or 1995.
At December 31, 1996 and 1995, Speech Design had short term lines of credit
and overdraft facilities of $4,344, and $3,453, respectively, of which
short term borrowings amounted to $3,283 and $1,274, respectively. The
amounts available under these credit lines were $1,061 and $2,179 at
December 31, 1996 and 1995, respectively, with rates tied to short-term
bank notes and Euromarket loans. Speech Design's short term lines of credit
are collaterized by all of Speech Design's accounts receivable and
inventory. At December 31, 1996 interest rates on these short term lines
ranged from 4.4% to 6.3%.
Total outstanding revolving lines of credit are summarized as follows at
December 31, 1996 and 1995:
1996 1995
---- ----
Domestic Lines of Credit Utilized $1,545 $3,670
Foreign Lines of Credit Utilized:
Speech Design 2,805 627
Satelco 478 647
------ ------
$4,828 $4,944
====== ======
6. Long-Term Debt
A: ADVANCES and NOTES PAYABLE TO RELATED PARTIES
Advances and notes payable to related parties at December 31, 1996 and 1995
consist of the following:
1996 1995
-------- ------
Advances from Geotek $152 $ 138
Notes Payable - Geotek (at prime rate + 1%) - 133
Notes Payable - Geotek (at Swiss prime rate
+ 1%) - 266
Loan from Speech Design Shareholder (at
German discount rate + 2%) 129 -
Loan from Related Party (at Zurich Kantonal
Bank rate) 232 317
Notes Payable - Geotek (at 13%) 594 3,141
------ ------
Total 1,107 3,995
Less: Current Maturities (746) (537)
------ ------
$361 $3,458
====== ======
The accompanying notes are an integral part of these
consolidated financial statements
F-14
Advances from Geotek
Advances from Geotek consist of net non-interest bearing advances made to
Bogen.
Notes Payable - Geotek (at prime rate + 1%)
This note payable to Geotek from Speech Design is payable in quarterly
installments of $33 plus interest at the prime rate plus 1%.
Notes Payable - Geotek
This note payable to Geotek is from Satelco, a 67% owned subsidiary of
Speech Design, and is payable in quarterly installments of $87 beginning in
September, 1995 plus annual payments of interest at the Swiss prime rate
plus 1%.
Loan from Speech Design Shareholders
This note payable to Speech Design's minority shareholders matures on
December 31, 1999, at which date it can be renewed or called in at three
months notice. Interest is paid in quarterly installments and is charged at
2% over the German discount rate.
Loan from Related Party
This $315 original note from the minority shareholders of Satelco is
payable in quarterly installments of $31 plus interest at the Zurich
Kantonal Bank rate with installments beginning February, 1995. The payments
of this note have been suspended (with the approval of the noteholder)
until such time as the Satelco subsidiary becomes profitable. Accordingly,
this note payable has been classified as long-term.
Notes Payable (by the Company) to Geotek
This note payable to Geotek from the Company was incurred at the date of
acquisition for $3,000 plus interest payable quarterly in arrears at
varying rates equal to the Company's highest borrowing rate plus 2%. In May
1996, the $3,000 note plus accrued interest was reduced and restructured,
retroactive to January 1, 1996, to a $500 non-convertible promissory note
due July 1997.
B: NOTES PAYABLE TO NON-RELATED PARTIES
Notes payable to non-related parties at December 31, 1996 and 1995 consist
of the following:
1996 1995
------- ------
Various Notes Payable (at prime rate) $ - $ 60
Notes Payable (with imputed interest at 9%) - 37
Notes Payable (at 12% interest rate) - 12
Notes Payable to Bank (at Libor
plus 2.5% interest) 13 -
Notes Payable to Bank (at 8.5% interest rate) - 65
---- ------
Total 13 174
Less: Current Maturities (5) (174)
------ ------
$ 8 $ -
====== ======
Various Notes Payable (at prime rate)
Payable in monthly installments of $12 plus interest at the prime rate.
Notes Payable (with imputed interest at 9%)
Payable in annual installments of $150 including imputed interest at 9%.
The accompanying notes are an integral part of these
consolidated financial statements
F-15
Notes Payable (at 12% interest rate)
Payable in monthly installments of $4 plus interest at 12%.
Notes Payable to Bank (at Libor plus 2.5%)
Payable in monthly installments of $.4 plus interest at the Libor rate plus
2.5%.
Notes Payable to Bank (at 8.5% interest rate)
Payable by Speech Design in quarterly installments plus interest at 8.5%.
Principal maturities of long-term debt over the next five years and
thereafter are as follows:
Related
Parties Other Total
------- ----- -----
1997 $ 746 $ 5 $ 751
1998 -- 8 8
1999 129 -- 129
2000 -- -- --
2001 -- -- --
Thereafter 232 -- 232
------ ------ ------
$1,107 $ 13 $1,120
====== ====== ======
7. Income Taxes
The Company's pre-tax book income is as follows for the years ended
December 31, 1996 and 1995:
1996 1995
---- ----
Domestic U.S. Operations $1,322 $(4,886)
Foreign Operations 1,241 1,605
------ ------
Total $2,563 $(3,281)
====== =======
The components of income tax expense are as follows for the years ended
December 31, 1996 and 1995:
1996 1995
---- ----
Current Income Tax
(Foreign Only) $ 555 $1,262
Deferred Income Tax - -
------ -----
Total Income Tax Expense $ 555 $1,262
====== ======
The difference between the provision for income taxes computed at the U.S.
federal statutory rate and the provision as reported are as follows:
1996 1995
---- ----
Provision at U.S. Statutory Rate $ 871 $(1,116)
Non-deductible Expenses 338 785
Change in Valuation Allowance (793) 998
German Taxes 162 604
The accompanying notes are an integral part of these
consolidated financial statements
F-16
Other (23) (9)
---- ------
Tax Provision as Reported $555 $1,262
==== ======
The Company has net operating loss ("NOL") carryforwards for U.S. tax
purposes of approximately $7,847 as of December 31, 1996, which expire
between the years 2004 through 2010. Under Section 382 of the Internal
Revenue Code of 1986, as amended, the net operating loss carryforwards are
subject to certain limitations on their utilization as a result of the
changes in control of the Company in 1991 and 1995.
The components of deferred tax assets at December 31, 1996 and 1995, were
as follows:
1996 1995
---- ----
Deferred Tax Assets:
NOL Carryforwards $2,808 $2,601
Deferred Rent 191 251
Inventory Items 592 1,185
Allowance for Doubtful Accounts 157 163
Accrued Liabilities 196 470
Property, Plant & Equipment 137 103
Other 56 58
----- -----
TOTAL DEFERRED TAX ASSETS $4,137 $4,831
Less, Valuation Allowance (4,137) (4,831)
------- ------
NET DEFERRED TAX ASSETS $ 0 $ 0
======= =====
In accordance with SFAS No. 109, the Company has established a valuation
allowance of $4,137 and $4,831 for the years ended December 31, 1996 and
1995, respectively. The valuation allowance was established due to the
uncertainty of the realization of the deferred tax assets. A significant
portion of the deferred tax assets which are currently subject to a
valuation allowance may be allocated to reduce goodwill or other noncurrent
intangible assets when subsequently recognized due to the application of
SFAS No. 109 and purchase accounting.
8. Commitments and Contingencies
Operating Leases
The Company occupies its plant and office facilities and operates certain
equipment under leases expiring at various dates through 2005. The facility
lease contains an escalation clause and provides for payments of taxes and
expenses over base rent. The facility lease also contains a five year
renewal option.
The minimum annual rental commitments over the next five years under
operating leases are as follows:
The accompanying notes are an integral part of these
consolidated financial statements
F-17
Year Ending
December 31,
------------
1997 $ 1,351
1998 1,307
1999 1,214
2000 1,043
2001 368
Thereafter 975
------
$6,258
======
Bogen's facility lease includes scheduled rent increases over the lease
term. Rent expense has been recorded on a straight-line basis and the
related deferred rent obligation of $478 and $597 at December 31, 1996 and
1995, respectively, is classified as a long-term liability.
Rent expense charged to operations totaled approximately $1,151, $1,055,
and $779 for the years ended December 31, 1996, 1995 and 1994,
respectively.
Employment and Consulting Agreements
Compensation of Directors
Directors, other than non-employee directors who are members of the
Executive Committee of the Board, receive no compensation for acting as
directors to the Company. During 1996, Messrs. Rosenfeld and Stern received
$50,000 each as members of the Company's Executive Committee.
Employment Contracts
In January 1996, the Company entered into an agreement with Mr. Zvi Peled
generally setting forth the terms and provisions of his employment as
President and Chief Executive Officer of the Company. Mr. Peled joined the
Company in such capacity in March 1996. Mr. Peled's base salary is $150,000
per annum and he is entitled to a minimum annual bonus of $50,000,
contingent upon the satisfaction of performance criteria established by the
Company's Board of Directors and Mr. Peled at the start of each year. In
addition, the Company agreed to grant Mr. Peled stock options to purchase
175,000 shares of the Company's Common Stock, at the following prices:
75,000 shares at an exercise price of $5.00 per share, 75,000 shares at an
exercise price of $7.50 per share, and 25,000 shares at an exercise price
of $10.00 per share. Such options will vest in equal installments over a
five year period. In addition, the Company provides Mr. Peled with $2,000
per month towards home rental payments, as well as a car. Effective January
1, 1997, and in lieu of participating in the Company's 401(k) Retirement
Savings Plan and the Company's life and disability insurance plans, Mr.
Peled receives an additional $2,300 per month, which amount is applied
towards Mr. Peled's personal benefits program. In the event that Mr.
Peled's employment is terminated without cause, Mr. Peled will continue to
receive his salary and benefits until he obtains a replacement position or
for six months, whichever is sooner. Pursuant to the employment agreement,
Mr. Peled was provided with a $10,000 relocation allowance.
The Company also has a written agreement with Mr. Yoav M. Cohen, dated
August 1, 1996, generally setting forth the terms and provisions of his
employment as Chief Financial Officer of the Company. Mr. Cohen joined the
Company in such capacity on July 31, 1996. Mr. Cohen's annual base salary
is $110,000 and he may receive an annual bonus equal to 1 - 1.5% of the
profits of the Company during the relevant fiscal year. Pursuant to the
employment agreement, the Company agreed to grant Mr. Cohen stock options,
in accordance with the terms and provisions of the Company's
The accompanying notes are an integral part of these
consolidated financial statements
F-18
1996 Incentive Stock Option Plan, to purchase 50,000 shares of the
Company's Common Stock. Mr. Cohen also participates in the Company's 401(k)
Retirement Savings Plan, health and dental plans, and disability and life
insurance plans and is provided with Life Insurance with an annual premium
of up to $3,000 annually. In addition, Mr. Cohen is provided with a Company
car, insured by the Company. In the event that Mr. Cohen is terminated
without cause, he is entitled to a severance package pursuant to which he
would continue to receive his base salary and related benefits for six
months.
Mr. Menashe Ben-David is employed by the Company pursuant to a written
agreement with Geotek, dated June 7, 1991, which has no definite term. The
agreement provides for Mr. Ben-David to receive a base salary of $75,000
per year, subject to periodic review and increase by Geotek. Geotek has
also agreed to provide life and health insurance to Mr. Ben-David as well
as an automobile. Mr. Ben-David also received a total of 50,000 stock
options to purchase shares of common stock of Geotek. Geotek is entitled to
terminate the employment agreement at any time upon thirty days prior
written notice; provided, however, that Geotek continues to pay Mr. Ben-
David his base salary for a period of six months from termination of the
agreement, unless Mr. Ben-David is terminated as a result of certain
conditions. Mr. Ben-David has agreed not to compete with Geotek for a
period of two years after his employment is terminated. The Company has
assumed all of Geotek's obligations under this agreement.
Mr. Kasimir Arciszewski is employed by Speech Design pursuant to a written
agreement dated February 9, 1993 which has no definite term. The agreement
provides for Mr. Arciszewski to receive a base salary of DM 180,000
($119,682 as of December 31, 1996), subject to review and increase by the
parties at the end of each calendar year. In addition, Mr. Arciszewski is
entitled to annual bonuses based on Speech Design's pre-tax profits. Speech
Design has agreed to provide Social Security and health insurance benefits
to Mr. Arciszewski and agreed to furnish an automobile to him. Mr.
Arciszewski has agreed not to compete with Speech Design during the term of
the agreement and for one year thereafter and Speech Design has agreed to
compensate Mr. Arciszewski during this noncompetition period. Mr.
Arciszewski has agreed not to disclose any of Speech Design's business or
trade secrets.
Commitments
At December 31, 1996, the Company had commitments to purchase merchandise
from foreign vendors of $627 under documentary letters of credit and $394
under other sight documents. Pursuant to the sale of Aryt Optronics, Ltd.
by Geotek in 1992, the Company obtained certain benefits and concessions
from Reshef Technologies, Ltd. ("Reshef"), formerly a related company to
Bogen. Such concessions and benefits would be lost by the Company if
certain target purchases from Reshef were not met. Purchases made under
this agreement complied with the target purchase requirements and
approximated $3,612, and $6,284 in 1995 and 1994, respectively. The
concessions and benefits from Reshef expired on December 31, 1995.
Litigation
The Company is not aware of any material pending or threatened legal
proceedings to which it is a party or of which any of its property is
subject.
The accompanying notes are an integral part of these
consolidated financial statements
F-19
9. Stockholder's Equity
Common Stock and Common Stock Subject to Possible Redemption
The following discussion summarizes the incorporation of the Company, the
capitalization, and the requirements and privileges of the shareholders in
the periods preceding the consummation of the acquisition of Bogen and
Speech Design on August 21, 1995.
The Company was incorporated in Delaware on May 6, 1993 with the objective
of acquiring a medium-sized operating business engaged in industrial
manufacturing or industrial services and located in Germany, Switzerland or
Austria (a "Business Combination"). The Company's founding directors and
advisors purchased 500,000 common shares, $.001 par value, for five hundred
dollars during the three month period after incorporation. On September 30,
1993, 125,000 shares were returned to the Company by the founding
shareholders and was retroactively reflected in the financial statements as
a net issuance of 375,000 shares.
On October 15, 1993, the Company sold 1,550,000 units ("Units") in an
initial public offering ("Offering") of the Company's common stock. Each
unit consisted of one share of the Company's common stock, $.001 par value,
and two Redeemable Common Stock Purchase Warrants ("Warrants"). Each
Warrant entitled the holder to purchase, during the period commencing on
the later of the consummation by the Company of its Business Combination or
one year from the effective date of the Offering and ending seven years
from the effective date of Offering, from the Company one share of common
stock at an exercise price of $5.50. The Warrants are redeemable at a price
of $.01 per Warrant upon 30 days notice at any time, only in the event that
the last sale price of the common stock is at least $10.00 per share for 20
consecutive trading days ending on the third day prior to date on which
notice of redemption is given. The proceeds of the offering were deposited
in a Trust Fund to fund a Business Combination or liquidation of the
Company.
The Company, after signing a definitive agreement for a Business
Combination, submitted such transaction for shareholder approval. In the
event that 20% or more of the shareholders excluding, for this purpose,
those persons who were shareholders prior to the Offering, had voted
against the Business Combination, the Business Combination would not have
been consummated. For the first Business Combination consummated by the
Company, all of the Company's shareholders prior to the Offering, including
all of the officers, directors and advisors of the Company ("Initial
Shareholders") agreed to vote their shares of common stock in accordance
with the vote of the majority in interest of all other shareholders of the
Company ("Public Shareholders") with respect to any Business Combination.
After consummation of the Company's first Business Combination, these
voting safeguards were no longer applicable.
When the Business Combination was approved and consummated, any Public
Shareholder who had voted against the Business Combination could have
demanded that the Company redeem his shares. The per share redemption price
equaled the amount in the Trust Fund, as of the record date for
determination of shareholders entitled to vote on the Business Combination,
divided by the number of shares held by Public Shareholders. Accordingly,
Public Shareholders holding 19.99% of the aggregate number of shares owned
by all Public Shareholders could have had their shares redeemed at the time
of the Business Combination. The Company classified the value
The accompanying notes are an integral part of these
consolidated financial statements
F-20
of this redemption as common stock, subject to possible redemption, on its
balance sheet at December 31, 1994 prior to the consummation of the
Business Combination. Such Public Shareholders were entitled to receive
their per share interest in the Trust Fund computed without regard to
shares held by Initial Shareholders. On August 21, 1995, in connection with
the Company's acquisition of Bogen and Speech Design, the Company
reclassified the common stock subject to possible redemption to common
stock. No shares of stock were redeemed as discussed above.
The Company's Certificate of Incorporation had provided for mandatory
liquidation of the Company, without shareholder approval, in the event that
the Company did not consummate a Business Combination.
Warrants
In June 1993, 300,000 Warrants were issued to various individuals in
consideration for providing the Company bridge financing until its offering
in October 1993. As referred to above, the Company issued 3,100,000
Warrants to purchase its common stock in connection with the Offering.
Warrants to purchase 200,000 shares of common stock were issued to Geotek
in August 1995 in connection with the acquisition of Bogen and Speech
Design. Another 60,000 Warrants were issued as consideration for providing
certain financings and services provided to the Company to facilitate the
Business Combination. At December 31, 1996, 3,660,000 Warrants were
outstanding.
Options
In 1996, the Company adopted the 1996 Incentive Stock Option Plan (the
"1996 Plan") pursuant to which an aggregate of 1,253,335 shares of the
Company's Common Stock were reserved for issuance pursuant to the plan. The
1996 Plan can award stock options to eligible employees of the Company and
its subsidiaries (including employee directors), non-employee directors,
and independent contractors and consultants who perform services for the
Company. The options vest over a period of five years and are exercisable
at prices determined on a case by case basis. The Company will apply the
intrinsic value based method permitted by Statement of Financial Accounting
Standard No. 123, "Accounting for Stock-Based Compensation." During 1996,
there were no options granted, exercised or exercisable under the 1996
Plan.
In 1994, Bogen adopted an Employee Stock Option Plan (the "Bogen Plan").
Under the Bogen Plan, an aggregate of 3,000,000 shares may be issued to
members of its Board of Directors, designated officers and employees and
independent contractors or consultants who perform services for the
Company. No option granted under the Bogen Plan is intended to be an
incentive stock option within the meaning of section 442A(b) of the
Internal Revenue Code of 1986 for income tax purposes. During 1994,
1,400,000 options were granted under the Bogen Plan at a price of $1.14 per
share which approximated fair value. These options vest over a five (5)
year period.
The accompanying notes are an integral part of these
consolidated financial statements
F-21
All options granted under the Bogen Plan were outstanding at December 31,
1996, 1995, and 1994. In 1997, the Company intends to cancel all the
options granted under the Bogen Plan and grant certain participants under
the Bogen Plan one option for a share of Common Stock of the Company under
the 1996 Plan in exchange for every three options granted to a participant
in the Bogen Plan. Options for an aggregate of 253,335 shares of Common
Stock will be granted under the 1996 Plan to former participants of the
Bogen Plan.
Push-Down of Goodwill
Pursuant to Accounting Principles Board No. 16 "Business Combinations"
("APB 16"), the accumulated deficit of Bogen was required to be restated on
the date of applying push-down accounting (see Note 1G, Goodwill). The
restated accumulated deficit includes Geotek's recorded equity in the
income and losses of Bogen since its original acquisition and all goodwill
amortization recorded by Geotek relating to the acquisition of Bogen.
Therefore, a reclassification of $8,524 was made from accumulated deficit
to additional paid-in capital in January 1994.
Preferred Stock
The Company is authorized to issue 1,000,000 shares of preferred stock with
such designations, voting and other rights and preferences as may be
determined from time to time by the Board of Directors.
Common Stock
At December 31, 1996 and 1995, 3,960,000 shares of common stock were
reserved for issuance upon exercise of redeemable warrants.
10. Related Party Transactions
In 1995, the Company issued 132,431 shares of its common stock for services
received in connection with the acquisition of Bogen and Speech Design. Of
these shares, 19,565 were issued to a member of the Board of Directors of
Geotek.
During 1995, in conjunction with the acquisition of Bogen and Speech Design
Geotek forgave $7,155 in long-term debt due Geotek, which was recorded as
an increase in additional paid-in capital. As part of this acquisition, the
Company issued $3,000 in convertible promissory notes to Geotek which was
reduced and restructured to a $500 non-convertible promissory note due July
1997 (see Note 1D "Basis of Presentation").
11. Economic Dependency
During the years ended December 31, 1996, 1995 and 1994, the Company
purchased audio components of approximately $12,072, $8,853, and $14,016,
respectively, from three suppliers located in the Republic of South Korea.
Any future inability of any of these suppliers to provide the Company with
a sufficient level of components may have a negative impact on the
Company's operations.
Sales to one customer approximated $4,506 and $4,400 and accounted for more
than 10% of the Company's net sales in 1996 and 1995, respectively. Sales
to a different customer approximated $7,100 and accounted for more than 10%
of the Company's net sales in 1994.
The accompanying notes are an integral part of these
consolidated financial statements
F-22
Twenty of Bogen's employees are subject to collective bargaining agreements
which expire in mid-1997.
12. Employee Benefit Plans
Bogen participates in multi-employer pension plans which cover all union
employees. Contributions for the periods ended December 31, 1996, 1995 and
1994 were approximately $17, $15, and $18, respectively.
Employees of the Company are also eligible to participate in a defined
contribution 401(K) plan sponsored by Geotek. The Company provides a
matching contribution to a portion of funds contributed by employees.
Amounts charged to expense were $83, $82, and $108 for the years ended
December 31, 1996, 1995 and 1994, respectively.
13. Segments
The Company's operations are conducted in one segment in the United States
(Bogen) and Germany (Speech Design). Information about the Company for
1996, 1995, and 1994 has been presented geographically as follows:
1996 1995 1994
------ ------- ------
Geographic Segments:
Revenues:
United States $30,671 $30,677 $37,745
Foreign 15,598 13,841 8,177
------- ------- -------
$46,269 $44,518 $45,922
======= ======= =======
Operating income (loss):
United States $ 1,862 $(2,405) $ (18)
Foreign 1,706 1,768 1,223
------- ------- -------
Income (loss) from operations $ 3,568 $ (637) $ 1,205
======= ======== =======
Identifiable assets:
United States $23,604 $24,425 $27,467
Foreign 7,782 6,879 5,399
------- ------- -------
$31,386 $31,304 $32,866
======= ======= =======
14. Fourth Quarter Adjustments
Certain adjustments and provisions amounting to $1,500, primarily related
to inventory valuations for the OAS product line, were recorded in the
fourth quarter of 1995.
F-23
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
N/A
24
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors, executive officers and significant employees of the
Registrant are as follows:
Name Age Position
- ---- --- --------
Yoram Bibring 39 Director
Yaron Eitan 40 Director and Chairman of the Board of
Directors
Dr. Leonard Lodish 53 Director
Michael McCoy 43 Director
David Jan Mitchell 35 Director
Yoav Stern 43 Director
Zvi Peled 47 President and Chief Executive Officer
Yoav M. Cohen 39 Chief Financial Officer and Secretary
Kasimir Arciszewski 45 Co-Founder and Co-Managing Director of
Speech Design
Hans Meiler 49 Co-Founder and Co-Managing Director of
Speech Design
The members of the Board of Directors of the Registrant (the "Board") are
divided into two classes and serve for a term of two years until their
successors are duly elected and qualified. Officers serve for a term of one year
until their successors are duly elected and qualified.
Based solely upon a review of the Forms 3 and 4 furnished to the Registrant
during its most recent fiscal year, and Forms 5 and related written
representations furnished to the Company with respect to its most recent fiscal
year, the Company knows of no director, officer, or beneficial owner of more
than ten percent (10%) of its Common Stock who failed to file on a timely basis
reports required by Section 16(a) of the Securities and Exchange Act of 1934, as
amended, during the most recent fiscal year.
Yoram Bibring, age 39, has served as a director of the Registrant since
1995. Mr. Bibring is President and Chief Executive Officer of Geotek
International Networks, Inc., a wholly owned subsidiary of Geotek. Mr. Bibring,
was Executive Vice President and Chief Operating Officer of Geotek from June
1993 to March 1996, Chief Financial Officer of Geotek from February 1990 to
September 1995 and Vice President of Aryt Optronics Industries, Ltd. from
December 1990 to April 1991.
Yaron Eitan, age 40, has served as Chairman of the Board and a director of
the Registrant since 1995. Mr. Eitan was Chairman of the Board of Bogen and its
subsidiary, BCI, from April 1991 to August 1995. Since October 1996, Mr. Eitan
has been Chairman of the Board of Geotek. From March 1989 until October 1996,
Mr. Eitan was President, Chief Executive Officer and a director of Geotek. Since
1992, Mr. Eitan also serves as a director and Chief Executive Officer of Power
Spectrum, Inc., and was Chairman of the Board from 1992-1995, and since 1993,
Mr. Eitan also serves as Chairman of the Board and Chief Executive Officer of
National Band Three Limited, each of which is a wholly owned subsidiary of
Geotek. Mr. Eitan also serves as a director of GMSI, Inc., a majority owned
subsidiary of Geotek.
Dr. Leonard Lodish, age 53, has served as a director of the Registrant
since 1995. Dr. Lodish is the Samuel R. Harrell Professor in the Marketing
Department of The Wharton
25
School, University of Pennsylvania where he has held academic positions since
1968. Dr. Lodish is a Director of Information Resources, Inc., Chicago, Illinois
(since 1985), Franklin Electronic Publishers, Inc., Burlington, New Jersey
(since 1987), J&J Snack Foods, Inc., Pennsauken, New Jersey (since 1993), Walsh
International, New York (since 1996) and is a former director of Geotek. Dr.
Lodish has a Ph.D. in Marketing and Operations Research from M.I.T.
Michael McCoy, age 43, has served as a director of the Registrant since
1995. Since February 1997, Mr. McCoy serves as President and CEO of Geotek's
U.S. operations. Since September 1995, Mr. McCoy had been Senior Vice President
and Chief Financial Officer of Geotek. From November 1994 to September 1995, Mr.
McCoy was Vice President of the Northeast Region of Geotek. From September 1992
to November 1994, Mr. McCoy was President of Greenlake Associates, Inc., a high
technology consulting company. From November 1988 through September 1992, Mr.
McCoy was a member of the Office of the Chairman and Senior Vice President of
Business Development for LCI International, Inc., a facilities based long
distance telecommunications company.
David Jan Mitchell, age 35, has served as a director of the Registrant
since 1995. Since 1991, Mr. Mitchell has been President of Mitchell & Company,
Ltd., a New York-based merchant banking company that he founded and, since March
1992, a partner of Petherton Capital Corporation, a privately held real estate
investment company. From April 1988 to December 1990, Mr. Mitchell was a
management principal and a director of Rodman & Renshaw, Inc., a publicly held
investment banking and brokerage firm. Mr. Mitchell is a director of Holmes
Protection Group, a security alarm system company and Kellstrom Industries, Inc.
("Kellstrom"), a distributor of jet engine parts. Mr. Mitchell also serves as
director of several private companies, including Madah-Com, an Israeli-based
technology company, and First Home, a company that develops and markets houses
to first-time homeowners. Mr. Mitchell also serves as President of Americash,
LLC, a national network of Automated Teller Machines in non-bank locations.
During the last ten years, Mr. Mitchell has served as an officer and/or director
of several not-for-profit universities and foundations.
Yoav Stern, age 43, has served as a director of the Registrant since 1995.
From March 1995 to August 1995, Mr. Stern, along with Joram Rosenfeld, served as
Co-Chief Executive Officer and Co-President of the Registrant. Mr. Stern has
been a managing partner of Helix since August 1995. Mr. Stern served as
Co-Chairman and Chief Executive Officer of Kellstrom from its inception in
December 1993 until June 1995 and has served as Co- Chairman of the Board of
Kellstrom since then. From January 1993 to September 1993, Mr. Stern was
President and, from January 1992 until May 1995, a director of WordStar
International, Inc. (now SoftKey International, Inc.), which is engaged in
research and development and worldwide marketing and distribution of software
for business and consumer applications. From April 1989 to December 1992, Mr.
Stern was Vice President of Business Development of Elron Electronic Industries
Ltd., a multinational public holding company based in Israel that is engaged in
operating and investing in high technology companies.
Zvi Peled, age 47, has been President and CEO of the Registrant since March
1996. From 1994 through February 1996, Mr. Peled was General Manager of Telenet
Group, a Division of Elbit, Ltd. ("Elbit"), Haifa, Israel. Mr. Peled was also
President and CEO of Fibronics, a subsidiary of Elbit, as well as a director of
Polish Communications Company, a company also owned by Elbit. Mr. Peled was
employed by Elbit from 1977 to March 1996.
Yoav M. Cohen, age 39, is the Chief Financial Officer and Secretary of the
Registrant. Prior to joining the Company, Mr. Cohen was Chief Financial Officer
of Target Capital Group LLC ("Target"), Garden City, N.Y., and Managing Director
of FEMI International Limited, a subsidiary of Target. From 1993 to 1994, Mr.
Cohen was Corporate Vice
26
President, Chief Financial Officer and Management Information Systems Director
of Taro Pharmaceuticals Ltd. From 1990 to 1993, Mr. Cohen was Vice President and
Controller of Global Investment Bank at Bankers Trust Company and from 1985 to
1990, Mr. Cohen was Assistant Vice President and Controller of
CitiCorp/Citibank.
Kasimir Arciszewski, age 45, is the Co-Founder and Co-Managing Director of
Speech Design since 1983. Mr. Arciszewski is responsible for Speech Design's
strategic planning, sales and financial activities. Mr. Arciszewski is an
outside director of Docunet AG, a privately-held German company.
Hans Meiler, age 49, is the Co-Founder and Co-Managing Director of Speech
Design since 1983. Mr. Meiler is responsible for Speech Design's operational
matters, including subcontracting, manufacturing and quality assurance.
Recent Events
Joram Rosenfeld, who served as a director of the Registrant since 1995 and,
along with Mr. Stern, was Co-Chief Executive Officer and Co-President of the
Registrant for the period of March 1995 to August 1995, passed away on February
19, 1997. Mr. Rosenfeld was a member of the Executive Committee of the Board.
The members of the Board have not yet elected a successor to Mr. Rosenfeld's
seat on the Board and its committee.
Committees and Meetings of the Board of Directors
During 1996, the Board held three meetings. Messrs. Bibring, Eitan and
Mitchell attended each of the meetings. Messrs. McCoy and Stern attended two of
the three meetings and Dr. Lodish attended one of the three meetings. The Board
has an Executive Committee and an Audit Committee, but does not have a standing
nominating committee.
Executive Committee
The Executive Committee of the Board was established in August 1995 and
currently consists of Messrs. Bibring, Eitan and Stern. A vacancy now exists due
to the death of Joram Rosenfeld. The Executive Committee is authorized by the
entire Board to exercise all of the authority of the Board in the management of
the Registrant between Board meetings, unless otherwise provided in the
Registrant's by-laws. The Executive Committee also functions as the Registrant's
Compensation/Stock Option Committee and, in that capacity, administers the
Registrant's 1996 Incentive Stock Option Plan and provides general oversight in
all employee personnel matters through periodic meetings with management of the
Company.
Audit Committee
The Audit Committee of the Board was established in August 1995 and
currently consists of Messrs. McCoy, Lodish and Mitchell. The Audit Committee
provides general financial oversight in financial reporting and the adequacy of
the Registrant's internal controls through periodic meetings with Registrant's
management and its external auditors.
Item 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information concerning the annual and
long-term compensation for services in all capacities to the Company for 1996,
1995 and 1994, of
27
those persons who were during 1996 (i) the Chief Executive Officer and (ii) the
other four most highly compensated executive officers of the Company.
Annual Compensation Long-Term Compensation
---------------------------------------------- ---------------------------
Other Securities All Other
Name and Fiscal Annual Underlying Compensation
Principal Position(1) Year(1) Salary($) Bonus($) Compensation($) Options(#) ($)
- --------------------- ------- --------- -------- --------------- ---------- ---------
Zvi Peled 1996 124,038 60,000 21,820(11) -- 3,750
President and Chief 1995 -- -- -- -- --
Executive Officer 1994 -- -- -- -- --
Yoav M. Cohen 1996 44,000 13,000 461(10) -- 2,462(6)
Chief Financial Officer 1995 -- -- -- -- --
& Secretary 1994 -- -- -- -- --
Menashe Ben-David (2) 1996 98,000 30,000 18,658(9) -- 1,970(6)
Chief Operating Officer 1995 98,000 5,000 24,066(4) -- 5,635(5)
and Executive VP of 1994 95,115 10,654(3) 25,280(7) 200,000** 5,876(8)
Operations of Bogen
Kasimir Arciszewski 1996 119,682 128,971 * -- --
Co-Founder and Co- 1995 125,820 163,565 * -- --
Managing Director of 1994 110,880 180,432 * -- --
Speech Design
Hans Meiler 1996 119,682 128.971 * -- --
Co-Founder and Co- 1995 125,820 163,565 * -- --
Managing Director of 1994 110,880 180,432 * -- --
Speech Design
* Did not receive prerequisites or other personal benefits, securities, or
property having an aggregate value of greater than the lower of $50,000 or
10% of the total salary and bonus reported for such executive officer.
** Securities underlying options to purchase 200,000 shares of Common Stock of
Bogen. In 1997 the Registrant intends to convert such options into options
to acquire 66,667 shares of Common Stock of the Registrant. The shares of
Common Stock of Bogen have no readily ascertainable market value.
(1) Prior to April 6, 1995, the Registrant was a Specified Purpose Acquisition
Company, which did not engage in any substantive commercial business other
than evaluating prospective companies for acquisition. During this time,
Messrs. Rosenfeld and Stern were the Registrant's Co-Chief Executive
Officers and did not receive any material compensation from the Company for
such services. Accordingly, in order to provide meaningful comparative
information, this table presumes that the Business Combination occurred as
of January 1, 1994 and sets forth the relevant compensation information, as
paid by Bogen or Speech Design, as the case may be, with respect to each
executive officer from said date.
(2) Mr. Ben-David was the Acting President and Chief Executive Officer from
November
28
1995 to March 1996. Mr. Ben-David is currently the Executive Vice President
of Bogen Communications, Inc.
(3) $5,654 of this bonus consists of compensation paid to Mr. Ben-David for
unused vacation days accrued in 1995.
(4) Includes a housing expense allowance of $19,097.
(5) Consists of $3,866 in contributions by Geotek to Geotek's 401 plan on
behalf of Mr. Ben-David and $1,787 in disability insurance premiums paid by
the Company on behalf of Mr. Ben-David.
(6) Includes disability and/or life insurance premiums paid by the Company on
behalf of the employees.
(7) Includes a housing expense allowance of $20,320.
(8) Represents $4,168 in contributions by Geotek to Geotek's 401 plan on behalf
of Mr. Ben-David and $1,708 in disability insurance premiums paid by the
Company on behalf of Mr. Ben-David.
(9) Includes a housing expense allowance of $17,628.
(10) Includes car allowance.
(11) Includes a housing expense allowance of $20,000, and car allowance of
$1,820.
Option/SAR Grants in 1996
At the Annual Meeting of Stockholders of the Registrant, held on December
13, 1996, the Stockholders adopted the Company's 1996 Incentive Stock Option
Plan (the "Plan"). Pursuant to which the Registrant may grant employees of the
Registrant and its subsidiaries (including employee directors), non-employee
directors and independent contractors and consultants option to shares of the
Company's Common Stock. The Company has reserved 1,253,335 shares of Common
Stock for issuance pursuant to the Plan. The exercise price of all stock options
granted pursuant to the Plan will be determined by a committee of the Board of
Directors on a case by case basis. See "Item 4. Submission of Matters to a Vote
of Security Holders".
No stock options were granted to or exercised by any of the named executive
officers during the 1996 fiscal year. In addition, the Company has no SAR Plan
and has not issued SAR rights during 1996. Pursuant to its employment agreement
with Mr. Peled, however, the Company has agreed to grant him options to purchase
175,000 shares of Common Stock with
29
exercise prices ranging from $5.00 to $10.00. In addition, upon their
employment, the Company agreed to grant to Mr. Cohen options to purchase 50,000
shares of Common Stock. (See "Employment Agreements.") In July 1994, Mr.
Ben-David was granted options to purchase 200,000 shares of Common Stock of
Bogen. In lieu of such stock options, the Company has agreed to grant Mr. Ben
David options to purchase 66,667 shares of the Company's Common Stock with an
exercise price of $5.50 per share.
The Registrant does not offer its employees any long-term incentive
plans, other than stock options, nor does it offer any defined benefit or
actuarial plans.
Compensation of Directors
Directors, other than non-employee directors who are members of the
Executive Committee of the Board, receive no compensation for acting as
directors to the Registrant. During 1996, Messrs. Rosenfeld and Stern received
$50,000 each as members of the Registrant's Executive Committee.
Employment Contracts
In January 1996, the Registrant entered into an agreement with Mr. Zvi
Peled generally setting forth the terms and provisions of his employment as
President and Chief Executive Officer of the Registrant. Mr. Peled joined the
Registrant in such capacity in March 1996. Mr. Peled's base salary is $150,000
per annum and he is entitled to a minimum annual bonus of $50,000, contingent
upon the satisfaction of performance criteria established by the Registrant's
Board of Directors and Mr. Peled at the start of each year. In addition, the
Registrant agreed to grant Mr. Peled stock options to purchase 175,000 shares of
the Registrant's Common Stock, at the following prices: 75,000 shares at an
exercise price of $5.00 per share, 75,000 shares at an exercise price of $7.50
per share, and 25,000 shares at an exercise price of $10.00 per share. Such
options will vest in equal installments over a five year period. In addition,
the Registrant provides Mr. Peled with $2,000 per month towards home rental
payments, as well as a car. Effective January 1, 1997, and in lieu of
participating in the Company's 401(k) Retirement Savings Plan and the
Registrant's life and disability insurance plans, Mr. Peled receives an
additional $2,300 per month, which amount is applied towards Mr. Peled's
personal benefits program. In the event that Mr. Peled's employment is
terminated without cause, Mr. Peled will continue to receive his salary and
benefits until he obtains a replacement position or for six months, whichever is
sooner. Pursuant to the employment agreement, Mr. Peled was provided with a
$10,000 relocation allowance.
The Company also has a written agreement with Mr. Yoav M. Cohen, dated
August 1, 1996, generally setting forth the terms and provisions of his
employment as Chief Financial Officer of the Registrant. Mr. Cohen joined the
Registrant in such capacity on July 31, 1996. Mr. Cohen's annual base salary is
$110,000 and he may receive an annual bonus equal to 1 - 1.5% of the profits of
the Company during the relevant fiscal year. Pursuant to the
30
employment agreement, the Company agreed to grant Mr. Cohen stock options, in
accordance with the terms and provisions of the Company's 1996 Incentive Stock
Option Plan, to purchase 50,000 shares of the Registrant's Common Stock. Mr.
Cohen also participates in the Registrant's 401(k) Retirement Savings Plan,
health and dental plans, and disability and life insurance plans as well as
additional disability and life insurance with an annual premium of up to $3,000.
In addition, Mr. Cohen is provided with a Company car, insured by the Company.
In the event that Mr. Cohen is terminated without cause, he is entitled to a
severance package pursuant to which he would continue to receive his base salary
and related benefits for six months.
Mr. Ben-David is employed by the Company pursuant to a written agreement
with Geotek, dated June 7, 1991, which has no definite term. The agreement
provides for Mr. Ben-David to receive a base salary of $75,000 per year, subject
to periodic review and increase by Geotek. Geotek has also agreed to provide
life and health insurance to Mr. Ben-David as well as an automobile. Mr.
Ben-David also received a total of 50,000 stock options to purchase shares of
common stock of Geotek. Geotek is entitled to terminate the employment agreement
at any time upon thirty days prior written notice; provided, however, that
Geotek continues to pay Mr. Ben-David his base salary for a period of six months
from termination of the agreement, unless Mr. Ben-David is terminated as a
result of certain conditions. Mr. Ben-David has agreed not to compete with
Geotek for a period of two years after his employment is terminated. The Company
has assumed all of Geotek's obligations under this agreement.
Mr. Arciszewski is employed by Speech Design pursuant to a written
agreement dated February 9, 1993 which has no definite term. The agreement
provides for Mr. Arciszewski to receive a base salary of DM 180,000 ($119,682 as
of December 31, 1995), subject to review and increase by the parties at the end
of each calendar year. In addition, Mr. Arciszewski is entitled to annual
bonuses based on Speech Design's pre-tax profits. Speech Design has agreed to
provide Social Security and health insurance benefits to Mr. Arciszewski and
agreed to furnish an automobile to him. Mr. Arciszewski has agreed not to
compete with Speech Design during the term of the agreement and for one year
thereafter and Speech Design has agreed to compensate Mr. Arciszewski during
this noncompetition period.
Mr. Meiler is employed by Speech Design pursuant to a written agreement
dated February 9, 1993 which has no definite term. The agreement provides for
Mr. Meiler to receive a base salary of DM 180,000 ($119,682 as of December 31,
1995), subject to review and increase by the parties at the end of each calendar
year. In addition, Mr. Meiler is entitled to annual bonuses based on Speech
Design's pre-tax profits. Speech Design has agreed to provide Social Security
and health insurance benefits to Mr. Meiler and agreed to furnish an automobile
to him. Mr. Meiler has agreed not to compete with Speech Design during the term
of the agreement and for one year thereafter and Speech Design has agreed to
compensate Mr. Meiler during this noncompetition period. Mr. Meiler has agreed
not to disclose any of Speech Design's business or trade secrets.
31
Compensation Committee Interlocks and Insider Participation
The Executive Committee of the Board also functions as the Board's
Compensation Committee. During the 1996 fiscal year, the Executive Committee of
the Board consisted of Messrs. Bibring, Eitan, Rosenfeld and Stern. During the
past fiscal year, none of the members of the Executive Committee was an officer
or employee of the Company. From March 1995 to August 1995, Messrs. Rosenfeld
and Stern were Co-Chief Executive Officers and Presidents of the Registrant.
Compensation Committee Report on Executive Compensation
Overview and Philosophy
The Executive Committee is responsible for, among other things, developing
and making recommendations to the Board with respect to the Company's executive
compensation policies. In addition, the Executive Committee, pursuant to
authority delegated by the Board, determines on an annual basis the compensation
to be paid to the Chief Executive Officer and each of the other executive
officers of the Company. Decisions with respect to awards of stock options to
executive officers are also made by the Executive Committee.
The Company's Executive Compensation Program is based on guiding principles
designed to align executive compensation with the values and objectives,
business strategy, management initiatives, and the business and financial
performance of the Company. In applying these principles the Executive Committee
has established a program to:
o Attract and retain key executives critical to the long-term success of
the Company and each of its business groups.
o Reward executives for long-term strategic management and the
enhancement of stockholder value.
o Integrate compensation programs with both the Company's annual and
long-term strategic planning and measuring processes.
o Support a performance-oriented environment that rewards achievement
with respect to the Company's goals and also as compared to others in
the industry.
In making compensation decisions, the Executive Committee focuses on the
individual contributions of executive officers to the Company's strategic goals,
including, but not limited to, the execution by such officers of the Company's
business plan. The Executive Committee uses its discretion to set executive
compensation where, in its judgment, external, internal or an individual's
circumstances warrant it.
32
The Executive Committee also periodically reviews the compensation policies
of other similarly situated companies, as set forth in the proxy statements of
such companies, to determine whether the Company's compensation decisions are
competitive within the telecommunications and electronics industries, as well as
with a broader group of companies of comparable size and complexity. This
comparison group includes the companies in the Standard & Poor's Small Cap 600
and the Standard & Poor's Telephone 500. The Executive Committee focuses on
companies engaged in these industries because these are the areas where the
Company has recently devoted, and expects to continue to devote, a substantial
portion of its efforts and resources.
Executive Officer Compensation Program
The Company's executive officer compensation program is comprised of base
salary, bonus, long-term incentive compensation in the form of stock options and
various benefits, including medical and pension plans generally available to
employees of the Company.
Base Salary, Options and Bonus. Base salary levels for the Company's
executive officers are competitively set relative to companies in the
electronics industries and other comparable companies. In determining salaries,
the Executive Committee also takes into account individual experience and
performance and specific issues particular to the Company. The Executive
Committee generally sets base salary for executive officers at the median to low
end of the range at which comparable companies compensate their executive
officers. The Executive Committee believes that executive officers should
receive a significant portion of their compensation in the form of discretionary
bonuses and stock options as these types of compensation awards provide a better
incentive to executive officers to achieve long-term value for the Company and
its stockholders. The Executive Committee believes they have achieved a proper
balance between providing enough immediate cash compensation to retain and
attract top quality managers and providing long term incentives, in the form of
stock options and cash bonuses, to promote long-term growth for the Company's
stockholders.
Benefits. The Company provides medical and pension benefits to its
executive officers that are generally available to the Company's employees. The
Executive Committee does not consider benefits and perquisites to be a
significant portion of the Company's executive officer compensation.
Section 162(m) of the Internal Revenue Code. In general, Section 162(m) of
the Internal Revenue Code of 1986, as amended (the "Code"), limits the ability
of public corporations to deduct remuneration in excess of certain thresholds
paid to certain executive officers. The Executive Committee continuously
monitors and reviews the compensation of the Company's highest paid executive
officers to ensure that the Company's deduction for remuneration is not subject
to the limitations imposed by Section 162(m) of the Code. For example,
remuneration to executive officers in the form of stock options is intended to
qualify as performance-based compensation within the meaning of Section 162(m)
of the Code and, thus, would not be subject to deduction limitations imposed
thereunder.
33
Chief Executive Officer Compensation
Mr. Peled, who was appointed President and CEO as of February 22, 1996,
received an annual base salary of $150,000 in the fiscal year ended December 31,
1996. A minimum annual bonus of $50,000 will be paid provided certain
predetermined annual milestones have been met. These milestones are determined
and agreed upon by the Board and Mr. Peled, annually. Mr. Peled was also granted
175,000 Company stock options (for further details regarding options granted
please refer to Part III, Employment Contracts). Mr. Peled has been granted rent
payments in the amount of $2,000 per month, a Company car including related
business expenses, the ability to participate in various Company insurance and
pension plans. The Compensation Committee believes that Mr. Peled's total
compensation package is reasonable in light of the demands which were, and will
continue to be, placed on him during the coming years. In addition, this
compensation level reflects the Compensation Committee's confidence in Mr. Peled
and the Company's desire to attract and retain his talents, as the President and
Chief Executive Officer of the Company. (See "Item 11." - Employment Contracts.)
The foregoing report has been furnished by the Executive Committee
consisting of Messrs. Bibring, Eitan and Stern.
Performance Comparison Graph
The following graph compares the cumulative total stockholder return on the
Registrant's Common Stock since October 5, 1995 (the first day of trading in the
Registrant's Common Stock on the American Stock Exchange) with the cumulative
return on the S&P Smallcap 600 Index and the S&P Telephone - 500 over the same
period (assuming the investment of $100 in the Company's Common Stock, the S&P
Smallcap 600 Index and the S&P Telephone - 500 on October 5, 1995, and
reinvestment of all dividends). The cumulative total of stockholder return
represents the value that such investments would have had on December 31, 1996.
Total return calculations for the S&P Smallcap 600 Index and for the S&P
Telephone - 500 were performed for Standard & Poor's Compustat Services, Inc.
This graph will not be deemed to be incorporated by reference by any
general statement incorporating by reference this Annual Report on Form 10-K
into any filing under the Securities Act of 1933 or under the Securities
Exchange Act of 1934, except to the extent that the Registrant specifically
incorporates this information by reference, and shall not otherwise be deemed to
be filed under such Acts.
TOTAL SHAREHOLDER RETURNS
(Dividends Reinvested)
ANNUAL RETURN PERCENTAGE
Years Ending
Company/Index Dec-95 Dec-96
- ------------- ------ ------
Bogen Communications Intl -40.98 18.39
S&P Telephone 500 25.48 1.00
S&P Smallcap 600 Index 9.64 21.32
INDEXED RETURNS
Years Ending
Base Period
Company/Index October 5, 1995 Dec-95 Dec-96
- ------------- --------------- ------ ------
Bogen Communications Intl 100 59.02 69.87
S&P Telephone 500 100 125.48 126.74
S&P Smallcap 600 Index 100 109.64 133.01
Prepared by Standard & Poor's Compustat
Custom Products Division - 3/28/97
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors to file initial reports of ownership and
reports of changes in ownership of the Company's securities with the Securities
and Exchange Commission and the American Stock Exchange. Executive officers and
directors are required by the SEC regulations to furnish the Company with copies
of all Section 16(a) forms they file. Based solely on a review of the copies of
such forms furnished to the Company and written representations from the
Company's executive officers and directors, the Company believes that each of
Messrs. Mitchell and Stern failed to file a report in connection with the
release of shares of common stock of the Registrant from an escrow account. The
Company has been advised that Messrs. Mitchell and Stern will make all the
necessary filings promptly.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership (as determined in accordance with Rule 13d-3 promulgated under the
Exchange Act of the Common
34
Stock as of March 1, 1996, for (a) directors and executive officers of the
Company, (b) all directors and executive officers of the Company, as a group,
and (c) each person who is known by the Registrant to own beneficially 5% or
more of the Registrant's Common Stock. Except as otherwise noted, each person
listed below has sole voting and dispositive power with respect to the shares of
Common Stock listed next to such person's name.
Total Number of Shares Percentage of
Directors, Nominees and of Common Stock Class of Common Stock
Executive Officers Beneficially Owned Beneficially Owned(1)
- ------------------ ------------------ ---------------------
Yoram Bibring 0 0
Yaron Eitan(2) 0 0
Dr. Leonard Lodish 0 0
Michael McCoy 0 0
David Jan Mitchell(3) 170,001 2.95%
Yoav Stern(4) 357,500 6.21%
Zvi Peled 0 0
Yoav M. Cohen 0 0
Kasimir Arciszewski 0 0
Hans Meiler 0 0
All directors and
executive officers
as a group (12 persons) 527,501 9.16%
Other Beneficial Owners
Geotek Communications, Inc. 3,901,919(5) 65.48%
102 Chestnut Ridge Road
Montvale, NJ 07645
(1) The percentage column represents the percentage of Common Stock
beneficially owned calculated in accordance with the Securities Exchange
Act of 1934, whether presently issued and outstanding or reserved for
issuance pursuant to exercise of acquisition rights.
(2) Mr. Eitan is President, Chairman of the Board of Directors of Geotek.
Geotek is the record and beneficial owner of 3,701,919 shares of Common
Stock and 200,000 Warrants. Due to his positions with Geotek, Mr. Eitan may
be in a position to direct the voting and disposition of Common Stock and
warrants held by Geotek. Mr. Eitan disclaims beneficial ownership of such
shares and Warrants.
(3) Consists of 75,001 shares directly owned by Mr. Mitchell and 95,000 shares
beneficially owned by EGAC II. Messrs. Stern and Mitchell each own one
third of the issued and outstanding capital stock of EGAC II and, as such,
may be deemed to beneficially own those securities held by EGAC II. EGAC II
is the beneficial owner of 95,000 shares of Common Stock.
(4) Consists of 262,500 shares beneficially owned by Helix Capital LLC, which
may be
35
deemed to be beneficially owned by Mr. Stern and 95,000 shares beneficially
owned by EGAC II, which Mr. Stern may be deemed to beneficially own.
(5) Includes 200,000 shares of Common Stock issuable upon exercise of currently
exercisable warrants.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the 1996 fiscal year, the Company did not enter into any transaction
with any director, officer, nominee for election, or any security holder who is
known to the Company to own more than five percent of the Registrant's Common
Stock or any family member of any of the foregoing.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements See "Item 8. Financial Statements and Supplementary
Data."
(a)(2) Financial Statement Schedules:
Schedule I: Condensed Financial Information of Bogen Communications
International, Inc. (Parent Company Only)
Schedule II: Valuation and Qualifying Accounts
36
Schedule I - Condensed Financial Information of Bogen Communications
International, Inc. (Parent Company Only)
BOGEN COMMUNICATIONS INTERNATIONAL, INC.
(Parent Company only)
BALANCE SHEETS
AS OF DECEMBER 31, 1996 and 1995
(IN THOUSANDS OF DOLLARS)
Assets
1996 1995
---- ----
CURRENT ASSETS:
Cash and cash equivalents $ 305 $ 968
Prepaid expenses and other current assets -- 3
-------- --------
Total Current Assets 305 971
Organization costs, net 19 30
Investment in subsidiaries 17,643 15,945
Note Receivable from related party 553 --
-------- --------
TOTAL ASSETS $ 18,520 $ 16,946
======== ========
Liabilities & Stockholders' Equity
CURRENT LIABILITIES:
Accounts payable & accrued expenses 181 453
Advances to related parties 169 209
-------- --------
Total Current Liabilities 350 662
Notes payable to related parties 594 3,141
TOTAL LIABILITIES 944 3,803
-------- --------
STOCKHOLDERS' EQUITY:
Preferred stock - $.001 par value;
1,000,000 shares authorized; none
issued and outstanding at December 31,
1996 and 1995, respectively -- --
Common stock - $.001 par value; 50,000,000
shares authorized; 5,758,850 and 5,759,350
shares issued and outstanding at December 31,
1996 and 1995, respectively 6 6
Additional paid-in capital 21,774 19,175
Accumulated deficit (4,177) (6,185)
Currency translation adjustments (27) 147
-------- --------
TOTAL STOCKHOLDERS' EQUITY 17,576 13,143
-------- --------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 18,520 $ 16,946
======== ========
The accompanying notes are an integral part of these financial statements.
37
Schedule I - Condensed Financial Information of Bogen Communications
International, Inc. (Parent Company Only)
BOGEN COMMUNICATIONS INTERNATIONAL, INC.
(Parent Company only)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 and FOR THE PERIOD
FROM AUGUST 21, 1995 to DECEMBER 31, 1995
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
1996 1995
---- ----
Revenues: $ -- $ --
Operating Expenses:
General and Administrative 371 173
Amortization expense 11 4
----------- -----------
Loss From Operations (382) (177)
Other expenses:
Equity in (income) loss of
subsidiaries (2,496) 2,740
Acquisition costs -- 1,491
Interest expense, net 42 135
----------- -----------
Income (loss) before provision for
income taxes 2,072 (4,543)
Provision for income taxes 64 --
----------- -----------
Net Income (loss) $ 2,008 $ (4,543)
=========== ===========
Net Income (loss) per common share:
Net Income (loss) $ 0.35 $ (1.37)
=========== ===========
Weighted average number of
common shares outstanding $ 5,759,075 $ 3,311,668
=========== ===========
The accompanying notes are an integral part of these financial statements.
38
Schedule I - Condensed Financial Information of
Bogen Communications International, Inc. (Parent Company Only)
BOGEN COMMUNICATIONS INTERNATIONAL, INC.
(Parent Company Only)
STATEMENT OF CHANGES IN COMMON STOCK SUBJECT TO
POSSIBLE REDEMPTION AND STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS EXCEPT SHARE AMOUNTS)
For the Period August 21, 1995 through December 31, 1996
CUMULATIVE
COMMON STOCK COMMON STOCK
SUBJECT TO ------------- ADDITIONAL CURRENCY
POSSIBLE NUMBER PAID-IN ACCUMULATED TRANSLATION
REDEMPTION OF SHARES AMT CAPITAL DEFICIT ADJUSTMENTS
---------- --------- --- ------- ------- -----------
Balance at August 21, 1995
(Date of Acquisition) $ 1,575 1,615,155 $ 2 $ 6,613 $ (351) $ --
Accretion of redemption value
of common stock 52 -- -- (52) -- --
Reclass of common stock subject to
redemption to common stock upon
the Company's acquisition of
Bogen and Speech Design (1,627) 309,845 -- 1,627 -- --
Issuance of common stock and
other adjustment to effect
combination with Bogen and
Speech Design -- 3,701,919 4 10,247 (1,291) 37
Issuance of common stock and warrants
to purchase 60,000 shares of common stock
for services provided to facilitate the
acquisition of Bogen and Speech Design -- 132,431 -- 740 -- --
Translation adjustments -- -- -- -- -- 110
Net loss for the period -- -- -- -- (4,543) --
--------- --------- -------- -------- -------- ---------
Balance at December 31, 1995 -- 5,759,350 $ 6 $ 19,175 $ (6,185) $ 147
The accompanying notes are an integral part of these financial statements.
39
Schedule I - Condensed Financial Information of
Bogen Communications International, Inc. (Parent Company Only)
BOGEN COMMUNICATIONS INTERNATIONAL, INC.
(Parent Company Only)
STATEMENT OF CHANGES IN COMMON STOCK SUBJECT TO
POSSIBLE REDEMPTION AND STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS EXCEPT SHARE AMOUNTS)
For the Period August 21, 1995 through December 31, 1996
CUMULATIVE
COMMON STOCK COMMON STOCK
SUBJECT TO ------------- ADDITIONAL CURRENCY
POSSIBLE NUMBER PAID-IN ACCUMULATED TRANSLATION
REDEMPTION OF SHARES AMT CAPITAL DEFICIT ADJUSTMENT
---------- --------- --- ------- ------- ----------
Restructuring of $3,000 related
party note with related interest -- -- -- 2,602 -- --
Repurchased and canceled common
stock -- (500) -- -- (3) --
Translation adjustments -- -- -- -- -- (174)
Net Income for the period -- -- -- -- 2,008 --
----- ---------- -------- ---------- ---------- ----------
Balance at December 31, 1996 $-- 5,758,850 $ 6 $ 21,774 $ (4,177) $ (27)
===== ========== ======== ========== ========== ==========
The accompanying notes are an integral part of these financial statements.
40
Schedule I - Condensed Financial Information of Bogen Communications
International, Inc. (Parent Company Only)
BOGEN COMMUNICATIONS INTERNATIONAL, INC.
(Parent Company Only)
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
FOR THE PERIOD AUGUST 21, 1995 to DECEMBER 31, 1995
(IN THOUSANDS OF DOLLARS)
1996 1995
---- -----
NET CASH(USED IN)OPERATING ACTIVITIES $ (75) $ (383)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash obtained in the acquisition of Bogen and
Speech Design -- 8,149
Notes receivable from subsidiary (553) --
------- -------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (553) 8,149
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividend paid to Geotek related to the combination -- (7,000)
Proceeds from debt issued to related parties -- 317
Payment on debt to non-related parties -- (115)
Advances to subsidiaries (40) --
------- -------
NET CASH (USED IN) FINANCING ACTIVITIES (40) (6,798)
------- -------
INCREASE (DECREASE) IN CASH (668) 968
------- -------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 968 --
------- -------
Effects of Exchange Rate on Cash 5 --
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 305 $ 968
======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Non-Cash Investing Activities
Restructuring of $3,000 related party note and
related interest $ 2,602 $ --
======= =======
Common stock and warrants issued as consideration
for certain services provided to the Company in
connection with the combination $ -- $ 740
======= =======
The accompanying notes are an integral part of these financial statements.
41
Schedule I - Condensed Financial Information of Bogen Communications
International, Inc.(Parent Company Only)
BOGEN COMMUNICATIONS INTERNATIONAL, INC.
(Parent Company Only)
Notes to Financial Statements
1. Organization and Business Operations:
On April 6, 1995 Bogen Communications International, Inc. (The "Company")
announced that it had entered into a definitive agreement concerning the
proposed acquisition by the Company of Geotek Communications, Inc.'s ("Geotek")
67% interest in Speech Design GmbH ("Speech Design"), a German company which
focuses on telephone peripherals utilizing digital voice processing
technologies, and Geotek's 99% interest in Bogen Corporation ("Bogen"), a New
Jersey-based corporation which focuses on telecommunications peripherals and
sound and communications equipment. This combination was consummated on August
21, 1995 and results of operations are recorded since the date of acquisition.
2. Summary of Significant Accounting Policies:
a. Basis of Presentation
These parent company only comparative financial statements reflect the
operations and financial position of the Company for the year ended December 31,
1996 and for the period from August 21, 1995 through December 31, 1995. As
described in the footnotes to the consolidated financial statements, the
acquisition of Bogen and Speech Design on August 21, 1995 has been accounted for
as a reverse acquisition by Bogen and Speech Design, companies under the common
control of Geotek.
b. Organization Costs
Organization costs incurred in 1993 are being amortized over 60 months.
c. Net Income (Loss) per Share
Net income (loss) per common share is computed by dividing net income (loss) by
the weighted average number of common shares outstanding, including common stock
equivalents (unless anti-dilutive).
d. Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalent.
42
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
Column A Column B Column C Column C Column D Column E
- -------- --------- ---------- ----------- -------- ---------
Balance at Charged to Balance at
Beginning Costs and End of
Description of Period Expenses Other Deduction Period
----------- --------- -------- ----- --------- ------
Year ended December 31, 1996:
Allowance for doubtful
accounts $ 424 $ 153 $ (1)(d) $ (106)(a) $ 470
Reserve for inventory
obsolescence 2,552 257 (16)(d) (1,667)(b) 1,126
Allowance for tax valuation 4,831 (694) -- -- 4,137
------- ------- ------- ------- -------
$ 7,807 $ (284) $ (17) $(1,773) $ 5,733
======= ======= ======= ======= =======
Year ended December 31, 1995:
Allowance for doubtful
accounts $ 365 $ 311 $ -- $ (252)(a) $ 424
Reserve for inventory
obsolescence 1,267 2,216 6(d) (937)(b) 2,552
Allowance for tax valuation 3,132 1,631 68(c) -- 4,831
------- ------- ------- ------- -------
$ 4,764 $ 4,158 $ 74 $(1,189) $ 7,807
======= ======= ======= ======= =======
Year ended December 31, 1994:
Allowance for doubtful
accounts $ 220 $ 283 $ 3(c) $ (141)(a) $ 365
Reserve for inventory
obsolescence 60 1,273 -- (66)(b) 1,267
Allowance for tax valuation 2,070 1,062 -- -- 3,132
------- ------- ------- ------- -------
$ 2,350 $ 2,618 $ 3 $ (207) $ 4,764
======= ======= ======= ======= =======
(a) Uncollectible accounts written off, net of recoveries.
(b) Write-off of obsolete inventory.
(c) Assumed through acquisition.
(d) Currency exchange effect.
43
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of 1996.
(c) Exhibits
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 Voting Agreement, dated August 21, 1995, by and among
Geotek Communications, Inc., Yoav Stern, Joram D.
Rosenfeld and David Jan Mitchell.4
4.6 Bogen Communications, International, Inc. 1996 Incentive
Stock Option Plan 7
10.1 Form of Agency Agreement, dated as of June 28, 1993,
between the Company and GKN Securities Corp.
(without schedules).1
10.2 Letter Agreement among each of the Stockholders of the
Company, the Company and GKN Securities Corp.
(without schedules).1
10.3 Form of Investment Management Trust Agreement between
United States Trust Company of New York and the
Company.1
10.4 Form of Share Escrow Agreement between the Company and
Continental Stock Transfer & Trust Company.1
10.5 Form of Indemnification Agreement between the Company
and its officers, directors and advisors.4
10.6 Stock Purchase Agreement, dated April 6, 1995, by and
between Geotek Communications, Inc. and European
Gateway Acquisition Corp.2
10.7 Letter Amendment, dated May 10, 1995, to the Stock
Purchase Agreement.5
10.8 Side Letter Agreement, dated May 10, 1995, between
Geotek Communications, Inc. and European Gateway
Acquisition Corp. regarding the issuance of certain
stock warrants.6
44
10.9 Letter Amendment, dated May 30, 1995, to the Stock
Purchase Agreement.5
10.10 Letter Amendment, dated June 27, 1995, to the Stock
Purchase Agreement.5
10.11 Letter Amendment, dated August 21, 1995, to the Stock
Purchase Agreement.4
10.12 Letter Agreement, dated August 21, 1995, to the Stock
Purchase Agreement.4
10.13 Letter Agreement, dated May 8, 1996, to the Stock
Purchase Agreement.
10.14 Summary of Agreement for Business Credit between Speech
Design GmbH and Statelparkasse Munchen.
10.15 Secured Revolving Promissory Note dated February 6, 1997
between Summit Bank and Bogen Communications, Inc.
10.16 Loan and Security Agreement dated February 6, 1997
between Summit Bank and Bogen Communications, Inc.
10.17 Corporate Guaranty of Bogen Communications
International, Inc.
10.18 Corporate Guaranty of Bogen Corporation.
* 21.1 Subsidiaries of the Company.
* 23.1 Consent of Coopers & Lybrand L.L.P.
----------
*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
Proxy Statement, dated July 12, 1995, for a Special Meeting
of Stockholders, as amended by addendum, dated July 18,
1995.
6. Incorporated by reference to the Exhibits to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1995.
7. Incorporated by reference to the Exhibits to the Company's
Registration Statement on Form S-8 (File No. 333- ),
dated February 4, 1997.
45
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By: /s/ Zvi Peled
-------------------------------
Zvi Peled, President
and Chief Executive Officer
Date: March __, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed on March__, 1997 by the following persons on behalf of
the Registrant in the capacities indicated.
/s/ Zvi Peled President and Chief Executive Officer
- --------------------------------
Zvi Peled
/s/ Yoav M. Cohen Chief Financial Officer, and Secretary
- --------------------------------
Yoav M. Cohen
/S/ Yaron I. Eitan Director, Chairman of the Board of Directors
- --------------------------------
Yaron I. Eitan
/s/ Yoram Bibring Director
- --------------------------------
Yoram Bibring
/s/ Michael McCoy Director
- --------------------------------
Michael McCoy
/s/ David Jan Mitchell Director
- --------------------------------
David Jan Mitchell
/s/ Yoav Stern Director
- --------------------------------
Yoav Stern
/s/ Dr. Leonard Lodish Director
- --------------------------------
Dr. Leonard Lodish
46
EXHIBIT INDEX
Exhibit
No.
- ------
10.14 Summary of Agreement for Business Credit between Speech Design GmbH and
Statelparkasse Munchen.
10.15 Secured Revolving Promissory Note dated February 6, 1997 between Summit
Bank and Bogen Communications, Inc.
10.16 Loan and Security Agreement dated February 6, 1997 between Summit Bank
and Bogen Communications, Inc.
10.17 Corporate Guaranty of Bogen Communications International, Inc.
10.18 Corporate Guaranty of Bogen Corporation.
21.1 Subsidiaries of the Company
23.1 Consent of Coopers & Lybrand L.L.P.
47