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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 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 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.
----------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 38-3114641
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
50 SPRING STREET, RAMSEY, NEW JERSEY 07446
(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. [ ]
The aggregate market value of the voting stock, based on the closing price
of the Registrant's common stock on March 29, 2000, as reported on the Nasdaq
National Market System ("NASDAQ"), held by non-affiliates of the Registrant was
approximately $46,561,005
As of March 29, 2000, 7,513,005 shares of the Registrant's Common Stock,
par value $.001 per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III of this Form 10-K is incorporated by
reference to the definitive proxy statement for the 2000 annual meeting of
stockholders of Bogen Communications International, Inc., which definitive proxy
statement will be filed no later than 120 days after December 31, 1999.
PART I
All statements contained herein that are not historical facts, including,
but not limited to, statements regarding Bogen Communications International,
Inc. and its subsidiaries (collectively, the "Company") and its current business
strategy, projected sources and uses of cash, and 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 including, but not limited to, the
introduction and development of the Company's products; changes in labor,
equipment and capital costs; changes in access to suppliers and sub-contractors,
including recurrence of instability in Asia which may adversely affect the
Company's suppliers and subcontractors; currency fluctuations; changes in United
States and foreign 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; employee turnover; issues relating to the Company's internal systems;
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
GENERAL
Bogen Communications International, Inc., (the "Registrant", and together
with its subsidiaries, the "Company"), develops, produces and sells sound
processing equipment, telecommunications peripherals and Unified Messaging
products and services, through its direct subsidiaries.
The Company's United States business manufactures and distributes
commercial telecommunications and audio products through Bogen Corp. ("Bogen")
and through its subsidiaries, Bogen Communications, Inc. ("BCI"), New England
Audio Resource Corp. ("NEAR"), and Apogee Sound International, LLC ("Apogee").
The Company's European business develops and markets voicemail systems and
Unified Messaging products and services through Speech Design GmbH ("Speech
Design"), based in Germany, and through its subsidiaries, Digitronic
Computersysterm GmbH ("Digitronic"), based in Germany, Satelco AG ("Satelco"),
based in Switzerland, Speech Design (Israel) Ltd.,based in Israel and Speech
Design (U.K.)Ltd., based in the United Kingdom.
As used herein, the "Company" shall refer to the Registrant, "Bogen" shall
mean the business of Bogen Corp. and its subsidiaries, and "Speech Design" shall
mean Speech Design GmbH and its subsidiaries.
Bogen focuses on commercial and engineered sound equipment and
telecommunication peripherals for the voice and sound processing market. For
over 68 years, Bogen has been a leader in commercial amplifiers, speakers and
intercom systems for background and foreground music applications, as well as
for security and educational applications, and since 1991, has produced voice
processing systems, including message/music-on-hold systems ("MOH"). Bogen's
products are sold primarily through a network of distributors, dealers and
contractors.
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 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. In late 1998, Speech Design introduced the
Teleserver Pro range of modular, higher-end (2-8 ports) voice and call
processing peripherals. In addition to higher capacity voice mail then possible
with Memo, Teleserver also offers LAN connectivity to PC networks and ACD
(automatic call distribution) functionality. In 1999, Speech Design added
Unified Messaging products and services, through its flagship product Thor(TM).
Thor improves communications within any enterprise and delivers value-added
services to Internet service providers ("ISPs"). Thor integrates fax and
voice-mail into an existing e-mail environment, and e-mail and fax into the
mobile-phone environment.
1
Speech Design sells through leading European telephone switch manufacturers
in Germany, and through major independent dealers outside Germany. Speech
Design's Thor unified messaging system in its enterprise version is sold through
switch manufacturers and IT system integrators. In addition, Thor unified
messaging services and platforms are sold through European Internet Service
Providers ("ISPs") and communications companies ("telcos").
The Registrant 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, formerly known as European Gateway Acquisition Corp., was
formed 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. On October 13, 1993, the Registrant
consummated an initial public offering (the "IPO") of 1,550,000 units for $5.50
per unit. 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 described below, the Company has called such
Warrants for redemption, as of May 1, 2000, after which any Warrants that are
not earlier exercised, will be cancelled and redeemed for $.01 per Warrant.
Pursuant to a stock purchase agreement on August 21, 1995, as amended
effective January 1, 1996, the Registrant acquired from Geotek Communications
Inc. ("Geotek") approximately 67% of the outstanding capital stock of Speech
Design and approximately 99% of the outstanding capital stock of Bogen. As
consideration for such acquisitions, Geotek received from the Company: (i)
3,701,919 shares of Common Stock; (ii) warrants to purchase 200,000 shares of
Common Stock; (iii) $7,000,000 in cash; (iv) a convertible promissory note in
the principal amount of $500,000 and repaid in 1997, (v) an option to purchase
$3,000,000 of common stock with varying exercise prices, which expired in 1997
and was not exercised, and (vi) rights to certain contingent payments, none of
which became due.
On November 26, 1997, the Company acquired all 3,701,919 shares of Common
Stock and warrants held by Geotek for $18,500,000. Simultaneously with the
repurchase of the Common Stock and warrants held by Geotek, the Company sold
200,000 shares of 9% Series A Convertible Preferred Stock (the "Preferred
Stock") to a group of independent investment funds, for total proceeds to the
Company of $20,000,000. The Preferred Stock carried a 9% semi-annual cumulative
dividend which could be paid in cash or in-kind at the sole discretion of the
Company. Each share of Preferred Stock was convertible at any time at the option
of the holder, into 18.605 shares of Common Stock (or 3,721,000 shares of Common
Stock based at the initial conversion price of $5.375). Also at the time, of the
transaction described above, a new senior executive team was put in place and
the Board of Directors was reconstituted.
On May 20, 1998, the Company consummated the acquisition of the remaining
33% equity interest in Speech Design, held by the founders and managing
directors of Speech Design. The aggregate consideration paid by the Company for
the 33% equity interest approximated $8 million before acquisition costs,
consisting of DM 7,570,000 (approximately U.S. $4.3 million) in cash and 458,000
restricted shares of the Common Stock.
On July 1, 1998, all Preferred Stock Shareholders elected to convert their
Preferred Shares to Common Stock. After converting all Preferred Shares and
accrued dividends (10,775 new Preferred Shares were issued as accrued interest)
into Common Stock, the Preferred Shareholders received a total of 3,921,477
Common Shares of Bogen.
On December 31, 1998, Speech Design acquired 100% of Digitronic, located in
Northern Germany. Digitronic is a developer and manufacturer of LAN and Internet
based unified messaging products. The aggregate purchase price, including direct
costs of $145,000, amounted to approximately $1.2 million in cash and assumption
of certain liabilities. The terms of the acquisition agreement also provide for
additional cash consideration up to DM 2.8 million (or approximately $1.7
million) to be paid if Digitronic's sales during 1999 and 2000 exceed certain
targeted levels. Targeted levels have been set substantially above the
historical experience of Digitronic at the time of acquisition. The amount, if
any, will be paid in 2001.
2
On August 26, 1999, Bogen Communications Inc., through Apogee Sound
International, LLC ("Apogee"), a newly formed Bogen subsidiary, acquired
substantially all of the assets of Apogee Sound Inc., a privately held company
headquartered in Petaluma, California. Consideration for the acquisition was the
assumption or payment of approximately $2.6 million of Apogee Sound Inc.'s
liabilities.
On March 30, 2000, the Company announced that it has called all outstanding
Redeemable Common Stock Purchase Warrants for redemption for $.01 per Warrant,
effective on May 1, 2000. Such redemption is authorized by the terms of the
Warrant Agreement dated as of October 7, 1993 following any period of twenty
trading days on which the Company's Common Stock market price closes at $10 per
share or higher. As of March 29, 2000,there are 7,513,005 outstanding shares of
Common Stock, and Warrants for the purchase of approximately 2,569,866 shares
remain outstanding. Such outstanding Warrants remain exercisable for the
purchase of Common Stock for $5.50 per share until the redemption date of May 1,
2000, after which they will be cancelled and of no further force and effect.
See below under the headings "Bogen" and "Speech Design" for a discussion
of other acquisitions consummated by the Company.
BOGEN (DOMESTIC OPERATIONS)
Since its founding in 1932, Bogen has been involved in the commercial audio
industry and currently develops, sources, assembles and distributes sound
processing equipment and telecommunication peripherals through its wholly-owned
subsidiary, BCI.
Bogen also markets a line of high performance, all environment speakers,
based on technology of NEAR, acquired in 1997, and whose operations were
recently combined into Bogen.
Bogen's core audio products (which are sold as the Engineered Systems and
Commercial Audio product lines) include: commercial audio amplifiers and
speakers; related sound and intercom systems equipment for professional,
industrial and commercial system applications; background and foreground music
applications; and intercom and communications systems for the security and
educational markets, and telephone paging systems. In the third quarter of 1999,
Bogen acquired through its newly formed subsidiary, Apogee, substantially all of
the assets of Apogee Sound, Inc., a privately held company headquartered in
California. Through Apogee, Bogen manufactures and distributes amplifiers and
speakers to the professional Audio market.
BOGEN'S PRODUCT LINES
COMMERCIAL AUDIO
Bogen's Commercial Audio 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, restaurants, hotels, stores, etc. During 1997, NEAR's All Environment
Speakers were added to Commercial Audio's product line and during 1999, Apogee's
pro-audio amplifiers and speakers were added.
Commercial Audio net sales for the years ended December 31, 1999, 1998 and
1997 were $14,129,000, $11,640,000 and $11,250,000, respectively. Commercial
Audio provided 24.1%, 22.3% and 22.6% of the Company's net sales for the years
ended December 31, 1999, 1998 and 1997, respectively. Commercial Audio net sales
for 1999 include Apogee's net sales.
ENGINEERED SYSTEMS
Bogen's Engineered Systems product line features custom designed
intercom/paging systems that are sold to contractors for installation in
schools. For example, introduced in late 1996, the MULTICOM-DCS (Digital
Communication System) provides system users with high quality controlled speaker
and telephony functions through a single user interface. MULTICOM-DCS provides
full integration of the Company's MULTICOM paging Technology with COMDIAL PABX
systems.
3
During the second quarter of 1999, Bogen added a new line of Multi-Media
Controllers, marketed under the trade name "iQuest(TM)". Its Internet Protocol
("IP") based communication format allows educators to administer, schedule, view
and control educational media resources (such as multiple VCRs, DVDs, Laser
Disks, and others devices) remotely located in their school's media center.
Engineered Systems net sales for the years ended December 31, 1999, 1998
and 1997 were $9,359,000, $7,520,000 and $8,082,000 respectively. Engineered
Systems net sales accounted for 16.0%, 14.4% and 16.2% of the Company's net
sales for the years ended December 31, 1999, 1998 and 1997, respectively.
TELCO U.S.
Bogen's Telco U.S. products consist of telephone-based overhead paging
systems and equipment and digital message/music-on-hold players. These products
allow installers to increase the value of their telephone system offerings by
providing users with enhanced efficiency and convenience. In 1997, Bogen
introduced a new MOH system, Pro-Hold DRDX. The DRDX products allow
music-on-hold programs to be downloaded to the user site remotely over telephone
lines, using a digital modem transfer, whereas the traditional Pro-Hold required
a cassette tape to be physically delivered to the user site.
Bogen's Telco U.S. net sales for the years ended December 31, 1999, 1998
and 1997 were $13,257,000, $12,591,000 and $12,402,000, respectively. In 1997,
net sales included $214,000 of the Company's discontinued Office Automated
Systems product line. Speech Design also has a Telco line of products, see
"Speech Design - Product Line". Telco U.S. net sales provided 22.7%, 24.2% and
24.9% of the Company's net sales for these respective years.
BOGEN'S SALES AND MARKETING
COMMERCIAL AUDIO AND ENGINEERED SYSTEMS PRODUCT LINES
Bogen's Commercial Audio and Engineered Systems products are marketed
generally through an external field sales organization and several independent
manufacturers representatives under the direction of Bogen's internal sales
force. Both the external 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.
Bogen distributes its Commercial Audio products through about 1,500 active
distributors, dealers and contractors, often as complete system solutions
designed to satisfy an end-user's specific needs. Bogen's Commercial Audio
products are stocked by virtually every major sound master distributor,
industrial equipment distributor, and commercial security products distributor
in North America. In addition, approximately 200 major contractors and dealers
market Bogen's Engineered Systems.
The principal users of these products are industrial, professional,
commercial and civic concerns and institutions such as schools, nursing homes,
correctional facilities, retail stores, restaurants and churches. Bogen's
management believes that these user markets are relatively stable and that Bogen
has developed significant name recognition in these markets.
The Apogee product line was acquired by Bogen in August 1999 and consists
of a worldwide network of over 200 distributors, touring companies, and
contractors who specialize in the area of entertainment sound systems. The wide
Apogee line includes speakers and speaker systems, amplifiers, processors and
system balancing and design equipment. Apogee speaker products range from
compact cabinets for foreground music applications to large arrays that can
accommodate applications in theaters, arenas, stadiums, and other larger
facilities where high-quality entertainment sound is required. In addition to a
base of loyal customers in the United States, approximately 40% of Apogee's
business is derived from export sales.
4
TELCO U.S. PRODUCT LINES
Bogen distributes its Telco products to approximately 70 distributors who
operate over 250 telecommunications distribution centers. These distributors
sell to thousands of telecommunications installers or interconnects across North
America. In addition to its distribution network, Bogen has a relationship with
over 100 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
private label overhead paging systems to Lucent Technologies ("Lucent").
Bogen markets its Telco products through over 50 independent manufacturer's
representatives who sell Bogen's Telco and other complementary products to
distributors and interconnects in their territory on an exclusive basis. The
manufacturer's representatives and Lucent are supported by Bogen internal sales
and service staff. In 1999, Telco U.S. had one customer to whom sales were 10%
of total Company revenues.
NEW PRODUCTS INTRODUCTION
During 1999, Bogen's the Easy Install(TM) Speakers (2 models) and Easy
Design(TM) Speakers (5 models) were introduced to the market. These products and
their corresponding design support tools are targeted at market segments that
require faster install time and have little experience in designing sound
systems. Although the speakers were initially designed for Telco products, they
are adaptable for all of Bogen's product lines.
BOGEN'S 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 with offices throughout
Canada. Telco U.S.'s 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). Sales outside the U.S. accounted for less
than 10% of Bogen's revenues in each of the last three fiscal years. Bogen
recognizes sales as foreign based upon shipping destination.
BOGEN'S SOURCING AND MATERIALS
All components and raw 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
established suppliers and subcontractors primarily located in the Republic of
South Korea, and to a lesser extent elsewhere in East Asia, and the United
States. These suppliers and sub-contractors either produce sub-assemblies for
use in the finished product or produce and assemble the finished products
themselves. Products are based on Bogen designs and are built in accordance with
Bogen drawings and specifications.
In view of periodic economic instability in Asia, the Company takes
precautions to ensure that production will continue without interruption such as
assuring, to the extent practicable, that alternative sources of supplies and
subcontractors are available. There can be no assurance, however, that events
beyond the Company's control, including, without limitation, the financial
requirements of any of the Company's suppliers and subcontractors, will not
disrupt the production schedule or the Company's source of supplies. Any such
disruption may have a material adverse effect on the Company's results of
operations.
BOGEN'S PATENTS AND TRADEMARKS
"Bogen(R)" 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 and the Company filed for renewing it
for an additional 10 years. Bogen has also obtained U.S. trademark registration
for the trade name "Multicom2000(R)". This trademark is utilized in connection
with Engineered Systems and expires in June 2001. In addition, Bogen holds a
U.S. trademark for the mark "Speech Design(R)", which will expire on December
31, 2006 and which can be renewed at that time for an additional ten years. The
Company believes that certain of these trademarks provide substantial value to
the Company.
5
In June 1998, Bogen was awarded a patent for the technology of its Pro
Matrix(TM) amplifier product In June 1999, Bogen was awarded a US patent for its
Pro DRDX product (an MOH system) technology. In addition, the Company has one
pending patent application for its automatic paging system technology
("APS2000") and additional pending claims for MOH. NEAR(TM) has two patents
related to its speaker products, one for its MLS (Magnetic Liquid Suspension)
Spider less cone speaker expiring in 2011 and the other for an in-ground
sub-woofer, which was granted in 1998, expiring in 2015.
In 1999 the Company applied for a patent for its highly innovative Easy
Install(TM) speakers and the NEAR A-Series(TM) speakers.
BOGEN'S RESEARCH AND DEVELOPMENT
Bogen's in-house engineering department is responsible for research and
product development ("R&D") as well as continuing product support. During 1999,
R&D focused on a number of projects conceived to further strengthen Bogen's
leadership and competitive stance in all four major Bogen product lines:
COMMERCIAL AUDIO
During 1999, Bogen finalized a higher powered version of market-leading
Gold Seal(TM) Series Amplifiers, the GS250. At 250 watts, the GS250 is the
highest powered "packaged" amplifier on the market, and has quickly became a
leading seller in the line. Work was initiated on the Company's new high
powered, modular power amplifier line as well. This new line is designed
specifically to successfully capture significant market share from Bogen's
primary competitor in mid-level, modular based sound applications. Further, the
versatility and higher power levels of this new modular line will allow Bogen to
compete in the larger Pro Sound market segment, a new area of potential growth
for Bogen.
For Bogen's NEAR line of products, R&D was focused on a new, highly
competitive all weather speaker series. Employing the unique and patented NEAR
MLS (Magnetic Liquid Suspension) and MDT (Metal Driver Technology), these
speakers have been designed to sell through Bogen's Commercial Audio channel, as
well as through the HIFI channel. Bogen believes the new speakers are superior
in every way to the current sales leaders in those markets, and are expected to
capture market share away from major brands such as JBL and others.
ENGINEERED SYSTEMS
During 1999, two models of high voltage ring adapters were introduced to
meet market demand for a means by which common, generally available, telephones
could be used with the Multicom(TM) system. Additionally, much work was done on
an enhanced Windows version of the MCPCI program. This software product allows
programming and diagnostics to be performed on Multicom system from a remote PC
via a Modem connection. In a continuous improvement effort, Bogen's engineering
department worked closely with consultants to refine and improve the
installation methods and documentation of the advanced Multicom-DCS(TM) product
line.
TELCO
During 1999, the R&D department finalized a new generation of its unique
Automated Paging System, APS 2000(TM) wireless paging system. The new APS
"Custom" series allows remote computer programming and maintenance of the
system, and adds many elements of custom programming flexibility for the
user/owner/installer. Lucent Technologies ("Lucent") introduced the custom
version of the APS during the latter half of 1999. Additionally, the R&D group
completed design of a new TPU(TM) series amplifier to augment their top selling
70v TPU series, a market leader for many years. This new amplifier, the TPU250,
is the highest powered 70v telephone paging amplifier on the market, and
expected to garner the company even more business in large paging system
applications. This same amplifier with modifications is also sold as a Lucent
product.
Much of the latter part of 1999 was devoted to designing/customizing
products for Lucent. Over 40 products have been developed specifically for
Lucent. Introduced at the end of 1999, they should have material effect on
Bogen's sales in the year 2000.
6
For MOH, another of Telco product line, Bogen created a CE approved version
of the ProHold DRDX(TM) product for Speech Design, which markets it in Europe
under the name Mozart Net(TM).
ALL PRODUCT LINES
To attend to Bogen's traditional markets, a new line of high-powered, dual
channel amplifiers with unique and flexible features was in development during
the year. These amplifiers combine high styling as well as many advanced
features that provide excellent application flexibility and reliability in a
compact package. Work done in conjunction with an OEM vendor during 1999 is
providing two new models of rack mounted microphone/line mixers designed to
address a weak product coverage area in Bogen's current offering. Similarly, a
new line of microphones, also from an OEM vendor, will improve Bogen's product
scope in that area. There can be no assurances that any new products will be
able to compete with similar products offered by other manufacturers.
Research and development expenditures for the years ended December 31,
1999, 1998, and 1997 were $1,971,000, $1,567,000 and $1,665,000 respectively.
BOGEN'S COMPETITION AND MAJOR CUSTOMERS
Bogen's competition varies by market and product line. Bogen competes on
name recognition, price, delivery, availability, innovation and product features
and quality. However, such factors vary in relative importance depending on the
markets and products involved. Bogen has concentrated on markets in which it
believes that it can obtain a significant market share, be one 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 market, background/foreground music market, and the security markets.
The Commercial Audio 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.
At the contractor level, Bogen faces competition from many sources,
including a number of overseas companies. There are a number of comparatively
small manufacturers with whom Bogen competes, whose sales and market share
depend upon established reputation for quality and support and solid
relationships with their account base. Bogen concentrates on customer needs to
design, manufacture and market tailored packaged solutions for each particular
vertical market.
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, each of which, like Bogen, has been in the market for
several decades and has well established name recognition and distribution
channels. Rauland Borg Corp. is currently the acknowledged market leader.
Bogen's Telco U.S. products compete in the Music-On-Hold (`MOH") and
over-head paging niches of the Telco market. In the MOH market, Bogen's
competitors are relatively small companies that offer basic systems. Competition
also comes from the many telephone system manufacturers, which offer small voice
mail systems as options to their telephone equipment. In the over-head paging
market, Bogen's main competitor is Valcom, Inc., a company which has been
established in this market for several decades. Several other U.S. companies,
which have been losing market share over the past few years, and several
companies attempting to enter the market also compete with Bogen's over-head
paging products. Bogen believes it has increased its share in recent years.
BACKLOG OF ORDERS
As of December 31, 1999, Bogen had a backlog of firm orders of about
$1,733,000, all of which it expects to fill within 2000. As of December 31,
1998, Bogen had a backlog of firm orders of approximately $852,000, all of which
were filled in 1999.
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SPEECH DESIGN (FOREIGN OPERATIONS)
Speech Design, located in Munich, Germany, develops, manufactures and
markets telephone peripheral hardware utilizing digital voice processing
technologies.
Speech Design product lines include voice mail systems, automated
attendants, digital announcers, message/music-on-hold systems and Unified
Messaging products and services. Speech Design's products are in the Telco line
of products.
In late 1995, Speech Design launched its "Memo(TM)" product line 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 and has rapidly become one of the fastest selling voice mail
systems in the 2 - 4 port (channel) category. In late 1998, Speech Design
introduced the "Teleserver Pro(TM)" range of modular, higher-end (2 - 8 port)
voice and call processing peripherals. In addition to higher capacity voice mail
than possible with Memo, Teleserver also offers ACD (automatic call
distribution) functionality.
On December 31, 1998, Speech Design acquired 100% of Digitronic, located in
Northern Germany. Digitronic is a developer and manufacturer of LAN and Internet
based unified messaging products. Digitronic's flagship product, Thor(TM),
improves communications within any enterprise and delivers value-added services
to Internet service providers ("ISPs"). Thor integrates fax and voice mail into
an existing e-mail environment. The user can retrieve and manipulate all
messages either locally, using the familiar PC-desktop or remotely, via an
Internet computer, telephone or fax machine from anywhere in the world. Services
such as listening to e-mails on the telephone, forwarding e-mails or faxes to a
fax machine nearby, or message notification to a mobile phone are available.
Thor has been sold to several major ISPs operating in Europe, including America
On Line, 1&1, GMX, freenet, Easynet and others. The enterprise version,
compatible with MS Exchange, Lotus Notes and other corporate e-mail servers, was
launched in mid-1999.
SPEECH DESIGN'S PRODUCT LINE
Speech Design's products are in the Telco line. Telco net sales provided by
Speech Design were $21,742,000, $20,352,000 and $18,045,000 for the years ended
December 31, 1999, 1998 and 1997, respectively. Speech Design Telco sales
amounted to 37.2%, 39.1% and 36.3% of the Company's net sales for these years.
SPEECH DESIGN'S SALES AND MARKETING
The general market for Speech Design's products is the underdeveloped, but
rapidly growing, European voice processing market for commercial and industrial
end-users. According to the Company's estimates, the current penetration in
Europe of applications such as voice mail is very low compared to the levels in
the U.S. In 1999, Speech Design entered the innovative and rapidly growing
Unified Messaging market.
In 1994, Speech Design launched a program to establish an international
market presence. Speech Design signed distribution contracts with partners in
ten European countries and gained entry in telecom, telegraph and telephone in
most major European markets. Also on July 1, 1994, Speech Design acquired a 67%
interest in Satelco, 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. In late 1996, Speech
Design signed a distribution agreement with GEC, a partially owned Siemens
subsidiary, the second largest distributor of PABX peripherals in the UK. Sales
outside of Germany constituted 18% of total sales in 1999 (down from 27% in
1998, mainly due to the first-time inclusion of Digitronic with its mainly
German sales, and because of some structural changes in a customer organization
in Belgium).
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, resulting in reduced manufacturing cost and tax
levels. The Israeli facility was granted a 10-year income-tax exemption
effective January 1, 1997.
8
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 50-200 employees. 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. The major
manufacturers integrate Speech Design's products with their PABXs for sale to
the end-user as part of a new system. The increased visibility of Speech
Design's products has 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. Sales to two customers of Speech Design totaled
approximately $13,600,000, each accounting for 35% and 28%, respectively, of
Speech Design's net sales in 1999.
Thor unified messaging systems are sold through enterprise sales channels
(PABX manufacturers and IT system integrators) to corporate customers. In 1999,
Speech Design has focused on developing a revenue-sharing business model from
Thor services sold through Internet Service Providers ("ISPs") and mobile
communications companies ("telcos"). The ISP or mobile operator provides access
to their customer base and marketing support. The end-user pays a per-minute
toll to access Thor services (for example e-mail reading on the mobile phone)
and a portion of this revenue is passed back to Speech Design. Some agreements
also include monthly service fees.
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
Siemens, Alcatel, Bosch Telecom, DeTeWe and Philips. Over 75% of Speech Design's
sales are to these customers (which percentage corresponds to these
manufacturers' approximate joint share of the PABX market). Speech Design has
achieved central pricing agreements and technical as well as commercial
endorsements from the headquarters of each of these 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 20 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. In the
fourth quarter of 1999, Speech Design entered into an OEM agreement with
Deutsche Telekom ("DT"), under which DT will resell the full range of Speech
Design's voice mail products. DT, Europe's largest telecommunications company,
will offer the systems under its own "Octopus Mail" trademark to its installed
base of customers, as well as to new switch customers.
Speech Design considers its sales network in Germany, Europe's largest
telecommunications market, to be one of its most valuable assets and a market
entry barrier to potential competitors.
For the enterprise version of Thor, Speech Design uses the existing PABX
sales channel and builds an additional IT system integrator reseller network.
For Thor ISP and telco services, major German corporations in this field are
being approached directly by Speech Design's senior key account executives.
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 and Speech Design's wholly owned U.K. subsidiary - are
independent resellers of telecommunications equipment, who market Speech
Design's products to local manufacturers and distributors of
9
PABXs. In order to achieve the Company's planned rate of growth in export sales,
Speech Design has transferred 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. Thor services are
being offered to selected European ISPs and telcos by Speech Design's key
account managers based in Germany.
SPEECH DESIGN'S SOURCING AND MATERIALS
Speech Design manufactures its products in cooperation with a network of
German subcontractors and its Israeli subsidiary. 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.
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 on an average of three days after receipt of an order and
within two weeks after receipt of an order from other countries.
SPEECH DESIGN'S PATENTS AND TRADEMARKS
"Speech Design(TM)" is a registered trademark in Germany and the U.S.
Several of Speech Design's products also have registered trademarks including:
Mozart(TM), Genius(TM), and Sissy(TM) (Germany only).
SPEECH DESIGN'S RESEARCH AND DEVELOPMENT
Speech Design's in-house engineering department is responsible for research
and development and production engineering of all Speech Design products. In
1998, the R&D department focused on the development of Speech Design's next
generation call processing platform, Teleserver Pro. Teleserver Pro incorporates
a modular suite of telecom applications, including voice mail, auto attendant,
information & music on-hold and automatic call distribution. Upgrades and
additional applications may be introduced over time via CD ROM and plug-in
modules. Teleserver Pro is a higher-end addition to Speech Design's popular Memo
line of voice mail and related products. The new system enables configurations
up to 8 ports (telephone channels) and 37 hours of voice storage, making it
suitable for larger businesses than served by Memo (maximum configuration: 4
ports/7hrs). Additionally, Speech Design developed Memo Lite, a low-end voice
mail platform on a single board, aimed at small telephone systems of up to 15
extensions/voice mailboxes. Teleserver Pro`s voice mail/auto attendant/music &
information on-hold modules were successfully launched in 1999. The automatic
call distribution module is in the market introduction phase. Memo Lite is
mainly sold to Deutsche Telekom.
The R&D team responsible for the development of the Thor unified messaging
platform and services is based at Digitronic in Northern Germany. In 1999, the
main effort was to develop a turn-key system aimed at ISPs and mobile telcos,
enabling such customers a rapid service rollout with a minimum investment of own
in-house resources. The package includes web-based registration infrastructure,
database management and customized front-end design.
Research and development expenditures for the years ended December 31,
1999, 1998 and 1997 were $2,448,000, $1,368,000 and $926,000, respectively. The
bulk of the increase results from the first-time inclusion of Digitronic, and
the development effort of Thor as a service platform. In addition, some R&D work
was subcontracted to freelance programmers to complete the development of the
Teleserver call distribution subsystem.
SPEECH DESIGN'S COMPETITION
In Germany, Speech Design is the acknowledged market leader in the small to
mid-size PABX peripherals market. Speech Design's main competitor in Germany is
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 Teleserver family of voice mail, ACD
and related products will increase its competitive advantage in Germany.
10
There is no single dominating company in the European market for small to
mid-size PABX peripherals. With the exception of Octel, Northern Telecom, Lucent
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 in 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.
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 Teleserver family of voice mail and related products and
Thor Unified Messaging System 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.
SPEECH DESIGN'S BACKLOG OF ORDERS
As of December 31, 1999, Speech Design had a backlog of firm orders of
approximately $1,012,000, all of which it expects to fill in 2000. As of
December 31, 1998, Speech Design had a backlog of firm orders of approximately
$1,468,000, all of which were filled in 1999.
GOVERNMENT REGULATIONS AND INDUSTRY CERTIFICATIONS
The U.S. federal government regulates domestic telecommunications equipment
and related industries. The federal agency vested with primary jurisdiction over
the telecommunication industry is the Federal Communications Commission (the
"FCC"). Many telephone peripheral producers and distributors, 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 authorization
by the FCC. In addition, many of Bogen's products also require the authorization
of the Underwriter's Laboratory ("UL"). All such required authorizations have
been obtained. As a result of modifications and improvements to Bogen's
products, Bogen will be obligated to seek new authorizations where there is a
degradation in the radio frequency emissions. Failure to obtain such
authorizations 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 authorizations for all AC
powered products, which it has done for all of its current products.
All Speech Design products have been adapted to the technical
(PTT-approvals) and commercial audio requirements of West European markets. All
Speech Design products carry the Community European ("CE") marking, which is the
equivalent of a UL certification in the United States.
In 1995, Speech Design received the ISO 9001 Quality Certificate for its
research and development, production and customer support operations in Germany.
In 1996, the Quality Mark was extended to include Speech Design's Israel and
U.K. subsidiaries. ISO 9001 is an internationally recognized Quality Assurance
certification.
EMPLOYEES
As of December 31, 1999, the Company had approximately 289 full-time
employees engaged in its businesses. The Company also uses temporary and/or
part-time employees, as required. 22 of Bogen's U.S. employees are subject to
collective bargaining agreements, which expire in June and September of 2000.
The Company considers its relationship with its employees to be satisfactory.
11
ITEM 2. PROPERTIES
The Registrant's principal place of business is located at 50 Spring
Street, Ramsey, New Jersey 07446, which is subleased from an unaffiliated third
party. Bogen also maintains its principal warehouse and executive offices at
that location. 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. The Company is currently negotiating to extend the
existing lease.
Speech Design leases its facilities in Munich, Germany, under a lease
expiring in May 2005. It is comprised of a warehouse and executive offices,
covering a total of 13,500 square feet. Speech Design also has subsidiaries
which have leases in Holm, Germany, Israel, the UK and Switzerland. Speech
Design and subsidiaries' aggregate annual rental payments are approximately
$335,000.
Apogee leases approximately 30,000 square feet for its facility in
Petaluma, California under a lease, which commenced on August 27, 1999, and
expires on March 31, 2005. Current annual rental payments in 1999 were
approximately $392,000.
Management of the Company believes that the facilities occupied by the
Company and its subsidiaries are adequate to meet current needs.
ITEM 3. LEGAL PROCEEDINGS
On February 19, 1999, a complaint was filed in Landericht Dusseldorf Court
(4th Civil Chamber) claiming patent infringement and unfair competition by
Speech Design and its managing directors. The case entitled Wolfgang Beyer KG
and COM Electronic GmbH v. Speech Design GmbH, Hans Mieler and Kasimir
Arciszewski, 4-0-87/99.
On September 8, 1999, this case was settled. In the settlement agreement,
Speech Design GmbH agreed to pay DM 175,000 (approximately $94,300) to
Wolfgang Beyer KG. This payment covered all past and future use of the
technology claimed by the patent.
The Company is not aware of any other material pending or threatened legal
proceedings to which it is a party or of which any of.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
12
PART II
ITEM 5. MARKET PRICE FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Registrant's Common Stock and Warrants currently trade on the NASDAQ
National Market System ("NASDAQ") under the symbols "BOGN" and "BOGNW,"
respectively. Until August 4, 1998, the Registrant's Common Stock, Warrants and
Units were quoted on the American Stock Exchange, under the symbols BGN, BGNW
and BGNE respectively.
The following table sets forth the range of high and low bid prices for the
Common Stock, Warrants and Units for each of the fiscal quarters during the
period from January 1, 1997 through December 31, 1999, as reported by the OTC
Bulletin Board. The quoted prices represent "inter-dealer" prices without retail
markups, markdowns or commissions and may not necessarily represent actual
transactions.
JANUARY 1 TO MARCH 31, 1997
SECURITY HIGH ($) LOW ($)
-------- -------- -------
Common Stock................................................ 4 1/4 3 1/8
Warrants.................................................... 15/16 9/16
APRIL 1 TO JUNE 30, 1997
SECURITY HIGH ($) LOW ($)
-------- -------- -------
Common Stock................................................ 5 3 1/8
Warrants.................................................... 1 1/16 9/16
JULY 1 TO SEPTEMBER 30, 1997
SECURITY HIGH ($) LOW ($)
-------- -------- -------
Common Stock................................................ 5 13/16 4 1/8
Warrants.................................................... 1 7/16 11/16
OCTOBER 1 TO DECEMBER 31, 1997
SECURITY HIGH ($) LOW ($)
-------- -------- -------
Common Stock................................................ 7 3/8 4 5/8
Warrants.................................................... 2 7/8
JANUARY 1 TO MARCH 31, 1998
SECURITY HIGH ($) LOW ($)
-------- -------- -------
Common Stock................................................ 8 15/16 6 3/8
Warrants.................................................... 3 3/8 1 1/2
APRIL 1 TO JUNE 30, 1998
SECURITY HIGH ($) LOW ($)
-------- -------- -------
Common Stock................................................ 9 5/16 7
Warrants.................................................... 3 15/16 2 1/16
JULY 1 TO SEPTEMBER 30, 1998
SECURITY HIGH ($) LOW ($)
-------- -------- -------
Common Stock................................................ 8 1/4 4 3/4
Warrants.................................................... 3 1/4 1 1/64
13
OCTOBER 1 TO DECEMBER 31, 1998
SECURITY HIGH ($) LOW ($)
-------- -------- -------
Common Stock................................................ 7 1/4 4
Warrants.................................................... 2 3/4 1/2
JANUARY 1 TO MARCH 31, 1999
SECURITY HIGH ($) LOW ($)
-------- -------- -------
Common Stock................................................ 8 5/8 5 13/16
Warrants.................................................... 3 3/8 1 11/16
APRIL 1 TO JUNE 30, 1999
SECURITY HIGH ($) LOW ($)
-------- -------- -------
Common Stock................................................ 9 3/8 6 1/8
Warrants.................................................... 3 7/16 1 11/16
JULY 1 TO SEPTEMBER 30, 1999
SECURITY HIGH ($) LOW ($)
-------- -------- -------
Common Stock................................................ 6 15/16 5 7/16
Warrants.................................................... 2 7/16 1 1/4
OCTOBER 1 TO DECEMBER 31, 1999
SECURITY HIGH ($) LOW ($)
-------- -------- -------
Common Stock................................................ 9 5/16 5 1/4
Warrants.................................................... 2 5/8 1 1/8
The Registrant has not declared or paid any cash dividends on its Common
Stock since commencing operations and currently does not anticipate paying any
dividends on the Common Stock in the foreseeable future.
As of March 29, 2000, there were approximately 41 record holders of the
Common Stock.
14
ITEM 6. SELECTED FINANCIAL DATA
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)
- - --------------------------------------------------------------------------------
INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31,
- - --------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
Net sales....................................................... $58,487 $52,103 $49,779 $46,269 $44,518
Gross profit.................................................... $30,093 $25,445 $23,094 $21,265 $17,180
In-Process Research and Development............................. -- $ 3,885 -- -- --
Income (loss) from operations................................... $ 5,206 $ 2,730 $ 5,093 $ 4,658 $ (637)
Net income...................................................... $ 3,500 $ 342 $ 2,665 $ 2,008 $(4,543)
Preferred dividends............................................. -- $ 900 $ 178 $ -- $ --
Net income (loss) available to common shareholders.............. $ 3,500 $ (558) $ 2,487 $ 2,008 $(4,543)
Net income (loss) per common share - Basic...................... $ 0.52 $ (0.12) $ 0.46 $ 0.35 $ (1.37)
Net income (loss) per common share - Diluted.................... $ 0.45 $ (0.12) $ 0.46 $ 0.35 $ (1.37)
- - --------------------------------------------------------------------------------
BALANCE SHEET FOR THE YEAR ENDED DECEMBER 31,
- - --------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------- ------- ------- ------- -------
Total assets (1)................................................... $43,478 $37,747 $31,970 $31,386 $31,304
Long-term debt (net of current maturities)......................... $ 699 $ 227 $ 212 $ 370 $ 3,458
(1) Refer to footnote 2 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.
For accounting purposes, the Business Combination in 1995 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 acquirer 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 and Speech Design.
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The consolidated financial statements and the following discussion include
the Registrant's 99% owned subsidiary Bogen; Bogen's wholly-owned subsidiary,
BCI; BCI's wholly-owned subsidiaries, NEAR and, as of August 27, 1999, Apogee;
Speech Design, a wholly-owned subsidiary of the Registrant as of May 21, 1998,
when the Registrant acquired the remaining 33% equity it did not previously own;
Satelco, a 67% owned subsidiary of Speech Design; and Speech Design's
wholly-owned subsidiaries, Speech Design (Israel) Ltd., Speech Design (UK) Ltd.,
and Digitronic, which was acquired December 31, 1998. All significant
inter-company balances and transactions have been eliminated in consolidation.
The ownership interest of minority owners in the equity and earnings of the
Company's less than 100 percent-owned consolidated subsidiaries is recorded as
minority interest.
RESULTS OF OPERATIONS 1999 COMPARED TO 1998
NET SALES
Net sales of $58,487,000 for 1999 increased 12.2% from 1998 net sales of
$52,103,000. Approximately 53% of the improvement came from organic growth at
Bogen and Speech Design. The remainder was a result of the acquisitions of
Digitronics and Apogee, representing $1,337,000 and $2,133,000, respectively.
Bogen's revenues, excluding Apogee grew by 9%, mainly in Engineered Systems,
which increased $1,839,000 over 1998. Speech Design revenues, excluding
Digitronics, were virtually flat compared to 1998. Although in local currency
Speech Design revenues grew 4.6%, currency exchange fluctuation negatively
impacted reported revenues.
Telco net sales in 1999 amounted to $34,999,000 compared to $32,943,000 in
1998, an increase of $2,056,000 or 6.2%. The increase of Telco sales is
primarily attributable to domestic net sales, which increased 5.3%, from
$12,591,000 to $13,257,000 and to the addition of Digitronics's revenues in our
foreign sales segment. Foreign net sales amounted to $21,742,000 in 1999 as
compared to $20,352,000 in 1998, an increase of 6.8%. Foreign net sales stated
in local currency increased to 40,245,000 Deutsche Marks ("DM") in 1999, 12.0%
over net sales of 35,943,000 DM for 1998. Bogen's Telco net sales in 1999
increased 5.3%, from $12,591,000 to $13,257,000.
Net sales of Commercial Audio products amounted to $14,129,000 in 1999, an
increase of 21.4% from net sales of $11,640,000 of such products in 1998. This
increase is primarily due to the addition of the Apogee product line, higher
sales volume, and a better focus by the Company's commercial audio sales force.
Net sales of the Engineered System line increased $1,839,000, or 24.5%,
from $7,520,000 in 1998 to $9,359,000 in 1999. This increase is primarily
attributed to expanding the Bogen sales force and increased availability of
funding for school technology and communications installations.
All of the Company's product lines are distributed domestically through
Bogen. Some products are distributed in both domestic and overseas markets.
European Telco distributions are made through Speech Design.
GROSS PROFIT
The Company's gross profit in 1999 was $30,093,000, or approximately 51.5%
of sales, an increase of $4,648,000, or 18.3%, compared to $25,445,000, or 48.8%
of sales, in 1998.
Bogen's gross profit increased from $13,986,000, or 44.0% of sales in 1998,
to $17,141,000, or 46.6% of sales in 1999. This increase is due primarily to a
reduction of direct materials from successful negotiation with suppliers in 1999
and a moderate price increase in the second quarter of 1998 for the Engineered
Systems product line. In addition, re-engineering of certain products
contributed to further cost reductions.
Speech Design's gross profit increased from $11,459,000 in 1998 to
$12,952,000 in 1999. Gross profit as a percentage of sales increased from 54.0%
to 59.6% from 1998 to 1999. The increase in gross profit as a percentage of
sales is primarily a result of increased sales of products with higher
contribution margins.
16
IN-PROCESS RESEARCH & DEVELOPMENT
During 1998, the Company recorded charges of $3,885,000 for the write-off
of in-process R&D acquired in connection with the Company's business
acquisitions. The charges were comprised of (i) $2,905,000 as an in-process R&D
charge for the purchase of the remaining 33% equity in Speech Design not
previously owned by the Company and (ii) $980,000 for the acquisition of
Digitronic.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") increased by
$4,319,000, or 28.3%, from 1998 to 1999. SG&A expense was $19,602,000, or 33.5%
of sales, in 1999 compared to $15,283,000, or 29.3% of sales, in 1998. This
planned increase is generally a result of expenses incurred as part of the
Company's implementation of new sales and marketing programs for existing and
new product lines at Bogen, the marketing of Speech Design's new Teleserver Pro
and Thor platforms in Europe, and the establishment of a sales force at Speech
Design to address the PABX after-market. Additionally, the Company incurred
certain costs for the installation and implementation of an enterprise resource
planning (ERP) system at Bogen. SG&A expenses also increased approximately
$1,481,000 due to the additions of Digitronics and Apogee.
ONGOING RESEARCH AND DEVELOPMENT
Research and Development expense (R&D) was $4,419,000, or 7.6% of sales in
1999, compared to $2,935,000, or 5.6% of sales in 1998. This represents a
planned $1,484,000 increase from 1998. The increase is primarily attributable to
the additional development costs for Speech Design's Teleserver Pro and Thor
products, continuing development of new products at Bogen, and the effects of
the Digitronics and Apogee acquisitions, which approximated $385,000.
INTEREST EXPENSE, NET
Interest expense, net, was $208,000 in 1999, a decrease of $67,000, or
24.4%, from to $275,000 in 1998. The decrease is primarily a result of the
Company's overall reduced borrowing requirements on short-term credit lines from
1998, offset by additional interest expense on short-term debt assumed with the
Digitronic acquisition on December 31, 1998, and the assumption or payment of
liabilities related to the Apogee acquisition.
INCOME TAXES
The Company incurred approximately $1,437,000 in taxes in 1999, a $472,000
decrease from 1998. Foreign taxes decreased by $544,000, mainly as a result of
reduced profits. Domestic taxes increased by $72,000, resulting from increased
profits at Bogen.
RESULTS OF OPERATIONS 1998 COMPARED TO 1997
NET SALES
Net sales of $52,103,000 for 1998 increased 5% from 1997 net sales of
$49,779,000. The increase primarily resulted from increased sales of $2,307,000
in the Speech Design Telco product line in particular its Memo product line.
Bogen's 1998 net sales were virtually flat as compared to 1997's net sales.
Telco net sales in 1998 amounted to $32,943,000 compared to $30,447,000 in
1997, an increase of $2,496,000 or 8.2%. The increase of Telco sales is
primarily attributable to continued successful deployment of Speech Design's
Memo product line in the European market. Foreign net sales amounted to
$20,352,000 in 1998 as compared to $18,045,000 in 1997, an increase of 12.8%.
Foreign net sales stated in local currency increased to 35,943,000 Deutsche
Marks ("DM") during 1998, or 14.7% over net sales of 31,345,000 DM for 1997.
Bogen's Telco net sales in 1998 increased by 1.5% from $12,400,000 to
$12,591,000.
17
Net sales of Commercial Audio products amounted to $11,640,000 in 1998, an
increase of 3.5%, from net sales of $11,250,000 of such products in 1997. This
increase is primarily due to higher sales volume and better focus of the
Company's commercial audio sales force.
Net sales of the Engineered System line decreased $562,000 or 7.0% from
$8,082,000 in 1997 to $7,520,000 in 1998. This decrease is primarily attributed
to a deferment of available public funds for school technology and
communications installations. Management does not expect such trend to continue
in 1999.
All of the Company's product lines are distributed domestically through
Bogen. Some products are distributed in both domestic and overseas markets.
European Telco distributions are made through Speech Design.
GROSS PROFIT
The Company's gross profit in 1998 was $25,445,000, or approximately 48.8%
of sales, an increase of $2,351,000,or 10.1%, compared to $23,094,000, or 46.4%
of sales, in 1997.
Bogen's gross profit increased from $13,241,000, or 41.7% of sales in 1997,
to $13,986,000, or 44.0% of sales in 1998. This increase is due primarily to a
reduction of costs of direct materials resulting from successful negotiation
with suppliers in late 1997 and a price increase in the second quarter of 1998
for the Engineered Systems product line.
Speech Design's gross profit increased from $9,853,000 in 1997 to
$11,459,000 in 1998. However, gross profit as a percentage of sales decreased
from 54.6% to 54.0% from 1997 to 1998. The decrease in gross profit as a
percentage of sales is a result of foreign currency exchange fluctuations, as
there was a 3.0% increase in gross profit in local currency (DM). This increase
in local currency is a result of lower material costs and product mix of higher
margin product sales, primarily sales of Memo.
IN-PROCESS RESEARCH & DEVELOPMENT
During 1998, the Company recorded charges of $3,885,000 for the write-off
of in-process R&D acquired in connection with the Company's business
acquisitions. The charges were comprised of (i) $2,905,000 as an in-process R&D
charge for the purchase of the remaining 33% equity in Speech Design not
previously owned by the Company and (ii) $980,000 for the acquisition of
Digitronic.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") increased by
$344,000, or 2.3%, during 1998 as compared to 1997. SG&A was $15,283,000, or
29.3%, of sales in 1998 compared to $14,939,000, or 30.0% of sales, in 1997.
This increase is a result of increased personnel and professional services
directly attributable to the Company's increased net sales, while slightly
reducing the SG&A as a percent of net sales.
ONGOING RESEARCH AND DEVELOPMENT
Research and Development expense ("R&D") was $2,935,000 or 5.6% of sales in
1998 compared to $2,591,000, or 5.2% of sales in 1997. This represents a
$344,000 increase from 1997. The increase is primarily attributable to the
development costs for Speech Design's Teleserver Pro family of products.
INTEREST EXPENSE
Interest expense, was $275,000 in 1998, a decrease of $154,000 or 35.9%, as
compared to $429,000 in 1997. The decrease primarily relates to the new
revolving credit line BCI entered into in April 1998, which decreased BCI's
borrowing rate to an average interest rate of 8% at December 31, 1998, compared
to 9% at December 31, 1997.
18
INCOME TAXES
The Company incurred approximately $1,909,000 in taxes, a $415,000 increase
from 1997. The increase is due to increased profits, both domestic and foreign.
Foreign taxes increased by $469,000, which is directly attributable to increased
profits. Domestic taxes decreased by $54,000, principally reflecting the
utilization of post acquisition NOL carry-forwards in the amount of $363,000,
offset by the pre-acquisition tax benefits.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
During 1999, the Company continued to focus on long-term growth in its
profitable product lines. Cash utilization focused on current working capital
requirements, the payoff of acquisition-related debt, and systems hardware and
software improvements.
The Company's operating activities generated $1,192,000 of net cash. The
Company's net income of $3,500,000 included net non-cash charges of $2,012,000,
which were: depreciation and amortization expenses of $1,899,000; increased
accounts receivable and inventory obsolescence reserves of $484,000; and
acquired tax benefits charged to goodwill of $107,000. These non-cash expenses
were partly offset by deferred income taxes benefits of $478,000. Accounts
receivable increased by $2,806,000, inventory increased by $1,484,000, accounts
payable decreased by $71,000, and net changes in other operating assets and
liabilities amounted to $101,000.
Net cash expended for investing activities amounted to $1,861,000 in 1999,
including $1,825,000 for equipment, computer hardware and software, and other
fixed assets and $36,000 for goodwill and other intangible assets.
Net cash provided by financing activities was $381,000. The Company
received $757,000 from the sale of warrants and stock options and increased the
outstanding balance under existing lines of credit by $323,000. The Company paid
down $422,000 in acquisition-related debt and $180,000 of capitalized lease
obligations and incurred approximately $97,000 in secondary offering costs.
As of December 31, 1999, the Company's total liabilities were $13,083,000,
of which $11,360,000 is due and payable within one year.
In the first quarter of 1997, BCI entered into a revolving credit facility
with a bank, which was scheduled to mature on February 5, 1999, replacing BCI's
existing $10 million line of credit. The facility provided, subject to certain
terms and conditions, for borrowings up to a maximum of $7 million with a
$700,000 sub-limit for letters of credit, unreimbursed time drafts and/or
bankers acceptances subject to limits based on eligible accounts receivable and
inventory. Borrowings under the facility were available for working capital and
general corporate purposes and accrued interest at the bank's prime rate plus
.50%.
On April 21, 1998, the Registrant and BCI entered into a $27 million credit
facility (the "New Facility") with KeyBank N.A., which matures on April 30,
2001. The New Facility replaces the previous facility. The New Facility
provides, subject to certain criteria, for a $20 million revolving line of
credit for acquisition financing and a $7 million working capital line. The New
Facility bears interest at either the bank's prime rate or, at the borrower's
option, LIBOR plus 125 to 200 basis points, based on certain financial
conditions. The New Facility is collateralized by substantially all the domestic
assets of the Company and guaranteed by Bogen. The Company is required to meet
certain working capital and financial covenants, with which it was in compliance
as of December 31, 1999.
Speech Design has credit lines and overdraft facilities of approximately
8,000 DM (approximately $4.1 million) from three area banks. Speech Design's
short-term lines of credit are collateralized by all of Speech Design's accounts
receivable and inventory. During the third quarter of 1998, Speech Design
secured a 15 million DM ($7.7 million) credit facility for acquisition financing
from D.G. Bank of Frankfurt. The interest rate under the new credit facility is
up to 200 basis points above the German LIBOR rate.
As of December 31, 1999, Bogen had short-term domestic borrowings
outstanding under the New Facility of $1,150,000, all of which was under the
working capital line.
19
At December 31, 1999, Speech Design had short-term lines of credit and
overdraft facilities of approximately $4,664,000, of which short-term borrowings
amounted to $1,189,000. The amounts available under these credit lines were
$3,475,000 at December 31, 1999, with rates tied to short-term bank notes and
Euromarket loans. At December 31, 1999, interest rates on these short-term lines
ranged from 4.0% to 7.85%. There were no borrowings under the acquisition credit
facility.
The Company believes that it has adequate liquidity to finance its ongoing
activities and capital expenditures for the near term.
INFLATION
Inflation did not have a material effect on the Company's results during
the periods discussed herein.
CURRENCY FLUCTUATIONS
Approximately 37% of the Company's 1999 revenues were derived outside of
the United States, primarily in Germany. Accordingly, currency fluctuations may
impact the Company's earnings. Over the course of 1999, the Deutsche Mark
exchange rate averaged DM 1.83597 to the U.S. dollar, with a low of 1.6353 and a
high of 1.9568. This represents a 19.66% movement of the DM vs. the U.S. dollar
throughout the year.
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 stockholders' 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.
YEAR 2000
The Company has not experienced any significant disruptions to its
financial or operating activities resulting from Year 2000 issues and has no
information that indicates that a significant vendor or service provider may be
unable to sell goods or provide services to the Company or that any significant
customer may be unable to purchase from the Company because of Year 2000 issues.
As a result, the Company does not expect Year 2000 issues to have a material
adverse impact on the Company's consolidated financial position, results of
operations, or cash flows.
Management estimates that the Company has spent approximately $1,163,000
(including capital lease obligations) on system upgrade and replacement projects
through December 31, 1999, which will, among other things, make the Company's IT
systems Y2K compliant. Most of these upgrades, and the costs relating thereto,
were made in 1999. Y2K remediation programs and ongoing systems upgrade and
replacement projects were funded through the Company's operations and
capitalized leases.
ECONOMIC ENVIRONMENT-ASIA
Bogen relies principally upon an established network of suppliers and
subcontractors primarily located in the Republic of South Korea, and to a lesser
extent in the Asia Pacific Region, and in the United States. During 1997 and
1998, the affects of the adverse economic conditions in the Republic of South
Korea and other countries in the Asia Pacific Region included a national
liquidity crisis, significant depreciation in the value of the Won, high
interest rates and a general reduction in spending throughout the region. The
Company monitored and worked with the manufacturing partners closely to assure
financial stability and to ward off any possible adverse financial situations as
a result of the economic conditions to prevent any interruption in the supply of
products and services. Many of the manufacturing partners are well-established
companies, whose senior management took careful, well-planned steps to minimize
the effects of the economic instability. Since then, and through 1999, the
economic conditions in the Republic of South Korea have improved and stabilized.
The Won has recovered to almost pre-crisis levels, spending has increased in the
region, and the Company's manufacturing partners are believed to be financially
stable.
20
Due to growth within the Company and within certain industries, these
partners have expanded operations and hired additional resources. No
interruption within the supply chain or delivery of finished products took place
during the economic downturn. The Company continues to enjoy the
long-established relationships it continues to build with these manufacturing
partners. The Company approved additional manufacturing partners in 1999 in the
United States, Mexico, and Switzerland as part of an effort to diversify and
expand its manufacturing sources. However, there can be no assurances that
events beyond the Company's control will not disrupt production or that suitable
alternative sources of production can be identified on a timely basis, thereby
resulting in material adverse effects on the Company's results of operations.
OTHER
In June 1998, The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that a company recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. If certain conditions
are met, a derivative may be specifically designated as a hedge. The accounting
for changes in the fair value of a derivative (i.e., gains and losses) depends
on the intended use of the derivative and the resulting designation. SFAS No.
133, as amended by SFAS No. 137, will be effective for the Company's fiscal year
beginning January 1, 2001. The Company has not yet determined the impact of the
adoption of SFAS No. 133 on the consolidated financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, the Company is exposed to fluctuations in
interest rates on the Company's debt and credit facilities. The Company is also
exposed to fluctuations in foreign currency exchange rates as the financial
results of its foreign subsidiaries are translated into U.S. dollars in
consolidation. In general, the Company does not use derivative instruments or
hedging to manage its exposures and does not currently hold any material market
risk sensitive instruments for trading purposes at December 31, 1999.
The information below summarizes the Company's market risk associated with
its debt obligations as of December 31, 1999. Fair value included herein has
been estimated taking into consideration the nature and term of the debt
instrument and the prevailing economic and market conditions at the balance
sheet date. The table below presents principal cash flows by year of maturity
based on the terms of the debt. The variable interest rate disclosed represents
the rate at December 31, 1999. Changes in the LIBOR and Prime interest rates
during fiscal 2000 will have a positive or negative effect on the Company's
interest expense. Each 1% fluctuation in the LIBOR and Prime interest rates will
increase or decrease annual interest expense for the Company by approximately
$23,390 based on the debt outstanding as of December 31, 1999. Further
information specific to the Company's debt is presented in Note 7 to the
consolidated financial statements.
YEAR OF MATURITY
DESCRIPTION ESTIMATE FAIR VALUE CARRYING AMOUNT 2000
----------- ------------------- --------------- ----------------
Revolving credit facilities..................... $2,339,000 $2,339,000 $2,339,000
Variable Interest Rate
o Prime.................................. 7.9375%
o LIBOR.................................. 5.823
o LIBOR-Germany.......................... 3.1725%
Advances and notes payable to third party....... $ 194,000 $ 194,000
o Swiss variable interest rate........... 5.25%*
*See note 8 to the financial statements.
21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FINANCIAL INFORMATION
(a) The Company operates in two reportable business segments, Bogen
(domestic) and Speech Design (foreign). The domestic operations are engaged in
the development and manufacturing of sound processing and telecommunication
products in the United States (Bogen). The foreign operations, through Speech
Design, are engaged in the development, manufacturing and marketing of telephone
peripheral hardware and Unified Messaging products and services.
Financial information regarding the breakdown of the Company's foreign and
domestic operations is disclosed in note 17 to the Company's Consolidated
Financial Statements.
22
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
PAGES
-----
Financial Statements:
Report of Independent Auditors F-1
Consolidated Balance Sheets as of December 31, 1999 and 1998 F-2
Consolidated Statements of Operations for the years ended
December 31, 1999, 1998, and 1997 F-3
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1999, 1998, and 1997 F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998, and 1997 F-5
Notes to Consolidated Financial Statements F-6-20
The following consolidated financial statement schedule of Bogen Communications
International, Inc. is included in Item 14(a) 2:
II. VALUATION AND QUALIFYING ACCOUNTS
All other schedules are omitted as the required information is inapplicable or
the information is presented in the consolidated financial statements or related
notes.
23
INDEPENDENT AUDITOR'S REPORT
The Stockholders and Board of Directors
Bogen Communications International, Inc.:
We have audited the consolidated financial statements of Bogen Communications
International, Inc. and subsidiaries as listed in the accompanying index as of
December 31, 1999 and 1998, and for each of the years in the three-year period
ended December 31, 1999. In connection with our audits of the consolidated
financial statements, we also have audited the financial statement schedule as
listed in the accompanying index. These consolidated financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits. We did not
audit the financial statements and financial statement schedule of Speech Design
GmbH, as of and for the year ended December 31, 1997, a then 67% owned
subsidiary, which financial statements reflect total assets constituting 21% and
total revenues constituting 36% of the related consolidated totals. Those
financial statements and financial statement schedule were audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to the amounts included for Speech Design GmbH as of and for the year
ended Decemeber 31, 1997, is based solely on the report of the other auditors.
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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Bogen Communications International,
Inc. and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999, in conformity with generally accepted accounting
principles. Also in our opinion, based on our audits and the report of other
auditors, the related financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG LLP
Short Hills, New Jersey
March 14, 2000,
except as to Note 19,
which is as of
March 30, 2000
F-1
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1999 and 1998
(In Thousands of Dollars, Except Share and Per Share Amounts)
1999 1998
-------- --------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 792 $ 1,048
Accounts receivable (less allowance for doubtful amounts of $650 and $424
at December 31, 1999 and 1998, respectively) 8,455 5,889
Inventories, net 9,310 8,229
Prepaid expenses and other current assets 658 759
Deferred income taxes 882 470
-------- --------
TOTAL CURRENT ASSETS 20,097 16,395
Equipment and leasehold improvements, net 3,837 2,414
Goodwill and intangible assets, net 19,730 18,740
Other assets 214 198
-------- --------
TOTAL ASSETS $ 43,878 $ 37,747
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Amounts outstanding under revolving credit agreement $ 2,339 $ 2,225
Current maturities of capital lease obligations 224 --
Accounts payable 4,199 2,060
Accrued expenses 3,167 3,634
Income taxes payable 1,431 1,168
-------- --------
TOTAL CURRENT LIABILITIES 11,360 9,087
Notes payable to related parties 194 227
Deferred income taxes 1,024 1,100
Capital lease obligations 505 --
Other liabilities -- 278
-------- --------
TOTAL LIABILITIES 13,083 10,692
-------- --------
STOCKHOLDERS' EQUITY
Preferred stock - $.001 par value; 1,000,000 shares authorized; none issued and
outstanding at December 31, 1999 and 1998 -- --
Common stock - $.001 par value; 50,000,000 shares authorized; 6,784,121 and 6,654,471
shares issued and outstanding at December 31, 1999 and 1998, respectively 7 7
Additional paid-in-capital 30,093 29,433
Retained earnings (accumulated deficit) 1,252 (2,248)
Accumulated other comprehensive loss (557) (137)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 30,795 27,055
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 43,878 $ 37,747
======== ========
See accompanying notes to consolidated financial statements.
F-2
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, and 1997
(In Thousands of Dollars, Except Share and Per Share Amounts)
1999 1998 1997
----------- ----------- -----------
Net sales $ 58,487 $ 52,103 $ 49,779
Cost of goods sold 28,394 26,658 26,685
----------- ----------- -----------
Gross profit 30,093 25,445 23,094
Operating expenses:
Research and development 4,419 2,935 2,591
Purchased in-process research and development -- 3,885 --
Selling, general and administrative 19,602 15,283 14,939
Amortization of goodwill and intangible assets 866 612 471
----------- ----------- -----------
Income from operations 5,206 2,730 5,093
Other (income) expenses:
Interest expense, net 208 275 414
Interest expense to related parties -- -- 15
Minority interest of consolidated subsidiaries -- 254 537
Other (income) expense 61 (50) (32)
----------- ----------- -----------
Income before provision for income taxes 4,937 2,251 4,159
Provision for income taxes 1,437 1,909 1,494
----------- ----------- -----------
Net income 3,500 342 2,665
Preferred dividends -- 900 178
----------- ----------- -----------
Net income (loss) available to common shareholders $ 3,500 $ (558) $ 2,487
=========== =========== ===========
Basic net income (loss) per common share $ 0.52 $ (0.12) $ 0.46
=========== =========== ===========
Diluted net income (loss) per common share $ 0.45 $ (0.12) $ 0.46
=========== =========== ===========
Weighted average number of common
shares outstanding-Basic 6,697,530 4,502,547 5,399,199
=========== =========== ===========
Weighted average number of common
shares outstanding-Diluted 7,737,921 4,502,547 5,399,199
=========== =========== ===========
F-3
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENED DECEMBER 31, 1999, 1998 AND 1997
(In Thousands of Dollars, Except Share and Per Share Amounts)
Preferred Stock Common Stock Additional
Number of Number of Paid-In
Shares Amount Shares Amount Capital
--------------- --------- ---------- --------- -----------
Balance at January 1, 1997 - - 5,758,850 $ 6 $ 21,774
Sale of Preferred Stock 200,000 - - - 20,000
Acquisition and retirement of Common Stock held
by Geotek, including acquisition costs of $250 - - (3,701,919) (4) (18,746)
Sale of Common Stock and Warrants - - 61,295 - 440
Preferred dividends - - - - -
Comprehensive income:
Net income - - - - -
Translation adjustments - - - - -
Comprehensive income - - - - -
------------ ---------- ----------- --------- -----------
Balance at December 31, 1997 200,000 - 2,118,226 $ 2 $ 23,468
Purchase of Speech Design minority interest - - 458,000 1 4,064
Conversion of Preferred Stock and related dividends (200,000) - 3,921,477 4 1,074
Sale of Common Stock and Warrants - - 156,768 - 862
Acquisition costs of Common Stock held by Geotek - - - - (35)
Preferred dividends - - - - -
Comprehensive income:
Net income - - - - -
Translation adjustments - - - - -
Comprehensive income - - - - -
------------ ---------- ----------- --------- -----------
Balance at December 31, 1998 - - 6,654,471 $ 7 $ 29,433
Sale of Common Stock and Warrants - - 129,650 - 713
Tax benefit from exercise of Common Stock options - - - - 44
Costs of secondary public offering - - - - (97)
Comprehensive income:
Net income - - - - -
Translation adjustments - - - - -
Comprehensive income - - - - -
------------ ---------- ----------- --------- -----------
Balance at December 31, 1999 - - 6,784,121 $ 7 $ 30,093
============ ========== =========== ========= ===========
Retained Accumulated
Earnings/ Other
(Accumulated Comprehensive
Deficit) Loss Total
------------ ------------- --------
Balance at January 1, 1997 $ (4,177) $ (27) $ 17,576
Sale of Preferred Stock - - 20,000
Acquisition and retirement of Common Stock held
by Geotek, including acquisition costs of $250 - - (18,750)
Sale of Common Stock and Warrants - - 440
Preferred dividends (178) - (178)
Comprehensive income:
Net income 2,665 -
Translation adjustments - (331)
Comprehensive income - - 2,334
---------- ------- --------
Balance at December 31, 1997 $ (1,690) $ (358) $ 21,422
Purchase of Speech Design minority interest - - 4,065
Conversion of Preferred Stock and related dividends - - 1,078
Sale of Common Stock and Warrants - - 862
Acquisition costs of Common Stock held by Geotek - - (35)
Preferred dividends (900) - (900)
Comprehensive income:
Net income 342 -
Translation adjustments - 221
Comprehensive income - - 563
---------- ------- --------
Balance at December 31, 1998 $ (2,248) $ (137) $ 27,055
Sale of Common Stock and Warrants - - 713
Tax benefit from exercise of Common Stock options - - 44
Costs of secondary public offering - - (97)
Comprehensive income:
Net income 3,500 -
Translation adjustments - (420)
Comprehensive income - - 3,080
---------- ------- --------
Balance at December 31, 1999 $ 1,252 $ (557) $ 30,795
========== ======= ========
See accompanying notes to consolidated financial statements.
F-4
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, and 1997
(In Thousands of Dollars, Except Share and Per Share Amounts)
1999 1998 1997
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,500 $ 342 $ 2,665
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,033 875 861
Amortization of goodwill and intangible assets 866 612 471
Provisions for doubtful accounts and
inventory obsolescence 484 269 (703)
Utilization of pre-acquisition NOL charged to goodwill 107 440 439
Deferred income taxes (478) (470) --
Purchased in-process research and development -- 3,885 --
Minority interest -- 254 537
Change in operating assets and liabilities
(net of effects from acquisitions):
Accounts receivable (2,806) 652 118
Inventories (1,484) 194 (1,315)
Prepaid expenses and other current assets 33 (170) 260
Accounts payable and accrued expenses 71 364 (1,078)
Other (134) (156) (137)
-------- -------- --------
Net cash provided by operating activities 1,192 7,091 2,118
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and leasehold improvements (1,825) (1,082) (953)
Acquisition of minority interest in Speech Design -- (4,797) --
Acquisition of Digitronic -- (1,199) --
Acquisition of New England Audio Resource, Inc. -- -- (242)
Acquisition of intangibles (36) -- --
-------- -------- --------
Net cash used in investing activities (1,861) (7,078) (1,195)
-------- -------- --------
CASH FLOW FROM FINANCING ACTIVITIES
Acquisition of common stock held by Geotek -- -- (18,500)
Proceeds from sale of preferred stock, common stock and warrants 757 862 20,440
Acquisition costs of common stock held by Geotek -- (35) (250)
Costs of secondary offering (97) -- --
Payments under Apogee pre-acquisition debt (422) -- --
Principal payments under capital lease obligations (180) -- --
Amounts (paid) borrowed under revolving credit agreements 323 (797) (1,506)
Advances and notes payable - related parties -- -- (879)
-------- -------- --------
Net cash provided by (used in) financing activities 381 30 (695)
-------- -------- --------
Effects of foreign exchange rate on cash 32 41 (149)
-------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (256) 84 79
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,048 964 885
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 792 $ 1,048 $ 964
======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 212 $ 291 $ 496
Cash paid for income taxes 1,136 1,154 490
NON CASH FINANCING ACTIVITIES
Preferred stock dividends accrued -- -- 178
Common stock issued to pay current and accrued dividends -- 1,078 --
Capital lease obligations related to new office equipment 867 -- --
See accompanying notes to consolidated financial statements.
F-5
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. ORGANIZATION
Bogen Communications International, Inc. together with its subsidiaries,
(the "Company") is engaged in the development, manufacturing and marketing of
audio and communication products. Product lines sold by the Company include
Telephone Paging Products, voicemail, and Unified Messaging products and
services ("Telco"), Commercial Audio Products ("Commercial Audio") and
Intercom/Paging Equipment ("Engineered Systems"). The Company's operations are
located in the northeastern United States, Germany, England, Switzerland and
Israel.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Company include the accounts of the
Company's 99% owned subsidiary, Bogen Corporation ("Bogen"); Bogen's
wholly-owned subsidiary, Bogen Communications, Inc. ("BCI"); BCI's wholly-owned
subsidiaries: New England Audio Resource Corp. ("NEAR") and Apogee Sound
International, LLC ("Apogee"); the Company's wholly-owned subsidiary, Speech
Design GmbH ("Speech Design"), which was a 67% owned subsidiary through May 19,
1998; Speech Design's 67% owned subsidiary Satelco AG ("Satelco"); and Speech
Design's wholly-owned subsidiaries: Speech Design (Israel), Ltd., Speech Design
(UK), Ltd. and Digitronic Computersysteme GmbH ("Digitronic"). All significant
inter-company balances and transactions have been eliminated in consolidation.
The ownership interest of minority owners in the equity and earnings of the
Company's less than 100 percent-owned consolidated subsidiaries are recorded as
minority interest.
BASIS OF PRESENTATION
On August 21, 1995, the Registrant acquired from Geotek Communications Inc.
("Geotek") approximately 67% of the outstanding capital stock of Speech Design
and approximately 99% of the outstanding capital stock of Bogen. As
consideration for such acquisitions, Geotek received from the Company: (i)
3,701,919 shares of Common Stock; (ii) warrants to purchase 200,000 shares of
Common Stock; (iii) $7,000,000 in cash; (iv) a convertible promissory note in
the principal amount of $3,000,000, reduced to $500,000 and repaid in 1997, and
(v) rights to certain contingent payments, none of which became due.
For accounting purposes, the acquisition was treated as a joint acquisition of
the Company by Bogen and Speech Design, companies under the common control of
Geotek. The transaction was considered a reverse acquisition with Geotek as the
acquirer 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.
On November 26, 1997, the Company acquired all 3,701,919 shares of Common Stock
and warrants held by Geotek for $18,500,000. Simultaneously with the repurchase
of the Common Stock and warrants held by Geotek, the Company sold 200,000 shares
of 9% Series A Convertible Preferred Stock (the "Preferred Stock") to a group of
independent investment funds, for total proceeds to the Company of $20,000,000.
The Preferred Stock carried a 9% semi-annual cumulative dividend which could be
paid in cash or in-kind at the sole discretion of the Company. Each share of
Preferred Stock was convertible at any time at the option of the holder, into
18.605 shares of Common Stock (or 3,721,000 shares of Common Stock based at the
initial conversion price of $5.375). Also at the
F-6
time, of the transaction described above, a new senior executive team was put in
place and the Board of Directors was reconstituted. (See Note 12).
REVENUE RECOGNITION
Sales, net of expected returns, are recognized upon shipment.
GOODWILL
Goodwill represents the excess of cost over the fair value of net assets
acquired in purchase transactions. Goodwill also includes the effect of pushdown
accounting, 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 periods of between 7 to 40 years. The
Company periodically evaluates the recoverability of goodwill and measures any
impairment by comparison to estimated undiscounted cash flows from future
operations.
CASH AND CASH EQUIVALENTS
Cash includes cash on-hand and all highly liquid debt instruments purchased with
original maturities of three months or less.
INVENTORIES
Inventories are stated at the lower of cost or market and are valued using the
first-in, first-out method.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are recorded at cost, less accumulated
depreciation and amortization. Depreciation of equipment is provided using the
straight-line method over the estimated useful lives of the related assets.
Leasehold improvements are amortized on a straight-line basis over the shorter
of the term of the lease or the estimated useful life of the improvement. The
estimated useful lives used in computing depreciation of plant and equipment
are:
Machinery, equipment and tooling 3-17 years
Furniture and office equipment 4-7 years
Leasehold improvements 10 years or remaining lease term
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.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
INCOME TAXES
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carry-forwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on tax-deferred assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
No provision has been made for Federal income or withholding taxes which may be
payable on the remittance of undistributed retained earnings of foreign
subsidiaries. These earnings have been reinvested to meet future
F-7
operating requirements and the Company intends to continue such policy for the
foreseeable future. Such undistributed earnings were $2,136,000 and $1,015,000
at December 31, 1999 and 1998, respectively.
INCOME (LOSS) PER COMMON SHARE
Income (loss) per common share ("EPS") has been computed based upon Statement
of Financial Accounting Standards (SFAS) 128, "Earnings Per Share". Basic
EPS is calculated by dividing net income available to common shareholders by the
weighted-average number of common shares outstanding for the periods presented.
Diluted EPS is calculated by dividing net income available to common
shareholders by the weighted-average number of common shares outstanding,
adjusted for the dilutive effect of options and warrants (1,040,391 in 1999;
anti-dilutive in 1998 and 1997).
STOCK-BASED COMPENSATION
Stock-based compensation is recognized using the intrinsic value method. For
disclosure purposes, pro forma net income and earnings per common share are
provided in accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation" as if the fair value method had been applied.
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 reported amounts of revenues and expenses during the reporting
period. Some of the more significant estimates made by management involve the
reserve for doubtful accounts, provision for slow moving and obsolete inventory
and evaluation of the recoverability of assets. Actual results could differ from
those estimates.
CREDIT RISK
The Company develops, manufacturers, markets and sells commercial audio,
paging, communications and other equipment and telecommunications peripherals.
The Company performs on-going credit evaluations of its customers. The Company
provides reserves for potential losses from these receivables.
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. Translation adjustments that arise from
translation of subsidiary financial statements denominated in foreign currency
are accumulated in a separate component of other comprehensive income (loss).
Transaction gains and losses that arise from exchange rate changes on
transactions denominated in a currency other than local currencies are included
in operations as incurred.
FAIR VALUE OF FINANCIAL INSTRUMENTS AND DERIVATIVES
The recorded amount of cash, cash equivalents, accounts receivable, accounts
payable, accrued expenses, notes payable and advances, approximates fair value
due to the short-term maturities of certain of these assets and liabilities and
the variable interest rate of others.
The Company may enter into foreign currency forward contracts on a limited basis
that qualify as hedges against identifiable foreign currency commitments. The
Company does not purchase or hold foreign currency contracts for trading or
speculative purposes.
The Company purchased short-term foreign currency forward contracts near the end
of December 1998 with notional amount of DM 3 million. The fair market value of
such contracts at December 31, 1998 approximates their carrying value. There
were no contracts outstanding at December 31, 1999.
F-8
COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income". SFAS 130 establishes standards for reporting and presentation of
comprehensive income and its components in a full set of financial statements.
Comprehensive income consists of net income and translation adjustments and is
presented in the consolidated statement of stockholder's equity. The Statement
requires only additional disclosures in the consolidated financial statements;
it does not affect the Company's financial position or results of operations.
Prior year financial statements have been reclassified to conform to the
requirements of SFAS 130.
SEGMENT INFORMATION
The Company operates in two reportable business segments, Bogen (domestic) and
Speech Design (foreign) and follows the requirements of SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information."
RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform to the current
year presentation.
3. ACQUISITIONS
On July 1, 1997, the Company, through its wholly owned subsidiary Bogen,
acquired substantially all of the net assets of NEAR, a leading manufacturer of
high performance, weather-proof speakers. The total purchase price, including
direct costs incurred as result of the acquisition, amounted to $242 in cash and
assumption of certain liabilities. Excess of the purchase price over the
estimated fair values of the net assets acquired was $236 and has been recorded
as goodwill, which is being amortized over 20 years.
On May 20, 1998, the Company acquired the remaining 33% equity interest in
Speech Design not previously owned by the Company. As a result of this
acquisition, Speech Design became a wholly owned subsidiary of the Company. The
aggregate purchase price of $8,845, including direct acquisition costs
(estimated at $482), consisted of approximately $4,780 in cash and 458,000
shares of common stock of the Company valued at approximately $4,065 ($8.875 per
share). The acquisition has been accounted for by the purchase method of
accounting and accordingly, the purchase price has been allocated to the assets
acquired and liabilities assumed based on an independent appraisal of fair
values at the date of acquisition. Such appraisal allocated $2,905 to purchased
in-process research and development, which has been reflected as a charge in the
accompanying consolidated statement of operations for the year ended December
31, 1998. Other intangible assets acquired include existing technology, trade
names, workforce and goodwill totaling approximately $4,653.
On December 31, 1998, the Company, through its wholly owned subsidiary Speech
Design, acquired Digitronic. Digitronic is in the business of Unified Messaging
and Internet communications. The aggregate purchase price, including direct
costs of $145, amounted to $1,199 in cash and assumption of certain liabilities.
The acquisition has been accounted for by the purchase method of accounting, and
accordingly, the purchase price has been allocated to the assets acquired and
liabilities assumed based on an independent appraisal of fair values at the date
of acquisition. Such appraisal allocated $980 to purchased in-process research
and development, which has been reflected as a charge in the accompanying
consolidated statement of operations for the year, ended December 31, 1998.
Other intangible assets acquired include existing technology, trade names and
workforce totaling approximately $424. The terms of the acquisition agreement
also provide for additional consideration to be paid if Digitronic's sales
during 1999 and 2000 exceed certain targeted levels. Targeted levels have been
set substantially above the historical experience of Digitronic at the time of
acquisition. Such additional consideration will be paid in cash and goodwill
will be increased by the additional consideration when and if paid.
On August 26, 1999, Bogen Communications, Inc., through Apogee, a newly formed
Bogen subsidiary, acquired substantially all of the assets of Apogee Sound,
Inc., a privately-owned company headquartered in Petaluma, California.
Consideration for the acquisition was the assumption or payment of approximately
$2.6 million of Apogee Sound Inc.'s liabilities. The acquisition has been
accounted for by the purchase method of accounting and accordingly, the purchase
price has been allocated to the assets acquired and liabilities assumed based on
estimates
F-9
of fair market values at the date of acquisition. In connection with the
acquisition, the Company recorded a non-cash investment in goodwill of
approximately $1,857.
The following table presents unaudited pro forma results of operations as if the
acquisition of the minority interest of Speech Design had occurred on January 1,
1998. The pro forma impact of the acquisitions of Digitronic on December 31,
1998, and Apogee on August 27, 1999, are not considered material. These pro
forma results have been prepared for comparative purposes only and do not
purport to be indicative of what would have occurred had the acquisition been
made at the beginning of the periods presented which may occur in the future.
The pro forma information below includes nonrecurring in-process research and
development charges of $3,885.
YEAR ENDED DECEMBER 31,1998
---------------------------
Revenues $ 52,103
Net income 578
Net income (loss) available to common shareholders (322)
Net income (loss) per common share - Basic and Diluted (.07)
4. INVENTORIES
Inventories as of December 31, 1999 and 1998, are as follows:
1999 1998
---- ----
Raw materials and supplies $3,649 $2,490
Work in progress 770 880
Finished goods 4,891 4,859
------ ------
$9,310 $8,229
====== ======
5. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements at December 31, 1999 and 1998, is comprised
of the following items:
1999 1998
------ ------
Machinery, equipment and tooling $4,562 $4,656
Furniture and office equipment 4,365 2,360
Leasehold improvements 861 807
------ ------
9,788 7,823
Less: accumulated depreciation and
Amortization (5,951) (5,409)
------ ------
$3,837 $2,414
====== ======
In, 1999, furniture and office equipment includes amounts of $867 under capital
lease obligations (see Note 10).
Depreciation and amortization expense was approximately $1,033, $875 and $861
for the years ended December 31, 1999, 1998, and 1997, respectively.
6. GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets consist of the following at December 31, 1999 and
1998:
1999 1998
-------- --------
Goodwill $ 22,375 $ 20,622
Other intangibles 1,672 1,399
-------- --------
24,047 22,021
Less: accumulated amortization (4,317) (3,281)
-------- --------
$ 19,730 $ 18,740
======== ========
F-10
As explained above in Note 2, Geotek accounted for the acquisition of Bogen and
Speech Design as a reverse acquisition. No goodwill was recorded in connection
with that 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
goodwill in the amount of $15,044 in the first quarter of 1994. The goodwill is
being amortized over its then remaining life of approximately 38 years. Other
amounts of goodwill recorded prior to January 1, 1998, represent the excess of
cost over the fair value of net assets acquired related to the acquisitions of
Satelco and NEAR.
Goodwill in the amount of $3,779 represents the excess of cost over the fair
value of net assets acquired as a result of the acquisition of the remaining 33%
interest in Speech Design in May 1998. This goodwill is being amortized using
the straight-line method over 20 years. Other intangible assets acquired totaled
$874. These assets include existing technology, trade names and workforce and
are being amortized over an average period of 15 years.
Other intangible assets acquired as a result of the acquisition of Digitronic
totaled $424. These assets, which are being amortized over an average of 7
years, include existing technology trade names and workforce.
Goodwill in the amount of $1,857 relates to the Company's purchase of the assets
and assumption of liabilities of Apogee Sound Inc. This goodwill is being
amortized over 10 years.
Amortization of goodwill and other intangibles was approximately $866, $612 and
$471 for the years ended December 31, 1999, 1998, and 1997, respectively.
7. REVOLVING CREDIT AGREEMENTS
In the first quarter of 1997, BCI entered into a revolving credit facility (the
"Facility") with a bank, which was scheduled to mature on February 5, 1999. The
Facility provided, subject to certain terms and conditions, for borrowings up to
a maximum of $7,000 with a $700 sub-limit for letters of credit, unreimbursed
time drafts and/or bankers acceptances, and was limited to specified levels of
eligible accounts receivable and inventory. Borrowings under the Facility were
available for working capital and general corporate purposes and accrued
interest at the bank's prime rate plus .50%. Obligations under the Facility were
collateralized by all of the accounts receivable, inventory property and
equipment, and general intangibles of BCI and was guaranteed by the Company. The
Facility contained certain covenants, which limited the ability of BCI to
declare or pay dividends, return capital to its stockholders or redeem or
repurchase any of its outstanding capital stock.
On April 21, 1998, BCI and the Company entered into a $27,000 credit facility
(the "New Facility") with KeyBank N.A., which matures on April 30, 2001. The New
Facility replaces the previous Facility. The New Facility provides, subject to
certain criteria, a $20,000 revolving line for acquisition financing and a
$7,000 working capital line. The New Facility bears interest at either the
bank's prime rate or, at the Company's option, LIBOR plus 125 to 200 basis
points, based on certain financial conditions. The interest rate at December 31,
1999, was 7.9375%. At December 31, 1999 and 1998, there was $0 and $462,
respectively, outstanding under the New Facility for acquisition financing. At
December 31, 1999 and 1998, Bogen had short-term domestic borrowings outstanding
under the working capital line of $1,150 and $0, respectively The amount
available under the working capital line at December 31, 1999 and 1998, was
$5,850 and $7,000, respectively. The Company is required to meet certain working
capital and financial covenants, with which it was in compliance as of December
31, 1999.
Speech Design has credit lines and overdraft facilities of approximately 8,000
DM, or $4,100, from 3 banks. Speech Design's short-term lines of credit are
collateralized by all of Speech Design's accounts receivable and inventory.
During the third quarter of 1998, Speech Design secured a 15 million DM ($7.7
million) credit facility for acquisition financing from D.G. Bank of Frankfurt.
The interest rate under the new credit facility is up to 200 basis points above
the German LIBOR rate, which was 3.1725% at December 31, 1999. At December 31,
1999
F-11
and 1998, Speech Design had short term lines of credit and overdraft facilities
of $4,664 and $3,780, respectively, of which short-term borrowings amounted to
$1,189 and $1,763, respectively. The amounts available under these credit lines
were $ 3,475 and $2,017 at December 31, 1999 and 1998, respectively, with rates
tied to short-term bank notes and Euromarket loans. Speech Design's short-term
lines of credit are collateralized by all of Speech Design's accounts receivable
and inventory. At December 31, 1999, interest rates on these short-term lines
ranged from 4.0% to 7.85%. There were no borrowings under the acquisition credit
facility.
Total outstanding revolving lines of credit are summarized as follows at
December 31, 1999 and 1998:
1999 1998
------ ------
Domestic Lines of Credit Utilized $1,150 $ 462
Foreign Lines of Credit Utilized:
Speech Design 627 1,580
Digitronics 405 --
Satelco 157 183
------ ------
$2,339 $2,225
====== ======
8. NOTES PAYABLE TO RELATED PARTIES
There is a $315 original note from the minority shareholders of Satelco, 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 noteholders) until such time as the Satelco
subsidiary becomes profitable. Accordingly, this note payable has been
classified as long-term. The balance of this note payable was $194 and $227 at
December 31, 1999 and 1998, respectively. The decrease is related to the effect
of currency translation.
9. INCOME TAXES
The Company's pre-tax book income (loss) is as follows for the years ended
December 31, 1999, 1998 and 1997:
1999 1998 1997
------ ------- ------
Domestic U.S. operations $2,875 $(1,579) $1,966
Foreign operations 2,062 3,830 2,193
------ ------- ------
Total $4,937 $ 2,251 $4,159
====== ======= ======
The components of income tax expense are as follows for the years ended December
31, 1999, 1998 and 1997:
1999 1998 1997
------- ------- --------
Current income tax $ 1,701 $ 1,832 $ 1,055
Utilization of acquired tax benefits 107 440 439
credited to goodwill
Deferred income tax benefit (371) (363) --
------- ------- --------
Total income tax expense $ 1,437 $ 1,909 $ 1,494
======= ======= ========
The difference between the provision for income taxes computed at the U.S.
Federal statutory rate and the provision as reported are as follows:
F-12
1999 1998 1997
------- ------- -------
Provision at US statutory rate $ 1,679 $ 765 $ 1,414
State tax expense 134 149 --
Non-deductible expenses 159 207 151
Change in valuation allowance (959) (1,321) (820)
Foreign taxes greater than U.S. taxes 280 230 307
Utilization of acquired tax benefits
credited to goodwill 107 440 439
In-process research and development -- 1,321 --
Other 88 118 3
------- ------- -------
Tax provision as reported $ 1,437 $ 1,909 $ 1,494
======= ======= =======
The components of deferred tax assets and liabilities at December 31, 1999 and
1998, were as follows:
1999 1998
------- -------
Deferred tax assets:
NOL carryforwards $ 871 $ 1,341
Foreign loss carryforward 565 543
Deferred rent 48 96
Inventory 387 440
Allowance for doubtful accounts 169 172
Accrued liabilities 171 167
Equipment 131 130
------- -------
Total deferred tax assets 2,342 2,899
Less: valuation allowance (1,460) (2,419)
------- -------
Net deferred tax assets: $ 882 $ 470
======= =======
Deferred tax liabilities-
Intangible assets $ 1,024 $ 1,100
======= =======
The Company has net operating loss ("NOL") carryforwards of approximately $2,560
for U.S. Federal tax purposes as of December 31, 1999, which expire between the
years 2004 through 2010. Under Section 382 of the Internal Revenue Code of 1986,
as amended, these 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. Subsequently recognized tax benefits, in the amount of
$763, relating to the reduction of the valuation allowance as these NOL
carryforwards are realize, will be allocated to Goodwill and other intangible
assets.
The Company has foreign loss carryforwards of approximately $1,413 as of
December 31, 1999. Certain of these loss carryforwards expire between the years
2000 through 2005.
The valuation allowance for deferred tax assets as of December 31, 1999 and
1998, was $1,460 and $2,419, respectively. In assessing the realizability of
deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income during the periods in which those temporary differences
become deductible. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, certain limitations on the
utilization of operating loss carryforwards and tax planning strategies in
making this assessment. Based upon the level of historical taxable income and
projections for future taxable income, by jurisdictions, over the periods which
the deferred tax assets are deductible, management
F-13
believes it is more likely than not the Company will realize the benefits of
these deductible differences, net of the existing valuation allowances at
December 31, 1999.
10. LEASES
The Company is obligated under various capital leases for certain and office
equipment that expire over the next four years. At December 31, 1999, the gross
amount of assets and related accumulated amortization recorded under capital
leases were as follows:
1999
----
Office equipment $867
Less: accumulated amortization 80
----
$787
====
Amortization of assets held under capitalized leases is included with
depreciation expense.
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.
Future minimum annual lease payments under non-cancelable operating leases (with
initial or remaining lease terms in excess of one year) and future minimum
capital lease payments as of December 31, 1999, are as follows:
YEAR ENDING DECEMBER 31, CAPITAL LEASES OPERATING LEASES
------------------------ -------------- ----------------
2000 $282 $1,535
2001 294 677
2002 287 498
2003 -- 391
2004 -- 362
Thereafter -- 284
---- ------
Total minimum lease payments $863 $3,747
==== ======
Less: sales taxes 46
----
Net minimum lease payments 817
Less: amount representing interest (at rates
between 7.6% and 8.6% 88
----
Present value of net minimum capital
lease payments 729
Less: current installments of obligations
under capital leases 224
----
Obligations under capital leases, excluding
Current installments $505
----
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 $119 and $238 at December 31, 1999 and 1998, respectively, is
classified as a current liability at December 31, 1999, and a long-term
liability at December 31, 1998.
F-14
Rent expense charged to operations totaled approximately $1,552, $1,142, and
$1,297 for the years ended December 31, 1999, 1998, and 1997, respectively.
11. COMMITMENTS AND CONTINGENCIES
EMPLOYMENT CONTRACTS
The Company has entered into employment contracts with several officers of the
Company. The employment contracts of the Chief Executive Officer and the
President of the Company both extend through November 2001. The management
agreements of the two Managing Directors of Speech Design expire on June 30,
2001. Compensation accrues to the officers over the term of the contract as
their respective services are provided.
LITIGATION
The Company is party, in the ordinary course of business, to various legal
actions and claims. In the opinion of management, the ultimate disposition of
these matters will not have a material adverse effect on the Company's
consolidated financial position, results of operations, or liquidity.
12. STOCKHOLDERS' EQUITY
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.
On November 26, 1997 the Company sold 200,000 shares of 9% Cumulative Series A
Convertible Preferred Stock (the "Preferred Stock") to a group of unrelated
independent third-party investors (the "Investors"). The 200,000 shares of
Preferred Stock were sold for $100 per share for total proceeds to the Company
of $20,000 of which $18,500 was used to finance the acquisition and retirement
of Common Stock and warrants held by Geotek (see Note 2) and $1,500 was to be
used for general corporate purposes. The Preferred Stock carried a redemption
value of $100 per share. Each share of Preferred Stock plus any accrued
dividends was convertible, at the option of the holder, at any time prior to the
close of business on the third day prior to the date on which notice of
conversion was given, into 18.605 shares of common stock based on an initial
conversion price of $5.375 per common share ("Conversion Price"). Any shares of
Preferred Stock still outstanding as of December 1, 2002, would automatically
convert into common stock at the rate specified above.
Holders of Preferred Stock were entitled to one vote for each share of common
stock into which such shares can be converted. The Preferred Stock carried a 9%
semi-annual cumulative dividend which was to be paid in cash or in-kind at the
option of the Company. Dividends on Preferred Stock were to be paid before any
dividends on common stock.
On July 1, 1998, the Company issued 3,921,477 shares of its common stock upon
conversion of all of the issued and outstanding shares of the Preferred Stock by
the holders thereof. Included in such issuance were 200,477 shares of common
stock, which represented the payment of accrued dividends in shares of common
stock through the date of conversion.
COMMON STOCK AND WARRANTS
In June 1993, 300,000 Warrants were issued to various individuals in
consideration for providing the Company bridge financing until its initial
public offering ("Offering") on October 15, 1993. The Company issued 3,100,000
Warrants to purchase its common stock in connection with the Offering (See Note
19).
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. These
warrants were repurchased and retired by the Company on
F-15
November 26, 1997. Another 60,000 Warrants were issued as
consideration for providing certain financings and services provided to the
Company to facilitate the Business Combination (See Note 19).
On November 26, 1997, D&S Capital, LLC, a limited liability company whose
interests are owned by the Chief Executive Officer and President of the Company,
acquired 46,295 shares of common stock and warrants to purchase 250,000 shares
of restricted common stock at an exercise price of $5.00 per share, for an
aggregate purchase price of $250,000. The warrants are exercisable in specified
increments through January 1, 2003. Another 575,885 warrants to purchase common
stock were issued on November 28, 1997, to Helix Capital II, LLC.
At December 31, 1999 and 1998, the Company had the following warrants
outstanding:
WEIGHTED
SHARES AVERAGE
1999 1998 EXERCISE PRICE EXPIRATION
---- ---- -------------- ----------
WARRANTS TO PURCHASE COMMON STOCK:
1993 warrants 3,238,750 3,312,900 $ 5.50 October 2000
1995 warrants 60,000 60,000 $ 5.50 October 2000
1997 warrants 825,885 825,885 $ 5.35 November 2002/
---------- ---------- January 2003
4,124,635 4,198,785
========== ==========
In connection with the Company's initial public offering of its units (the
"Units"), the Company granted to GKN Securities Corp. and its affiliates
(collectively, "GKN") an option to purchase (the UPO) an aggregate of 150,000
Units at $6.60 per Unit. Each unit issuable upon exercise of the UPO will
consist of one share of Common Stock and warrants to purchase two shares of
Common stock at $5.50 per share. The GKN UPO contained certain anti-dilution
provisions that were broader than the anti-dilution provisions set forth in the
publicly held UPOs and its original expiration date was October 7, 1998. On
December 31, 1998, the Company and GKN agreed to extend the expiration date to
October 7, 1999 and to amend the GKN UPO by narrowing the anti-dilution
protection for GKN to that protection provided in the publicly held UPOs. This
had no effect on the Company's results of operations or stockholder's equity.
This GKN UPO expired without being exercised on October 7, 1999.
13. STOCK 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 but not less than the fair market value of the stock at the
date of grant and none may be exercised more than 10 years from the date of
grant. From time to time, the Company grants additional stock options to
individuals outside of the 1996 Plan. During 1997, the Company granted a total
of 325,885 options outside the 1996 Plan to the Company's newly appointed CEO
and President. The options were granted at an exercise price of $5.00 per share,
vest at a specified rate over a three-year period and expire 10 years from the
date of grant.
In 1994, Bogen adopted an Employee Stock Option Plan (the "Bogen Plan") and
granted a total of 1,400,000 options at a price of $1.14 per share, which
approximated fair value. All options granted under the Bogen Plan were
outstanding at December 31, 1996 and 1995. In 1997, the Company cancelled all
the options granted under the Bogen Plan and granted certain participants under
the Bogen Plan one option for a share of Common Stock under the 1996 Plan in
exchange for every three options of Common Stock of Bogen granted to a
participant in the Bogen Plan. Options for an aggregate of 253,335 shares of
Common Stock were granted under the 1996 Plan to former participants of the
Bogen Plan.
F-16
Information with respect to the Company's stock options under the 1996 Plan and
discretionary grants are as follows:
AVERAGE
STOCK OPTIONS SHARES PRICE (1)
- - ------------- ------ ---------
Outstanding at December 31, 1996 -
Granted 1,264,220 $5.48
Cancelled (279,667) 6.14
Exercised (15,000) 5.00
---------
Outstanding at December 31,1997 969,553 5.30
Granted 220,300 8.24
Cancelled (18,000) 5.50
Exercised (68,667) 5.50
Forfeited (22,000) 7.89
---------
Outstanding at December 31, 1998 1,081,186 5.83
Granted 76,450 6.04
Exercised (55,500) 5.50
Forfeited (115,471) 5.58
---------
Outstanding at December 31, 1999 986,665 5.90
=========
(1) Weighted average exercise price.
The number of shares and weighted average price of options exercisable at
December 31, 1999, was 469,813 shares at $5.45 per share and had a weighted
average contractual life remaining of 7.3 years. At December 31, 1999, 453,388
shares were available for future grants under the terms of the 1996 Plan.
Outstanding options expire prior to December 31, 2007, and are exercisable at
prices ranging from $5.00 to $8.50 per share.
The Company has adopted the disclosures provisions of SFAS 123, "Accounting
for Stock-Based Compensation". This statement defines a fair value method of
accounting for an employee stock option or similar equity instrument. However,
it allows an entity to continue to measure compensation cost for those
instruments using the intrinsic-value-based method of accounting prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" provided it discloses the effect of SFAS 123 in footnotes to the
financial statements. The Company has chosen to continue to account for
stock-based compensation using the intrinsic value method. Had the Company,
however, elected to recognize compensation cost based on fair value of the stock
options at the date of grant under SFAS 123, such costs would have been
recognized ratably over the vesting period of the underlying instruments and the
Company's net income available to common shareholders and net income per common
share would have decreased to the pro forma amounts indicated in the table
below.
Pro forma net income (loss) available to common shareholders and net income
(loss) per common share for the years ended December 31, 1999, 1998, and 1997
was as follows:
1999 1998 1997
------- ------ -------
Net income (loss) available to common shareholders:
As reported ............................... $ 3,500 $ (558) $ 2,487
Pro forma ................................. 2,849 (937) 2,190
Net income (loss) per common share:
Basic:
As reported ....................................... .52 (.12) .46
Pro forma ......................................... .44 (.21) .41
Diluted:
As reported ....................................... .45 (.12) .46
Pro forma ......................................... .38 (.21) .41
The fair value of the options granted was estimated using the Black-Scholes
option-pricing model based on the weighted average exercise price at date of
grant of $6.04 in fiscal 1999 and the following weighted average
F-17
assumptions: risk-free interest rate of 8.00%; expected option life of 7.50
years; volatility of 39% and no dividend yield. The average fair value of
options granted during 1999 was $5.84.
The fair value of the options granted was estimated using the Black-Scholes
option-pricing model based on the weighted average exercise price at date of
grant of $8.24 in fiscal 1998 and the following weighted average assumptions:
risk-free interest rate of 5.50%; expected option life of 6.84 years; volatility
of 45% and no dividend yield. The average fair value of options granted during
1998 was $7.67.
The fair value of the options granted was estimated using the Black-Scholes
option-pricing model based on the weighted average exercise price at date of
grant of $5.48 in fiscal 1997 and the following weighted average assumptions:
risk-free interest rate of 6.25%; expected option life of 6.8 years; volatility
of 46% and no dividend yield. The average fair value of options granted during
1997 was $2.31.
14. INCOME (LOSS) PER COMMON SHARE
The Company follows SFAS No. 128, "Earnings Per Share" which establishes
standards for computing and presenting earnings per share. Under SFAS 128, the
Company is required to present two earnings per share amounts for each period
presented.
Basic earnings per common share is computed by dividing net earnings per common
share by the weighted average number of common shares outstanding during the
period. Diluted earnings per common share gives effect to all diluted potential
common shares that were outstanding during the period. Potential common shares
are not included in the calculation of diluted earnings per share if their
inclusion would be anti-dilutive.
Potential common shares attributable to the Preferred Stock as a result of
applying the if-converted method (see Note 12) and outstanding options and
warrants have not been included in the calculation of diluted earnings per
common share for the years ended December 31, 1998, and 1997 since their
inclusion would have been anti-dilutive.
15. RELATED PARTY TRANSACTIONS
Pursuant to a Mergers & Acquisition Engagement Agreement, dated August, 1997, as
amended on November 29, 1997, and the Amended and Restated Mergers & Acquisition
Engagement Agreement, effective as of October 1, 1998, between the Company and
Helix Capital Services, Inc. ("Helix Services"), the Company paid Helix Services
approximately $374,000 in 1998, including an aggregate of $210,000 in monthly
retainer fees and $164,000 for services rendered in connection with the Speech
Design acquisition. Pursuant to the Amended and Restated Mergers & Acquisition
Agreement, Helix Services acts as the principal financial advisor and, subject
to certain exceptions, the exclusive mergers and acquisition advisor for the
Company and all of its domestic subsidiaries. In exchange for such services, the
Company currently pays Helix Services a $10,000 monthly retainer fee (prior to
October 1, 1998, the monthly retainer fee was $20,000) and, in the event the
Company consummates a financing or other extraordinary corporate transaction, an
additional fee equal to a minimum of 2% of the acquisition price, subject to
reduction in certain circumstances.
Effective as of October 1, 1998, Speech Design entered into a Mergers &
Acquisition Engagement Agreement with Helix Services pursuant to which Helix
Services acts as the principal financial advisor and, subject to certain
exceptions, the exclusive mergers and acquisition advisor for Speech Design. In
exchange for such services, the Company pays Helix Services a $10,000 monthly
retainer fee and, in the event the Company consummates a financing or other
extraordinary corporate transaction, an additional fee equal to a minimum 2% of
the acquisition price, subject to reduction in certain circumstances. During
1998, Speech Design paid Helix Services an aggregate of $30,000 in monthly
retainer fees.
In 1999, the Company and Speech Design combined paid Helix Services $160,000 in
monthly retainer fees and approximately $20,000 in expenses associated with the
Apogee acquisition. The Company and Speech Design terminated their agreements
with Helix Services on August 31 and September 1, 1999, respectively. The
Company subsequently entered into a Limited Engagement Agreement with Helix
Services that called for certain payments to be made upon the successful
consummation of merger and acquisition transactions. The Limited Engagement
Agreement expired on December 31, 1999.
F-18
16. EMPLOYEE BENEFIT PLANS
Bogen participates in multi-employer pension plans, which cover all union
employees. Contributions for the periods ended December 31, 1999, 1998, and 1997
were approximately $44, $17, and $18, respectively.
Employees of the Company are also eligible to participate in a Company sponsored
defined contribution 401(k) plan. The Company provides a matching contribution
to a portion of funds contributed by employees. Amounts charged to expense were
$100, $108, and $122 for the years ended December 31, 1999, 1998, and 1997,
respectively.
17. SEGMENTS
The Company operates in two reportable business segments, Bogen (domestic) and
Speech Design (foreign). The domestic segment is primarily engaged in commercial
and engineered sound equipment and telecommunication peripherals. The foreign
segment focuses on digital voice processing systems for the mid-sized PABX
market and in Unified Messaging products and services, targeting the rapidly
growing European voice processing and Unified Messaging markets.
The Company's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business requires different technology, marketing and distribution strategies.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Company evaluates performance
based on profit or loss from operations before income taxes not including other
income (expense), nonrecurring gains and losses, and foreign exchange gains and
losses.
The following table presents information about the Company by segment/geographic
area. Inter segment revenues and transfers are not considered material:
SPEECH
BOGEN DESIGN
------- -------
1999:
Revenue from external customers ................ $36,745 $21,742
Depreciation and amortization .................. 962 627
Operating profit ............................... 3,574 2,180
Total assets ................................... 28,433 14,721
Expenditures for segment assets ................ 1,821 803
1998:
Revenue from external customers ................ $32,202 $20,352
Depreciation and amortization .................. 772 716
Operating profit ............................... 4,359 3,281
Total assets ................................... 26,539 12,777
Expenditures for segment assets ................ 289 824
1997:
Revenue from external customers ................ $31,734 $18,045
Depreciation and amortization .................. 775 546
Operating profit ............................... 2,630 2,805
Total assets ................................... 24,957 6,822
Expenditures for segment assets ................ 390 563
F-19
A reconciliation of reportable segment operating profit and assets to the
Company's consolidated totals are as follows:
1999 1998 1997
-------- -------- --------
Operating profit
Total operating profit for reportable segments $ 5,754 $ 7,640 $ 5,435
Unallocated amounts --
In-process research and development ........ -- (3,885) --
Other corporate expenses ..................... (548) (1,025) (342)
-------- -------- --------
Operating profit ............................ $ 5,206 $ 2,730 $ 5,093
======== ======== ========
Assets
Total assets for reportable segments ......... $ 43,154 $ 39,316 $ 31,779
Elimination of receivables/payables .......... (69) (1,675) (98)
Other unallocated amounts .................... 793 106 289
-------- -------- --------
Consolidated Total .......................... $ 43,878 $ 37,747 $ 31,970
======== ======== ========
18. CREDIT CONCENTRATION
Speech Design had revenues in 1999 from two customers that totaled $13,060.
Bogen had one customer in 1999 with sales of $5,885. Each was greater than 10%
of the company's total revenues. Sales to two customers of the Company's foreign
segment in 1998 totaled $14,050; each accounted for more than 10% of the
Company's 1998 consolidated net sales. Sales to one domestic and one foreign
customer of $5,147 and $6,357, respectively, individually accounted for more
than 10% of the Company's consolidated net sales in 1997.
19. SUBSEQUENT EVENT
On March 30, 2000, the Company announced that it had determined to call all
outstanding Redeemable Common Stock Purchase Warrants for redemption for $.01
per Warrant, effective May 1, 2000. Such redemption is authorized by the terms
of the Warrant Agreement dated as of October 7, 1993 following any period of
twenty trading days on which the Company's Common Stock market price closes at
$10 per share or higher.
Since December 31, 1999, 728,884 warrants have been exercised and 2,569,866
remain outstanding as of March 29, 2000.
The following table represents pro forma income (loss) and pro forma income
(loss) per share had the Company determined to call all outstanding Redeemable
Common Stock Purchase Warrants as of January 1, 1997.
1999 1998 1997
---- ---- ----
Net income (loss) available to
common shareholders $ 3,500 $ (558) $ 2,487
=========== =========== ===========
Weighted-average number of common shares
outstanding
Basic:
As reported 6,697,530 4,502,547 5,399,199
Pro forma 10,068,576 7,891,997 8,859,199
Diluted:
As reported 7,737,921 4,502,547 5,399,199
Pro forma 10,476,544 7,891,997 8,859,199
Net income (loss) per common share
Basic:
As reported $ 0.52 $ (0.12) $ 0.46
Pro forma $ 0.35 $ (0.07) $ 0.28
Diluted:
As reported $ 0.45 $ (0.12) $ 0.46
Pro forma $ 0.33 $ (0.07) $ 0.28
F-20
Item 9. Changes and Disagreements with Accountants on Accounting and
Financial Disclosure
NONE
PART III
Certain information required by Part III is omitted from this report in that the
Company will file a definitive proxy statement pursuant to Regulation 14A (the
"Proxy Statement") not later than 120 days after the end of the fiscal year
covered by this Report, and certain information included therein is incorporated
herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by the Item is incorporated herein by reference to the
Company's Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
Company's Proxy Statement, including the Stock Price Performance Graph and the
Board of Directors Report on Executive Compensation.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference to the
Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference to the
Company's Proxy Statement.
**************************************
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 Schedule:
Schedule II: Valuation and Qualifying Accounts
24
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARES AND PER SHARE AMOUNTS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- - -------- -------- -------- -------- -------- --------
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
OF PERIOD EXPENSES OTHER DEDUCTION PERIOD
--------- -------- ----- --------- ------
DESCRIPTION
-----------
Year ended December 31, 1999:
Allowance for doubtful accounts............ $ 424 $ 290 $ 397 (d) $ (461)(a) $ 650
Reserve for inventory obsolescence.......... 743 195 596 (d) (440)(b) 1,094
--------- -------- ------- ------- --------
$ 1,167 $ 485 $ 993 $ (901) $ 1,744
========= ======== ======= ======== ========
Year ended December 31, 1998:
Allowance for doubtful accounts............ $ 376 $ 196 $ (1)(a) $ (147)(a) $ 424
Reserve for inventory obsolescence.......... 529 255 18 (c) (59)(b) 743
--------- -------- ------- ------- --------
$ 905 $ 451 $ 17 $ (206) $ 1,167
========= ======== ======= ======== ========
Year ended December 31, 1997:
Allowance for doubtful accounts............ $ 470 $ 184 $ 20 (c) $ (298)(a) $ 376
Reserve for inventory obsolesce............. 1,126 383 10 (990)(b) 529
--------- -------- ------- ------- --------
$ 1,596 $ 567 $ 30 $(1,288) $ 905
========= ======== ======= ======== ========
(a) Uncollectible accounts written off, net of recoveries.
(b) Write-off of obsolete inventory.
(c) Currency exchange effect.
(d) Assumption of Apogee allowances and reserves, net of currency exchange
effects.
25
(b) Reports on Form 8-K
No reports on Form 8-K were filed in the fourth quarter of 1999.
(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 Bogen Communications, International, Inc. 1996 Incentive Stock
Option Plan. (5)
4.6 Amendment to Unit Purchase Option Granted to GKN Securities
Corp. (11)
10.1 Form of Agency Agreement, dated as of June 28, 1993, between the
Company and GKN Securities Corp. (without schedules) (1)
10.2 Form of Indemnification Agreement between the Company and its
officers, directors and advisors. (4)
10.3 Summary of Agreement for Business Credit between Speech Designs
GmbH and Statelparkasse Munchen. (6)
10.4 Asset Purchase Agreement, dated as of July 1, 1997, between Bogen
Communications International, Inc. Bog-Comm Acquisition
Corporation, New England Audio Resource, Inc., Mr. William
Kieltyka and Mr. Lee Lareau. (9)
26
EXHIBIT
NO. DESCRIPTION
- - ------- -----------
10.5 Stock Purchase Agreement, dated November 26, 1997, between the
Company and Geotek. (7)
10.6 Convertible Preferred Stock Purchase Agreement, dated November
26, 1997, between the Company and the Investors. (7)
10.7 Employment Agreement, dated November 26, 1997, between the Company
and Mr. Jonathan Guss. (7)
10.8 Employment Agreement, dated November 26, 1997, between the Company
and Mr. Michael Fleischer. (7)
10.9 Option Agreement, dated November 26, 1997, between the Company and
Mr. Jonathan Guss. (7)
10.10 Option Agreement, dated November 26, 1997, between the Company and
Mr. Michael Fleischer. (7)
10.11 Common Stock and Warrant Purchase Agreement, dated November 26,
1997 between the Company and D&S Capital, LLC. (7)
10.12 Warrant, dated November 26, 1997, issued by the Company to D&S
Capital, LLC. (7)
10.14 Warrant Purchase Agreement, dated as of November 28, 1997, between
Helix Capital II, LLC and Bogen Communications International,
Inc. (8)
10.15 Warrant, dated November 28, 1997, issued by Bogen Communications
International, Inc. to Helix Capital II, LLC. (8)
10.16 Share Transfer Agreement, dated May 20, 1998, by and among Bogen
Communications International, Inc., Kasimir Arciszewski and Hans
Meiler. (10)
10.17 Management Agreement, dated May 20, 1998, between Speech Design
GmbH and Kasimir Arciszewski. (10)
10.18 Management Agreement, dated May 20, 1998, between Speech Design
GmbH and Hans Meiler. (11)
10.19 Credit Agreement, dated as of April 21, 1998, among Bogen
Communications International, Inc., Bogen Communications, Inc.,
various financial institutions and KeyBank National
Association. (10)
10.20 Guaranty of Payment and Performance, dated April 21, 1998, by
Bogen Corporation. (10)
10.21 Guaranty of Payment and Performance, dated April 21, 1998, by
New England Audio Resource Corp. (10)
27
EXHIBIT
NO. DESCRIPTION
- - ------- -----------
10.22 Security Agreement, dated April 21, 1998, by Bogen Communications
International, Inc. in favor of KeyBank National Association. (10)
10.23 Security Agreement, dated April 21, 1998, by Bogen Communications,
Inc. in favor of KeyBank National Association. (10)
10.24 Security Agreement, dated April 21, 1998, by Bogen Corporation in
favor of KeyBank National Association. (10)
10.25 Security Agreement, dated April 21, 1998, by New England Audio
Resource Corp. in favor of KeyBank National Association. (10)
10.26 Borrower Pledge Agreement, dated April 21, 1998, by and between
Bogen Communications International, Inc. and KeyBank National
Association. (10)
10.27 Borrower Pledge Agreement, dated April 21, 1998, by and between
Bogen Communications International, Inc. and KeyBank National
Association. (10)
10.28 Guarantor Pledge Agreement, dated April 21, 1998, by and between
Bogen Corporation and KeyBank National Association. (10)
10.29 Guarantor Pledge Agreement, dated April 21, 1998, by and between
Bogen Communications, Inc. and KeyBank National Association. (10)
10.30 Term Sheet for Acquisition Line, dated September 18, 1998, between
Speech Design GmbH and DG Bak. (11)
10.31 Amended and Restated Mergers and Acquisition Engagement Agreement,
dated as of October 1, 1998, between Helix Capital Services, Inc.
and Bogen Communications International, Inc. (11)
10.32 Mergers and Acquisition Engagement Agreement, dated as of
October 1, 1998, between Speech Design GmbH and Helix Capital
Services, Inc. (11)
*10.33 Amendment to Employment Agreement dated February 26, 1997 between
the Company and Mr. Jonathan Gus.
*10.34 Amendment to Employment Agreement dated February 26, 1997 between
the Company and Mr. Michael Fleischer.
*21.1 Subsidiaries of the Company
*23.1 Consent of KPMG LLP
*27 Financial Data Schedule
*Filed Herewith
28
(1) Incorporated by reference to the Exhibits to the Company's Registration
Statement on Form S-1 (File No. 33-65294), dated October 7, 1993.
(2) Incorporated by reference to the Exhibits to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994.
(3) Incorporated by reference to the Exhibits to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended September 30, 1995.
(4) Incorporated by reference to the Exhibits to the Company's Current Report
on Form 8-K dated August 21, 1995.
(5) Incorporated by reference to the Exhibits to the Company's Registration
Statement on Form S-8 (File No. 333-21245), dated February 4, 1997.
(6) Incorporated by reference to the Exhibits to the Company's Annual Report on
Form 10-K for the year ended December 31, 1996.
(7) Incorporated by reference to the Exhibits to the Company's Current Report
on Form 8-K, dated November 25, 1997.
(8) Incorporated by reference and the Exhibits to the Company's Current Report
on Form 8-K, dated December 12, 1997.
(9) Incorporated by reference to the Exhibits to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997.
(10) Incorporated by reference to the Exhibits to the Company's Current Report
on Form 8-K, dated May 20, 1998.
(11) Incorporated by reference to the Exhibits to the Company's Annual Report on
Form 10-K for the year ended December 31, 1998.
29
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/ Jonathan Guss By: /s/ Yoav M. Cohen
----------------------------- --------------------------------------
Jonathan Guss, Yoav M. Cohen,
Chief Executive Officer Chief Financial Officer, and Secretary
(Principal Executive Officer) (Principal Financial Officer)
By: /s/ Michael P. Fleischer
-----------------------------
Michael P. Fleischer,
President
(Principal Executive Officer)
Date: March 30, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed on March 31, 1999 by the following persons on behalf of
the Registrant in the capacities indicated.
By: /s/ Jonathan Guss Director, Chief Executive Officer
-----------------------------
Jonathan Guss
By: /s/ Michael P. Fleischer Director, President
-----------------------------
Michael P. Fleischer
By: /s/ Jeffrey Schwarz Director, Co-Chairman of the Board of
----------------------------- Directors
Jeffrey Schwarz
By: /s/ Yoav Stern Director, Co-Chairman of the Board of
----------------------------- Directors
Yoav Stern
By: /s/ Kasimir Arciszewski Director
-----------------------------
Kasimir Arciszewski
By: /s/ Glenn Dubin Director
-----------------------------
Glenn Dubin
By: /s/ Zivi R. Nedivi Director
-----------------------------
Zivi R. Nedivi
By: /s/ Daniel Schwartz Director
-----------------------------
Daniel Schwartz
30
EXHIBIT INDEX
EXHIBIT
NO.
- - -------
10.33 Amendment to Employment Agreement dated February 26, 1997 between
the Company and Mr. Jonathan Guss.
10.34 Amendment to Employment Agreement dated February 26, 1997 between
the Company and Mr. Michael Fleischer.
21.1 Subsidiaries of the Company
23.1 Consent of KPMG LLP
27 Financial Data Schedule
31