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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required] for the fiscal year ended December 31, 1997 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] for the transition period from
_______ to ______
Commission file number 0-22046
BOGEN COMMUNICATIONS INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
Delaware 38-3114641
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(State of Incorporation) (I.R.S. Employer Identification No.)
50 Spring Street, Ramsey, New Jersey 07446
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 934-8500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 Par Value
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(Title of class)
Warrants to Purchase One Share of Common Stock
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(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.
Document Incorporated by Reference:
Part III incorporated by reference to the definitive proxy statement for
the annual meeting of stockholders to be held on April 22, 1998.
As of March 27, 1998, 2,210,494 shares of the Registrant's Common Stock,
par value $.001 per share, were outstanding. The aggregate market value of the
voting stock, based on the closing price of the Registrant's common stock on
March 27, 1998, as reported on the American Stock Exchange, held by
non-affiliates of the Registrant was approximately $15,136,452.
Page 1 of
Exhibit Index Appears on Page 42 Hereof.
BOGEN COMMUNICATIONS INTERNATIONAL, INC.
FORM 10-K
TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business............................................................ 1
Item 2. Properties ......................................................... 14
Item 3. Legal Proceedings .................................................. 15
Item 4. Submission of Matters to a Vote of Security Holders................. 15
PART II
Item 5. Market Price for Registrant's Common Equity and Related
Stockholder Matters.........................................16
Item 6. Selected Financial Data............................................. 19
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................20
Item 8. Financial Statements and Supplementary Data......................... 27
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure......................29
PART III
Item 10. Directors and Executive Officers of the
Registrant...................................................29
Item 11. Executive Compensation................................................29
Item 12. Security Ownership of Certain Beneficial
Owners and Management........................................29
Item 13. Certain Relationships and Related Transactions........................29
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K........................................................30
PART I
All statements contained herein that are not historical facts, including,
but not limited to, statements regarding the Company's 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; changes in labor, equipment and
capital costs; changes in access to suppliers; currency fluctuations; changes in
regulations affecting the Company's business; future acquisitions or strategic
partnerships; the availability of sufficient capital to finance the Company's
business plans on terms satisfactory to the Company; general business and
economic conditions; political instability in certain regions; and other factors
described from time to time in the Company's reports filed with the Securities
and Exchange Commission. The Company wishes to caution readers not to place
undue reliance on any such forward-looking statements which statements are made
pursuant to the Private Litigation Reform Act of 1995 and, as such, speak only
as of the date made.
Item 1. BUSINESS
Bogen Communications International, Inc., formerly European Gateway
Acquisition Corp., (the "Registrant", and together with its subsidiaries, the
"Company"), develops, produces and sells sound processing equipment and
telecommunications peripherals, through its direct subsidiaries, Bogen
Corporation, a Delaware corporation ("Bogen") and subsidiaries thereof, and
Speech Design GmbH, a German corporation ("Speech Design"), as well as
subsidiaries of Bogen and Speech Design.
Bogen focuses on commercial and engineered sound equipment and
telecommunication peripherals for the voice and sound processing market. For
over six decades, Bogen has been a leader in commercial amplifiers, 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").
Speech Design focuses on digital voice processing systems for the mid-sized
Private Branch Exchange ("PABX") market, targeting the rapidly growing European
voice processing market. With the launch, in late 1995, of its new product
family called "Memo", Speech Design has added innovative non-PC based voice mail
systems to its existing line of telecommunication peripheral products, which
includes voice-mail, automated attendants, digital announcers and
message/music-on-hold systems.
Bogen's products are sold primarily through a network of distributors,
dealers and contractors. Speech Design sells through leading European telephone
switch manufacturers in Germany, and through major independent dealers outside
Germany.
Suppliers and subcontractors, located primarily in the Republic of South
Korea, as well as Taiwan, China, Israel, Germany, and the United States, produce
sub-assemblies and finished products for the Company.
The Company is a Delaware corporation whose principal executive offices are
located at 50 Spring Street, Ramsey, New Jersey 07446 and its telephone number
is (201) 934-8500.
1
Company History
The Registrant was formed on May 6, 1993 as a Specified Purpose Acquisition
Company ("SPAC") with the objective of acquiring a medium-sized operating
business engaged in industrial manufacturing or industrial services and located
in Germany, Switzerland or Austria. On October 13, 1993, the Registrant
consummated an initial public offering (the "IPO") of 1,550,000 units, which
resulted in $8,120,000 in net proceeds to the Registrant. Each unit consisted of
one share of the Registrant's common stock, $.001 par value per share ("Common
Stock"), and two warrants (the "Warrants"), each entitling the holder thereof to
purchase one share of Common Stock for $5.50 per share (the "Units").
Until April 6, 1995, the Registrant did not engage in any substantive
commercial business other than evaluating prospective companies for acquisition.
On such date, the Registrant entered into an agreement (as amended, the "Stock
Purchase Agreement") with Geotek Communications, Inc. ("Geotek"), to acquire
controlling interests in two communications products companies then held by
Geotek (the "Business Combination").
Pursuant to the Stock Purchase Agreement, on August 21, 1995, the Registrant
acquired from Geotek approximately 67% of the outstanding capital stock of
Speech Design and approximately 99% of the outstanding capital stock of Bogen.
As a result of that Business Combination, Geotek acquired an approximately 64%
controlling interest in the Company. As consideration for such acquisitions,
Geotek received from the Company: (i) 3,701,919 shares of Common Stock; (ii)
200,000 Warrants to purchase Common Stock; (iii) $7,000,000 in cash; and (iv) a
convertible promissory note in the principal amount of $3,000,000 due in
February 1997 and (v) rights to certain contingent payments.
In May 1996, the Company and Geotek amended the Stock Purchase Agreement
effective January 1, 1996. Pursuant to such amendment: (i) the $3,000,000
convertible promissory note payable by the Company to Geotek, due February 1997,
was reduced and restructured to a $500,000 non-convertible promissory note due
and paid in July 1997; (ii) the earnout formula was revised to reflect an
increase in the amount the Company might have had to pay Geotek from $11,000,000
to $13,500,000 in connection with the reduction of the principal amount of the
promissory note; and (iii) Geotek was granted an option to purchase, at any time
through October 31, 1997, from the Company, $3,000,000 worth of Common Stock
with exercise prices ranging from 100% to 65% of market price, depending on the
date of exercise. This option expired on October 31, 1997, and was not
exercised. Based on a review of the earnout calculation by the Company's
independent accountants, which took into account Speech Design and Bogen's
operating results for the last two quarters of 1995, all of 1996 and the first
two quarters of 1997, no contingent consideration payment was paid to Geotek.
On November 26, 1997, the Company acquired and retired all of the
outstanding Common Stock and Warrants held by Geotek, including 3,701,919 shares
of Common Stock and Warrants to purchase 200,000 shares of Common Stock, for
$18,500,000. The purchase price equated to a price of approximately $5.00 per
share of Common Stock outstanding or $4.74 on a diluted basis, including the
Warrants. Coincidental with the stock repurchase, Geotek's nominees to the
Company's Board of Directors resigned and the Company was no longer included in
the consolidated financial statements of Geotek. The repurchase of Geotek's
interest in the Company will enable it to pursue its own independent strategic
development, hence focusing closely on the Company's core competencies.
Simultaneous 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. The
Preferred Stock was sold at $100 per share, for total proceeds to the Company of
$20,000,000. The Preferred Stock carries a 9% semi-annual cumulative
2
dividend which may be paid in cash or in-kind at the sole discretion of the
Company. Each share of Preferred Stock is automatically convertible into 18.605
shares of Common Stock (or 3,721,000 shares of Common Stock based on an initial
conversion price of $5.375) on December 1, 2002 or at the option of the holder
of Preferred Stock at any time. At the option of the Company, the Preferred
Stock may be redeemed prior to the mandatory conversion date if the bid price of
Common Stock closes above 150% of the initial conversion price, or $8.0625 per
share, for 20 consecutive trading days. The redemption price will be $100 per
share plus accrued dividends. If the Company redeems the Preferred Stock prior
to December 1, 2000, the Company must pay in cash 50% of the dividends that
would have been payable through December 1, 2000, in addition to any accrued,
unpaid dividends.
Except as otherwise provided in the Certificate of Incorporation of the
Company or the General Corporation Law of the State of Delaware, the Preferred
Stock can vote together with all other classes of voting capital stock of the
Company as a single class on all actions to be taken by the stockholders of the
Company. Each share of Preferred Stock entitles the holder thereof to 18.605
votes per share.
As of the date hereof, there are 2,210,494 shares of Common Stock, 200,000
shares of Preferred Stock and 4,260,285 Warrants outstanding.
As a result of the November 1997 transaction described above, a new
management team was put in place and the Board of Directors was reconstituted.
Bogen
Bogen develops, sources, assembles and distributes sound processing
equipment and telecommunication peripherals through its wholly-owned subsidiary,
Bogen Communications, Inc. ("BCI"). Since its founding in 1932, Bogen has been
involved in the commercial sound industry, concentrating its efforts on the
development and sale of equipment for commercial, industrial, professional and
institutional markets and applications.
Traditionally, Bogen's core products (which are sold through the Engineered
Systems and Commercial Sound product lines) include: commercial audio amplifiers
and 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 industries, and telephone paging systems.
During 1991, Bogen introduced its first product in a line of
telecommunications peripherals, the Telco product line. The first product in
this line was the MMT, a digital announcer with automatic microprocessor
controlled tape download for "on-hold" applications. During 1992, Bogen
introduced various products in the digital telephone peripherals area, including
the Automated Attendant and the Digital Announcer. These products are used in
message/music on-hold and voice mail systems.
On July 1, 1997, Bogen acquired substantially all the net assets of New
England Audio Resources, Inc. ("NEAR") for approximately $242,000 in cash and
assumption of certain liabilities. The acquisition has been accounted for by the
purchase method of accounting. The operating results of NEAR are included in the
Company's consolidated statements of operations from the date of acquisition.
NEAR is a leading manufacturer of high performance, all environment speakers.
NEAR is a part of the Company's Commercial Sound unit and their products will be
marketed with Bogen's product lines.
3
Product Lines
Commercial Sound
Bogen's Commercial Sound product line consists of amplifiers, speakers,
microphones, intercom systems and other sound equipment used in non-consumer
applications, such as industrial public address systems, and background music in
offices, restaurants, hotels, stores, etc. For example, a recent Commercial
Sound product, the PROMATRIX amplifier, was introduced to the market in the
third quarter of 1996 and incorporates three independent amplifier channels in a
single package. The Company believes that the product's user interface sets new
standards in ease of use and provides customers with superior control over
sophisticated background music and paging applications. The PROMATRIX is a
one-box solution for installations that usually require a rack full of costly
equipment. Also added to Commercial Sound's product line during 1997 were the
all environment speakers produced at Bogen's newly acquired entity, NEAR.
Commercial Sound net sales for the years ended December 31, 1997, 1996 and
1995 were $11,250,000, $9,315,000, and $8,436,000, respectively. Commercial
Sound provided 22.6%, 20.1%, and 19.0% of the Company's net sales for the years
ended December 31, 1997, 1996 and 1995, respectively.
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.
Engineered Systems net sales for the years ended December 31, 1997, 1996 and
1995 were $8,082,000, $6,682,000, and $5,629,000, respectively. Engineered
Systems net sales amounted to 16.2%, 14.5%, and 12.6% of the Company's net sales
for the years ended December 31, 1997, 1996 and 1995, respectively.
Telco
Bogen's Telco products consist of telephone 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 the fourth quarter of 1997, Bogen
introduced a new MOH system, Pro-Hold DRDX.
Bogen's Telco net sales were $12,402,000, $14,674,000, and $16,613,000,
which include $214,000, $1,552,000 and $4,444,000 of the Company's discontinued
Office Automated Systems product line, for the years ended December 31, 1997,
1996 and 1995, respectively. Speech Design also has a Telco line of products,
see "Speech Design Product Line". The Company's combined Telco net sales through
Bogen and Speech Design amounted to $30,447,000, $30,272,000, and $30,453,000
for the years ended December 31, 1997, 1996 and 1995, respectively. Telco net
sales through Bogen provided 24.9%, 31.7%, and 37.3% of the Company's net sales
for these respective years. Combined Telco sales provided 61.2%, 65.4%, and
68.4% of the Company's net sales for these respective years.
Sales and Marketing
Commercial Sound and Engineered Systems
Bogen distributes its Commercial Sound products through a network of
approximately 2,000 distributors, dealers and contractors, often as complete
system solutions designed to satisfy an end-user's specific sound and
communications needs. In addition, a network of approximately 200 major
4
contractors and dealers market Bogen's school intercom systems on a
territory-exclusive basis.
Bogen's Commercial Sound products are stocked by virtually every major sound
master distributor, industrial equipment distributor, and commercial security
products distributor in North America.
Bogen's Commercial Sound and Engineered Systems products are marketed
generally through a field sales organization and several independent
manufacturers representatives under the direction of Bogen's internal sales
force. Both the field sales group and the representatives are responsible for
assigned territories. The field sales personnel receive a salary and bonus based
on performance and the representatives are compensated on a commission basis.
Sales agreements are maintained with all of Bogen's independent sales
representatives and engineered systems contractors. The sales representative
agreements typically permit the sale of Bogen products by the representative in
a specific territory assigned to one or more sales representatives. Similarly,
the engineered systems contractor agreements typically allow the contractor to
purchase and install specific product lines in a designated territory.
The principal users of these products are industrial, professional,
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.
Telco
Bogen distributes its Telco products to approximately 25 distributors who
operate more than approximately 200 telecommunications distribution centers.
These distributors sell to hundreds of telecommunications installers or
interconnects across North America. The major distributors are Graybar Electric
Co., Inc. ("Graybar"), Alltel Corp. and Sprint/North Supply. In addition to its
distribution network, Bogen has a relationship with approximately 25
message/music-on-hold studios that specialize in creating custom messages. These
studios sell their services along with Bogen's Telco products. Bogen also has an
original equipment manufacturer (OEM) agreement to supply private label on-hold
systems to Lucent Technologies ("Lucent").
Bogen markets its Telco products through a group of independent
manufacturer's representatives comprised of organizations with approximately 40
salespeople who sell Bogen's Telco and other complementary products to
distributors and interconnects in their territory on an exclusive basis. These
representatives are supported by Bogen sales and service staff.
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 that has its
headquarters in Ontario and branch offices throughout Canada. Telco'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).
Operations
All components and materials used in the construction of Bogen's products
are of standard commercial quality or better, and are readily available from
5
overseas and United States suppliers. Bogen relies principally upon an
established network of suppliers and subcontractors primarily located in the
Republic of South Korea, and to a lesser extent elsewhere in East Asia, and the
United States. The Company is currently monitoring the economical crisis in
South Korea closely and will take all measures within its control to ensure that
production of the Company's products will continue without interruption. Should
production by the Company's suppliers be curtailed, the Company believes
suitable suppliers in other parts of the world will be available to satisfy its
production requirements. 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 on
material adverse effects on the Company's results of operations. These suppliers
and sub-contractors either produce sub-assemblies for use in the final assembly
of a finished product or produce the finished products themselves. Products are
based on Bogen designs and are built in accordance with Bogen drawings and
specifications. There can be no assurances that disruptions in supplies will not
occur from time to time, or that any such disruptions will not have a material
adverse effect on the Company.
Patents and Trademarks
"Bogen(TM)" 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. The company is currently taking
steps to renew this trademark. Bogen has also obtained U.S. trademark
registration for the trade name "Multicom2000." This trademark is utilized in
connection with Engineered Systems and expires in July 2001. In addition, during
1996, Bogen obtained a U.S. trademark for the tradename "Speech Design(TM)",
which will expire on December 31, 2006 and which can be renewed at that time for
an additional ten years. The Company believes that these trademarks provide
substantial value to the Company. The Company has two provisional patent
applications, one for an on-hold system and the other for an automatic paging
system. In addition, the Company has two pending patent applications, one for an
on-hold system and the other for an amplifier system. The Company has been
notified that the amplifier system may be patented and is awaiting further
notification with respect to the other patent applications.
Research and Development
Bogen's in-house engineering department is responsible for research and
development and production engineering. In 1997, the R&D Department focused on
new innovative solutions for the Telco paging market by developing the pro-Hold
DRDX, a digitally produced, remote downloadable MOH system which was introduced
in the fourth quarter of 1997. In addition, it developed a call completion
system, incorporating paging, voice messaging and wireless messaging into one
integrated system, the APS 2000. There can be no assurance however, that Bogen
will be able to complete the development of APS 2000, nor can there be any
assurance that the new systems will be able to compete with similar products
offered by other manufacturers. Research and development expenditures for the
years ended December 31, 1997, 1996 and 1995 were $1,665,000, $1,865,000, and
$1,415,000, respectively.
Competition and Major Customers
Bogen's competition varies from market to market and product to product. In
areas in which it faces competition, Bogen competes on the basis of several
different factors, including name recognition, price, delivery, availability,
innovation and product features and quality. However, such factors vary in
relative importance depending on the markets and products involved. Bogen's
management has concentrated on markets in which it believes that Bogen can
obtain 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,
background/foreground, and security markets.
Bogen's Telco products compete in the MOH voice paging niches of the Telco
market.
6
In the Music-On-Hold 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. The Message-On-Hold voice processing market
provides Bogen with three competitors, NelTech Labs, Premier, Inc., and
Mackenzie Labs.
In the voice paging market, Bogen's main competitor is Valcom, Inc., a
company which has been established in this market for several decades. Other
competition comes from several other U.S. companies, which have been losing
market share over the past few years, and from several companies attempting to
enter the market. Bogen believes it has increased its share in recent years.
The Commercial Sound customer market is characterized by intense
competition, particularly from several overseas companies, with no one company
accounting for more than 10% of the U.S. market. Bogen's principal competitor is
TOA Electronics, a Japanese Company ("TOA"), and University Sound, a U.S. based
manufacturer ("University"). Bogen also competes with comparatively small
manufacturers that rely mainly on established account relationships. Bogen
concentrates on customer needs to design, manufacture and market tailored
packaged solutions for each particular vertical market. Bogen focuses on
durability and reliability as opposed to state-of-the-art performance in its
product design and positioning.
Bogen's Commercial Sound competition can be divided into two categories:
General Line/Master Distributor competitors, and competitors at the Sound and
Systems Contractor level.
In the distributor channel, Bogen faces full line competitors such as Paso,
Inc., University, Speco, Inc. and others, as well as specialized competitors
such as Atlas Soundolier, Inc., Quam Nichols, Inc., Lowell, Inc., Shure
Brothers, Inc., and CTI/Astatic, which market and sell products such as
microphones, speakers, horns and other non-amplifier items. Bogen believes
itself to be a leading competitor in this channel.
At the contractor level, Bogen faces competition from many sources, a number
of them overseas companies. Bogen's principal competitor at the contractor level
is TOA, comprising approximately 10% of the U.S. market. TOA invests
considerable effort in developing sound systems. Bogen competes with a number of
other amplifier manufacturers such as QSC Electronics, none of which has secured
more than approximately 10% of the market. There are a number of comparatively
small manufacturers Bogen competes with, whose sales and market share depend
upon established reputation for quality and support and solid relationships with
their account base.
The Engineered System customer market is a highly specialized market
characterized by low unit volume and high dollar sales. Bogen's principal
competition comes from Rauland Borg Corp., the market leader in this area, and
Dukane Corporation, which, like Bogen, have been in the market for several years
and have well established name recognition and distribution channels. Rauland
Borg Corp. is currently the acknowledged market leader.
Graybar, Bogen's largest customer, accounted for more than 10% of the
Company's net sales. The loss of Graybar as a customer would likely have a
material adverse effect on the Company.
Backlog of Orders
As of December 31, 1997, Bogen had a backlog of firm orders of approximately
$373,000, all of which it expects to fill within 1998. As of December 31, 1996,
Bogen had a backlog of firm orders of approximately $425,000.
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Speech Design
Speech Design, located in Munich, Germany, develops, manufactures and
markets telephone peripheral hardware utilizing digital voice processing
technologies.
Speech Design products include voice mail systems, automated attendants,
digital announcers and message/music-on-hold systems. Until 1992, Speech Design
was engaged primarily in selling peripheral equipment for cellular telephones
utilized in connection with an analog network. With the advent of the European
GSM digital standard and the related decline in prices of ancillary subscriber
equipment, Speech Design's management decided to refocus its activities from the
cellular market to the telephone peripherals market.
In late 1995, Speech Design launched a new product family called "Memo",
which consists of stand-alone non-PC based voice mail peripherals for
small-to-medium PABXs. The high-end Memo-CDA model includes a CD based music and
information on hold system. Memo offers full integration with most of the
popular PABX models on the European market. Management expects Memo to
contribute significantly to Speech Design's strategic goal of becoming a market
leader in the rapidly growing European voice processing market.
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 national Telecom, Telegraph and Telephone
approval in most major markets. The Company believes that such approval
constitutes a significant market entry barrier to non-European and small
European companies. Also on July 1, 1994, Speech Design acquired a 67% interest
in Satelco AG, a Swiss company, which is a marketer of telephone peripherals and
a distributor of Speech Design's and Bogen's products. In order to further
support its efforts to enter the UK market, Speech Design founded a sales
subsidiary, Speech Design (UK) Ltd., in early 1996. 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 increased from 20% of total sales in 1995 to 24% in 1996 to 26% in 1997
and are expected to reach 40% of total sales within the next 2 to 3 years. There
can be no assurance, however, that Speech Design will achieve such goals and
that Speech Design's growth outside of Germany will continue.
In mid-1996, a manufacturing subsidiary, Speech Design (Israel) Ltd., was
founded in Israel. It has begun to assume the production of certain product
lines from Speech Design Germany, resulting in reduced manufacturing cost and
tax levels. The Israeli facility was granted a 10-year tax exemption, effective
January 1, 1997.
Product Line
Speech Design's products are in the Telco line of products and include voice
mail, automated attendants, digital announcers and message/music-on-hold
systems. Telco net sales provided by Speech Design were $18,045,000,
$15,598,000, and $13,840,000 for the years ended December 31, 1997, 1996 and
1995, respectively. Speech Design Telco sales amounted to 36.3%, 33.7%, and
31.1% of the Company's net sales for these years.
Sales and Marketing
The general market for Speech Design's products is the under-developed, but
rapidly growing, European voice processing market for commercial and industrial
end users. According to the Company's estimates, the current penetration of such
applications of voice mail in Europe is very low compared to the U.S. levels.
PABXs are multiple-line business telephone systems, which are installed at end
users' businesses to facilitate internal and external
8
communications. The PABX is an alternative to providing each employee in a
company with his or her own direct line.
Speech Design markets its PABX peripherals to major manufacturers and
distributors of PABX systems throughout Europe for use by mid-size companies
consisting of approximately 50-200 employees. The major manufacturers integrate
Speech Design products with their PABXs for sale to the end-user as part of a
new system. The increased visibility of Speech Design's products had led to more
Speech Design peripherals being sold to owners of previously installed PABXs.
Speech Design attempts to differentiate itself both from high-end suppliers
of large customized systems and suppliers of semi-professional, price-sensitive
solutions for the small company sector by providing standard, high-quality,
affordable and easy-to-use products for the small to mid-size PABX.
Speech Design sells its products through resellers. In Germany, Speech
Design's main customers are sales organizations of leading PABX manufacturers
and major independent dealers. In other European countries, Speech Design has
exclusive agreements with national distributors, which in Switzerland and the UK
are Speech Design subsidiaries, which market to the reseller base in their
respective territories. In the United States, Bogen is the exclusive distributor
of Speech Design products.
Germany
In Germany, Speech Design has developed an effective approach for local
distribution of voice processing products. Speech Design sells directly to the
regional sales offices of the leading manufacturers of PABX equipment including
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). The loss of any one
of these customers is likely to have a material adverse effect on the Company.
Speech Design has obtained 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 15 individuals supports and motivates the regional sales
forces of the large PABX companies to actively market Speech Design's products.
Speech Design routinely updates its data bank of all PABX sales representatives
in Germany to help the sales team optimize communications and efficiency.
Speech Design considers its sales network in Germany, Europe's largest
telecommunications market, to be one of its most valuable assets and a major
market entry barrier to potential competitors.
Outside of Germany
Speech Design utilizes exclusive national distributors in all major European
markets (Austria, Belgium, Denmark, Finland, France, Italy, The Netherlands, The
United Kingdom, Sweden and Switzerland). These distributors, other than Satelco
AG, in which Speech Design holds approximately 67% of the equity, and Speech
Design's wholly-owned U.K. subsidiary, are independent resellers of
telecommunications equipment, who market Speech Design's products to local
manufacturers and distributors of PABXs. In the United States, Bogen is the
designated distributor. In order to achieve the Company's planned rate of growth
in export sales, Speech Design has 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.
9
Operations
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. In mid-1996, Speech Design (Israel) Ltd. assumed
the production of certain product lines.
Speech Design maintains a computerized order processing and warehouse system
and a level of product availability that generally enables it to deliver
products in Germany an average of three days after receipt of an order and
within two weeks after receipt of an order for other countries.
Patents and Trademarks
"Speech Design" is a registered trademark in Germany and the U.S. Several of
Speech Design's products also have registered trademarks.
Research and Development
Speech Design's engineering group is responsible for the development,
production engineering and sales engineering of all Speech Design products.
Research and development expenditures for the years ended December 31, 1997,
1996 and 1995 were $926,000, $1,027,000, and $892,000, respectively.
Competition
In Germany, Speech Design is the acknowledged market leader in the small to
mid-size PABX peripherals. 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 Memo family of voice mail and related products
will increase its competitive advantage in Germany.
There is no single dominating company in the European market for small to
mid-size PABX peripherals. With the exception of Octel, Northern Telecom, 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 on their national markets and generally cannot afford to be
global players due to the cost of establishing distribution channels and gaining
regulatory approval for selling telecommunications products in each country.
Some of Speech Design's competitors include Beyer KG (Germany) and Vox S.A.
(France); the only company offering a non-PC-based solution similar to Speech
Design's is VOX S.A. of France.
Management believes that the combination of Speech Design's mid-size PABX
focus, broad and unique product range and Europe-wide distribution presence may
enable Speech Design to become a leading provider of telephone peripherals in
many European countries. There can be no assurance, however, that such results
will occur or that the Memo family of voice mail and related products will
increase Speech Design's competitive advantage in Germany, because this industry
is highly sensitive to general economic conditions and is characterized by rapid
technological change. Speech Design's ability to compete successfully may depend
in substantial measure on its ability to develop or acquire new or improved
equipment, techniques and products and/or to modify and upgrade its existing
equipment, techniques and products, none of which can be assured.
Bosch, Speech Design's largest customer, accounted for more than 10% of the
Company's net sales. The loss of Bosch as a customer would likely have a
material adverse effect on the Company.
10
Backlog of Orders
As of December 31, 1997, Speech Design had a backlog of firm orders of
approximately $1,452,000, all of which it expects to fill in 1998. As of
December 31, 1996, Speech Design had a backlog of firm orders of approximately
$496,000.
Strategy for Growth and Expansion
Management of the Company is seeking to enhance shareholder value through
growth and cost reduction.
The Company's plan for growth includes expansion of its core product line
through both internal and external expansion. Management is focused on
increasing the Company's market share in each market in which it currently
operates. In furtherance of this effort, the Company is implementing a new
marketing focus and is exploring product development and innovation through its
own research and development capabilities. The Company also plans to grow
through acquisitions and joint ventures focused on opportunities which can
enhance the Company's position in its core markets, have immediate near term
synergies with the Company's existing operations, and provide strong management
capability. The Company has retained Helix Capital Services, Inc. ("Helix
Services"), a successor to Helix Capital Services, LLC to be a non-exclusive
advisor in advising the Company on acquisition opportunities and Helix Services
has targeted several potential candidates. In order to support the Company's
plan of acquisitions, the Company is attempting to secure additional lines of
credit for such purposes.
Also in order to further increase the Company's profitability, management is
exploring cost savings through concentration on core products lines, possible
overhead cost reductions and negotiating favorable agreements with its
suppliers.
There can be no assurances that the Company will be able to implement its
internal growth and cost reduction plans or consummate any acquisitions or joint
ventures.
Government Regulations and Industry Certifications
The 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 industries, while not directly regulated by the FCC,
are nevertheless substantially affected by the enforcement of its regulations
and changes in its regulatory policy.
The FCC has adopted regulations regarding attachments to the telephone
networks as well as regulations imposing radio frequency emanation standards for
computing and radio equipment and many of Bogen's products require certification
by the FCC. In addition, many of Bogen's products also require the approval of
the Underwriter's Laboratory ("UL"). All such required certifications and/or
approvals have been obtained. As a result of modifications and improvements to
Bogen's products, Bogen will be obligated to seek new certifications and/or
approvals where there is a degradation in the radio frequency emissions. Failure
to obtain such certifications and/or approvals may preclude Bogen from selling
its products in the U.S. Bogen makes all reasonable efforts to ensure that its
products comply with such requirements.
11
To successfully access the Canadian market, Bogen must obtain Underwriters
Laboratory Canada and Canadian Standards Association approvals for all AC
powered products, which it did for all of its current products.
All Speech Design products have been adopted to the technical
(PTT-approvals) and commercial sound requirements of West European markets.
In 1995, Speech Design received the ISO 9001 Quality Certificate for its
research and development, production and customer support operations in Germany.
In 1996, the Quality Mark was extended to include Speech Design's Israel and
U.K. subsidiaries.
Employees
As of December 31, 1997, the Company had approximately 196 full-time
employees engaged in its businesses. The Company also uses temporary and/or
part-time employees, as required. Twenty-one of Bogen's U.S. employees are
subject to collective bargaining agreements which expire in mid-2000. The
Company considers its relationship with its employees to be good.
Year 2000
The Company is in the process of evaluating the effect of modifying its
computer software systems to accommodate Year 2000 transactions. The Company
expects to expend up to $1,000,000, which may be necessary for systems upgrade
projects that will, among other things, address concerns about the Year 2000.
Item 2. PROPERTIES
The Registrant's principal place of business is located at 50 Spring Street,
Ramsey, New Jersey 07446. Bogen also maintains its principal warehouse and
executive offices at that location which is subleased from an unaffiliated third
party. The lease, which covers approximately 70,000 square feet, commenced on
January 1, 1987 and expires on December 31, 2000. Annual base rental payments
over the remainder of the lease are approximately $670,000, plus taxes and other
expenses.
Speech Design leases its facilities in Munich, Germany under leases expiring
in 1999 and 2005. Speech Design also has subsidiaries which have leases in
Israel, the UK and Switzerland. Speech Design and subsidiaries' aggregate annual
rental payments are approximately $450,000.
NEAR leases approximately 10,500 square feet for its facility in Lewiston,
Maine under a lease, which commenced on August 1, 1996 and expires on July 31,
1999. Current annual rental payments are approximately $32,000.
Management of the Company believes that the facilities occupied by the
Company and its subsidiaries are adequate to meet current needs.
Item 3. LEGAL PROCEEDINGS
The Company is not aware of any material pending or threatened legal
proceedings to which it is a party or of which any of its property is subject.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
12
PART II
Item 5. MARKET PRICE FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Registrant's Common Stock and Warrants currently trade on the American
Stock Exchange under the symbols "BGN" and "BGNW," respectively. Between October
7, 1993 and August 21, 1995, the Registrant's Common Stock, Warrants and Units
were quoted on the OTC Bulletin Board under the symbols EGAQ, EGAQW and EGAQU,
respectively. A Unit consisted of one common share and two warrants. The Units
were traded on the American Stock Exchange under the symbol "BGNE" from August
21, 1995 until they were de-registered in December 1996.
The following table sets forth the range of high and low bid prices for the
Common Stock, Warrants and Units for each of the fiscal quarters during the
period from January 1, 1995 through December 31, 1997, as reported by the OTC
Bulletin Board. The quoted prices represent "inter-dealer" prices without retail
markups, markdowns or commissions and may not necessarily represent actual
transactions. Subsequent to August 21, 1995, the quotes represent the high and
low sales prices on the American Stock Exchange for BGN, BGNW and BGNE (from
August 21, 1995 until the Units were de-registered in December 1996).
January 1, 1995 to March 31, 1995
Security High ($) Low ($)
------------- ----------- -------
Common Stock 5 1/4 4 3/8
Warrants 1 1/16 1/8
Units 6 5 1/2
April 1, 1995 to June 30, 1995
Security High ($) Low ($)
------------- ----------- -------
Common Stock 5 3/16 4 7/8
Warrants 15/16 1/2
Units 7 6
July 1, 1995 to September 30, 1995*
Security High ($) Low ($)
------------- ------------- -------
Common Stock 5 1/2 5
Warrants 7/8 5/8
Units 7 1/4 5 3/4
October 1, 1995 to December 31, 1995
Security High ($) Low ($)
------------- -------------- -------
Common Stock 6 2 15/16
Warrants 1 3/16 1/4
Units 6 3/4 4 1/2
13
January 1, 1996 to March 31, 1996
Security High ($) Low ($)
------------- ----------- -------
Common Stock 4 1/2 2 7/8
Warrants 1 3/8
Units 4 4
April 1, 1996 to June 30, 1996
Security High ($) Low ($)
------------- ----------- -------
Common Stock 4 13/16 3 1/8
Warrants 1 3/16 7/16
Units 5 7/8 3 3/4
July 1, 1996 to September 30, 1996
Security High ($) Low ($)
------------- ------------- -------
Common Stock 5 3 3/4
Warrants 1 3/16 9/16
Units 4 3/4 4 1/4
October 1, 1996 to December 31, 1996
Security High ($) Low ($)
------------- -------------- -------
Common Stock 4 1/4 2 15/16
Warrants 15/16 1/2
Units 5 7/8 3 1/2
January 1, 1997 to March 31, 1997
Security High ($) Low ($)
------------- ----------- -------
Common Stock 4 1/4 3 1/8
Warrants 15/16 9/16
April 1, 1997 to June 30, 1997
Security High ($) Low ($)
------------- ----------- -------
Common Stock 5 3 1/8
Warrants 1 1/16 9/16
July 1, 1997 to September 30, 1997
Security High ($) Low ($)
------------- ------------- -------
Common Stock 5 13/16 4 1/8
Warrants 1 7/16 11/16
14
October 1, 1997 to December 31, 1997
Security High ($) Low ($)
------------- -------------- -------
Common Stock 7 3/8 4 5/8
Warrants 2 7/8
*Securities were exchanged on August 21, 1995, the date of the Business
Combination.
The Registrant has not declared or paid any cash dividends on its Common
Stock since commencing operations. In addition, BCI's $7 million line of credit
with Summit Bank, obtained in the first quarter of 1997, prohibits BCI from
declaring or paying any dividends on its capital stock. In November 1997, the
Company issued 200,000 shares of 9% Convertible Preferred Stock at a purchase
price of $100 per share. The Preferred Stock pays a semi-annual dividend, which
may be paid in cash or in-kind, at the sole discretion of the Company. The
Registrant does not anticipate paying any dividends on the Common Stock in the
foreseeable future and intends to retain any earnings for possible future
expansion of the Company's business.
As of March 20, 1998, there were 25 record holders of the Common Stock and
15 record holders of Preferred Stock.
15
Item 6. SELECTED FINANCIAL DATA
For accounting purposes, the Business Combination was treated as a joint
acquisition of the Company by Bogen and Speech Design, companies that were under
the common control of Geotek. The transaction is considered a reverse
acquisition ("Reverse Acquisition") with Geotek as the 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 which was acquired by Geotek in
1991, and Speech Design which was acquired by Geotek in 1993.
In 1994, Speech Design acquired a 67% interest in Satelco AG, and its
financial statements are consolidated with the Company's financial statements in
accordance with pooling-of-interests.
The following table summarizes certain selected consolidated financial
information for the Company and should be read in conjunction with the more
detailed consolidated financial statements and the notes thereto. See "Item 8.
Financial Statements and Supplementary Data."
(In thousands, except per share data)
- -----------------------------------------------------------------------------
For the Year Ended December 31, 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------
Net sales $49,779 $46,269 $44,518 $45,922 $30,072
Gross profit $23,094 $21,265 $17,180 $16,183 $11,623
Income (loss) from operations $ 5,093 $ 3,568 $ (637) $ 1,205 $ 769
Net income $ 2,665 $ 2,008 $(4,543) $ (355) $ (37)
Preferred dividends $ 178 $ - $ - $ - $ -
Net income (loss) available
to common shareholders $ 2,487 $ 2,008 $(4,543) $ (355) $ (37)
Net income (loss) per common
share - Basic and Diluted $ 0.46 $ 0.35 $ (1.37) $ (0.18) $ (0.04)
- --------------------------------------------------------------------------------
As of December 31, 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------
Total assets(1) $31,970 $31,386 $31,304 $32,866 $14,420
Long-term debt (net
of current maturities) $ 212 $ 369 $ 3,458 $ 5,039 $ 5,570
(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.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The consolidated financial statements and the following discussion include
Bogen Corporation ("Bogen") and Bogen's wholly-owned subsidiary, Bogen
Communications, Inc. ("BCI"), BCI's wholly-owned subsidiary, New England Audio
Resource Corp. ("NEAR"), as well as Speech Design, GmbH, a 67% owned subsidiary
("Speech Design"), its 67% owned subsidiary Satelco AG ("Satelco"), and its
wholly-owned subsidiaries, Speech Design (Israel) and Speech Design (UK), Ltd.
All significant intercompany balances and transactions have been eliminated in
consolidation.
16
RESULTS OF OPERATIONS 1997 COMPARED TO 1996
NET SALES
Net sales of $49,779,000 for 1997 increased 7.6% from net sales of
$46,269,000 for 1996. The increase in sales primarily resulted from increased
sales of $4,848,000 in the Company's core products, which includes Telco,
Commercial Sound and Engineered Systems product lines. This increase was
partially offset by the final phase out of the Office Automated Systems ("OAS")
product line, which accounted for $214,000 and $1,552,000 of net sales for the
years ended December 31, 1997 and 1996, respectively. The increased sales were
primarily a result of the maturation of new products, increased sales volume of
the Company's products to existing and new customers, and an increase in the
sales price in the Engineered Systems product line.
Telco net sales in 1997 amounted to $30,233,000 compared to $28,720,000 in
1996, an increase of $1,513,000 or 5.3%. The increase in Telco sales is
primarily attributable to continued successful deployment of the Company's
music/message on hold systems products in the European market. Foreign net sales
stated in local currency increased to 31,345,000 Deutsche Marks ("DM") during
1997, or 33.6% over net sales of 23,467,000 DM for 1996.
Net sales of Commercial Sound products amounted to $11,250,000 in 1997, an
increase of $1,935,000, or 20.8%, from net sales of $9,315,000 of such products
in 1996. This increase is primarily due to the inclusion of NEAR products since
July 1997, the date of acquisition, which are sold through the Commercial Sound
product line and amounted to $804,000, as well as an increase in the number of
units sold due to an aggressive sales and marketing plan implemented in early
1997.
The Engineered System line of products also had an increase in net sales for
the year ended 1997 as compared to 1996. Net sales of the Engineered System line
increased $1,400,000 or 21.0% from $6,682,000 in 1996 to $8,082,000 in 1997.
This increase of $1,400,000 is primarily attributed to the maturation of the
MULTICOM-DCS product which was introduced in late 1996, as well as an average
of a 3% price increase during 1997.
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 1997 was $23,094,000, or approximately 46.4%
of sales, an increase of $1,829,000, compared to $21,265,000, or approximately
46% of sales, in 1996.
The increase in gross profit is attributable to the following cost reduction
measures which were implemented at varying points during 1997: (i) a reduction
in the cost of direct materials due to successful renegotiation with suppliers
in the later part of 1996; (ii) organizational changes which were aimed at
profit enhancement, which were implemented in the beginning of 1997; (iii)
elimination of lower margin products and (iv) price increases on some of Bogen's
products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") increased by $579,000,
or 4.0% during 1997 as compared to 1996. SG&A was $14,939,000 or 30% of sales in
1997 compared to $14,360,000 or 31% of sales in 1996. This increase is a result
of increased personnel and professional services directly
17
attributable to the Company's increased net sales. This increase was partially
offset by decreased commissions paid to outside representatives since sales are
now consummated by Bogen employees for the Engineered Systems product line.
RESEARCH AND DEVELOPMENT
Research and Development expense ("R&D") was $2,591,000 or 5.2% of sales in
1997, compared to $2,892,000, or 6.3% of sales in 1996. This represents a
$301,000 decrease from 1996. The decrease is primarily attributable to
refocusing R&D on specific projects during 1997. The Company anticipates
introducing additional products mainly to the Telco product line. There can be
no assurance, however, that the Company will be able to successfully introduce
additional products.
INTEREST EXPENSE
Interest expense, including interest expense to related parties, was
$429,000 in 1997, a decrease of $239,000 or 35.8%, as compared to $668,000 in
1996. The decrease primarily relates to the new revolving credit line BCI
entered into in February 1997, which decreased BCI's borrowing rate by 2% to 9%
at December 31, 1997, compared to 11% at December 31, 1996, as well as the final
repayment of a $500,000 note to Geotek on July 3, 1997, which accrued interest
at 11% per annum.
INCOME TAXES
The Company incurred approximately $1,494,000 in taxes during 1997, a
$939,000 increase from 1996. The increase is due to increased profits, both
domestic and foreign. Foreign taxes increased by $500,000 which is directly
attributable to increased profits. Domestic taxes increased by $439,000
principally reflecting the utilization of preacquisition tax benefits.
RESULTS OF OPERATIONS 1996 COMPARED TO 1995
NET SALES
Net sales of $46,269,000 for 1996 increased 4% from net sales of $44,518,000
for 1995. The increase in net sales is principally due to an increase in net
sales across all product lines (other than OAS, which was phased out in 1995) as
a result of the introduction of new products, increased sales volume of the
Company's products to existing and new customers, and an increase in the sales
price for most of the Company's domestic products, and was partially offset by a
decline in OAS sales.
Telco net sales in 1996 amounted to $28,720,000 compared to $26,010,000 in
1995, an increase of $2,710,000 or 10%. Domestic Telco sales increased $953,000
in 1996 or 8% over comparable sales in 1995. Foreign Telco sales increased
$1,757,000 in 1996 or 13% over comparable sales in 1995. The increase in both
markets is attributable to the release of new products as well as increased
volume to existing and new customers.
Net sales of Commercial Sound products amounted to $9,315,000 in 1996,
increased $879,000, or 10%, from net sales of $8,436,000 of such products in
1995. The increase of $879,000 is a result of an increase in the number of units
sold due to growth in the consumer sales market and a three percent sales price
increase implemented during the first quarter of 1996.
18
The Engineered System line of products also had an increase in net sales for
the year ended 1996 as compared to 1995. Net sales of the Engineered System line
increased $1,053,000 or 19% from $5,629,000 in 1995 to $6,682,000 in 1996. This
increase of $1,053,000 is attributed to the introduction of the MULTICOM-DCS.
Net sales for the OAS product line for 1996 were $1,552,000, a decrease of
$2,892,000 from sales of $4,444,000 for 1995. The decrease in 1996 as compared
to 1995 is primarily related to the phase-out of this product line. See
"-Phase-Out of OAS Product Line."
GROSS PROFIT
The Company's gross profit in 1996 was $21,265,000, or approximately 46% of
sales, an increase of $4,085,000, compared to $17,180,000, or approximately 39%
of sales, in 1995.
The increase is mainly due to the following: (i)charges of $2.2 million in
1995 to reduce certain inventory to market value; (ii) an increase in 1996 in
the sales price of most of the Company's domestic products; (iii) a reduction in
the cost of direct materials due to successful renegotiation with suppliers.
Gross profit as a percentage of sales for all the Company's product lines
excluding OAS, amounted to 46% in 1996 and 44% in 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") decreased in absolute
dollars and as a percentage of sales in 1996 as compared to 1995. SG&A was
$14,360,000 or about 31% of sales in 1996 compared to $15,067,000 or 34% of
sales in 1995. This decrease of $707,000 is due to the decrease in selling costs
relating to OAS sales, which, in 1995, included an intense marketing effort.
This decrease was partially offset by an increase in administrative expenses
primarily due to additional administrative expenses at Speech Design in
connection with its expansion into Europe.
RESEARCH AND DEVELOPMENT
Research and Development expense ("R&D") was $2,892,000 or 6% of sales in
1996, compared to $2,307,000, or 5% of sales in 1995. This represents a $585,000
increase from 1995. The Company's R&D programs are designed to efficiently
introduce innovative products in a timely manner and support the Company's
planned growth.
INTEREST EXPENSE
Interest expense, including interest expense payable to related parties, was
$668,000 in 1996, a decrease of $538,000, as compared to $1,206,000 in 1995.
This decrease was attributable to (i) a reduction in notes payable to Geotek in
August 1995 in connection with the Company's acquisition of Bogen, and (ii) the
reduction and restructuring of the $3,000,000 Geotek note in 1996.
INCOME TAXES
The Company incurred approximately $555,000 in taxes, a $707,000 decrease
from 1995. The decrease is due to more efficient tax planning at Speech Design
which resulted in a 14% decrease in the effective tax rate at Speech Design, as
well as a $214,000 refund of taxes paid in 1995.
19
PHASE-OUT OF OAS PRODUCT LINE
Effective December 31, 1995 the Company's management decided to phase-out
the OAS product line. This decision was based on the intense competition that
the Company faced from local telephone companies and answering service
companies, both of which offer central voice mail services. The Company's OAS
product line competed with products that were frequently offered at a lower
retail price than the Company's products. In addition, competitors' products
benefited from better brand recognition in the marketplace, which is dominated
by AT&T, Panasonic and PhoneMate. In December 1997, the Company eliminated all
OAS related inventories.
Net OAS sales of $1,552,000 in 1996 decreased $2,892,000 from $4,444,000 of
sales in 1995. Gross profit (deficit) of OAS products of $630,000 in 1996
increased by $1,118,000 from a gross deficit of $(488,000) in 1995. Net income
(loss) from the OAS product line increased by $4,786,000 to $272,000 in 1996
from a net loss of $(4,514,000) in 1995.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
During 1997, the Company focused its efforts on long-term growth by
strengthening its profitable product lines. Cash utilization focused on current
working capital requirements, the paydown of related party debt and subordinated
notes, and the purchase of equipment and leasehold improvements.
The Company's operating activities generated $2,118,000 of cash. The
Company's net income of $2,665,000 includes net non-cash charges of $1,605,000,
which principally consisted of: (i) depreciation and amortization of $1,332,000;
(ii) a decrease in reserves for accounts receivable and inventory obsolescence
of $703,000; (iii) minority interest of consolidated subsidiaries of $537,000;
and (iv) utilization of acquired tax benefits credited to goodwill of $439,000.
Additionally, inventory increased by $1,315,000, accounts payable and accrued
expenses decreased by $1,078,000, accounts receivable decreased by $118,000 and
net changes in other operating assets and liabilities amounted to $123,000.
Net cash used in investing activities amounted to $1,195,000. During 1997,
the Company purchased equipment and other fixed assets for $953,000. Also,
during 1997, the Company acquired substantially all the net assets of NEAR for a
net cash payment of approximately $242,000, which includes direct costs such as
legal and accounting fees which arose from the acquisition and the assumption of
certain liabilities.
Net cash used in financing activities amounted to $695,000. The Company paid
down $2,385,000 of debt, of which $765,000 was paid to Geotek. The Company
received $20,440,000 from the sale of certain equities principally preferred
stock, of which the Company utilized $18,750,000 (including $250,000 of
acquisition expenses) to repurchase shares and warrants owned by Geotek.
As of December 31, 1997, the Company's total liabilities were $10,548,000,
of which $8,773,000 is due and payable within one year.
In the first quarter of 1997, BCI obtained, from Summit Bank, a $7,000,000
revolving credit line for a period of two years. This line is collateralized by
the accounts receivable, inventory, property and equipment and general
intangibles of BCI and is guaranteed by the Company. As of December 31, 1997,
Bogen had short-term domestic borrowings outstanding under the line of credit of
$737,000. The amount available under the credit line based upon eligible
accounts receivable and inventory was approximately $4,000,000 at December 31,
1997.
The Company's previous credit facility of $10,000,000, which had an
outstanding balance of $1,545,000 at December 31, 1996, was paid in full with
proceeds from the new credit facility obtained in 1997, as well as through
proceeds from operations.
20
At December 31, 1997 and 1996, Speech Design had short term lines of credit
and overdraft facilities of $3,988,000 and $4,344,000 respectively, of which
short term borrowings amounted to $2,154,000 and $3,283,000 respectively. The
amounts available under these credit lines were $1,834,000 and $1,061,000 at
December 31, 1997 and 1996, respectively, with rates tied to short-term bank
notes and Euromarket loans. Speech Design's short term lines of credit are
collaterized by all of Speech Design's accounts receivable and inventory. At
December 31, 1997 interest rates on these short term lines ranged from 4.4% to
7.25%.
In November 1997, the Company issued 200,000 shares of 9% Convertible
Preferred Stock at $100 per share. The 9% dividend is payable semi-annually in
cash or in-kind at the sole discretion of the Company. The Company plans to
evaluate its liquidity prior to each semi-annual dividend payment date and
determine at that time, whether to pay the dividend in cash or in-kind.
The Company believes that it has adequate liquidity to finance its ongoing
activities and capital expenditures for the near term but will be required to
seek additional capital in the event it wishes to expand its operations through
acquisitions or otherwise attempting to secure additional lines of credit for
such purpose.
ECONOMIC ENVIRONMENT
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, the
effects 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 is currently
monitoring this situation closely and will take all measures within its control
to ensure that production of the Company's products will continue without
interruption. Should production by the Company's suppliers be curtailed, the
Company believes suitable suppliers in other parts of the world will be
available to satisfy its production requirements. 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 on material adverse effects on the Company's results of
operations.
INFLATION
Inflation did not have a material effect on the Company's results during the
periods discussed.
CURRENCY FLUCTUATIONS
Approximately thirty six percent of the Company's revenues are derived
outside of the United States, primarily in Germany. Accordingly, currency
fluctuations may impact the Company's earnings. Over the course of 1997, the
Deutsche Mark remained relatively steady to the U.S. dollar. 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.
21
YEAR 2000
The Company is in the process of evaluating the effect of modifying computer
software systems to accommodate year 2000 transactions. The Company expects to
expend up to $1,000,000, which may be necessary for systems upgrade projects
that will, among other things, address concerns about the Year 2000. The Company
plans to complete such modification and conversions prior to June 30, 1999.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130") and Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information"("SFAS
131").
SFAS 130 establishes standards for the reporting and display of
comprehensive income in the financial statements. Comprehensive income is the
total of net income and all other non-owner changes in equity. SFAS 131 requires
that companies disclose segment data based on how management makes decisions
about allocating resources to segments and measuring their performance. SFAS 130
and 131 are effective for fiscal years beginning after December 15, 1997.
Adoption of these standards is expected to result in additional disclosures,
but will not have an effect on the Company's financial position or results of
operations or cash flows.
22
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Information
The Company's consolidated operations are considered one segment, engaged in
the development and manufacturing of communication and telecommunication
products in the United States (Bogen) and Germany (Speech Design). Financial
information regarding the breakdown of the Company's foreign and domestic
operations is disclosed in footnote 17 to the Company's Consolidated Financial
Statements.
23
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
Pages
-----
Financial Statements:
Report of Independent Auditors F-1
Report of Independent Accountants F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996 F-3
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995 F-5
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1997, 1996 and 1995 F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 F-8
Notes to Consolidated Financial Statements F-10
The following consolidated financial statement schedules of Bogen Communications
International, Inc. are included in Item 14(a)2:
I. Condensed Financial Information of Bogen Communications
International, Inc. (Parent Company Only) 31
II. Valuation and Qualifying Accounts 37
All other schedules are omitted as the required information is inapplicable or
the information is presented in the consolidated financial statements or related
notes.
24
INDEPENDENT AUDITORS' 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, 1997 and for the year then ended. In connection with our audit of
the consolidated financial statements, we also have audited the financial
statement schedules for 1997 as listed in the accompanying index. These
consolidated financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedules based on our audit. We did not audit the financial statements and
financial statement schedules of Speech Design GmbH, a 67% owned subsidiary,
which financial statements reflect total assets constituting 21% as of December
31, 1997 and total revenues constituting 36%, for the year then ended of the
related consolidated total. Those financial statements and financial statement
schedules 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, is based solely on the report of the other auditors.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the 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 audit provides a reasonable basis
for our opinion.
In our opinion, based on our audit 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, 1997, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles. Also in our opinion, based on our
audit and the report of other auditors, the related financial statement
schedules for 1997, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly, in all material respects,
the information set forth therein.
KPMG PEAT MARWICK LLP
Short Hills, New Jersey
March 18, 1998
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
of Bogen Communications International, Inc.:
We have audited the accompanying consolidated financial statements and financial
statement schedules of Bogen Communications International, Inc. and Subsidiaries
(formerly European Gateway Acquisition Corp.) (the "Company") as of December 31,
1996 and for each of the two years in the period ended December 31, 1996. These
financial statements and financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
mistatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Bogen
Communications International, Inc. and Subsidiaries as of December 31, 1996, and
the results of its operations and its cash flows for each of the two years in
the period ended December 31, 1996 in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedules referred to above, when considered in relation to the basic financial
statements taken as a whole, present fairly, in all material respects, the
information required to be included therein.
Coopers & Lybrand L.L.P.
March 7, 1997
New York, New York
F-2
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 and 1996
(In Thousands of Dollars, Except Share and Per Share Amounts)
1997 1996
-------- -------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 964 $ 885
Accounts receivable (less allowance for doubtful accounts of $376 and
$470 at December 31, 1997 and 1996, respectively) 6,291 6,517
Inventories, net 8,285 6,519
Prepaid expenses and other current assets 468 780
------- -------
TOTAL CURRENT ASSETS 16,008 14,701
Property, equipment and leasehold improvements, net 2,136 2,130
Goodwill and intangible assets, net 13,569 14,308
Other assets 257 247
------- -------
TOTAL ASSETS $31,970 $31,386
======= =======
The accompanying notes are an integral part of these
consolidated financial statements
F-3
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 and 1996
(In Thousands of Dollars, Except Share and Per Share Amounts)
1997 1996
---- ----
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Amounts outstanding under revolving credit agreement $ 2,891 $ 4,828
Accounts payable 2,376 3,707
Accrued expenses 3,084 3,026
Income taxes payable 238 --
Preferred dividends payable 178 --
Advances and notes payable to related parties 6 746
Current maturities of notes payable to non-related parties -- 5
-------- --------
TOTAL CURRENT LIABILITIES 8,773 12,312
Advances and notes payable to related parties 212 361
Notes payable to non-related parties -- 8
Other liabilities 433 536
Minority interest 1,130 593
-------- --------
TOTAL LIABILITIES 10,548 13,810
-------- --------
STOCKHOLDERS' EQUITY
Preferred stock - $.001 par value; 1,000,000 shares authorized;
200,000 shares issued and outstanding at December 31, 1997, none
issued and outstanding in 1996 (Liquidation preference of $100 per
share plus accrued dividends - $20,178) -- --
Common stock - $.001 par value; 50,000,000 shares authorized;
2,118,226 and 5,758,850 shares issued and outstanding at December
31, 1997 and 1996, respectively 2 6
Additional paid-in-capital 23,468 21,774
Accumulated deficit (1,690) (4,177)
Currency translation adjustments (358) (27)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 21,422 17,576
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 31,970 $ 31,386
======== ========
The accompanying notes are an integral part of these
consolidated financial statements
F-4
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 and 1995
(In Thousands of Dollars, Except Share and Per Share Amounts)
1997 1996 1995
---- ---- ----
Net sales $ 49,779 $ 46,269 $ 44,518
Cost of goods sold 26,685 25,004 27,338
----------- ----------- -----------
Gross profit 23,094 21,265 17,180
Operating expenses:
Research and development 2,591 2,892 2,307
Selling, general and administrative 14,939 14,360 15,067
Amortization of goodwill and intangible assets 471 445 443
----------- ----------- -----------
Income (loss) from operations 5,093 3,568 (637)
Other (income) expenses:
Interest expense, net 414 596 587
Interest expense to related parties 15 72 619
Transaction costs -- -- 1,491
Minority interest of consolidated subsidiaries 537 337 184
Other income (32) -- (237)
----------- ----------- -----------
Income (loss) before provision for income taxes 4,159 2,563 (3,281)
Provision for income taxes 1,494 555 1,262
----------- ----------- -----------
Net income (loss) $ 2,665 $ 2,008 $ (4,543)
Preferred dividends 178 -- --
----------- ----------- -----------
Net income (loss) available to common shareholders $ 2,487 $ 2,008 $ (4,543)
=========== =========== ===========
Basic net income (loss) per common share $ 0.46 $ 0.35 $ (1.37)
=========== =========== ===========
Diluted net income (loss) per common share $ 0.46 $ 0.35 $ (1.37)
=========== =========== ===========
Weighted average number of common
shares outstanding-Basic and Diluted 5,399,199 5,759,075 3,311,668
=========== =========== ===========
The accompanying notes are an integral part of these
consolidated financial statements
F-5
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(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 December 31, 1994 -- -- 1,615,155 $ 2 $ 12,638
Recapitalization by foreign subsidiary -- -- -- -- (967)
Accretion of redemption value of common stock
subject to redemption -- -- -- -- (52)
Reclass of common stock subject to redemption
to common stock upon the Company's
acquisition of Bogen and Speech Design -- -- 309,845 -- 1,627
Forgiveness of Bogen inter-company debt
by Geotek -- -- -- -- 7,155
Issuance of common stock and other adjustments to
effect combination of Bogen and Speech
Design -- -- 3,701,919 4 (1,966)
Issuance of common stock and warrants to purchase
60,000 shares of common stock for services
provided to facilitate the acquisition of
Bogen and Speech Design -- -- 132,431 -- 740
Dividend paid by subsidiary to minority shareholders -- -- -- -- --
Translation adjustments
Net loss -- -- -- -- --
-------- -------- ----------- ----------- -----------
Balance at December 31, 1995 -- -- $ 5,759,350 $ 6 $ 19,175
Restructuring of $3,000 related party
note with related interest -- -- -- -- 2,602
Repurchased and cancelled common
Stock -- -- (500) -- (3)
Translation adjustments -- -- -- -- --
Net income -- -- -- -- --
-------- -------- ----------- ----------- -----------
Balance at December 31, 1996 -- -- 5,758,850 $ 6 $ 21,774
Currency
Accumulated Translation
Deficit Adjustments Total
------- ----------- -----
Balance at December 31, 1994 $ (2,428) $ 37 $ 10,249
Recapitalization by foreign subsidiary 967 -- --
Accretion of redemption value of common stock -- -- (52)
Reclass of common stock subject to redemption
to common stock upon the Company's
acquisition of Bogen and Speech Design -- -- 1,627
Forgiveness of Bogen inter-company debt
by Geotek -- -- 7,155
Issuance of common stock and other adjustments to
effect combination of Bogen and Speech
Design -- -- (1,962)
Issuance of common stock and warrants to purchase
60,000 shares of common stock for services
provided to facilitate the acquisition of
Bogen and Speech Design -- -- 740
Dividend paid by subsidiary to minority shareholders (181) -- (181)
Translation adjustments 110 110
Net loss (4,543) -- (4,543)
----------- ----------- -----------
Balance at December 31, 1995 $ (6,185) $ 147 $ 13,143
Restructuring of $3,000 related party
note with related interest -- -- 2,602
Repurchased and cancelled common
stock -- -- (3)
Translation adjustments -- (174) (174)
Net income 2,008 -- 2,008
----------- ----------- -----------
Balance at December 31, 1996 $ (4,177) $ (27) $ 17,576
The accompanying notes are an integral part of these
consolidated financial statements
F-6
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(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
------ ------ ------ ------ -------
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
Translation adjustments -- -- -- -- --
Preferred dividends -- -- -- -- --
Net income -- -- -- -- --
------- ------ ---------- ---------- ----------
Balance at December 31, 1997 200,000 -- 2,118,226 $ 2 $ 23,468
======= ====== ========= ========== ==========
Currency
Accumulated Translation
Deficit Adjustments Total
------- ----------- -----
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
Translation adjustments -- (331) (331)
Preferred dividends (178) -- (178)
Net income 2,665 -- 2,665
---------- ---------- ----------
Balance at December 31, 1997 $ (1,690) $ (358) $ 21,422
========== ========== ==========
The accompanying notes are an integral part of these
consolidated financial statements
F-7
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 and 1995
(In Thousands of Dollars, Except Share and Per Share Amounts)
1997 1996 1995
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,665 $ 2,008 $ (4,543)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Non-cash transaction costs -- -- 740
Depreciation and amortization 861 978 868
Amortization of goodwill and intangible assets 471 445 443
Provisions for doubtful accounts and
inventory obsolescence (703) (1,362) 1,344
Utilization of acquired tax benefits credited to goodwill 439 -- --
Minority Interest 537 337 184
Change in operating assets and liabilities
(net of effects from acquisitions):
Accounts receivable 118 (1,703) 984
Inventories (1,315) 2,269 (49)
Prepaid expenses and other current assets 260 (532) 200
Payables and accrued expenses (1,078) (1,040) 1,901
Other (137) (138) --
-------- -------- --------
Net cash provided by operating activities 2,118 1,262 2,072
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, equipment and leasehold improvements (953) (1,017) (1,035)
Cash obtained in the acquisition of Speech Design
and Bogen -- -- 8,149
Acquisition of New England Audio Resource, Inc. (242) -- --
Acquisition of investments and intangibles -- (102) (60)
Other -- 18 37
-------- -------- --------
Net cash provided by (used) in investing activities (1,195) (1,101) 7,091
-------- -------- --------
CASH FLOW FROM FINANCING ACTIVITIES
Acquisition of common stock and warrants held by Geotek (18,750) -- --
Proceeds from sale of preferred stock, common stock and warrants 20,440 -- --
Amounts (paid to) non-related parties, net -- (161) (688)
Amounts (paid) borrowed under revolving credit agreements (1,506) 23 (691)
Dividend paid to Geotek related to combination
of Bogen and Speech Design -- -- (7,000)
Dividend paid by subsidiary to minority shareholders -- (294) (181)
Advances and notes payable - related parties (879) (341) 415
-------- -------- --------
Net cash used in financing activities (695) (773) (8,145)
-------- -------- --------
Effects of foreign exchange rate on cash (149) 221 110
-------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 79 (391) 1,128
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 885 1,276 148
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 964 $ 885 $ 1,276
======== ======== ========
The accompanying notes are an integral part of these
consolidated financial statements
F-8
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 and 1995
(In Thousands of Dollars, Except Share and Per Share Amounts)
1997 1996 1995
---- ---- ----
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 496 $ 609 $ 829
Cash paid for income taxes 490 2,175 4
NON CASH INVESTING AND FINANCING ACTIVITIES
Preferred stock dividends accrued 178 -- --
Restructuring of $3,000 related party note and related interest -- 2,602 --
Forgiveness of Bogen debt by Geotek treated
as an equity contribution -- -- 7,155
Adjustments to combine companies -- -- 1,966
Notes payable to Geotek in consideration for
acquiring Bogen and Speech Design -- -- 3,000
Common stock issued to Geotek in consideration
for acquiring Bogen and Speech Design -- -- 4
Common stock and warrants issued as consideration for certain services
provided to the Company in connection with the acquisition of Bogen and
Speech Design -- -- 740
The accompanying notes are an integral part of these
consolidated financial statements
F-9
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. (and, together with its
subsidiaries, the "Company") is engaged in the development, manufacturing
and marketing of sound and telecommunication products. Product lines sold
by the Company include; Telephone Paging Products ("Telco"), Commercial
Audio Products ("Commercial Sound") 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 Bogen Corporation ("Bogen") and Bogen's wholly-owned subsidiary, Bogen
Communications, Inc. ("BCI"), BCI's wholly-owned subsidiary, New England
Audio Resource Corp. ("NEAR"), as well as Speech Design GmbH, a 67% owned
subsidiary ("Speech Design"), its 67% owned subsidiary Satelco AG
("Satelco"), and its wholly-owned subsidiaries, Speech Design (Israel),
Ltd. and Speech Design (UK), Ltd. All significant intercompany balances
and transactions have been eliminated in consolidation.
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.
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.
Basis of Presentation
On August 21, 1995, the Company acquired a 99% interest in Bogen and a 67%
interest in Speech Design from Geotek Communications, Inc.
F-10
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars, Except Share and Per Share Amounts)
("Geotek"). The Company paid Geotek $7,000 in cash, a convertible
promissory note in the aggregate principal amount of $3,000, 3,701,919
shares of the Company's common stock and warrants to acquire 200,000
shares of common stock of the Company plus contingent consideration based
on attainment of specified levels of operating performance of Bogen and
Speech Design. As a result, Geotek acquired approximately 64% of the stock
of the Company, thereby giving it a controlling interest in the Company.
In addition, Geotek contributed approximately $7,155 of intercompany
indebtedness from Bogen to equity as part of the transaction. The Company
incurred transaction costs of $1,491 in connection with the acquisition of
Bogen and Speech Design which were charged to non-operating expenses for
the year ended December 31, 1995. These costs consist of non-recurring
legal and other professional fees and other costs of the transaction
amounting to $751 and a non-cash charge of $740 for the estimated fair
value of 132,400 shares of common stock of the Company and warrants to
purchase 60,000 shares of the Company's common stock at $5.25 per share,
for services provided to the Company by various unrelated parties in
connection with facilitating the acquisition of Bogen and Speech Design.
In May 1996, the Company and Geotek amended the Stock Purchase Agreement
effective January 1, 1996. Pursuant to such agreement, (i) the $3,000
convertible promissory note payable by the Company to Geotek, due February
1997, was reduced and restructured to a $500 non-convertible promissory
note due and paid in July 1997, (ii) the contingent consideration formula
was revised, and (iii) Geotek was granted an option to purchase, at any
time through October 31, 1997, from the Company, $3,000 worth of common
stock with exercise prices ranging from 100% to 65% of market price,
depending on the date of exercise. This option expired unexercised on
October 31, 1997.
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 acquiror for accounting purposes. The
historical financial statements reflect the combination of Bogen and
Speech Design in a manner similar to a pooling of interests. Accordingly,
the historical financial statements reflect the combined operations of
Bogen and Speech Design prior to the transaction.
On November 26, 1997, the Company acquired and retired all of the
outstanding common stock and warrants held by Geotek for an aggregate
purchase price of $18,500. The total common shares and warrants acquired
amounted to 3,701,919 and 200,000, respectively. In connection with the
transaction, the Company cancelled all outstanding options held by Geotek,
terminated all financing arrangements with Geotek and reconstituted its
Board of Directors effectively severing all ties with Geotek. Financing
for the transaction was obtained through the sale of 200,000 shares of
Preferred Stock to a group of investors (see Note 11).
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
F-11
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars, Except Share and Per Share Amounts)
push-down 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 a period of 20 to 40 years.
The Company assesses the recoverability of this intangible asset by
determining whether the amortization of the goodwill balance over its
remaining life can be recovered through undiscounted future cash flows of
the acquired operation and other considerations. The amount of impairment
of goodwill, if any, is measured based on projected discounted cash flows.
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. Reserves are established for valuation
purposes or determined by management on a periodic basis, as required by
conditions of obsolescence.
Property, Equipment and Leasehold Improvements
Property, equipment and leasehold improvements are recorded at cost, less
accumulated depreciation and amortization. Depreciation of property and
equipment is provided using the straight-line method over the estimated
useful lives ranging from three to ten years. 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.
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.
Income Taxes
The Company follows Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (FAS 109). FAS 109 is an asset and liability
approach that requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have
been recognized in the Company's financial statements or tax returns.
Under SFAS 109, the effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date.
Income (Loss) Per Common Share
Income (loss) per common share ("EPS") has been computed based upon
Financial Accounting Standards No. 128, "Earnings Per Share" ("FAS 128").
Basic EPS is calculated by dividing net income (loss) 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 (loss) available to common shareholders by the weighted-average
number of common shares outstanding and all common stock equivalents for
the periods presented.
F-12
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars, Except Share and Per Share Amounts)
Stock-Based Compensation
Stock-based compensation is recognized using the intrinsic value method.
For disclosure purposes, pro forma net income available to common
shareholders and net income per common share are provided in accordance
with Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" as if the fair value method had been applied.
Credit Risk
The Company develops, produces, markets and sells commercial audio,
electronic, paging, communications and other equipment and
telecommunications peripherals. The Company performs on-going credit
evaluations of its customers. The accounts receivable resulting from its
sales transactions generally are not collateralized. The Company provides
reserves for potential losses from these receivables.
Translation of Foreign Currencies
Foreign denominated assets and liabilities of the Company are translated
from local currencies into U.S. dollars at the exchange rates in effect at
the end of the period. Revenues and expenses are translated at average
exchange rates prevailing during the period. Local currencies are
considered to be the functional currencies of the Company and its
subsidiaries. Translation adjustments that arise from translation of the
Company and its subsidiaries' financial statements are accumulated in a
separate component of 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.
Fair Value of Financial Instruments
The recorded amount of cash and cash equivalents, notes payable and
advances, approximates fair value due to the short-term maturities of
these assets and liabilities.
Recently Issued Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130") and Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131").
SFAS 130 establishes standards for the reporting and display of
comprehensive income in the financial statements. Comprehensive income is
the total of net income and all other non-owner changes in equity. SFAS
131 requires that companies disclose segment data based on how management
makes decisions about allocating resources to segments and measuring their
performance. SFAS 130 and 131 are effective for fiscal years beginning
after December 15, 1997.
Adoption of these standards is expected to result in additional
disclosures, but will not have an effect on the Company's financial
position or results of operations.
F-13
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars, Except Share and Per Share Amounts)
Reclassifications
Certain 1996 and 1995 balances have been reclassified to conform with the
current year presentation.
3. Acquisition
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.
The acquisition has been accounted for by the purchase method of
accounting, and accordingly, the purchase price has been allocated to the
assets acquired based on estimates of fair values at the date of
acquisition. The operating results of this acquisition are included in the
Company's consolidated statements of operations from the date of
acquisition and are immaterial. Had the acquisition occurred on January
1, 1997, there would not have been any material effect on consolidated
results of operations for 1997 or 1996.
4. Inventories
Inventories, at the lower of cost or market and valued on a first in,
first out basis, as of December 31, 1997 and 1996, are as follows:
1997 1996
------ ------
Raw materials and supplies $1,874 $1,525
Work in progress 742 701
Finished goods 5,669 4,293
----- -----
$8,285 $6,519
====== ======
The inventory balances are net of a reserve for inventory valuation and
obsolescence of $529 and $1,126 at December 31, 1997 and 1996,
respectively.
5. Property, Equipment and Leasehold Improvements
Property, equipment and leasehold improvements at December 31, 1997 and
1996 is comprised of the following items:
1997 1996
------ ------
Machinery, equipment and tooling $4,111 $3,581
Furniture and office equipment 1,669 1,774
Leasehold improvements 760 694
------ ------
6,540 6,049
Less: accumulated depreciation
and amortization (4,404) (3,919)
------ ------
$2,136 $2,130
====== ======
Depreciation and amortization expense was approximately $861, $978, and
$868 for the years ended December 31, 1997, 1996 and 1995, respectively.
6. Goodwill and Intangible Assets
Goodwill and intangible assets consist of the following, at December 31,
1997 and 1996:
1997 1996
---- ----
Goodwill $16,137 $16,295
Other intangibles 101 220
------ ------
16,238 16,515
Less: accumulated amortization (2,669) (2,207)
------ -------
$13,569 $14,308
======= =======
F-14
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars, Except Share and Per Share Amounts)
As explained above in Note 2, the acquisition of Bogen and Speech Design
was accounted for as a reverse acquisition by Geotek. No goodwill was
recorded in connection with this transaction.
In January 1994 Geotek acquired a greater than 95% interest in Bogen, and
pursuant to the rules of push-down accounting, the acquisition gave rise
to a new basis of accounting and the goodwill related to Geotek's
acquisition was "pushed-down" to the financial statements of Bogen.
Accordingly, Bogen recorded 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.
Goodwill in the amount of $563 relates to Bogen. This goodwill is being
amortized using the straight-line method over 40 years.
Goodwill in the amount of $733 represents the excess of cost over the fair
value of net assets acquired by Speech Design related to the acquisition
of its 67% owned subsidiary Satelco. This goodwill is being amortized
using the straight-line method over 20 years.
Goodwill in the amount of $236 represents the excess of cost over the fair
value of net assets acquired in connection with the acquisition of NEAR in
1997. This goodwill is being amortized using the straight-line method over
20 years.
During 1997, Goodwill was reduced in the amount of $439 to reflect the
utilization of pre-acquisition tax benefits (see Note 9).
Amortization of goodwill and other intangibles was $471, $445, and $443
for the years ended December 31, 1997, 1996 and 1995, respectively.
7. Revolving Credit Agreements
In the first quarter of 1997, BCI entered into a revolving credit facility
(the "Facility") with a bank, which matures on February 5, 1999. The
Facility provides, 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 are limited to
specified levels of eligible accounts receivable and inventory. Borrowings
under the Facility are available for working capital and general corporate
purposes and bear interest at the bank's prime rate plus .50% (9.00% at
December 31, 1997).
Obligations under the Facility are collateralized by all of the accounts
receivable, inventory, property and equipment, and general intangibles of
BCI and is guaranteed by the Company. The Facility contains certain
covenants, which restrict the ability of BCI to declare or pay dividends,
return capital to its stockholders or redeem or repurchase any of its
outstanding capital stock. Net assets of BCI restricted under the Facility
were $9,710 at December 31, 1997.
F-15
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars, Except Share and Per Share Amounts)
The Facility also requires compliance with certain financial convenants
including maintenance of specified minimum levels of tangible net worth,
debt to tangible net worth and pre-tax profitability. At December 31, 1997
borrowings outstanding under the Facility amounted to $737. Availability
under the Facility based on eligible accounts receivable and inventory was
approximately $4,000 as of December 31, 1997.
BCI's prior revolving credit facility (the "Previous Facility") provided
for borrowings up to a maximum of $10,000 over a two year term expiring in
August 1997. Borrowings under the Previous Facility were limited to
eligible levels of accounts receivable and inventory, were collateralized
by substantially all the assets of BCI and guaranteed by Geotek. Advances
under the Previous Facility required interest at a rate of 2% to 2.75%
over the lender's prime rate. The Previous 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. Net assets of BCI restricted under the Previous
Facility were $16,655 at December 31, 1996. At December 31, 1996
borrowings outstanding under the Previous Facility amounted to $1,545.
At December 31, 1997 and 1996, Speech Design had short term lines of
credit and overdraft facilities of $3,988, and $4,344, respectively, of
which short term borrowings amounted to $2,154 and $3,283, respectively.
The amounts available under these credit lines were $1,834 and $1,061 at
December 31, 1997 and 1996, 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, 1997 interest rates on these short-term
lines ranged from 4.4% to 7.25%.
Total outstanding revolving lines of credit are summarized as follows at
December 31, 1997 and 1996:
1997 1996
---- ----
Domestic Lines of Credit Utilized $ 737 $1,545
Foreign Lines of Credit Utilized:
Speech Design 2,017 2,805
Satelco 137 478
----- ------
$2,891 $4,828
====== ======
8. Advances and Notes Payable to Related Parties
Advances and notes payable to related parties at December 31, 1997 and
1996 consist of the following:
1997 1996
---- ----
Advances from Geotek $ -- $ 152
Loan from Speech Design Shareholders (at
German discount rate + 2%) -- 129
Loan from Related Party (at Zurich Kantonal
Bank rate) 212 232
Other Notes Payable 6
Notes Payable - Geotek (at 13%) -- 594
------ ------
Total 218 1,107
Less: Current Maturities (6) (746)
------ ------
$212 $ 361
====== ======
F-16
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars, Except Share and Per Share Amounts)
Advances from Geotek
Advances from Geotek consisted of net non-interest bearing advances made
to Bogen, which were paid in full during 1997.
Loan from Speech Design Shareholders
This note payable to Speech Design's minority shareholders was to mature
on December 31, 1999. Interest was paid in quarterly installments and was
charged at 2% over the German discount rate. This note was paid in full
during 1997.
Loan from Related Party
This $315 original note from the minority shareholders of Satelco is
payable in quarterly installments of $31 plus interest at the Zurich
Kantonal Bank rate with installments beginning February, 1995. The
payments of this note have been suspended (with the approval of the
noteholders) until such time as the Satelco subsidiary becomes profitable.
Accordingly, this note payable has been classified as long-term.
Notes Payable (by the Company) to Geotek
This note payable to Geotek from the Company was incurred at the date of
acquisition for $3,000 plus interest payable quarterly in arrears at
varying rates equal to the Company's highest borrowing rate plus 2%. In
May 1996, the $3,000 note plus accrued interest was reduced and
restructured, retroactive to January 1, 1996, to a $500 non-convertible
promissory note due and paid in July 1997.
F-17
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars, Except Share and Per Share Amounts)
9. Income Taxes
The Company's pre-tax book income (loss) is as follows for the years ended
December 31, 1997, 1996 and 1995:
1997 1996 1995
---- ---- ----
Domestic U.S. Operations $1,966 $ 1,322 $(4,886)
Foreign Operations 2,193 1,241 1,605
------ ------ ------
Total $4,159 $ 2,563 $(3,281)
====== ======= ========
The components of income tax expense are as follows for the years ended
December 31, 1997, 1996 and 1995:
1997 1996 1995
---- ---- ----
Current Income Tax
(Foreign Only) $1,055 $ 555 $1,262
Utilization of acquired
tax benefits credited
to goodwill 439 - -
------ ------ ------
Total Income Tax Expense $1,494 $ 555 $1,262
====== ====== ======
The difference between the provision for income taxes computed at the U.S.
Federal statutory rate and the provision as reported are as follows:
1997 1996 1995
---- ---- ----
Provision at U.S. Statutory Rate $1,414 $ 871 $(1,116)
Non-deductible Expenses 151 338 785
Change in Valuation Allowance (820) (793) 998
German Taxes 307 162 604
Utilization of acquired
tax benefits credited
to goodwill 439 - -
Other 3 (23) (9)
----- ------ -------
Tax Provision as Reported $1,494 $ 555 $ 1,262
====== ======= =======
The Company has net operating loss ("NOL") carryforwards of approximately
$6,466 for U.S. Federal tax purposes and approximately $1,045 for U.S.
state tax purposes, as of December 31, 1997, which expire between the
years 2002 through 2010. Under Section 382 of the Internal Revenue Code of
1986, as amended, the net Federal operating loss carryforwards are subject
to certain limitations on their utilization as a result of the changes in
control of the Company in 1991 and 1995.
The components of deferred tax assets at December 31, 1997 and 1996, are
as follows:
1997 1996
---- ----
Deferred Tax Assets:
NOL Carryforwards $2,262 $2,808
Deferred Rent 144 191
F-18
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars, Except Share and Per Share Amounts)
Inventory Items 325 592
Allowance for Doubtful Accounts 124 157
Accrued Liabilities 201 196
Property & Equipment 141 137
Other - 56
----- ------
TOTAL DEFERRED TAX ASSETS $3,197 $4,137
Less, Valuation Allowance (3,197) (4,137)
------ ------
NET DEFERRED TAX ASSETS $ 0 $ 0
====== ======
The Company has established a valuation allowance of $3,197 and $4,137 for
the years ended December 31, 1997 and 1996, respectively. The valuation
allowance was established due to the uncertainty of the realization of the
deferred tax assets principally as a result of limitations imposed on the
use of operating losses under Section 382 and a lack of history of
consistent domestic taxable earnings. A significant portion of the
deferred tax assets which are currently subject to a valuation allowance
may be allocated to reduce goodwill or other non-current intangible assets
when subsequently recognized due to the application of SFAS No. 109 and
purchase accounting.
10. Commitments and Contingencies
Operating Leases
The Company occupies its plant and office facilities and operates certain
equipment under leases expiring at various dates through 2005. The
facility lease contains an escalation clause and provides for payments of
taxes and expenses over base rent. The facility lease also contains a five
year renewal option.
F-19
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars, Except Share and Per Share Amounts)
The minimum annual rental commitments over the next five years under
operating leases are as follows:
Year Ending
December 31,
------------
1998 $ 1,359
1999 1,221
2000 1,015
2001 244
2002 236
Thereafter 553
-------
$4,628
=======
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 $358 and $478 at December 31, 1997 and
1996, respectively, is classified as a long-term liability.
Rent expense charged to operations totaled approximately $1,297, $1,151,
and $1,055 for the years ended December 31, 1997, 1996 and 1995,
respectively.
Employment and Consulting Agreements
Compensation of Directors
Directors, other than non-employee directors who are members of the
Executive Committee of the Board, receive no compensation for acting as
directors to the Company. During 1996, two Board members received $50,000
each as members of the Company's Executive Committee.
Employment Contracts
The Company has employment agreements with certain of its key executive
officers. The employment agreements provide for among other things,
specified levels of annual base salary, and the granting of stock options.
Certain employment agreements provide for the payment of bonuses based
upon certain criteria. Such employment agreements generally extend through
December 2000.
Litigation
The Company is not aware of any material pending or threatened legal
proceedings to which it is a party or to which any of its property is
subject.
Commitments
At December 31, 1997, the Company had commitments to purchase merchandise
from foreign vendors of $897 under open purchase orders and $132 under
other sight documents.
11. Stockholders' Equity
F-20
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars, Except Share and Per Share Amounts)
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 carries a redemption value of $100 per share. Each share
of Preferred Stock plus any accrued dividends is 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 is given, into
18.605 shares of common stock (or 3,721,000 shares) 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, will
automatically convert into common stock at the rate specified above.
The Preferred Stock may be redeemed by the Company provided the closing
bid price of the common stock on the primary exchange on which the common
stock is traded on each such day for 20 consecutive trading days, exceeds
150% of the Conversion Price, or $8.0625 per share of common stock. The
redemption price paid by the Company will equal the redemption value of
the Preferred Stock plus all accrued dividends through the date of
redemption, plus, in the event the Preferred Stock is redeemed prior to
December 1, 2000, 50% of the dividends that would have accrued or been
payable through December 1, 2000 if such redemption had not occurred.
In the event of liquidation, dissolution or winding up of the Company,
holders of Preferred Stock are entitled to be paid, before any
distribution or payment is made on common stock, an amount equal to the
greater of (i) the redemption value per share of Preferred Stock plus any
accrued dividends, or (ii) such amount of cash, securities or other
property per share of Preferred Stock as would have been payable had each
share been converted to, and treated equally with shares of common stock
immediately prior to such liquidation, dissolution or winding up. If the
assets to be distributed among the holders of the Preferred Stock pursuant
to (i) above are insufficient to permit repayment of the liquidation
preference, then the entire assets of the Company shall be distributed
ratably to holders of the Preferred Stock.
Holders of Preferred Stock are entitled to one vote for each share of
common stock into which such shares can be converted. The Preferred Stock
carries a 9% semi-annual cumulative dividend which may be paid in cash or
in-kind at the option of the Company. Dividends on Preferred Stock must be
paid before any dividends on common stock and accrue on any unpaid
amounts.
Common Stock
The following discussion summarizes the incorporation of the Company, the
capitalization, and the requirements and privileges of the shareholders in
the periods preceding the consummation of the
F-21
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars, Except Share and Per Share Amounts)
acquisition of Bogen and Speech Design on August 21, 1995.
The Company was incorporated in Delaware on May 6, 1993 with the objective
of acquiring a medium-sized operating business engaged in industrial
manufacturing or industrial services and located in Germany, Switzerland
or Austria (a "Business Combination"). The Company's founding directors
and advisors purchased 500,000 common shares, $.001 par value, for five
hundred dollars during the three month period after incorporation. On
September 30, 1993, 125,000 shares were returned to the Company by the
founding shareholders and were retroactively reflected in the financial
statements as a net issuance of 375,000 shares.
On October 15, 1993, the Company sold 1,550,000 units ("Units") in an
initial public offering ("Offering") of the Company's common stock. Each
unit consisted of one share of the Company's common stock, $.001 par
value, and two Redeemable Common Stock Purchase Warrants ("Warrants").
Each Warrant entitled the holder to purchase, during the period commencing
on the later of the consummation by the Company of its Business
Combination or one year from the effective date of the Offering and ending
seven years from the effective date of Offering, from the Company one
share of common stock at an exercise price of $5.50. The Warrants are
redeemable at a price of $.01 per Warrant upon 30 days notice at any time,
only in the event that the last sale price of the common stock is at least
$10.00 per share for 20 consecutive trading days ending on the third day
prior to date on which notice of redemption is given. The proceeds of the
offering were deposited in a Trust Fund to fund a Business Combination or
liquidation of the Company.
The Company, after signing a definitive agreement for a Business
Combination, submitted such transaction for shareholder approval. In the
event that 20% or more of the shareholders excluding, for this purpose,
those persons who were shareholders prior to the Offering, had voted
against the Business Combination, the Business Combination would not have
been consummated. For the first Business Combination consummated by the
Company, all of the Company's shareholders prior to the Offering,
including all of the officers, directors and advisors of the Company
("Initial Shareholders") agreed to vote their shares of common stock in
accordance with the vote of the majority in interest of all other
shareholders of the Company ("Public Shareholders") with respect to any
Business Combination. After consummation of the Company's first Business
Combination, these voting safeguards were no longer applicable.
When the Business Combination was approved and consummated, any Public
Shareholder who had voted against the Business Combination could have
demanded that the Company redeem his shares. The per share redemption
price equaled the amount in the Trust Fund, as of the record date for
determination of shareholders entitled to vote on the Business
Combination, divided by the number of shares held by Public Shareholders.
Accordingly, Public Shareholders holding 19.99% of the aggregate number of
shares owned by all Public Shareholders could have had their shares
redeemed at the time of the Business Combination. The Company classified
the value of this redemption as common stock, subject to possible
redemption, on its balance sheet at December 31, 1994 prior to the
consummation of the Business Combination. Such Public Shareholders were
entitled to receive their per share interest in the Trust Fund computed
without regard to shares held by Initial
F-22
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars, Except Share and Per Share Amounts)
Shareholders. On August 21, 1995, in connection with the Company's
acquisition of Bogen and Speech Design, the Company reclassified the
common stock subject to possible redemption to common stock. No shares of
stock were redeemed as discussed above.
The Company's Certificate of Incorporation had provided for mandatory
liquidation of the Company, without shareholder approval, in the event
that the Company did not consummate a Business Combination.
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 unregistered 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.
At December 31, 1997 and 1996, 4,285,885 and 3,660,000 shares of common
stock, respectively, were reserved for issuance upon exercise of
redeemable warrants.
Warrants
In June 1993, 300,000 Warrants were issued to various individuals in
consideration for providing the Company bridge financing until its
offering in October 1993. As referred to above, the Company issued
3,100,000 Warrants to purchase its common stock in connection with the
Offering.
Warrants to purchase 200,000 shares of common stock were issued to Geotek
in August 1995 in connection with the acquisition of Bogen and Speech
Design. These warrants were repurchased and retired by the Company on
November 26, 1997 (see Note 2). Another 60,000 Warrants were issued as
consideration for providing certain financings and services provided to
the Company to facilitate the Business Combination.
Warrants to purchase 250,000 shares of common stock were issued on
November 26, 1997 as part of the sale of common stock to D&S Capital, LLC,
an entity owned by the Chief Executive Officer and President of the
Company. Another 575,885 warrants to purchase common stock were issued on
November 28, 1997, to Helix Capital II, LLC ("Helix II")(see Note 14).
F-23
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars, Except Share and Per Share Amounts)
At December 31, 1997, the Company had the following warrants outstanding:
Weighted
Average
Exercise
Warrants to purchase common stock: Shares Price Expiration
--------- ----- --------------
1993 warrants 3,400,000 $5.50 October 2000
1995 warrants 60,000 $5.50 October 2000
1997 warrants 825,885 $5.35 November 2002,
January 2003
4,285,885
=========
12. 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, discretionary grants of
325,885 options in the aggregate were made to the Company's newly
appointed Chief Executive Officer and President outside the 1996 Plan. 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.
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
========= ====
F-24
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars, Except Share and Per Share Amounts)
(1) Weighted average exercise price.
The number of shares and weighted average price of options exercisable at
December 31, 1997 was 222,668 shares at $5.74 per share and had a weighted
average contractual life remaining of 8.5 years. At December 31, 1997,
609,667 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 10.00 per share.
Effective November 1, 1996, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). 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. Accordingly, no stock option related compensation
expense has been recognized for its stock-based compensation plans.
However, had the Company 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.
F-25
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars, Except Share and Per Share Amounts)
Pro forma net income available to common shareholders and net income per
common share for the year ended December 31, 1997 was as follows:
Net Income available to common shareholders:
As reported 2,487
Pro forma 2,190
Net Income per common share:
Basic:
As reported .46
Pro forma .41
Diluted:
As reported .46
Pro forma .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 $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.
13. Income (Loss) Per Common Share
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" (SFAS 128). SFAS 128 establishes
standards for computing and presenting earnings per share and is effective
for financial statements for both interim and annual periods ending after
December 15, 1997.
Under SFAS 128, the Company is required to present two earnings per share
amounts for each period presented, and all prior period earnings per share
amounts are required to be restated to conform with the provisions of SFAS
128.
Basic income (loss) per common share is computed by dividing net
income (loss) available to common shareholders by the weighted average
number of common shares outstanding during the period. Diluted net
income (loss) per common share gives effect to all dilutive potential
common shares that were outstanding during the period. Potential
common shares are not included in the calculation of diluted income
(loss) per common 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 11) and outstanding options and
warrants have not been included in the calculation of diluted net income
(loss) per common share for the years ended December 31, 1997, 1996 and
1995 since their inclusion would be anti-dilutive. Such outstanding
options, warrants and Preferred Stock, could potentially dilute Basic
income per common share in the future.
14. Related Party Transactions
In 1995 the Company issued 132,431 shares of its common stock for services
received in connection with the acquisition of Bogen and Speech Design. Of
these shares, 19,565 were issued to a member of the Board of Directors of
Geotek.
F-26
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars, Except Share and Per Share Amounts)
During 1995, in conjunction with the acquisition of Bogen and Speech
Design Geotek forgave $7,155 in long-term debt due Geotek, which was
recorded as an increase in additional paid-in capital. As part of this
acquisition, the Company issued $3,000 in convertible promissory notes to
Geotek which was reduced and restructured to a $500 non-convertible
promissory note due July 1997 (see Note 2 "Basis of Presentation").
In August 1997, the Company entered into a Mergers and Acquisition
Engagement Agreement (the "Agreement"), with Helix Capital Services, Inc.
("Helix Services"), the successor to Helix Capital Services, LLC. The
Agreement, as amended on November 28, 1997, extends through December 2000
and provides for, among other things, (i) Helix Services to serve as a
non-exclusive financial advisor and finder for the Company's merger and
acquisition transactions, (ii) specifies levels of effort and resources on
the part of Helix Services in connection with performing its duties under
the Agreement, (iii) monthly retainer payable to Helix Services in the
amount of $20 per month, and (iv) success fees payable to Helix Services
based upon transaction consideration. Certain partners of Helix Services
are members of the Company's Board of Directors.
In connection with entering into the amendment, Helix II, an affiliate of
Helix Services, was provided with an opportunity to invest in the Company.
As of November 28, 1997, Helix II purchased non-transferable Warrants (the
"Warrants") to purchase 575,885 shares of the Company's common stock, for
a purchase price of $115. The exercise price of the Warrants is $5.50 per
share of common stock. Subject to certain exceptions in the event of a
change of control, the Warrants will not be exercisable until the one-year
anniversary of the date of issuance and expire on November 27, 2002. The
shares of common stock to which the Warrants are exercisable into, are
restricted as to tradability for a specific period of time.
F-27
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars, Except Share and Per Share Amounts)
15. Economic Dependency
During the years ended December 31, 1997, 1996 and 1995, the Company
purchased audio components in the amount of approximately $9,194, $12,072,
and $8,853, respectively, from four suppliers located in the Republic of
South Korea. The Company is currently monitoring the economical crisis in
South Korea closely and will take all measures within its control to
ensure that production of the Company's products will continue without
interruption. Should production by the Company's suppliers be curtailed,
the Company believes suitable suppliers in other parts of the world will
be available to satisfy its production requirements. However, there can be
no assurances that events beyond the Company's control will not disrupt
production or that suitable alternative source of production can be
identified on a timely basis, thereby resulting on material adverse
effects on the Company's results of operations.Any future inability of any
of these suppliers to provide the Company with a sufficient level of
components may have a negative impact on the Company's operations.
Sales to two customers accounted for more than 10% individually of the
Company's net sales in 1997. Sales to one customer accounted for more than
10% of the Company's net sales in 1996 and 1995.
1997 1996 1995
------ ------ ------
Customer A $5,147 $4,506 $4,440
Customer B $6,357 -- --
Twenty-one of Bogen's employees are subject to collective bargaining
agreements which expire in mid-2000.
16. Employee Benefit Plans
Bogen participates in multi-employer pension plans, which cover all union
employees. Contributions for the periods ended December 31, 1997, 1996 and
1995 were approximately $18, $17, and $15, 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 $122, $83, and $82 for the years ended
December 31, 1997, 1996 and 1995, respectively.
F-28
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars, Except Share and Per Share Amounts)
17. Segments
The Company's operations are conducted in one segment in the United States
(Bogen) and Germany (Speech Design). Information about the Company for
1997, 1996, and 1995 has been presented geographically as follows:
1997 1996 1995
------ ------- ------
Geographic Segments:
Revenues:
United States $31,734 $30,671 $30,677
Foreign 18,045 15,598 13,841
------- ------- -------
$49,779 $46,269 $44,518
Operating income (loss):
United States $ 2,288 $ 1,862 $(2,405)
Foreign 2,805 1,706 1,768
------- ------- -------
Income (loss) from operations $ 5,093 $ 3,568 (637)
======= ======= =======
Identifiable assets:
United States $25,148 $23,604 $24,425
Foreign 6,822 7,782 6,879
------- ------- -------
$31,970 $31,386 $31,304
======= ======= =======
F-29
Item 9. Changes and Disagreements with Accountants on Accounting and
Financial Disclosure
Disclosure responsive to this item has been previously reported (as that
term is defined under the Securities Exchange Act of 1934, as amended) in the
Company's Current Report on Form 8-K dated December 19, 1997.
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.
25
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements See "Item 8. Financial Statements and
Supplementary Data."
(a)(2) Financial Statement Schedules:
Schedule I: Condensed Financial Information of Bogen
Communications International, Inc. (Parent Company Only)
Schedule II: Valuation and Qualifying Accounts
26
Schedule I - Condensed Financial Information of Bogen Communications
International, Inc. (Parent Company Only)
BOGEN COMMUNICATIONS INTERNATIONAL, INC.
(Parent Company only)
BALANCE SHEETS
AS OF DECEMBER 31, 1997 and 1996
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Assets
1997 1996
---- ----
CURRENT ASSETS:
Cash and cash equivalents $ 257 $ 305
Advances to subsidiary 1,540 --
Prepaid expenses and other current assets 32 --
-------- --------
TOTAL CURRENT ASSETS 1,829 305
Organization costs, net 8 19
Investment in subsidiaries 20,282 17,643
Note receivable from subsidiary -- 553
-------- --------
TOTAL ASSETS $ 22,119 $ 18,520
======== ========
Liabilities & Stockholders' Equity
CURRENT LIABILITIES:
Accounts payable and accrued expenses 169 181
Preferred dividends payable 178 --
Advances from related party -- 169
-------- --------
TOTAL CURRENT LIABILITIES 347 350
Notes payable to subsidiary and related party 350 594
-------- --------
TOTAL LIABILITIES 697 944
STOCKHOLDERS' EQUITY:
Preferred stock - $.001 par value;
1,000,000 shares authorized; 200,000 shares issued and outstanding at
December 31, 1997, none issued and outstanding in 1996 (Liquidation
preference of $100 per share plus accrued dividends - $20,178) -- --
Common stock - $.001 par value; 50,000,000 shares authorized; 2,118,226
and 5,758,850 shares issued and outstanding at December 31,
1997 and 1996, respectively 2 6
Additional paid-in capital 23,468 21,774
Accumulated deficit (1,690) (4,177)
Currency translation adjustments (358) (27)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 21,422 17,576
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 22,119 $ 18,520
======== ========
The accompanying notes are an integral part of these financial statements.
27
Schedule I - Condensed Financial Information of Bogen Communications
International, Inc. (Parent Company Only)
BOGEN COMMUNICATIONS INTERNATIONAL, INC.
(Parent Company only)
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997, 1996
AND FOR THE PERIOD FROM AUGUST 21, 1995 TO DECEMBER 31, 1995
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1997 1996 1995
---- ---- ----
Net Sales $ -- $ -- $ --
Operating expenses:
General and administrative 331 371 173
Amortization 11 11 4
----------- ----------- -----------
Loss from operations (342) (382) (177)
Other (income) expenses:
Equity in (income) loss of
subsidiaries (3,019) (2,496) 2,740
Acquisition costs -- -- 1,491
Interest expense, net 12 42 135
----------- ----------- -----------
Income (loss) before provision
for income taxes 2,665 2,072 (4,543)
Provision for income taxes -- 64 --
----------- ----------- -----------
Net income (loss) 2,665 2,008 (4,543)
Preferred dividends 178 -- --
----------- ----------- -----------
Net income (loss) available
to common shareholders $ 2,487 $ 2,008 $ (4,543)
=========== =========== ===========
Basic net income (loss)
per common share $ 0.46 $ 0.35 $ (1.37)
=========== =========== ===========
Diluted net income (loss)
per common share $ 0.46 $ 0.35 $ (1.37)
=========== =========== ===========
Weighted average number of
common shares outstanding-Basic
and Diluted 5,399,199 5,759,075 3,311,668
=========== =========== ==========
The accompanying notes are an integral part of these financial statements.
28
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
(PARENT COMPANY ONLY)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(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 December 31, 1994 -- -- 1,615,155 $ 2 $ 12,638
Recapitalization by foreign subsidiary -- -- -- -- (967)
Accretion of redemption value
of common stock subject to redemption -- -- -- -- (52)
Reclass of common stock subject to
redemption to common stock upon
the Company's acquisition of
Bogen and Speech Design -- -- 309,845 -- 1,627
Forgiveness of Bogen inter-company debt
by Geotek -- -- -- -- 7,155
Issuance of common stock and other adjustments to
effect combination of Bogen and Speech
Design -- -- 3,701,919 4 (1,966)
Issuance of common stock and warrants to purchase
60,000 shares of common stock for services
provided to facilitate the acquisition of
Bogen and Speech Design -- -- 132,431 -- 740
Dividend paid by subsidiary to minority shareholders -- -- -- -- --
Translation adjustments
Net loss -- -- -- -- --
---------- ----------- ----------- ---------- -----------
Balance at December 31, 1995 -- -- 5,759,350 $ 6 $ 19,175
Restructuring of $3,000 related party
note with related interest -- -- -- -- 2,602
Repurchased and cancelled common
stock -- -- (500) -- (3)
Translation adjustments -- -- -- -- --
Net income -- -- -- -- --
---------- ----------- ----------- ---------- -----------
Balance at December 31, 1996 -- -- 5,758,850 $ 6 $ 21,774
Currency
Accumulated Translation
Deficit Adjustments Total
------------- -------------- ------------
Balance at December 31, 1994 $ (2,428) $ 37 $ 10,249
Recapitalization by foreign subsidiary 967 -- --
Accretion of redemption value
of common stock -- -- (52)
Reclass of common stock subject to
redemption to common stock upon
the Company's acquisition of
Bogen and Speech Design -- -- 1,627
Forgiveness of Bogen inter-company debt
by Geotek -- -- 7,155
Issuance of common stock and other adjustments to
Effect combination of Bogen and Speech
Design -- -- (1,962)
Issuance of common stock and warrants to purchase
60,000 shares of common stock for services
provided to facilitate the acquisition of
Bogen and Speech Design -- -- 740
Dividend paid by subsidiary to minority shareholders (181) -- (181)
Translation adjustments 110 110
Net loss (4,543) -- (4,543)
----------- ----------- -----------
Balance at December 31, 1995 $ (6,185) $ 147 $ 13,143
Restructuring of $3,000 related party
note with related interest -- -- 2,602
Repurchased and cancelled common
stock -- -- (3)
Translation adjustments -- (174) (174)
Net income 2,008 -- 2,008
----------- ----------- -----------
Balance at December 31, 1996 $ (4,177) $ (27) $ 17,576
The accompanying notes are an integral part of these financial statements.
29
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
(PARENT COMPANY ONLY)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(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
--------- ------ ------------ ------ ----------
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
Translation adjustments -- -- -- -- --
Preferred dividends -- -- -- -- --
Net income -- -- -- -- --
------- ------ ---------- ------ ----------
Balance at December 31, 1997 200,000 -- 2,118,226 $ 2 $ 23,468
======= ====== ========== ====== ==========
Currency
Accumulated Translation
Deficit Adjustments Total
---------- ----------- -----------
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
Translation adjustments -- (331) (331)
Preferred dividends (178) -- (178)
Net income 2,665 -- 2,665
---------- ---------- ----------
Balance at December 31, 1997 $ (1,690) $ (358) $ 21,422
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
30
Schedule I - Condensed Financial Information of Bogen Communications
International, Inc. (Parent Company Only)
BOGEN COMMUNICATIONS INTERNATIONAL, INC.
(Parent Company Only)
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997, 1996 AND
FOR THE PERIOD FROM AUGUST 21, 1995 to DECEMBER 31, 1995
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1997 1996 1995
---- ---- ----
NET CASH USED IN OPERATING ACTIVITIES $ (268) $ (75) $ (383)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITES:
Cash obtained in the acquisition of
Bogen and Speech Design -- -- 8,149
-------- -------- --------
NET CASH PROVIDED BY INVESTMENT
ACTIVITIES -- -- 8,149
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of preferred stock,
common stock and warrants 20,440 -- --
Acquisition of common stock and
warrants held by Geotek (18,750) -- --
Dividend paid to Geotek related to
the combination -- -- (7,000)
Payment on debt to non-related party -- -- (115)
Advances and notes to subsidiaries
and related parties (1,398) (593) 317
-------- -------- --------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 292 (593) (6,798)
-------- -------- --------
Effects of Foreign Exchange Rate on Cash (72) 5 --
-------- -------- --------
INCREASE (DECREASE) IN CASH (48) (663) 968
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 305 968 --
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 257 $ 305 $ 968
======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
NON CASH INVESTING CASH FINANCING ACTIVITIES
Restructuring of $3,000 related party note and
related interest $ -- $ 2,602 $ --
======== ======== ========
Preferred stock dividends accrued $ 178 $ -- $ --
======== ======== ========
Common Stock and warrants issued as
consideration for certain services
provided to the Company in connection
with the combination $ -- $ -- $ 740
======== ======== ========
The accompanying notes are an integral part of these financial statements.
31
Schedule I - Condensed Financial Information of Bogen Communications
International, Inc.(Parent Company Only)
BOGEN COMMUNICATIONS INTERNATIONAL, INC.
(Parent Company Only)
Notes to Financial Statements
1. Organization and Business Operations:
Bogen Communications International, Inc. (and, together with its
subsidiaries, the "Company") is engaged in the development,
manufacturing and marketing of sound and telecommunication products.
Product lines sold by the Company include; Telephone Paging Products
("Telco"), Commercial Audio Products ("Commercial Sound") 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:
a. Basis of Presentation
These parent company only comparative financial statements reflect the
operations and financial position of the Company for the years ended
December 31, 1997, 1996 and 1995. As described in the footnotes to the
consolidated financial statements, the acquisition of Bogen and Speech
Design on August 21, 1995 has been accounted for as a reverse
acquisition by Bogen and Speech Design, companies under the common
control of Geotek.
b. Organization Costs
Organization costs incurred in 1993 are being amortized over 60 months.
c. Income (Loss) Per Common Share
Income (loss) per common share ("EPS") has been computed based upon
Financial Accounting Standards No. 128, "Earnings Per Share" ("FAS
128"). Basic EPS is calculated by dividing net income (loss) 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 (loss) available to common shareholders by the
weighted-average number of common shares outstanding and all common
stock equivalents for the periods presented.
d. Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with
an original maturity of three months or less to be cash equivalents.
32
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, 1997:
Allowance for doubtful
Accounts $ 470 $ 184 $ 20(c) $ (298)(a) $ 376
Reserve for inventory
Obsolescence 1,126 383 10 (990)(b) 529
Allowance for tax valuation 4,137 (940) -- -- 3,197
------- ------- ------- ------- -------
$ 5,733 $ (373) $ 30 $(1,288) $ 4,102
======= ======= ======= ======= =======
Year ended December 31, 1996:
Allowance for doubtful
Accounts $ 424 $ 153 $ (1)(c) $ (106)(a) $ 470
Reserve for inventory
Obsolescence 2,552 257 (16)(c) (1,667)(b) 1,126
Allowance for tax valuation 4,831 (694) -- -- 4,137
------- ------- ------- ------- -------
$ 7,807 $ (284) $ (17) $(1,773) $ 5,733
======= ======= ======= ======= =======
Year ended December 31, 1995:
Allowance for doubtful
accounts $ 365 $ 311 $ -- $ (252)(a) $ 424
Reserve for inventory
obsolescence 1,267 2,216 6(c) (937)(b) 2,552
Allowance for tax valuation 3,132 1,631 68 -- 4,831
------- ------- ------- ------- -------
$ 4,764 $ 4,158 $ 74 $(1,189) $ 7,807
======= ======= ======= ======= =======
(a) Uncollectible accounts written off, net of recoveries.
(b) Write-off of obsolete inventory.
(c) Currency exchange effect.
33
(b) Reports on Form 8-K
Two reports on Form 8-K were filed in the fourth quarter 1997.
No financial statements were included with such Forms 8-K. The
following is a list of the Forms 8-K filed and the dates
thereof.
(i) A Form 8-K was filed on December 11, 1997 reporting that the Company
re-purchased Geotek Communications, Inc. investment in the Company and
that the Company issued $20,000,000 of 9% Convertible Preferred Stock.
(ii) A Form 8-K was filed on December 19, 1997 reporting, among other
things, that the Company had changed independent accountants.
(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 Certificate of Designation, Preferences and Rights of Convertible
Preferred Stock of Bogen Communications International, Inc. 7
4.7 Certificate of Correction to the Certificate of Designation,
Preferences and Rights of Convertible Preferred Stock of Bogen
Communications International, Inc. 7
10.1 Form of Agency Agreement, dated as of June 28, 1993, between the
Company and GKN Securities Corp. (without schedules). 1
10.2 Letter Agreement among each of the Stockholders of the Company,
the Company and GKN Securities Corp. (without schedules). 1
10.3 Form of Investment Management Trust Agreement between United
States Trust Company of New York and the Company. 1
10.4 Form of Share Escrow Agreement between the Company and Continental
Stock Transfer & Trust Company. 1
10.5 Form of Indemnification Agreement between the Company and its
officers, directors and advisors. 4
*10.6 Option Agreement, dated August 21, 1995, among Geotek
Communications, Inc., European Gateway Acquisition Corp., Mr.
Kasimir Arciszewski and Mr. Hans Meiler.
10.7 Summary of Agreement for Business Credit between Speech Design
GmbH and Statelparkasse Munchen. 6
10.8 Secured Revolving Promissory Note dated February 6, 1997 between
Summit Bank and Bogen Communications, Inc. 6
10.9 Loan and Security Agreement dated February 6, 1997 between Summit
Bank and Bogen Communications, Inc. 6
34
10.10 Corporate Guaranty of Bogen Communications International, Inc. 6
10.11 Corporate Guaranty of Bogen Corporation. 6
*10.12 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.
*10.13 First Amendment to the Loan and Security Agreement, dated
July 1, 1997, between Summit Bank and Bogen Communications,
International, Inc.
10.14 Stock Purchase Agreement, dated November 26, 1997, between the
Company and Geotek. 7
10.15 Convertible Preferred Stock Purchase Agreement, dated November 26,
1997, between the Company and the Investors.7
10.16 Employment Agreement, dated November 26, 1997, between the Company
and Mr. Jonathan Guss. 7
10.17 Employment Agreement, dated November 26, 1997, between the Company
and Mr. Michael Fleischer. 7
10.18 Option Agreement, dated November 26, 1997, between the Company and
Mr. Jonathan Guss. 7
10.19 Option Agreement, dated November 26, 1997, between the Company and
Mr. Michael Fleischer. 7
10.20 Common Stock and Warrant Purchase Agreement, dated November 26,
1997 between the Company and D&S Capital, LLC. 7
10.21 Warrant, dated November 26, 1997, issued by the Company to D&S
Capital, LLC. 7
10.22 Mergers and Acquisition Engagement Agreement, dated August, 1997,
as amended as of November 28, 1997 between Helix Capital Services,
LLC and Bogen Communications International, Inc. 8
10.23 Warrant Purchase Agreement, dated as of November 28, 1997, between
Helix Capital II, LLC and Bogen Communications International,
Inc. 8
10.24 Warrant, dated November 28, 1997, issues by Bogen Communications
International, Inc. to Helix Capital II, LLC. 8
*21.1 Subsidiaries of the Company.
*23.1 Consent of KPMG Peat Marwick LLP.
*23.2 Consent of Coopers & Lybrand L.L.P.
*23.3 Consent of Coopers & Lybrand L.L.P.
*23.4 Consent of Coopers & Lybrand L.L.P.
*23.5 Report of Independent Auditor
- ------------
*Filed Herewith
1. Incorporated by reference to the Exhibits to the Company's Registration
Statement on Form S-1 (File No. 33-65294), dated October 7, 1993.
2. Incorporated by reference to the Exhibits to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1994.
3. Incorporated by reference to the Exhibits to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended September 30, 1995.
4. Incorporated by reference to the Exhibits to the Company's Current Report
on form 8-K dated August 21, 1995.
5. Incorporated by reference to the Exhibits to the Company's 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.
35
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,
(Principal Executive Officer) and Secretary
(Principal Financial Officer)
By: /s/ Michael P. Fleischer
----------------------------
Michael P. Fleischer,
President
(Principal Executive Officer)
Date: March 31, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed on March 31, 1998 by the following persons on behalf
of the Registrant in the capacities indicated.
/s/ Jonathan Guss Director, Chief Executive Officer
- ------------------------------
Jonathan Guss
/s/ Michael P. Fleischer Director, President
- ------------------------------
Michael P. Fleischer
/s/ Jeffrey Schwarz Director, Co-Chairman of the Board
- ------------------------------ of Directors
Jeffrey Schwarz
/s/ Yoav Stern Director, Co-Chairman of the Board
- ------------------------------ of Directors
Yoav Stern
/s/ David Jan Mitchell Director
- ------------------------------
David Jan Mitchell
/s/ Zivi R. Nedivi Director
- ------------------------------
Zivi R. Nedivi
/s/ Daniel Schwartz Director
- ------------------------------
Daniel Schwartz
36
EXHIBIT INDEX
Exhibit
No.
10.6 Option Agreement, dated August 21, 1995, among Geotek Communications,
Inc., European Gateway Acquisition Corp., Mr. Kasimir Arciszewski and Mr.
Hans Meiler
10.12 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.
10.13 First Amendment to the Loan and Security Agreement dated July 1, 1997,
between Summit Bank and Bogen Communications, Inc.
21.1 Subsidiaries of the Company
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of Coopers & Lybrand L.L.P.
23.4 Consent of Coopers & Lybrand L.L.P.
23.5 Report of Independent Auditor
37