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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1998 or
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[ ] 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
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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
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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. [ ]
The aggregate market value of the voting stock, based on the closing price
of the Registrant's common stock on March 29, 1999, as reported on the Nasdaq
National Market System ("NASDAQ"), held by non-affiliates of the Registrant was
approximately $18,831,104.
As of March 29, 1999, 6,674,071 shares of the Registrant's Common Stock,
par value $.001 per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III of this Form 10-K is incorporated
by reference to the definitive proxy statement for the 1999 annual meeting of
stockholders of Bogen Communications International, Inc., which definitive proxy
statement will be filed no later than 120 days after December 31, 1998.
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PART I
All statements contained herein that are not historical facts, including,
but not limited to, statements regarding Bogen Communications International,
Inc. and its subsidiaries (collectively, the "Company") and its current business
strategy, projected sources and uses of cash, and plans for future development
and operations, are based upon current expectations. These statements are
forward-looking in nature and involve a number of risks and uncertainties.
Actual results may differ materially. Among the factors that could cause actual
results to differ materially are the following: competitive factors, including
the fact that the Company's competitors are highly focused and may have greater
resources and/or name recognition than the Company; changes in technology and
the Company's ability to develop or acquire new or improved products and/or
modify and upgrade its existing products including, but not limited to, the
introduction and development of the Company's Thor products; changes in labor,
equipment and capital costs; changes in access to suppliers and sub-contractors,
including the current instability in Asia which may adversely affect the
Company's suppliers and subcontractors; 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; employee
turnover; issues relating to the Company's internal systems, including Year 2000
issues; 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., (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 Speech
Design GmbH, a German corporation ("Speech Design"), and their respective
subsidiaries.
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 product
family called "Memo", Speech Design has added innovative non-PC based voice mail
systems to its existing line of telecommunication peripheral products, which
includes voice-mail, automated attendants, digital announcers and
message/music-on-hold systems. In late 1998, Speech Design introduced the
Teleserver Pro range of modular, higher-end (4-8 ports) voice and call
processing peripherals. In addition to higher capacity voice mail then possible
with Memo, Teleserver will also offer ACD (automatic call distribution)
functionality by the end of 1999.
On December 31, 1998, Speech Design, acquired 100% of Digitronic Computer
system GmbH ("Digitronic"). Digitronic's flagship product, Thor, improves
communications within any enterprise and delivers value-added services to
Internet service providers ("ISPs"). Thor integrates fax and voice-mail into an
existing e-mail environment.
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 sub-contractors, 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.
Company History
The Registrant, formerly known as European Gateway Acquisition Corp., 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 product 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 the 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)
warrants to purchase 200,000 shares of 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 contingent payment 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, and no contingent payments were required to be made.
On November 26, 1997, the Company acquired all 3,701,919 shares of Common
Stock and warrants held by Geotek for $18,500,000, or approximately $5.00 per
share of Common Stock outstanding or $4.74 per share on a diluted basis,
including the warrants. Simultaneously with the repurchase of the Common Stock
and warrants held by Geotek, the Company sold 200,000 shares of 9%
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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 carried a
9% semi-annual cumulative dividend which could be paid in cash or in-kind at the
sole discretion of the Company. Each share of Preferred Stock was convertible at
any time at the option of the holder, into 18.605 shares of Common Stock (or
3,721,000 shares of Common Stock based on an initial conversion price of
$5.375).
On July 1, 1998, all Preferred Stock Shareholders elected to redeem their
Preferred Shares and convert them to Common Stock. The Company elected to pay
all accrued dividends from November 27, 1997 to June 30, 1998, totaling
$1,077,534, in Preferred Shares, for a total of 10,775 Preferred Shares. After
converting all Preferred Shares and accrued dividends into Common Stock, the
Preferred Shareholders received a total of 3,921,477 Common Shares of Bogen.
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.
See below under the headings "Bogen" and "Speech Design" for a discussion
of other acquisitions consummated by the Company.
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.
In 1991, Bogen introduced its first product in a line of
telecommunications peripherals, the Telco product line. That first product 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 systems ("MOH").
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. NEAR is best known for its high performance,
all environment speakers. NEAR is a part of the Company's Commercial Sound line
of products and their products will be marketed with Bogen's product lines.
Bogen's 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
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systems, and background music in offices, restaurants, hotels, stores, etc.
During 1997, NEAR's All Environment Speakers were added to Commercial Sound's
product line.
Commercial Sound net sales for the years ended December 31, 1998, 1997 and
1996 were $11,640,000, $11,250,000 and $9,315,000, respectively. Commercial
Sound provided 22.3%, 22.6% and 20.1% of the Company's net sales for the years
ended December 31, 1998, 1997 and 1996, 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, 1998, 1997
and 1996 were $7,520,000, $8,082,000 and $6,682,000, respectively. Engineered
Systems net sales accounted for 14.4%, 16.2% and 14.5% of the Company's net
sales for the years ended December 31, 1998, 1997 and 1996, respectively.
Telco U.S.
Bogen's Telco U.S. products consist of telephone-based overhead paging
systems and equipment and digital message/music-on-hold players. These products
allow installers to increase the value of their telephone system offerings by
providing users with enhanced efficiency and convenience. In the fourth quarter
of 1997, Bogen introduced a new MOH system, Pro-Hold DRDX. The DRDX products
allow music-on-hold programs to be downloaded to the user site remotely over
telephone lines, using a digital modem transfer, whereas the traditional
Pro-Hold required a cassette tape to be physically delivered to the user site.
Bogen's Telco U.S. net sales for the years ended December 31, 1998, 1997
and 1996 were $12,591,000, $12,402,000 and $14,674,000, respectively, which
include $0, $214,000 and $1,552,000 of the Company's discontinued Office
Automated Systems product line for the years ended December 31, 1998, 1997 and
1996, respectively. Speech Design also has a Telco line of products, see "Speech
Design - Product Line". Telco U.S. net sales provided 24.2%, 24.9% and 31.7% of
the Company's net sales for these respective years.
Bogen's Sales and Marketing
Commercial Sound and Engineered Systems
Bogen distributes its Commercial Sound products through a network of
approximately 2,400 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
contractors and dealers market Bogen's school intercom systems.
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.
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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 U.S.
Bogen distributes its Telco products to approximately 25 distributors who
operate more than approximately 200 telecommunications distribution centers.
These distributors sell to thousands of telecommunications installers or
interconnects across North America. In addition to its distribution network,
Bogen has a relationship with 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 U.S.'s
export sales to Europe are handled through the Company's subsidiaries in Europe.
Export sales to other foreign countries are handled in the same manner as sales
within the United States (i.e., through distributors, dealers and contractors
that purchase the products and sell them to an established account base
overseas).
Bogen's Operations
All components and materials used in the construction of Bogen's products
are of standard commercial quality or better, and are readily available from
overseas and United States suppliers. Bogen relies principally upon an
established network of suppliers and subcontractors primarily located in the
Republic of South Korea, and to a lesser extent elsewhere in East Asia, and the
United States. These suppliers and sub-contractors either produce sub-assemblies
for use in the final assembly of a finished product or produce the finished
products themselves. Products are based on Bogen designs and are built in
accordance with Bogen drawings and specifications.
In view of the current economic instability in Asia, the Company is taking
precautions to ensure that production will continue without interruption such as
assuring, to the extent practicable, that
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alternative sources of supplies and subcontractors are available. There can be
no assurance, however, that events beyond the Company's control, including,
without limitation, the financial requirements of any of the Company's suppliers
and subcontractors, will not disrupt the production schedule or the Company's
source of supplies. Any such disruption may have a material adverse effect on
the Company's results of operations.
Bogen's Patents and Trademarks
"Bogen(R)" is a trademark of the Company which is registered in the United
States and in certain foreign countries throughout the world. This trademark
expires in the United States in March 2000. The company is currently taking
steps to renew this trademark. Bogen has also obtained U.S. trademark
registration for the trade name "Multicom2000(R)." This trademark is utilized in
connection with Engineered Systems and expires in June 2001. In addition, during
1996, Bogen obtained a U.S. trademark for the mark "Speech Design(R)", which
will expire on December 31, 2006 and which can be renewed at that time for an
additional ten years. The Company believes that certain of these trademarks
provide substantial value to the Company.
In June 1998, Bogen was awarded a patent for the technology of its Pro
Matrix(TM) amplifier product. In December 1998, Bogen was notified that its
application for its Pro DRDX product (an MOH system) technology had been
accepted by the Patent Office. In addition, the Company has one pending patent
application for its automatic paging system technology ("APS2000") and
additional pending claims for MOH. NEAR has two patents related to its speaker
products, one for its MLS (Magnetic Liquid Suspension) Spiderless cone speaker
expiring in 2011 and the other for an in-ground sub-woofer, which was granted in
1998, expiring in 2015.
Bogen's Research and Development
Bogen's in-house engineering department is responsible for research and
development and production engineering. In 1998, the R&D Department focused on
new innovative solutions for the Telco paging market by developing the APS 2000,
a call completion system, incorporating paging, voice messaging and wireless
messaging into one integrated system. This system is currently in beta testing.
There can be no assurance however, that Bogen will be able to complete the
development of APS 2000.
Bogen re-engineered certain products in the MOH product category and some
amplifiers in the Commercial Sound product line for better performance at lower
cost. Bogen also developed the Easy Install Speaker, first in a family of new
products that significantly reduces design and installation time for ceiling
speakers. With this and other members of the product family, telecom equipment
installers, faced with rising labor costs and scarcity of trained installation
personnel, will be able to enhance their productivity, efficiency and
profitability.
There can be no assurances that any new products will be able to compete
with similar products offered by other manufacturers. Research and development
expenditures for the years ended December 31, 1998, 1997 and 1996 were
$1,567,000, $1,665,000 and $1,865,000, respectively.
Bogen's 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
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the top two or three suppliers or which have substantial growth potential.
Bogen's key strength continues to be its distribution channels and name
recognition, especially in the school market, background/foreground music
market, and the security markets.
Bogen's Telco U.S. products compete in the MOH and over-head paging niches
of the Telco market. 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. Bogen's main competitors in the
Message-On-Hold voice processing market are NelTech Labs, Premier, Inc., and
Mackenzie Labs.
In the over-head paging market, Bogen's main competitor is Valcom, Inc., a
company which has been established in this market for several decades. Several
other U.S. companies, which have been losing market share over the past few
years, and several companies attempting to enter the market also compete with
Bogen's over-head paging products. Bogen believes it has increased its share in
recent years.
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 at
the Sound and System Contractor level is TOA Electronics, a Japanese company
("TOA"), and Bogen's principal competitor at the General Line/Master Distributor
level is University Sound, a U.S. based manufacturer ("University").
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 it is
a leading competitor in this channel.
At the contractor level, Bogen faces competition from many sources,
including a number of 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. There are a number of comparatively
small manufacturers with whom Bogen competes, whose sales and market share
depend upon established reputation for quality and support and solid
relationships with their account base. Bogen concentrates on customer needs to
design, manufacture and market tailored packaged solutions for each particular
vertical market.
The Engineered System customer market is a highly specialized market
characterized by low unit volume and high dollar sales. Bogen's principal
competition comes from Rauland Borg Corp., the market leader in this area, and
Dukane Corporation, each of which, like Bogen, has been in the market for
several decades and has well established name recognition and distribution
channels. Rauland Borg Corp. is currently the acknowledged market leader.
Backlog of Orders
As of December 31, 1998, Bogen had a backlog of firm orders of
approximately $852,000, all of which it expects to fill within 1999. As of
December 31, 1997, Bogen had a backlog of firm orders of approximately $373,000,
all of which were filled in 1998.
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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 and has rapidly become one of the
fastest selling voice mail systems in the 2 - 4 port (channel) category. In late
1998, Speech Design introduced the Teleserver Pro range of modular, higher-end
(4 - 8 port) voice and call processing peripherals. In addition to higher
capacity voice mail than possible with Memo, Teleserver will also offer ACD
(automatic call distribution) functionality by the end of 1999. Management
expects Teleserver to contribute significantly to Speech Design's strategic goal
of becoming a market leader in the growing European voice processing market.
There can be no assurance, however, that Speech Design will be able to complete
the development of automatic call distribution for its Teleserver product, nor
can there be any assurance that any new products will be able to compete with
similar products offered by other manufacturers.
In 1994, Speech Design launched a program to establish an international
market presence. Speech Design signed distribution contracts with partners in
ten European countries and gained entry in telecom, telegraph and telephone in
most major European markets. Also on July 1, 1994, Speech Design acquired a 67%
interest in Satelco 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 24% of total sales in 1996 to 26% in 1997 to
27% in 1998 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 its
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, resulting in reduced manufacturing cost and tax
levels. The Israeli facility was granted a 10-year income-tax exemption
effective January 1, 1997.
On May 20, 1998, the Company consummated the acquisition of the remaining
33% equity interest in Speech Design, held by Mr. Kasimir Arciszewski and Mr.
Hans Meiler, the founders and managing directors of Speech Design. The aggregate
consideration paid by the Company for the 33% equity interest approximated $8
million before acquisition costs, consisting of DM 7,570,000 (approximately U.S.
$4.3 million) in cash and 458,000 restricted shares of the Common Stock.
On December 31, 1998, Speech Design acquired 100% of Digitronic, located
in Northern Germany. Digitronic is a developer and manufacturer of LAN and
Internet based unified messaging products. The aggregate purchase price,
including direct costs of $145,000, amounted to approximately $1.2 million in
cash and assumption of certain liabilities. The terms of the acquisition
agreement also
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provide for additional cash consideration up to DM 2.8 million (or approximately
$1.7 million) to be paid if Digitronic's sales during the next two years exceed
certain targeted levels. Targeted levels have been set substantially above the
historical experience of Digitronic at the time of acquisition.
Digitronic's flagship product, Thor, improves communications within any
enterprise and delivers value-added services to Internet service providers
("ISPs"). Thor integrates fax and voice mail into an existing e-mail
environment. The user can retrieve and manipulate all messages either locally,
using the familiar PC-desktop or remotely, via an Internet computer, telephone
or fax machine from anywhere in the world. Services such as listening to e-mails
on the telephone, forwarding e-mails or faxes to a fax machine nearby, or
message notification to a mobile phone are available. Thor has been sold to
several major ISPs operating in Europe, including America On Line. Others are
currently evaluating the system. The launch of the enterprise version,
compatible with MS Exchange, Lotus Notes and other corporate e-mail servers, is
planned in the first half of 1999.
Speech Design's 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 $20,352,000,
$18,045,000, and $15,598,000 for the years ended December 31, 1998, 1997 and
1996, respectively. Speech Design Telco sales amounted to 39.1%, 36.3% and 33.7%
of the Company's net sales for these years.
Speech Design's Sales and Marketing
The general market for Speech Design's products is the underdeveloped, but
rapidly growing, European voice processing market for commercial and industrial
end-users. According to the Company's estimates, the current penetration in
Europe of applications such as voice mail is very low compared to the levels in
the U.S.
Speech Design markets its PABX peripherals to major manufacturers and
distributors of PABX systems throughout Europe for use by mid-size companies
consisting of approximately 50-200 employees. PABXs are multiple-line business
telephone systems, which are installed at end users' businesses to facilitate
internal and external communications. The PABX is an alternative to providing
each employee in a company with his or her own direct line. The major
manufacturers integrate Speech Design's products with their PABXs for sale to
the end-user as part of a new system. The increased visibility of Speech
Design's products has led to more Speech Design peripherals being sold to owners
of previously installed PABXs.
Speech Design attempts to differentiate itself both from high-end
suppliers of large customized systems and suppliers of semi-professional,
price-sensitive solutions for the small company sector by providing standard,
high-quality, affordable and easy-to-use products for the small to mid-size
PABX.
Speech Design sells its products through resellers. In Germany, Speech
Design's main customers are sales organizations of leading PABX manufacturers
and major independent dealers. In other European countries, Speech Design has
exclusive agreements with national distributors, which in Switzerland and the UK
are Speech Design subsidiaries, which market to the reseller base in their
respective territories. In the United States, Bogen is the exclusive distributor
of Speech Design products. Sales to two customers of Speech Design totaled
$14,050,000; each accounting for more than 10% of the Company's consolidated net
sales in 1998.
-9-
Germany
In Germany, Speech Design has developed an effective approach for local
distribution of voice processing products. Speech Design sells directly to the
regional sales offices of the leading manufacturers of PABX equipment including
Siemens, Alcatel, Bosch Telecom, DeTeWe and Philips. Over 75% of Speech Design's
sales are to these customers (which percentage corresponds to these
manufacturers' approximate joint share of the PABX market). Speech Design has
achieved central pricing agreements and technical as well as commercial
endorsements from the headquarters of each of these companies. The regional
offices of these companies consist of approximately 200 locations and a combined
sales force of approximately 3,000 people. Speech Design's own sales and
technical team of 20 individuals supports and motivates the regional sales
forces of the large PABX companies to actively market Speech Design's products.
Speech Design routinely updates its data bank of all PABX sales representatives
in Germany to help the sales team optimize communications and efficiency.
Speech Design considers its sales network in Germany, Europe's largest
telecommunications market, to be one of its most valuable assets and a market
entry barrier to potential competitors.
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.
Speech Design's 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.
Speech Design maintains a computerized order processing and warehouse
system and a level of product availability that generally enables it to deliver
products in Germany on an average of three days after receipt of an order and
within two weeks after receipt of an order from other countries.
Speech Design's Patents and Trademarks
"Speech Design(TM)" is a registered trademark in Germany and the U.S.
Several of Speech Design's products also have registered trademarks including:
Mozart(TM), Genius(TM), and Sissy(TM) (Germany only).
Speech Design's Research and Development
Speech Design's in-house engineering department is responsible for
research and development and production engineering of all Speech Design
products. In 1998, the R&D department focused on the development of Speech
Design's next generation call processing platform, Teleserver Pro. Teleserver
Pro incorporates a modular suite of telecom applications, including voice mail,
auto attendant, information &
-10-
music on-hold and automatic call distribution. Upgrades and additional
applications may be introduced over time via CD ROM and plug-in modules.
Teleserver Pro is a higher-end addition to Speech Design's popular Memo line of
voice mail and related products. The new system enables configurations up to 8
ports (telephone channels) and 37 hours of voice storage, making it suitable for
larger businesses than served by Memo (maximum configuration: 4 ports/7hrs).
Additionally, Speech Design developed Memo Lite, a low-end voice mail platform
on a single board, aimed at small telephone systems of up to 15 extensions/voice
mail boxes, Teleserver Pro is currently in the market introduction phase (voice
mail/auto attendant/music & information on-hold), the automatic call
distribution module is still being developed. Memo Lite is in beta testing.
There can be no assurance that Speech Design will be able to complete the
development of Teleserver Pro and Memo Lite, nor can there be any assurance that
any new products will be able to compete with similar products offered by other
manufacturers.
Research and development expenditures for the years ended December 31,
1998, 1997 and 1996 were $1,368,000, $926,000 and $ 1,027,000, respectively.
Speech Design's Competition
In Germany, Speech Design is the acknowledged market leader in the small
to mid-size PABX peripherals market. Speech Design's main competitor in Germany
is a provider of telephone peripherals primarily at the low-end of the Speech
Design product range (simple music-on-hold units and announcers). Speech
Design's management believes that its new Teleserver family of voice mail, ACD
and related products will increase its competitive advantage in Germany.
There is no single dominating company in the European market for small to
mid-size PABX peripherals. With the exception of Octel, Northern Telecom, Lucent
and a handful of other competitors who are highly focused on the large,
customized systems market, Speech Design's competition comes from a large number
of smaller companies offering PC-based voice mail systems. These companies tend
to be highly focused in their national markets and generally cannot afford to be
global players due to the cost of establishing distribution channels and gaining
regulatory approval for selling telecommunications products in each country.
Some of Speech Design's competitors include Beyer KG (Germany), a maker of
music-on-hold and announcer products, and U.S companies such as Active Voice and
AVT, manufacturers of higher-end PC-based voice mail products (mainly active in
the U.K.)
Management believes that the combination of Speech Design's mid-size PABX
focus, broad and unique product range and Europe-wide distribution presence may
enable Speech Design to become a leading provider of telephone peripherals in
many European countries. There can be no assurance, however, that such results
will occur or that the Teleserver family of voice mail and related products and
Thor Unified Messaging System will increase Speech Design's competitive
advantage in Germany, because this industry is highly sensitive to general
economic conditions and is characterized by rapid technological change. Speech
Design's ability to compete successfully may depend in substantial measure on
its ability to develop or acquire new or improved equipment, techniques and
products and/or to modify and upgrade its existing equipment, techniques and
products.
Speech Design's Backlog of Orders
As of December 31, 1998, Speech Design had a backlog of firm orders of
approximately $1,468,000, all of which it expects to fill in 1999. As of
December 31, 1997, Speech Design had a backlog of firm orders of approximately
$1,452,000, all of which were filled in 1998.
-11-
Strategy for Growth and Expansion
Management of the Company is seeking to enhance shareholder value through
revenue growth and cost reduction.
The Company's plan for growth includes expansion of its core product lines
through both internal and external development. 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 sales
and marketing focus and is exploring product development and innovation through
its own and others, 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 and Speech
Design have each retained Helix Capital Services, Inc. ("Helix Services"), a
successor to Helix Capital Services, LLC, to be a non-exclusive advisor in
advising the Company and its domestic subsidiaries and Speech Design and its
subsidiaries, respectively, on acquisition opportunities and Helix Services has
targeted several potential candidates. In order to support the Company's plan of
acquisition, the Company secured additional lines of credit for such purposes.
In the U.S., the Company obtained a $20 million acquisition line from KeyBank
N.A., and in Germany, Speech Design obtained a 15,000,000 Deutsche Mark
(approximately $9,000,000) acquisition line from DG Bank, of Frankfurt, Germany.
Also in order to further increase the Company's profitability, management
continues to explore cost savings through rationalization of core product
lines, re-engineering of existing products, 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 U.S. federal government regulates domestic telecommunications
equipment and related industries. The federal agency vested with primary
jurisdiction over the telecommunication industry is the Federal Communications
Commission (the "FCC"). Many telephone peripheral producers and distributors,
while not directly regulated by the FCC, are nevertheless substantially affected
by the enforcement of its regulations and changes in its regulatory policy.
The FCC has adopted regulations regarding attachments to the telephone
networks as well as regulations imposing radio frequency emanation standards for
computing and radio equipment and many of Bogen's products require authorization
by the FCC. In addition, many of Bogen's products also require the authorization
of the Underwriter's Laboratory ("UL"). All such required authorizations have
been obtained. As a result of modifications and improvements to Bogen's
products, Bogen will be obligated to seek new authorizations where there is a
degradation in the radio frequency emissions. Failure to obtain such
authorizations may preclude Bogen from selling its products in the U.S. Bogen
makes all reasonable efforts to ensure that its products comply with such
requirements.
To successfully access the Canadian market, Bogen must obtain Underwriters
Laboratory Canada and Canadian Standards Association authorizations for all AC
powered products, which it has done for all of its
current products.
-12-
All Speech Design products have been adapted to the technical
(PTT-approvals) and commercial sound requirements of West European markets. All
Speech Design products carry the Community European ("CE") marking, which is the
equivalent of a UL certification in the United States.
In 1995, Speech Design received the ISO 9001 Quality Certificate for its
research and development, production and customer support operations in Germany.
In 1996, the Quality Mark was extended to include Speech Design's Israel and
U.K. subsidiaries. ISO 9001 is an internationally recognized Quality Assurance
certification.
Employees
As of December 31, 1998, the Company had approximately 186 full-time
employees engaged in its businesses. The Company also uses temporary and/or
part-time employees, as required. Fourteen of Bogen's U.S. employees are subject
to collective bargaining agreements which expire in June and September of 2000.
The Company considers its relationship with its employees to be satisfactory.
Item 2. PROPERTIES
The Registrant's principal place of business is located at 50 Spring
Street, Ramsey, New Jersey 07446, which is subleased from an unaffiliated third
party. Bogen also maintains its principal warehouse and executive offices at
that location. The lease, which covers approximately 70,000 square feet,
commenced on January 1, 1987 and expires on December 31, 2000. Annual base
rental payments over the remainder of the lease are approximately $670,000, plus
taxes and other expenses.
Speech Design leases its facilities in Munich, Germany under leases
expiring in May 1999 and May 2005. It comprises of a warehouse and executive
offices, covering a total of 13,500 square feet. Speech Design also has
subsidiaries which have leases in Holm, Germany, Israel, the UK and Switzerland.
Speech Design and subsidiaries' aggregate annual rental payments are
approximately $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
On February 19, 1999, a complaint was filed in Landericht Dusseldorf Court
(4th Civil Chamber) claiming patent infringement and unfair competition by
Speech Design and its managing directors. Since the second quarter of 1998,
Speech Design has been contesting the plaintiffs' patent, which is the subject
of the complaint, in the German Patent Office. The case entitled Wolfgang Beyer
KG and COM Electronic GmbH v. Speech Design GmbH, Hans Mieler and Kasimir
Arciszewski, 4-0-87/99, is currently scheduled for a preliminary oral hearing on
April 29, 1999. The plaintiffs have temporarily estimated, but have not limited,
the damages at DM500,000 (or approximately $276,000) and are also requesting
injunctive relief. The Company intends to defend this lawsuit vigorously and
management does not believe it will have a material adverse effect on the
Company.
The Company is not aware of any other material pending or threatened legal
proceedings to which it is a party or of which any of its property is subject.
-13-
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
PART II
Item 5. MARKET PRICE FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Registrant's Common Stock and Warrants currently trade on the Nasdaq
National Market System ("NASDAQ") under the symbols "BOGN" and "BOGNW,"
respectively. 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. Between August 21, 1995 and August 4, 1998, the
Registrant's Common Stock, Warrants and Units were quoted on the American Stock
Exchange, under the symbols BGN, BGNW and BGNE respectively. The Units were
traded on the American Stock Exchange 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, 1996 through December 31, 1998, 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. Between August 21, 1995 and August 4, 1998, 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)
and between August 5, 1998 and December 31, 1998 the quotes represent the high
and low sales prices on the NASDAQ, under the symbols BOGN and BOGNW.
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 ($)
- - -------- -------- -------
Common Stock 5 3 3/4
Warrants 1 3/16 9/16
Units 4 3/4 4 1/4
-15-
October 1, 1996 to December 31, 1996
Security High ($) 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 ($)
- - -------- -------- -------
Common Stock 5 13/16 4 1/8
Warrants 1 7/16 11/16
October 1, 1997 to December 31, 1997
Security High ($) Low ($)
- - -------- -------- -------
Common Stock 7 3/8 4 5/8
Warrants 2 7/8
January 1, 1998 to March 31, 1998
Security High ($) Low ($)
- - -------- -------- -------
Common Stock 8 15/16 6 3/8
Warrants 3 3/8 1 1/2
April 1, 1998 to June 30, 1998
Security High ($) Low ($)
- - -------- -------- -------
Common Stock 9 5/16 7
Warrants 3 15/16 2 1/16
-16-
July 1, 1998 to September 30, 1998
Security High ($) Low ($)
- - -------- -------- -------
Common Stock 8 1/4 4 3/4
Warrants 3 1/4 1 1/64
October 1, 1998 to December 31, 1998
Security High ($) Low ($)
- - -------- -------- -------
Common Stock 7 1/4 4
Warrants 2 3/4 1/2
The Registrant has not declared or paid any cash dividends on its Common
Stock since commencing operations. The Company's domestic line of credit the
Registrant from declaring or paying any dividends on its capital stock. The
Registrant does not anticipate paying any dividends on the Common Stock in the
foreseeable future.
As of March 21, 1998, there were 46 record holders of the Common Stock.
17
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.
The following table summarizes certain selected consolidated financial
information for the Company and should be read in conjunction with the more
detailed consolidated financial statements and the notes thereto. See "Item
8. Financial Statements and Supplementary Data."
(In thousands, except per share data)
- - ---------------------------------------------------------------------------------------
Income Statement
For the Year Ended December 31, 1998 1997 1996 1995 1994
- - ---------------------------------------------------------------------------------------
Net sales $52,103 $49,779 $46,269 $44,518 $45,922
Gross profit $25,445 $23,094 $21,265 $17,180 $16,183
In-Process R&D $ 3,885 -- -- -- --
Income (loss) from operations $ 2,730 $ 5,093 $ 3,568 $ (637) $ 1,205
Net income $ 342 $ 2,665 $ 2,008 $(4,543) $ (355)
Preferred dividends $ 900 $ 178 $ -- $ -- $ --
Net income (loss) available
to common shareholders $ (558) $ 2,487 $ 2,008 $(4,543) $ (355)
Net income (loss) per common
share - Basic and Diluted $ (.12) $ 0.46 $ 0.35 $ (1.37) $ (0.18)
- - ---------------------------------------------------------------------------------------
Balance Sheet
For the Year Ended December 31, 1998 1997 1996 1995 1994
- - ---------------------------------------------------------------------------------------
Total assets(1) $37,747 $31,970 $31,386 $31,304 $32,866
Long-term debt (net
of current maturities) $ 227 $ 212 $ 370 $ 3,458 $ 5,039
(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.
-18-
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The consolidated financial statements and the following discussion include
the Registrant's 99% owned subsidiary Bogen; Bogen's wholly-owned subsidiary,
BCI; BCI's wholly-owned subsidiary, NEAR; Speech Design, a wholly subsidiary of
the Registrant as of May 21, 1998, when the Registrant acquired the remaining
33% equity it did not previously own; Satelco AG, a 67% owned subsidiary of
Speech Design ("Satelco"); and Speech Design's wholly-owned subsidiaries, Speech
Design (Israel), and Speech Design (UK), Ltd. The consolidated balance sheet as
of December 31, 1998 also includes Digitronic. All significant and Speech
Design's inter-company balances and transactions have been eliminated in
consolidation.
The ownership interest of minority owners in the equity and earnings of
the Company's less than 100 percent-owned consolidated subsidiaries is recorded
as minority interest.
RESULTS OF OPERATIONS 1998 COMPARED TO 1997
NET SALES
Net sales of $52,103,000 for 1998 increased 5% from 1997 net sales of
$49,779,000. The increase primarily resulted from increased sales of $2,307,000
in the Speech Design Telco product line in particular its Memo product line.
Bogen's 1998 net sales were virtually flat as compared to 1997's net sales.
Telco net sales in 1998 amounted to $32,943,000 compared to $30,447,000 in
1997, an increase of $2,496,000 or 8.2%. The increase of Telco sales is
primarily attributable to continued successful deployment of Speech Design's
Memo product line in the European market. Foreign net sales amounted to
$20,352,000 in 1998 as compared to $18,045,000 in 1997, an increase of 12.8%.
Foreign net sales stated in local currency increased to 35,943,000 Deutsche
Marks ("DM") during 1998, or 14.7% over net sales of 31,345,000 DM for 1997.
Bogen's Telco net sales in 1998 increased by 1.5% from $12,400,000 to
$12,591,000.
Net sales of Commercial Sound products amounted to $11,640,000 in 1998, an
increase of 3.5%, from net sales of $11,250,000 of such products in 1997. This
increase is primarily due to higher sales volume and better focus of the
Company's commercial sound sales force.
Net sales of the Engineered System line decreased $562,000 or 7.0% from
$8,082,000 in 1997 to $7,520,000 in 1998. This decrease is primarily attributed
to a deferment of available public funds for school technology and
communications installations. Management does not expect such trend to continue
in 1999.
All of the Company's product lines are distributed domestically through
Bogen. Some products are distributed in both domestic and overseas markets.
European Telco distributions are made through Speech Design.
GROSS PROFIT
The Company's gross profit in 1998 was $25,445,000, or approximately 48.8%
of sales, an increase of $2,351,000,or 10.1%, compared to $23,094,000, or 46.4%
of sales, in 1997.
-19-
Bogen's gross profit increased from $13,241,000 or 41.7% of sales in 1997
to $13,986,000 or 44.0% of sales in 1998. This increase is due primarily to a
reduction of costs of direct materials resulting from successful negotiation
with suppliers in late 1997 and a price increase in the second quarter of 1998
for the Engineered Systems product line.
Speech Design's gross profit increased from $9,853,000 in 1997 to
$11,459,000 in 1998. However, gross profit as a percentage of sales decreased
from 54.6% to 54.0% from 1997 to 1998. The decrease in gross profit as a
percentage of sales is a result of foreign currency exchange fluctuations, as
there was a 3.0% increase in gross profit in local currency (DM). This increase
in local currency is a result of lower material costs and product mix of higher
margin product sales, primarily sales of Memo.
IN-PROCESS RESEARCH & DEVELOPMENT
During 1998, the Company recorded a charge of $3,885,000 for the writeoff
of in-process R&D acquired in connection with the Company's business
acquisitions. The charge was comprised of (i) $2,905,000 as an in-process R&D
charge for the purchase of the remaining 33% equity in Speech Design not
previously owned by the Company and (ii) $980,000 for the acquisition of
Digitronic.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") increased by
$344,000, or 2.3%, during 1998 as compared to 1997. SG&A was $15,283,000, or
29.3%, of sales in 1998 compared to $14,939,000, or 30.0% of sales, in 1997.
This increase is a result of increased personnel and professional services
directly attributable to the Company's increased net sales, while slightly
reducing the SG&A as a percent of net sales.
ONGOING RESEARCH AND DEVELOPMENT
Research and Development expense ("R&D") was $2,935,000 or 5.6% of sales
in 1998 compared to $2,591,000, or 5.2% of sales in 1997. This represents a
$344,000 increase from 1997. The increase is primarily attributable to the
development costs for Speech Design's Teleserver Pro family of products.
INTEREST EXPENSE
Interest expense, including interest expense to related parties, was
$275,000 in 1998, a decrease of $154,000 or 35.9%, as compared to $429,000 in
1997. The decrease primarily relates to the new revolving credit line BCI
entered into in April 1998, which decreased BCI's borrowing rate to an average
interest rate of 8% at December 31, 1998, compared to 9% at December 31, 1997.
INCOME TAXES
The Company incurred approximately $1,909,000 in taxes, a $415,000
increase from 1997. The increase is due to increased profits, both domestic and
foreign. Foreign taxes increased by $469,000, which is directly attributable to
increased profits. Domestic taxes decreased by $54,000, principally reflecting
the utilization of post acquisition NOL carryforwards in the amount of $363,000,
offset by the preacquisition tax benefits.
-20-
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 existing 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
year 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 of Telco sales is primarily
attributable to continued successful deployment of the Company's voicemail and
MOH products in the European market. Foreign net sales increased from
$15,582,000 in 1996 to $18,045,000 in 1997, an increase of 15.8%. 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 was 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 in 1997, as well as an increase in the
number of units sold due to an aggressive sales and marketing plan implemented
in early 1997.
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 or 21.0%
from $6,682,000 in 1996 to $8,802,000 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.
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 renegotiations with
suppliers in the latter 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
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
-21-
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 revolving credit line BCI entered
into in February 1997, which decreased BCI's borrowing rate 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, 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.
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.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
During 1998, 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 $7,091,000 of cash. The
Company's net income of $342,000 includes net non-cash charges of $5,865,000,
which principally consisted of: (i) purchased in-process research and
development of $3,885,000, (ii) depreciation and amortization of $1,487,000;
(iii) an increase in reserves for accounts receivable and inventory obsolescence
of $269,000; (iv) minority interest of consolidated subsidiaries of $254,000;
(v) acquired tax benefits charged to goodwill of $440,000 and (vi) was offset
partially by deferred income taxes of $470,000. Additionally, accounts
receivable increased by $652,000 and inventory increased by $194,000, accounts
payable increased by $364,000, and net changes in other operating assets and
liabilities amounted to $326,000.
Net cash expended for investing activities amounted to $7,078,000 in 1998,
consisting $1,082,000 for the purchase of equipment and fixed assets, $4,797,000
for the purchase of the 33% minority interest in Speech Design and $1,199,000
for the acquisition of Digitronic.
Net cash provided by financing activities amounted to $30,000. The
Company paid down $797,000 of debt. The Company received $827,000 from the sale
of certain equities, principally warrants and stock option conversions.
-22-
As of December 31, 1998, the Company's total liabilities were $10,692,000,
of which $9,087,000 is due and payable within one year.
In August 1995, BCI was extended a $10 million domestic bank revolving
line of credit for a two year term expiring August 1997. Advances were at an
interest rate of 2% to 2.75% over the lender's prime rate. In August 1995, in
connection with the Company's acquisition of Bogen and Speech Design, Geotek
also agreed to provide Bogen with a working capital line of credit for two years
in the aggregate principal amount of $2 million. Amounts drawn under the line
accrued interest at 1% per annum above the rate Bogen paid for its then largest
credit facility. This agreement expired in connection with the repurchase of
Geotek shares.
In the first quarter of 1997, BCI entered into a revolving credit facility
with a bank, which was scheduled to mature on February 5, 1999, replacing BCI's
existing $10 million line of credit. The facility provided, subject to certain
terms and conditions, for borrowings up to a maximum of $7 million with a
$700,000 sub-limit for letters of credit, unreimbursed time drafts and/or
bankers acceptances subject to limits based on eligible accounts receivable and
inventory. Borrowings under the facility were available for working capital and
general corporate purposes and accrued interest at the bank's prime rate plus
.50%.
On April 21, 1998, the Registrant and BCI entered into a $27 million
credit facility (the "New Facility") with KeyBank N.A., which matures on April
30, 2001. The New Facility replaces the previous facility. The New Facility
provides, subject to certain criteria, for a $20 million revolving line of
credit for acquisition financing and a $7 million working capital line. The New
Facility bears interest at either the bank's prime rate or, at the borrower's
option, LIBOR plus 125 to 200 basis points, based on certain financial
conditions. The New Facility as collateralized by substantially all the domestic
assets of the Company and guaranteed by Bogen.
Speech Design has credit lines and overdraft facilities of approximately
6,000 Deutsche Marks ("DM") (or approximately $3.5 million) from three area
banks. Speech Design's short term lines of credit are collaterized by all of
Speech Design's accounts receivable and inventory. During the third quarter of
1998, Speech Design secured a $9 million (15 million Deutsche Mark) credit
facility for acquisition financing from D.G. Bank of Frankfurt. The interest
rate under the new credit facility is up to 200 basis points above the German
LIBOR rate.
As of December 31, 1998, Bogen had short-term domestic borrowings
outstanding under the New Facility of $462,000, all of which was under the
working capital line.
At December 31, 1998 Speech Design had short term lines of credit and
overdraft facilities of $3,780,000, of which short term borrowings amounted to
$1,382,000. The amounts available under these credit lines were $2,398,000 at
December 31, 1998, with rates tied to short-term bank notes and Euromarket
loans. At December 31, 1998 interest rates on these short term lines ranged from
4.0% to 7.85%. There were no borrowings under the acquisition credit facility.
The Company believes that it has adequate liquidity to finance its ongoing
activities and capital expenditures for the near term.
INFLATION
Inflation did not have a material effect on the Company's results during
the periods discussed herein.
-23-
CURRENCY FLUCTUATIONS
Approximately 39% 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 1998, the Deutsche Mark
exchange rate has averaged at the rate of $1.7584 to the U.S. dollar, with a low
of 1.6136 and a high of 1.8535. This represent a 14.87% movement of the DM vs.
the U.S. dollar throughout the year.
Local currencies are considered to be the functional currencies of the
Company and its subsidiaries. Translation adjustments that arise from
translation of the Company and its subsidiaries' financial statements are
accumulated in a separate component of stockholders' equity. Transaction gains
and losses that arise from exchange rate changes on transactions denominated in
a currency other than local currencies are included in income as incurred.
YEAR 2000
The Year 2000 ("Y2K") readiness issue is the result of information
technology ("IT") system programs being written using two digits rather than
four digits to define the application year. Any of the Company's IT systems that
have date-sensitive software may recognize a date using "00" for the applicable
year as the year 1900 and not the year 2000. This could result in
miscalculations, system failures, or other business disruptions.
The Company is implementing a plan which addresses Y2K technology
compliance for its IT and non-IT systems. The plan includes a review of the
Company's suppliers and customers to assure that they are working toward Y2K
compliance.
The Company uses IT systems in various aspects of its business, including
manufacturing, research and development, distribution and many administrative
functions. A significant amount of the Company's software and systems may need
to be updated, modified or replaced to address the Y2K readiness issue. In that
regard, the Company has retained consultants to evaluate the effect of
appropriately modifying the Company's IT systems and the Company has projects
underway to address the Y2K readiness of its IT systems and the IT systems of
material third parties.
The Company has prioritized its IT systems into three categories:
critical, necessary or other. The Company currently expects that critical and
necessary systems, the loss or failure of which could result in a serious
disruption of revenue or serious processing delay, respectively, will be Y2K
complaint by the third quarter of 1999, with modifications to the existing
software and or conversions to new software. The Company currently expects that
the remainder of the Company's IT systems will be Y2K compliant within such
timeframe or shortly thereafter. There can be no assurance, however, that the
Company's critical, necessary and other IT systems will become Y2K compliant by
the projected time.
The Company's non-IT systems include embedded technology such as
microcontrollers included in production equipment, office equipment,
environmental control equipment and time locks. All of the Company's non-IT
systems are already Y2K ready except for some products that were discontinued by
the Company. With respect to such products, the Company is evaluating its
alternatives and expects this review to be completed by the second quarter of
next fiscal year. Material third party vendors have been contacted and asked to
attest to Y2K compliance. Alternate vendors will be evaluated as potential
replacements for non-compliant or non-responsive vendors.
Currently, management estimates that the Company will expend up to
$1,000,000 (including capital lease obligations) on system upgrade and
replacement projects, which upgrades and replacements
-24-
will, among other things, make the Company's IT systems Y2K compliant. Most of
these upgrades, and the costs relating thereto, will be made in 1999. Y2K
remediation programs and ongoing systems upgrade and replacement projects are
funded through the Company's operations.
If IT systems affected by the Y2K were not addressed as the Company is
doing, they could conceivably cause technological failures throughout the
Company, disrupting normal business operations. These risks are similar to those
faced by other manufacturing companies. Management does not believe that the
Company's business will be materially affected by Y2K readiness issues.
Nevertheless, the Company expects to have contingency plans that address the
most reasonably likely worst case Y2K scenarios. In the event that the Company
can not complete its system upgrade and replacement projects in a timely manner,
the Company will use a software patch to make its IT systems Y2K compliant.
If non-IT systems affected by the Y2K were not addressed as the Company is
doing, they could disrupt normal business operations. These theoretical
consequences are generally shared with other manufacturing companies.
Nevertheless, the Company expects to have contingency plans that address the
most reasonably likely worst case Y2K scenarios. The Company has contacted its
key suppliers and vendors to assess the potential impact on the Company's
operations if those third parties fail to become Y2K compliant in a timely
manner. While certain of the Company's suppliers and vendors have provided the
Company with written certification that the IT systems used by such third
parties will be Y2K compliant prior to the Year 2000, the Company is currently
in the process of identifying the potential risks of external business
relationships with those third parties who have not certified to the Company as
to the status of their Y2K compliance. Action steps and contingency plans
related to significant third party relationships are expected to be completed by
mid to late 1999.
ECONOMIC ENVIRONMENT-ASIA
Bogen relies principally upon an established network of suppliers and
subcontractors primarily located in the Republic of South Korea, and to a lesser
extent in the Asia Pacific Region, and in the United States. During 1997 and
1998, the affects of the adverse economic conditions in the Republic of South
Korea and other countries in the Asia Pacific Region included a national
liquidity crisis, significant depreciation in the value of the Won, high
interest rates and a general reduction in spending throughout the region. The
Company 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 in material adverse effects on the
Company's results of operations.
OTHER
In June 1998, The Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires that a company recognize all derivatives as
either assets or liabilities in the balance sheet and measure those instruments
at fair value. If certain conditions are met, a derivative may be specifically
designated as a hedge. The accounting for changes in the fair value of a
derivative (i.e., gains and losses) depends on the intended use of the
derivative and the resulting designation. SFAS No. 133 will be effective for the
Company's fiscal year beginning January 1, 2000. The Company has not yet
determined the impact of the adoption of SFAS No. 133 on the consolidated
financial statements.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, the Company is exposed to fluctuations in
interest rates on the Company's debt and credit facilities. The Company is also
exposed to fluctuations in foreign currency exchange rates as the financial
results of its foreign subsidiaries are translated into U.S. dollars in
consolidation. In general, the Company does not use derivative instruments or
hedging to manage its exposures and does not currently hold any material market
risk sensitive instruments for trading purposes at December 31, 1998.
The information below summarizes the Company's market risk associated with
its debt obligations as of December 31, 1998. Fair value included herein has
been estimated taking into consideration the nature and term of the debt
-25-
instrument and the prevailing economic and market conditions at the balance
sheet date. The table below presents principal cash flows by year of maturity
based on the terms of the debt. The variable interest rate disclosed represents
the rate at December 31, 1998. Changes in the LIBOR and Prime interest rates
during fiscal 1999 will have a positive or negative effect on the Company's
interest expense. Each 1% fluctuation in the LIBOR and Prime interest rates will
increase or decrease annual interest expense for the Company by approximately
$22,250 based on the debt outstanding as of December 31, 1998. Further
information specific to the Company's debt is presented in Note 7 to the
consolidated financial statements.
Year of Maturity
Description Estimate Fair Value Carrying Amount 1999
- - ----------- ------------------- --------------- ----------------
Revolving credit facility $2,225,000 $2,225,000 $2,225,000
Variable Interest Rate
- - - Prime 7.75%
- - - LIBOR 7.06%
- - - LIBOR-Germany 5.00%
Advances and notes payable
to third party $227,000 $227,000
- - - Swiss variable interest rate 4.25%*
*See note 8 to the financial statements.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Information
(a) The Company operates in two reportable business segments, Bogen
(domestic) and Speech Design (foreign). The US operations, are engaged in the
development and manufacturing of sound processing and telecommunication products
in the United States (Bogen) and the foreign operations, through Speech Design,
are engaged in the development, manufacturing and marketing of telephone
peripheral hardware utilizing digital voice processing technologies.
Financial information regarding the breakdown of the Company's foreign and
domestic operations is disclosed in note 17 to the Company's Consolidated
Financial Statements.
(b) Reports on Form 8-K
No reports on Form 8-K were filed in the fourth quarter 1998.
(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)
-26-
3.3 Certificate of Correction to the Certificate of
Incorporation, dated March 8, 1995 and filed with the
Secretary of State of the State of Delaware on March 10,
1995. (2)
3.4 Certificate of Amendment to the Certificate of
Incorporation, dated August 21, 1995 and filed with the
Secretary of State of the State of Delaware on August 21,
1995. (3)
4.1 Form of Common Stock Certificate. (1)
4.2 Form of Warrant Certificate. (1)
4.3 Unit Purchase Option Granted to GKN Securities Corp. (1)
4.4 Warrant Agreement between Continental Stock Transfer & Trust
Company and the Company. (1)
4.5 Bogen Communications, International, Inc. 1996 Incentive
Stock Option Plan. (5)
*4.6 Amendment to Unit Purchase Option Granted to GKN Securities
Corp.
10.1 Form of Agency Agreement, dated as of June 28, 1993, between
the Company and GKN Securities Corp. (without schedules) (1)
10.2 Form of Indemnification Agreement between the Company and
its officers, directors and advisors. (4)
10.3 Summary of Agreement for Business Credit between Speech
Design GmbH and Statelparkasse Munchen. (6)
10.4 Asset Purchase Agreement, dated as of July 1, 1997, between
Bogen Communications International, Inc. Bog-Comm
Acquisition Corporation, New England Audio Resource, Inc.,
Mr. William Kieltyka and Mr. Lee Lareau. (9)
10.5 Stock Purchase Agreement, dated November 26, 1997, between
the Company and Geotek. (7)
10.6 Convertible Preferred Stock Purchase Agreement, dated
November 26, 1997, between the Company and the Investors.
(7)
10.7 Employment Agreement, dated November 26, 1997, between the
Company and Mr. Jonathan Guss. (7)
10.8 Employment Agreement, dated November 26, 1997, between the
Company and Mr. Michael Fleischer. (7)
10.9 Option Agreement, dated November 26, 1997, between the
Company and Mr. Jonathan Guss. (7)
-27-
10.10 Option Agreement, dated November 26, 1997, between the
Company and Mr. Michael Fleischer. (7)
10.11 Common Stock and Warrant Purchase Agreement, dated November
26, 1997 between the Company and D&S Capital, LLC. (7)
10.12 Warrant, dated November 26, 1997, issued by the Company to
D&S Capital, LLC. (7)
10.14 Warrant Purchase Agreement, dated as of November 28, 1997,
between Helix Capital II, LLC and Bogen Communications
International, Inc. (8)
10.15 Warrant, dated November 28, 1997, issued by Bogen
Communications International, Inc. to Helix Capital II, LLC.
(8)
10.16 Share Transfer Agreement, dated May 20, 1998, by and among
Bogen Communications International, Inc., Kasimir
Arciszewski and Hans Meiler. (10)
10.17 Management Agreement, dated May 20, 1998, between Speech
Design GmbH and Kasimir Arciszewski. (10)
*10.18 Management Agreement, dated May 20, 1998, between Speech
Design GmbH and Hans Meiler.
10.19 Credit Agreement, dated as of April 21, 1998, among Bogen
Communications International, Inc., Bogen Communications,
Inc., various financial institutions and KeyBank National
Association. (10)
10.20 Guaranty of Payment and Performance, dated April 21, 1998,
by Bogen Corporation. (10)
10.21 Guaranty of Payment and Performance, dated April 21, 1998,
by New England Audio Resource Corp. (10)
10.22 Security Agreement, dated April 21, 1998, by Bogen
Communications International, Inc. in favor of KeyBank
National Association. (10)
10.23 Security Agreement, dated April 21, 1998, by Bogen
Communications, Inc. in favor of KeyBank National
Association. (10)
10.24 Security Agreement, dated April 21, 1998, by Bogen
Corporation in favor of KeyBank National Association. (10)
10.25 Security Agreement, dated April 21, 1998, by New England
Audio Resource Corp. in favor of KeyBank National
Association. (10)
10.26 Borrower Pledge Agreement, dated April 21, 1998, by and
between Bogen Communications International, Inc. and KeyBank
National Association. (10)
-28-
10.27 Borrower Pledge Agreement, dated April 21, 1998, by and
between Bogen Communications International, Inc. and KeyBank
National Association. (10)
10.28 Guarantor Pledge Agreement, dated April 21, 1998, by and
between Bogen Corporation and KeyBank National Association.
(10)
10.29 Guarantor Pledge Agreement, dated April 21, 1998, by and
between Bogen Communications, Inc. and KeyBank National
Association. (10)
*10.30 Term Sheet for Acquisition Line, dated September 18, 1998,
between Speech Design GmbH and DG Bak.
*10.31 Amended and Restated Mergers and Acquisition Engagement
Agreement, dated as of October 1, 1998, between Helix
Capital Services, Inc. and Bogen Communications
International, Inc.
*10.32 Mergers and Acquisition Engagement Agreement, dated as of
October 1, 198, between Speech Design GmbH and Helix Capital
Services, Inc.
*21.1 Subsidiaries of the Company
*23.1 Consent of KPMG LLP
*23.2 Consent of Coopers and Lybrand L.L.P.
*27 Financial Data Schedule
- - -------------
*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.
(9) Incorporated by reference to the Exhibits to the Company's Annual report
on Form 10-K for the year ended December 31, 1997.
(10) Incorporated by reference to the Exhibits to the Company's Current Report
on Form 8-K, dated May 20, 1998.
-29-
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
Pages
-----
Financial Statements:
Reports of Independent Auditors F-1
Consolidated Balance Sheets as of December 31, 1998 and 1997 F-3
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996 F-4
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1998, 1997 and 1996 F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 F-6
Notes to Consolidated Financial Statements F-7
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)
II. Valuation and Qualifying Accounts
All other schedules are omitted as the required information is inapplicable or
the information is presented in the consolidated financial statements or related
notes.
-30-
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, 1998 and 1997 and for each of the years in the two-year period
ended December 31, 1998. In connection with our audits of the consolidated
financial statements, we also have audited the financial statement schedules for
1998 and 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
audits. We did not audit the financial statements and financial statement
schedules of Speech Design GmbH, as of and for the year ended December 31, 1997,
a then 67% owned subsidiary, which financial statements reflect total assets
constituting 21% and total revenues constituting 36% of the related consolidated
totals. Those financial statements and financial statement 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 audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Bogen Communications International,
Inc. and subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the two-year period
ended December 31, 1998 in conformity with generally accepted accounting
principles. Also in our opinion, based on our audits and the report of other
auditors, the related financial statement schedules for 1998 and 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 LLP
Short Hills, New Jersey
March 8, 1999
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 and for the
year 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 audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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 the year then ended, 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 31,1998 and 1997
(In Thousands of Dollars, Except Share and Per Share Amounts)
1998 1997
-------- --------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,048 $ 964
Accounts receivable (less allowance for doubtful amounts of $424 and $376
at December 31, 1998 and 1997, respectively) 5,889 6,291
Inventories, net 8,229 8,285
Prepaid expenses and other current assets 759 468
Deferred income taxes 470 --
-------- --------
TOTAL CURRENT ASSETS 16,395 16,008
Property and equipment, net 2,414 2,136
Goodwill and intangible assets, net 18,740 13,569
Other assets 198 257
-------- --------
TOTAL ASSETS $ 37,747 $ 31,970
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Amounts outstanding under revolving credit agreement $ 2,225 $ 2,891
Accounts payable 2,060 2,376
Accrued expenses 3,634 3,090
Income taxes payable 1,168 238
Preferred dividends payable -- 178
-------- --------
TOTAL CURRENT LIABILITIES 9,087 8,773
Advances and notes payable to related parties 227 212
Deferred income taxes 1,100 --
Other liabilities 278 433
Minority interest -- 1,130
-------- --------
TOTAL LIABILITIES 10,692 10,548
-------- --------
STOCKHOLDERS' EQUITY
Preferred stock - $.001 par value; 1,000,000 shares authorized; none issued and
outstanding at December 31, 1998; 200,000 shares issued and outstanding at
December 31, 1997 -- --
Common stock -$.001 par value; 50,000,000 shares authorized; 6,654,471 and
2,118,226 shares issued and outstanding at December 31, 1998 and 1997,
respectively 7 2
Additional paid-in-capital 29,433 23,468
Accumulated deficit (2,248) (1,690)
Other accumulated comprehensive income (137) (358)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 27,055 21,422
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 37,747 $ 31,970
======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,1998,1997 and 1996
(in Thousands of Dollars, Except Share and Per Share Amounts)
1998 1997 1996
----------- ----------- -----------
Net sales $ 52,103 $ 49,779 $ 46,269
Cost of goods sold 26,658 26,685 25,004
----------- ----------- -----------
Gross profit 25,445 23,094 21,265
Operating expenses:
Research and development 2,935 2,591 2,892
Purchased in-process research and development 3,885 -- --
Selling, general and administrative 15,283 14,939 14,360
Amortization of goodwill and intangible assets 612 471 445
----------- ----------- -----------
Income from operations 2,730 5,093 3,568
Other (income) expenses:
Interest expense, net 275 414 596
Interest expense to related parties -- 15 72
Minority interest of consolidated subsidiaries 254 537 337
Other income (50) (32) --
----------- ----------- -----------
Income before provision for income taxes 2,251 4,159 2,563
Provision for income taxes 1,909 1,494 555
----------- ----------- -----------
Net income 342 2,665 2,008
Preferred dividends 900 178 --
----------- ----------- -----------
Net income (loss) available to common shareholders $ (558) $ 2,487 $ 2,008
=========== =========== ===========
Basic net income (loss) per common share $ (0.12) $ 0.46 $ 0.35
=========== =========== ===========
Diluted net income (loss) per common share $ (0.12) $ 0.46 $ 0.35
=========== =========== ===========
Weighted average number of common
shares outstanding-basic and diluted 4,502,547 5,399,199 5,759,075
=========== =========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
BOGEN COMMUNICATIONS INTERNATIONAL, INC.
STATEMENT 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, 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)
Comprehensive income:
Net income -- -- -- -- --
Translation adjustments -- -- -- -- --
Comprehensive income -- -- -- -- --
-------- ------- --------- ----------- -----------
Balance at December 31, 1996 -- -- 5,758,850 $ 6 21,774
Sale of Preferred Stock 200,000 -- -- -- 20,000
Acquisition and refirement of Common Stock held by
Geotek, including acquisition costs of $250 -- -- (3,701,919) (4) (18,746)
Sale of Common Stock and Warrants -- -- 61,295 -- 440
Preferred dividends -- -- -- -- --
Comprehensive income:
Net income -- -- -- -- --
Translation adjustments -- -- -- -- --
Comprehensive income -- -- -- -- --
-------- ------- --------- ----------- -----------
Balance at December 31, 1997 200,000 -- 2,118,226 $ 2 $ 23,468
Purchase of Speech Design minority interest -- -- 458,000 1 4,064
Conversion of Preferred Stock and related dividends (200,000) -- 3,921,477 4 1,074
Sale of Common Stock -- -- 156,768 -- 862
Acquisition costs of Common Stock held by Geotek -- -- -- -- (35)
Preferred dividends -- -- -- -- --
Comprehensive income
Net income -- -- -- -- --
Translation adjustments -- -- -- -- --
Comprehensive income -- -- -- -- --
-------- ------- --------- ----------- -----------
Balance at December 31, 1998 -- -- 6,654,471 $ 7 $ 29,433
======== ======= ========= =========== ===========
BOGEN COMMUNICATIONS INTERNATIONAL, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS'EQUITY
(In Thousands of Dollars, Except Share and Per Share Amounts)
Accumulated
Other
Accumulated Comprehensive
Deficit Income Total
----------- ------------- -----------
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)
Comprehensive income:
Net income 2,008 -- --
Translation adjustments -- (174) --
Comprehensive income -- -- 1,834
----------- ----------- -----------
Balance at December 31, 1996 $ (4,177) $ (27) $ 17,576
Sale of Preferred Stock -- -- 20,000
Acquisition and refirement of Common Stock held by
Geotek, including acquisition costs of $250 -- -- (18,750)
Sale of Common Stock and Warrants -- -- 440
Preferred dividends (178) -- (178)
Comprehensive income:
Net income 2,665 -- --
Translation adjustments -- (331) --
Comprehensive income -- -- 2,334
----------- ----------- -----------
Balance at December 31, 1997 $ (1,690) $ (358) $ 21,422
Purchase of Speech Design minority interest -- -- 4,065
Conversion of Preferred Stock and related dividends -- -- 1,078
Sale of Common Stock -- -- 862
Acquisition costs of Common Stock held by Geotek -- -- (35)
Preferred dividends (900) -- (900)
Comprehensive income:
Net income 342 -- --
Translation adjustments -- 221 --
Comprehensive income -- -- 563
----------- ----------- -----------
Balance at December 31, 1998 $ (2,248) $ (137) $ 27,055
============ =========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 and 1996
(In Thousands of Dollars, Except Share and Per Share Amounts)
1998 1997 1996
----- ------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 342 $ 2,665 $ 2,008
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 875 861 978
Amortization of goodwill and intangible assets 612 471 445
Provisions for doubtful accounts and
inventory obsolescence 269 (703) (1,362)
Utilization of pre-acquisition tax benefits
charged to goodwill 440 439 --
Deferred income taxes (470) -- --
Purchased in-process research and development 3,885 -- --
Minority Interest 254 537 337
Change in operating assets and liabilities
(net of effects from acquisitions):
Accounts receivable 652 118 (1,703)
Inventories 194 (1,315) 2,269
Prepaid expenses and other current assets (170) 260 (532)
Payables and accrued expenses 364 (1,078) (1,040)
Other (156) (137) (138)
------- ------- -------
Net cash provided by operating activities 7,091 2,118 1,262
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and leasehold improvements (1,082) (953) (1,017)
Acquisition of minority interest in Speech Design (4,797) -- --
Acquisition of Digitronics (1,199) -- --
Acquisition of New England Audio Resource, Inc. - (242) --
Acquisition of investments and intangibles -- -- (102)
Other -- -- 18
------- ------- -------
Net cash used in investing activities (7,078) (1,195) (1,101)
------- ------- -------
CASH FLOW FROM FINANCING ACTIVITIES
Acquisition of common stock held by Geotek -- (18,500) --
Proceeds from sale of preferred stock, common
stock and warrants 862 20,440 --
Acquisition costs of common stock held by Geotek (35) (250) --
Amounts paid to non-related parties, net -- -- (161)
Amounts (paid) borrowed under revolving credit
agreements (797) (1,506) 23
Dividend paid by subsidiary to minority
shareholders -- -- (294)
Advances and notes payable - related parties -- (879) (341)
------- ------- -------
Net cash provided by (used in) financing activities 30 (695) (773)
------- ------- -------
Effects of foreign exchange rate on cash 41 (149) 221
------- ------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 84 79 (391)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 964 885 1,276
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,048 $ 964 $ 885
======= ======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 291 $ 496 $ 609
Cash paid for income taxes 1,154 490 2,175 -- --
NON CASH FINANCING ACTIVITIES
Preferred stock dividends accrued -- 178 --
Common stock issued to pay current
and accrued dividends 1,078 -- --
Restructuring of $3,000 related party note and
related interest -- -- $ 2,602
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
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 communication 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 the
Company's 99% owned subsidiary, Bogen Corporation ("Bogen"); Bogen's
wholly-owned subsidiary, Bogen Communications, Inc. ("130"); BCI's whollyowned
subsidiary, New England Audio Resource Corp. ("NEAR"); the Company's whollyowned
subsidiary, Speech Design GmbH ("Speech Design"), which was a 67% owned
subsidiary through May 19, 1998; Speech Design's 67% owned subsidiary Satelco AG
("Satelco"); and Speech Design's wholly-owned subsidiaries: Speech Design
(Israel), Ltd., Speech Design (UK), Ltd. and Digitronic Computersysterne GmbH
("Digitronic"). 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. ("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.
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.
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 from the Company, at any time
through October 31, 1997, $3,000 worth of common stock with exercise prices
ranging from
F-7
BOGEN COMMUNICATIONS INTERNATIONAL, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands of Dollars, Except Share and Per Share Amounts)
100% to 65% of market price, depending on the date of exercise. The option
expired on October 31, 1997 and no contingent consideration was required to be
paid.
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. On July 1, 1998, the
Company converted the outstanding convertible preferred stock and related
accrued dividends into 3,921,477 shares of Common Stock (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
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 periodically evaluates the recoverability of goodwill and measures any
impairment by comparison to estimated undiscounted cash flows from future
operations.
Cash and Cash Equivalents
Cash includes cash on-hand and all highly-liquid debt instruments purchased with
original maturities of three months or less.
Inventories
Inventories are stated at the lower of cost or market and are valued using the
first-in, first-out method.
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 of the related assets. Leasehold improvements are amortized on a
straight-line basis over the shorter of the term of the lease or the estimated
useful life of the improvement. The estimated useful lives used in computing
depreciation of plant and equipment are:
Machinery, equipment and tooling 3-10 years
Furniture and office equipment 5-7 years
Leasehold improvements 5 years or remaining lease term
Expenditures for maintenance, repairs and renewals of minor items are charged to
operations as incurred. Major renewals and improvements are capitalized. Upon
disposition, the cost and related accumulated depreciation is removed from the
accounts and the resulting gain or loss is reflected in operations for the
period.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on tax
F-8
BOGEN COMMUNICATIONS INTERNATIONAL, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands of Dollars, Except Share and Per Share Amounts)
deferred assets and liabilities 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 available to common shareholders by the
weighted-average number of common shares outstanding for the periods presented.
Diluted EPS is calculated by dividing net income available to common
shareholders by the weighted-average number of common shares outstanding and all
potential common shares for the periods presented.
Stock-Based Compensation
Stock-based compensation is recognized using the intrinsic value method. For
disclosure purposes, pro forma net income and earnings per common share are
provided in accordance with Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("FAS 123") as if the fair value method had been
applied.
Credit Risk
The Company develops, manufacturers, markets and sells commercial audio, paging,
communications and other equipment and telecommunications peripherals. The
Company performs on-going credit evaluations of its customers. The 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 subsidiary financial statements
denominated in foreign currency are accumulated in a separate component of other
comprehensive income. Transaction gains and losses that arise from exchange rate
changes on transactions denominated in a currency other than local currencies
are included in operations as incurred.
Fair Value of Financial Instruments and Derivatives
The recorded amount of cash, cash equivalents, accounts receivable, accounts
payable, accrued expenses, notes payable and advances, approximates fair value
due to the short-term maturities of certain of these assets and liabilities and
the variable interest rate of others.
The Company enters into foreign currency forward contracts on a limited basis
that are qualifying hedges against identifiable foreign currency commitments.
The Company does not purchase or hold foreign currency contracts for trading or
speculative purposes.
The Company purchased short-term foreign currency forward contracts near the end
of December 1998 with notional amount of DM3 million. The fair market value of
such contracts at December 31, 1998 approximates their carrying value.
Comprehensive Income
On January 1, 1998, the Company adopted FAS No. 130, "Reporting Comprehensive
Income" ("FAS 130"). FAS 130 establishes standards for reporting and
presentation of comprehensive income and its components in a full set of
financial statements. Comprehensive income consists of net income and
translation adjustments and is presented in the consolidated statement of
stockholder's equity. The Statement requires only additional disclosures in the
consolidated financial statements; it does not affect the Company's financial
position or results of operations. Prior year financial statements have been
reclassified to conform to the requirements of FAS 130.
Segment Information
The Company operates in two reportable business segments, Bogen (domestic) and
Speech Design (foreign) and follows the requirements of FAS No. 13 1,
"Disclosures about Segments of an Enterprise and Related Information."
F-9
BOGEN COMMUNICATIONS INTERNATIONAL, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands of Dollars, Except Share and Per Share Amounts)
Reclassifications
Certain 1997 and 1996 balances have been reclassified to conform with the
current year presentation.
3. Acquisitions
On July 1, 1997, the Company, through its wholly-owned subsidiary Bogen,
acquired substantially all of the net assets of NEAR, a leading manufacturer of
high performance, weather-proof speakers. The total purchase price, including
direct costs incurred as result of the acquisition, amounted to $242 in cash
and assumption of certain liabilities. Excess of the purchase price over the
estimated fair values of the net assets acquired was $236 and has been recorded
as goodwill, which is being amortized over 20 years.
On May 20, 1998, the Company acquired the remaining 33% equity interest in
Speech Design not previously owned by the Company. As a result of this
acquisition, Speech Design became a wholly-owned subsidiary of the Company. The
aggregate purchase price of $8,845, including direct acquisition costs
(estimated at $482), consisted of approximately $4,780 in cash and 458,000
shares of common stock of the Company valued at approximately $4,065 ($8.875 per
share). The acquisition has been accounted for by the purchase method of
accounting and accordingly, the purchase price has been allocated to the assets
acquired and liabilities assumed based on an independent appraisal of fair
values at the date of acquisition. Such appraisal allocated $2,905 to purchased
in-process research and development which has been reflected as a charge in the
accompanying consolidated statement of operations for year ended December 31,
1998. Other intangible assets acquired include existing technology, tradenames,
workforce and goodwill totaling approximately $4,653.
On December 31, 1998, the Company, through its wholly-owned subsidiary Speech
Design, acquired Digitronic. Digitronic is in the business of Unified Messaging
and Internet communications. The aggregate purchase price, including direct
costs of $145, amounted to $1,199 in cash and assumption of certain liabilities.
The acquisition has been accounted for by the purchase method of accounting, and
accordingly, the purchase price has been allocated to the assets acquired and
liabilities assumed based on an independent appraisal of fair values at the date
of acquisition. Such appraisal allocated $980 to purchased in-process research
and development which has been reflected as a charge in the accompanying
consolidated statement of operations for the year ended December 31, 1998. Other
intangible assets acquired include existing technology, trade names and
workforce totaling approximately $424. The terms of the acquisition agreement
also provide for additional consideration to be paid if Digitronic's sales
during the next two years exceed certain targeted levels. Targeted levels have
been set substantially above the historical experience of Digitronic at the time
of acquisition. Such additional consideration will be paid in cash and goodwill
will be increased by the additional consideration when paid.
The following table presents unaudited pro forma results of operations as if the
acquisition of the minority interest of Speech Design had occurred on January 1,
1997. The pro forma impact of the acquisition of Digitronic on December 31, 1998
is not considered material. These pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of what would have
occurred had the acquisition been made at the beginning of the periods presented
which may occur in the future. The pro forma imformation below does not include
nonrecurring in-process research and development charges of $3,885.
Year ended December 31,
-----------------------
1998 1997
------ ------
Revenues $ 52,103 $ 49,779
Net income 578 2,924
Net income (loss) available to common shareholders (322) 2,746
Net income (loss) per common share - Basic and Diluted (.07) .47
F-10
BOGEN COMMUNICATIONS INTERNATIONAL, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands of Dollars, Except Share and Per Share Amounts)
4. Inventories
Inventories, at the lower of cost or market and valued on a first in, first out
basis, as of December 31, 1998 and 1997, are as follows:
1998 1997
------ ------
Raw materials and supplies $2,490 $1,874
Work in progress 880 742
Finished goods 4,859 5,669
------ ------
$8,229 $8,285
====== ======
5. Property and Equipment
Property and equipment at December 31, 1998 and 1997 is comprised of the
following items:
1998 1997
------ ------
Machinery, equipment and tooling $4,847 $4,111
Furniture and office equipment 2,169 1,669
Leasehold improvements 807 760
------ ------
7,823 6,540
Less: accumulated depreciation and
amortization (5,409) (4,404)
------ ------
$2,414 $2,136
====== ======
Depreciation and amortization expense was approximately $875, $861 and $978 for
the years ended December 31, 1998, 1997 and 1996, respectively.
6. Goodwill and Intangible Assets
Goodwill and intangible assets consist of the following, at December 31, 1998
and 1997:
1998 1997
-------- --------
Goodwill $ 20,622 $ 16,137
Other intangibles 1,399 101
-------- --------
22,021 16,238
Less: accumulated amortization (3,281) (2,669)
-------- --------
$ 18,740 $ 13,569
======== ========
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 that transaction.
In January 1994 Geotek acquired a greater than 95% interest in Bogen, and
pursuant to the rules of push-down accounting, the acquisition gave rise to a
new basis of accounting and the goodwill related to Geotek's acquisition was
"pushed-down" to the financial statements of Bogen. Accordingly, Bogen recorded
goodwill in the amount of $15,044 in the first quarter of 1994. The goodwill is
being amortized over its then remaining life of approximately 38 years.
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.
F-11
BOGEN COMMUNICATIONS INTERNATIONAL, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands of Dollars, Except Share and Per Share Amounts)
Goodwill in the amount of $236 represents the excess of cost over the fair value
of net assets acquired in the acquisition of NEAR. This goodwill is being
amortized using the straight-line method over 20 years.
Goodwill in the amount of $3,779 represents the excess of cost over the fair
value of net assets acquired as a result of the acquisition of the remaining 33%
interest in Speech Design in May 1998. This goodwill is being amortized using
the straight-line method over 20 years. Other intangible assets acquired totaled
$874. These assets include existing technology, trade names and workforce and
are being amortized over an average period of 15 years.
Other intangible assets acquired as a result of the acquisition of Digitronic
totaled $424. These assets, which are being amortized an average of over 15
years, include existing technology trade names and workforce.
Amortization of goodwill and other intangibles was approximately $612, $471 and
$445 for the years ended December 31, 1998, 1997 and 1996, respectively.
7. Revolving Credit Agreements
In August 1995, BCI, a wholly owned subsidiary of Bogen, extended a $10,000
domestic revolving senior line of credit for a two year term expiring August
1997. The line was collateralized by substantially all the assets of Bogen and
was guaranteed by Geotek. Advances were at an interest rate of 2% to 2.75% over
the lender's prime rate. At December 31, 1996, the lender's prime rate was
8.25%. Advances to Bogen were made based on a percentage of accounts receivable
and inventory. As of December 31 1996, Bogen had short term borrowings of
$1,545.
In the first quarter of 1997, BCI entered into a revolving credit facility (the
"Facility") with a bank, which was scheduled to mature on February 5, 1999. The
Facility provided, subject to certain terms and conditions, for borrowings up to
a maximum of $7,000 with a $700 sub-limit for letters of credit, unreimbursed
time drafts and/or bankers acceptances, and was limited to specified levels of
eligible accounts receivable and inventory. Borrowings under the Facility were
available for working capital and general corporate purposes and accrued
interest at the bank's prime rate plus .50% (9.00% at December 31,1997).
Obligations under the Facility were collateralized by all of the accounts
receivable, inventory property and equipment, and general intangibles of BCI and
was guaranteed by the Company. The Facility contained certain covenants, which
limited the ability of BCI to declare or pay dividends, return capital to its
stockholders or redeem or repurchase any of its outstanding capital stock,
On April 21, 1998, BCI and the Company, entered into a $27,000 credit facility
(the "New Facility") with KeyBank N.A., which matures on April 30, 2001. The New
Facility replaces the previous Facility. The New Facility provides, subject to
certain criteria, a $20,000 revolving line for acquisition financing and a
$7,000 working capital line. The New Facility bears interest at either the
bank's prime rate or, at the Company's option, LIBOR plus 125 to 200 basis
points, based on certain financial conditions. At December 31, 1998, $462 was
outstanding under the New Facility.
As of December 31, 1998 and 1997, Bogen had short-term domestic borrowings
outstanding under the working capital line of $0 and $737, respectively. The
amount available under the credit line at December 31, 1997 based upon accounts
receivable and inventory was $4,204. The amount available under the working
capital line at December 31, 1998 was $7,000.
Speech Design has credit lines and overdraft facilities of approximately 6,000
Deutsche Marks ("DM"), or $3,500, from 3 banks. Speech Design's short term
lines of credit are collateralized by all of Speech Design's accounts receivable
and inventory.
During the third quarter of 1998, Speech Design secured a $9 million (15 million
Deutsche Mark) credit facility for acquisition financing from D.G. Bank of
Frankfurt. The interest rate under the new credit facility is up to 200 basis
points above the German LIBOR rate which was 3.0% at December 31, 1998.
At December 31, 1998 and 1997, Speech Design had short term lines of credit and
overdraft facilities of $3,780 and $3,988, respectively, of which short term
borrowings amounted to $1,763 and $2,154, respectively. The amounts available
under these credit lines were $2,017 and $1,834 at December 31, 1998 and 1997,
respectively, with rates
F-12
BOGEN COMMUNICATIONS INTERNATIONAL, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands of Dollars, Except Share and Per Share Amounts)
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, 1998 interest rates on these short term lines
ranged from 4.0% to 7.85%. There were no borrowings under the acquisition credit
facility.
Total outstanding revolving lines of credit are summarized as follows at
December 31, 1998 and 1997:
1998 1997
------ ------
Domestic Lines of Credit Utilized $ 462 $ 737
Foreign Lines of Credit Utilized:
Speech Design 1,580 2,017
Satelco 183 137
------ ------
$2,225 $2,891
====== ======
8. Advances and Notes Payable to Related Parties
Advances and notes payable to related parties at December 31, 1998 and 1997
consist of the following:
1998 1997
----- -----
Loan from related party (at Zurich Key
Bank rate) $ 227 $ 212
Other notes payable 2 6
----- -----
229 218
Less: current maturities (2) (6)
----- -----
$ 227 $ 212
===== =====
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.
Advances from Geotek
Previous advances from Geotek had consisted of net non-interest bearing advances
made to Bogen, which were paid in full during 1997.
Loan from Speech Design Shareholders
The Company had entered into a loan agreement with Speech Design's minority
shareholders which was to mature on December 31, 1999. Interest was paid in
quarterly installments and was charged at 2% over the German discount rate. The
note was paid in full during 1997.
F-13
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, 1998, 1997 and 1996:
1998 1997 1996
------- ------- -------
Domestic U.S. operations $(1,579) $ 1,966 $ 1,322
Foreign operations 3,830 2,193 1,241
------- ------- -------
Total $ 2,251 $ 4,159 $ 2,563
======= ======= =======
The components of income tax expense are as follows for the years ended December
31, 1998, 1997 and 1996:
1998 1997 1996
------- ------- -------
Current income tax $ 1,832 $ 1,055 $ 555
Utilization of acquired tax benefits 440 439 --
credited to goodwill
Deferred income tax benefit (363) -- --
------- ------- -------
Total income tax expense $ 1,909 $ 1,494 $ 555
======= ======= =======
The difference between the provision for income taxes computed at the U.S.
Federal statutory rate and the provision as reported are as follows:
1998 1997 1996
------- ------- -------
Provision at US statutory rate $ 765 $ 1,414 $ 871
State tax expense 149 -- --
Non-deductible expenses 207 151 338
Change in valuation allowance (1,321) (820) (793)
Foreign taxes greater than U.S. taxes 230 307 162
Utilization of acquired tax benefits
credited to goodwill 440 439 --
In-process research and development 1,321 -- --
Other 118 3 (23)
------- ------- -------
Tax provision as reported $ 1,909 $ 1,494 $ 555
======= ======= =======
The Company has net operating loss ("NOL") carryforwards of approximately $3,900
for U.S. Federal tax purposes as of December 31, 1998, which expire between the
years 2004 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 and liabilities at December 31, 1998 and
1997, were as follows:
1998 1997
------- -------
Deferred tax assets:
NOL carryforwards $ 1,341 $ 2,262
Deferred rent 96 144
Inventory items 440 325
Allowance for doubtful accounts 172 124
Accrued liabilities 167 201
Property, plant and equipment - non-current 130 141
------- -------
Total deferred tax assets 2,346 3,197
Less: valuation allowance (1,876) (3,197)
------- -------
Net deferred tax assets: $ 470 $ --
======= =======
Deferred tax liabilities-
Intangible assets $ 1,100 $ --
======= =======
F-14
BOGEN COMMUNICATIONS INTERNATIONAL, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands of Dollars, Except Share and Per Share Amounts)
In accordance with FAS No. 109, the Company has established a valuation
allowance of $1,876 and $3,197 for the years ended December 31, 1998 and 1997,
respectively. The valuation allowance was established due to the uncertainty of
the realization of the deferred tax assets. A significant portion of the
deferred tax assets which are currently subject to a valuation allowance may be
allocated to reduce goodwill or other non-current intangible assets when
subsequently recognized.
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.
The minimum annual rental commitments over the next five years under operating
leases are as follows:
Year Ending
December 31,
- - ------------
1999 $1,433
2000 1,273
2001 457
2002 349
2003 328
Thereafter 656
------
$4,496
======
Bogen's facility lease includes scheduled rent increases over the lease term.
Rent expense has been recorded on a straightline basis and the related deferred
rent obligation of $238 and $358 at December 31, 1998 and 1997, respectively, is
classified as a long-term liability.
Rent expense charged to operations totaled approximately $1,142, $1,297 and
$1,151 for the years ended December 31, 1998, 1997 and 1996, 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 1997, the Company changed its policy and Board members are no
longer compensated for their services as members of the Executive Committee.
During 1996, two board members received $50,000 each as members of the Company's
Executive Committee.
Employment Contracts
The Company has entered into employment contracts with several officers of the
Company. The employment contracts of the Chief Executive Officer and the
President of the Company both extend through November 2000. The management
agreements of the two Managing Directors of Speech Design expire on June 30,
2001. Compensation accrues to the officers over the term of the contract as
their respective services are provided.
Litigation
The Company is party, in the ordinary course of business, to various legal
actions and claims. In the opinion of management, the ultimate disposition of
these matters will not have a material adverse effect on the Company's
consolidated financial position, results of operations, or liquidity.
F- 15
BOGEN COMMUNICATIONS INTERNATIONAL, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands of Dollars, Except Share and Per Share Amounts)
11. Stockholder's Equity
Preferred Stock
The Company is authorized to issue 1,000,000 shares of preferred stock with such
designations, voting and other rights and preferences as may be determined from
time to time by the Board of Directors.
On November 26, 1997 the Company sold 200,000 shares of 9% Cumulative Series A
Convertible Preferred Stock (the "Preferred Stock") to a group of unrelated
independent third-party investors (the "Investors"). The 200,000 shares of
Preferred Stock were sold for $100 per share for total proceeds to the Company
of $20,000 of which $18,500 was used to finance the acquisition and retirement
of Common Stock and warrants held by Geotek (see Note 2) and $1,500 was to be
used for general corporate purposes. The Preferred Stock carried a redemption
value of $100 per share. Each share of Preferred Stock plus any accrued
dividends was convertible, at the option of the holder, at any time prior to the
close of business on the third day prior to the date on which notice of
conversion was given, into 18.605 shares of common stock based on an initial
conversion price of $5.375 per common share ("Conversion Price"). Any shares of
Preferred Stock still outstanding as of December 1, 2002, would automatically
convert into common stock at the rate specified above.
Holders of Preferred Stock were entitled to one vote for each share of common
stock into which such shares can be converted. The Preferred Stock carried a 9%
semi-annual cumulative dividend which was to be paid in cash or in-kind at the
option of the Company. Dividends on Preferred Stock were to be paid before any
dividends on common stock.
On July 1, 1998, the Company issued 3,921,477 shares of its common stock upon
conversion of all of the issued and outstanding shares of the Preferred Stock by
the holders thereof. Included in such issuance were 200,477 shares of common
stock, which represented the payment of accrued dividends in shares of common
stock through the date of conversion.
Common Stock
The following discussion summarizes the incorporation of the Company, the
capitalization, and the requirements and privileges of the shareholders in the
periods preceding the consummation of the acquisition of Bogen and Speech Design
on August 21, 1995.
The Company was incorporated in Delaware on May 6, 1993 with the objective of
acquiring a business engaged in industrial manufacturing or industrial services
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.
F-16
BOGEN COMMUNICATIONS INTERNATIONAL, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands of Dollars, Except Share and Per Share Amounts)
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 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 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, 1998 and 1997, 4,198,785 and 4,285,885 shares of common stock
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 3). 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
certain members of the Company's senior management. Another 575,885 warrants to
purchase common stock were issued on November 28, 1997, to Helix Capital II,
LLC.
F- 17
BOGEN COMMUNICATIONS INTERNATIONAL, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands of Dollars, Except Share and Per Share Amounts)
At December 31, 1998, the Company had the following warrants outstanding:
Weighted
Average
Shares Exercise Price Expiration
--------- -------------- -------------
Warrants to purchase common stock:
1993 warrants 3,312,900 $ 5.50 October 2000
1995 warrants 60,000 $ 5.50 October 2000
1997 warrants 825,885 $ 5.35 November 2002/
January 2003
---------
4,198,785
=========
In connection with the Company's initial public offering of its units (the
"Units"), the Company granted to GKN Securities Corp. and its affiliates
(collectively, "GKN") an option to purchase (the UPO) an aggregate of 150,000
Units at $6.60 per Unit. Each unit issuable upon exercise of the UPO will
consist of one share of Common Stock and warrants to purchase two shares of
Common stock at $5.50 per share. The GKN UPO contained certain anti-dilution
provisions which were broader than the anti-dilution provisions set forth in the
publicly held UPOs and its original expiration date was October 7, 1998. On
December 31, 1998, the Company and GKN agreed to extend the expiration date to
October 7, 1999 and to amend the GKN UPO by narrowing the anti-dilution
protection for GKN to that protection provided in the publicly held UPOs. This
had no effect on the Company's results of operations or stockholder's equity.
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, the Company granted a total
of 325,885 options outside the 1996 Plan to the Company's newly appointed CEO
and President. The options were granted at an exercise price of $5.00 per share,
vest at a specified rate over a three year period and expire 10 years from the
date of grant.
In 1994, Bogen adopted an Employee Stock Option Plan (the "Bogen Plan") and
granted a total of 1,400,000 options at a price of $1.14 per share which
approximated fair value. All options granted under the Bogen Plan were
outstanding at December 31, 1996 and 1995. In 1997, the Company cancelled all
the options granted under the Bogen Plan and granted certain participants under
the Bogen Plan one option for a share of Common Stock under the 1996 Plan in
exchange for every three options of Common Stock of Bogen granted to a
participant in the Bogen Plan. Options for an aggregate of 253,335 shares of
Common Stock were granted under the 1996 Plan to former participants of the
Bogen Plan.
F-18
BOGEN COMMUNICATIONS INTERNATIONAL, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands of Dollars, Except Share and Per Share Amounts)
Information with respect to the Company's stock options under the 1996 Plan and
discretionary grants are as follows:
Average
Stock Options Shares Price (1)
--------- ---------
Outstanding at December 31, 1996 -
Granted 1,264,220 $5.48
Cancelled (279,667) 6.14
Exercised (15,000) 5.00
---------
Outstanding at December 31,1997 969,553 5.30
Granted 220,300 8.24
Cancelled (18,000) 5.50
Exercised (68,667) 5.50
Forfeited (22,000) 7.89
--------- -----
Outstanding at December 31, 1998 1,081,186 5.83
=========
- - -----------------
(1) Weighted average exercise price.
The number of shares and weighted average price of options exercisable at
December 31, 1998 was 248,668 shares at $5.45 per share and had a weighted
average contractual life remaining of 8.3 years. At December 31, 1998, 52,824
shares were available for future grants under the terms of the 1996 Plan.
Outstanding options expire prior to December 31, 2007 and are exercisable at
prices ranging from $5.00 to $8.50 per share.
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. Had the Company,
however, elected to recognize compensation cost based on fair value of the stock
options at the date of grant under SFAS 123, such costs would have been
recognized ratably over the vesting period of the underlying instruments and the
Company's net income available to common shareholders and net income per common
share would have decreased to the pro forma amounts indicated in the table
below.
Pro forma net income (loss) available to common shareholders and net income
(loss) per common share for the year ended December 31, 1998 was as follows:
1998 1997
----- -----
Net income (loss) available to common shareholders:
As reported $ (558) $ 2,487
Pro forma (937) 2,190
Net income (loss) per common share:
Basic:
As reported (.12) .46
Pro forma (.21) .41
Diluted:
As reported (.12) .46
Pro forma (.21) .41
The fair value of the options granted was estimated using the Black-Scholes
option-pricing model based on the weighted average exercise price at date of
grant of $8.24 in fiscal 1998 and the following weighted average assumptions:
risk-free interest rate of 5.50%; expected option life of 6.84 years; volatility
of 45% and no dividend yield. The average fair value of options granted during
1998 was $7.67.
The fair value of the options granted was estimated using the Black-Scholes
option-pricing model based on the weighted average exercise price at date of
grant of $5.48 in fiscal 1997 and the following weighted average assumptions:
risk-free interest rate of 6.25%; expected option life of 6.8 years; volatility
of 46% and no dividend yield. The average fair value of options granted during
1997 was $2.31.
F-19
BOGEN COMMUNICATIONS INTERNATIONAL, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands of Dollars, Except Share and Per Share Amounts)
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 earnings per common share is computed by dividing net earnings per common
share by the weighted average number of common shares outstanding during the
period. Diluted earnings per common share gives effect to all diluted potential
common shares that were outstanding during the period. Potential common shares
are not included in the calculation of diluted earnings per share if their
inclusion would be anti-dilutive.
Potential common shares attributable to the Preferred Stock as a result of
applying the if-converted method (see Note 11) and outstanding options and
warrants have not been included in the calculation of diluted earnings per
common share for the years ended December 31, 1998, 1997 and 1996 since their
inclusion would be anti-dilutive. Such outstanding options and warrants could
potentially dilute basic earnings per common share in the future.
14. Related Party Transactions
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").
Pursuant to a Mergers & Acquisition Engagement Agreement, dated August, 1997,
as amended on November 29, 1997, and the Amended and Restated Mergers &
Acquisition Engagement Agreement, effective as of October 1, 1998, between the
Company and Helix Capital Services, Inc. ("Helix Services"), the Company paid
Helix Services approximately $374,000 in 1998, including an aggregate of
$210,000 in monthly retainer fees and $164,000 for services rendered in
connection with the Speech Design acquisition. Pursuant to the Amended and
Restated Mergers & Acquisition Agreement, Helix Services acts as the principal
financial advisor and, subject to certain exceptions, the exclusive mergers and
acquisition advisor for the Company and all of its domestic subsidiaries. In
exchange for such services, the Company currently pays Helix Services a $10,000
monthly retainer fee (prior to October 1, 1998, the monthly retainer fee was
$20,000) and, in the event the Company consummates a financing or other
extraordinary corporate transaction, an additional fee equal to a minimum of 2%
of the acquisition price, subject to reduction in certain circumstances.
Effective as of October 1, 1998, Speech Design entered into a Mergers &
Acquisition Engagement Agreement with Helix Services pursuant to which Helix
Services acts as the principal financial advisor and, subject to certain
exceptions, the exclusive mergers and acquisition advisor for Speech Design. In
exchange for such services, the Company pays Helix Services a $10,000 monthly
retainer fee and, in the event the Company consummates a financing or other
extraordinary corporate transaction, an additional fee equal to a minimum 2% of
the acquisition price, subject to reduction in certain circumstances. During
1998, Speech Design paid Helix Services an aggregate of $30,000 in monthly
retainer fees.
15. Economic Dependency
During the years ended December 31, 1998, 1997 and 1996, the Company purchased
components of approximately $7,470, $9,194 and $12,072, respectively, from four
suppliers located in the Republic of South Korea. In view of the current
economic crisis in Asia, the Company is attempting to take every precautions to
ensure that production will continue without interruption. However, there can be
no assurances that events beyond the Company's control will disrupt the
production schedule which may have a material adverse effect on the Company's
consolidated 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.
16. Employee Benefit Plans
Bogen participates in multi-employer pension plans, which cover all union
employees. Contributions for the periods ended December 31, 1998, 1997 and 1996
were approximately $17, $18 and $17, 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
$108, $122 and $83 for the years ended December 31, 1998, 1997 and 1996,
respectively.
17. Segments
The Company operates in two reportable business segments, Bogen (domestic) and
Speech Design (foreign). The domestic segment is primarily engaged in commercial
and engineered sound equipment and telecommunication peripherals. The foreign
segment focuses on digital voice processing systems for the mid-sized PBX
market, targeting the rapidly growing European voice processing market.
The Company's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business requires different technology, marketing and distribution strategies.
F-20
BOGEN COMMUNICATIONS INTERNATIONAL, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands of Dollars, Except Share and Per Share Amounts)
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Company evaluates performance
based on profit or loss from operations before income taxes not including other
income (expense); nonrecurring gains and losses and foreign exchange gains and
losses.
The following table presents information about the Company by segment/geographic
area. Inter segment revenues and transfers are not considered material:
Speech
Bogen Design
------- -------
1998:
Revenue from external customers $32,202 $20,352
Depreciation and amortization 772 716
Operating profit 4,359 3,281
Total assets 26,539 12,777
Expenditures for segment assets 289 824
1997:
Revenue from external customers $31,734 $18,045
Depreciation and amortization 775 546
Operating profit 2,630 2,805
Total assets 24,957 6,822
Expenditures for segment assets 390 563
1996:
Revenue from external customers 30,666 15,603
Depreciation and amortization 786 626
Operating profit 2,288 1,662
Total assets 23,584 7,795
Expenditures for segment assets 360 657
A reconciliation of reportable segment operating profit and assets to the
Company's consolidated totals are as follows:
1998 1997 1996
-------- -------- --------
Operating profit
Total operating profit for reportable
segments $ 7,640 $ 5,435 $ 3,950
Unallocated amounts -
In-process research and development (3,885) -- --
Other corporate expenses (1,025) (342) (382)
-------- -------- --------
Operating profit $ 2,730 $ 5,093 $ 3,568
======== ======== ========
Assets
Total assets for reportable segments $ 39,316 $ 31,779 $ 31,379
Elimination of receivables/payables (1,675) (98) (298)
Other unallocated amounts 106 289 305
-------- -------- --------
Consolidated Total $ 37,747 $ 31,970 $ 31,386
======== ======== ========
Sales to two customers of the Company's foreign segment totaled $14,050; each
accounted for more than 10% of the Company's consolidated net sales in 1998.
Sales to one domestic and one foreign customer of the Company with sales of
$5,147 and $6,357, respectively, each accounted for more than 10% of the
Company's consolidated net sales in 1997. Sales to one customer of the Company's
domestic segment totaled $4,506 and accounted for more than 10% of the Company's
consolidated net sales in 1996.
F-21
BOGEN COMMUNICATIONS INTERNATIONAL, INC. and SUBSIDIARIES
Notes to Consolidated Financial Statements
(In Thousands of Dollars, Except Share and Per Share Amounts)
18. Year 2000 (Unaudited)
The Year 2000 problem is the result of computer programs being written with two
digits instead of four digits to define the applicable year. The Company's
management has initiated a company-wide program to prepare the Company's
computer systems for the Year 2000. A comprehensive review of the Company's
computer systems and software has been conducted to identify the systems and
software that could be affected by this issue. A plan to resolve has been
developed and is being implemented. The Company presently believes that with
modifications to existing systems and software and converting to new software,
the Year 2000 problem will not pose a significant operational problem. The
Company is also reviewing the possible impact of the Year 2000 problem on its
customers and suppliers. However, without the modifications and conversions, the
Year 2000 problem could have a material impact on the operations of the Company.
The Company expects the Year 2000 related modifications and conversions to be
substantially completed by the middle of 1999. The cost to modify or replace
existing software is expected to cost approximately $800-$1,000, most of which
will be expended during 1999.
F-22
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 September 18, 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.
29
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
30
Schedule I
BOGEN COMMUNICATIONS INTERNATIONAL, INC.
(Parent Company Only)
CONDENSED BALANCE SHEETS AS OF DECEMBER 31, 1998 and 1997
(In Thousands of Dollars, Except Share and Per Share Amounts)
1998 1997
-------- --------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ -- $ 257
Advances to subsidiary -- 1,540
Prepaid expenses and other current assets 111 32
-------- --------
TOTAL CURRENT ASSETS 111 1,829
Goodwill and Intangible assets, net -- 8
Investment in subsidiaries 30,334 20,282
-------- --------
TOTAL ASSETS $ 30,445 $ 22,119
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Amounts outstanding under revolving credit agreement 462 --
Accounts payable and accrued expenses 178 169
Advances from related party 2,750 --
Preferred dividends payable -- 178
-------- --------
TOTAL CURRENT LIABILITIES 3,390 347
Notes payable to related party -- 350
-------- --------
TOTAL LIABILITIES 3,390 697
-------- --------
STOCKHOLDERS' EQUITY
Preferred stock - $.001 par value; 1,000,000 shares authorized; none issued and
outstanding at December 31, 1998; 200,000 shares issued and outstanding
at December 31, 1997 -- --
Common stock -$ .001 par value; 50,000,000 shares authorized; 6,654,471 and
2,118,226 shares issued and outstanding at December 31, 1998 and 1997,
respectively 7 2
Additional paid-in-capital 29,433 23,468
Accumulated deficit (2,248) (1,690)
Currency translation adjustments (137) (358)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 27,055 21,422
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 30,445 $ 22,119
======== ========
31
Schedule I
BOGEN COMMUNICATIONS INTERNATIONAL, INC.
(Parent Company Only)
CONDENSED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 and 1996
(In Thousands of Dollars, Except Share and Per Share Amounts)
1998 1997 1996
----------- ---------- -----------
Net sales $ -- $ -- $ --
Operating expenses:
General and administrative 901 331 371
Amortization 8 11 11
----------- ----------- -----------
Loss from operations (909) (342) (382)
Other (income) expenses:
Equity in income of subsidiaries (1,266) (3,019) (2,496)
Interest expense, net 24 12 42
Other income (9) -- --
----------- ----------- -----------
Income before provision for income taxes 342 2,665 2,072
Provision for income taxes -- -- 64
----------- ----------- -----------
Net income 342 2,665 2,008
Preferred dividends 900 178 --
----------- ----------- -----------
Net income (loss) available to common shareholders $ (558) $ 2,487 $ 2,008
=========== =========== ===========
Basic net income (loss) per common share $ (0.12) $ 0.46 $ 0.35
=========== =========== ===========
Diluted net income (loss) per common share $ (0.12) $ 0.46 $ 0.35
=========== =========== ===========
Weighted average number of common
shares outstanding-basic and diluted 4,502,547 5,399,199 5,759,075
=========== =========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
32
Schedule I
BOGEN COMMUNICATIONS INTERNATIONAL, INC.
(Parent Company Only)
CONDENSED STATEMENT 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, 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)
Comprehensive income
Net income -- -- -- -- --
Translation adjustments -- -- -- -- --
Comprehensive income -- -- -- -- --
--------- ---- --------- -------- --------
Balance at December 31, 1996 -- -- 5,758,850 $ 6 21,774
Sale of Preferred Stock 200,000 -- -- -- 20,000
Acquisition and retirement of Common Stock held by
Geotek, including acquisition costs of $250 -- -- (3,701,919) (4) (18,746)
Sale of Common Stock and Warrants -- -- 61,295 -- 440
Preferred dividends -- -- -- -- --
Comprehensive income:
Net income -- -- -- -- --
Translation adjustments -- -- -- -- --
Comprehensive income -- -- -- -- --
--------- ---- --------- -------- --------
Balance at December 31, 1997 200,000 -- 2,118,226 $ 2 $ 23,468
Purchase of Speech Design minority interest -- -- 458,000 1 4,064
Conversion of Preferred Stock and related dividends (200,000) -- 3,921,477 4 1,074
Sale of Common Stock -- -- 156,768 -- 862
Preferred dividends -- -- -- -- --
Acquisition costs of Common Stock held by Geotek -- -- -- -- (35)
Comprehensive income:
Net income -- -- -- -- --
Translation adjustments -- -- -- -- --
Comprehensive income -- -- -- -- --
--------- ---- --------- -------- --------
Balance at December 31, 1998 -- -- 6,654,471 $ 7 $ 29,433
========= ==== ========= ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
33
Schedule I
BOGEN COMMUNICATIONS INTERNATIONAL, INC.
(Parent Company Only)
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands of Dollars, Except Share and Per Share Amounts)
Other
Accumulated Comprehensive
Deficit Income Total
----------- ------------- -----------
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)
Comprehensive income:
Net income 2,008 -- --
Translation adjustments -- (174)
Comprehensive income -- -- 1,834
-------- ------ --------
Balance at December 31, 1996 $ (4,177) $ (27) $ 17,576
Sale of Preferred Stock -- -- 20,000
Acquisition and retirement of Common Stock held by
Geotek, including acquisition costs of $250 -- -- (18,750)
Sale of Common Stock and Warrants -- -- 440
Preferred dividends (178) -- (178)
Comprehensive income:
Net income 2,665 -- --
Translation adjustments -- (331) --
Comprehensive income -- -- 2,334
-------- ------ --------
Balance at December 31, 1997 $ (1,690) $ (358) $ 21,422
Purchase of Speech Design minority interest -- -- 4,065
Conversion of Preferred Stock and related dividends -- -- 1,078
Sale of Common Stock -- -- 862
Preferred dividends (900) -- (900)
Acquisition costs of Common Stock held by Geotek -- -- (35)
Comprehensive income:
Net income 342 -- --
Translation adjustments -- 221 --
Comprehensive income -- -- 563
-------- ------ --------
Balance at December 31, 1998 $ (2,248) $ (137) $ 27,055
======== ====== ========
The accompanying notes are an integral part of these
consolidated financial statements.
34
Schedule I
BOGEN COMMUNICATIONS INTERNATIONAL, INC.
(Parent Company Only)
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 and 1996
(In Thousands of Dollars, Except Share and Per Share Amounts)
1998 1997 1996
------- -------- ------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES,
net of effects from acquisition $ 423 $ (268) $ (75)
------- -------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of minority interest in Speech Design (4,797) -- --
Acquisition of Digitronic (1,199)
------- -------- ------
NET CASH USED IN INVESTING ACTIVITIES (5,996) -- --
------- -------- ------
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from sale of preferred stock, common stock and warrants 827 20,440 --
Acquisition of common stock and warrants held by Geotek -- (18,750) --
Amount borrowed under revolving credit agreement net 462 -- --
Advances and notes from (to) related parties 4,290 (1,398) (593)
Payments on notes payable to related party (350) -- --
------- -------- ------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 5,229 292 (593)
------- -------- ------
Effects of foreign exchange rate on cash 87 (72) 5
------- -------- ------
DECREASE IN CASH AND CASH EQUIVALENTS (257) (48) (663)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 257 305 968
------- -------- ------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ -- $ 257 $ 305
======= ======== ======
SUPPLEMENTAL CASH FLOW INFORMATION:
NON CASH FINANCING ACTIVITIES
Restructuring of $3,000 related party note and related interest -- -- 2,602
Preferred stock dividends accrued -- 178 --
Common stock issued to pay current and accrued dividends 1,078 -- --
35
Schedule I - Condensed Financial Information of Bogen Communications
International, Inc. (Parent Company Only)
BOGEN COMMUNICATIONS INTERNATIONAL, INC.
(Parent Company Only)
Condensed 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, 1998, 1997 and 1996. 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 available to common
shareholders by the weighted-average number of common shares outstanding
for the periods presented. Diluted EPS is calculated by dividing net income
available to common shareholders by the weighted-average number of common
shares outstanding and all common stock equivalents for the periods
presented.
d. Cash and Cash Equivalents
Cash includes cash on-hand and all highly-liquid debt instruments purchased
with original maturities of three months or less.
36
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, 1998:
Allowance for doubtful
accounts $ 376 $ 196 $ (1)(a) $ (147)(a) $ 424
Reserve for inventory
obsolescence 529 255 18 (c) (59)(b) 743
Allowance for tax valuation 3,197 (1,321) -- -- 1,876
--------- -------- ------- --------- --------
$ 4,102 $ (870) $ 17 $ (206) $ 3,043
========= ======== ======= ========= ========
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
========= ======== ======= ========= ========
(a) Uncollectible accounts written off, net of recoveries.
(b) Write-off of obsolete inventory.
(c) Currency exchange effect.
37
(b) Reports on Form 8-K
No reports on Form 8-K were filed in the fourth quarter 1998.
(c) Exhibits
The following exhibits are filed as part of this report (Exhibit numbers
correspond to the exhibits required by Item 601 of Regulation S-K for an
Annual Report on Form 10-K):
Exhibit
No. Description
- - ------- -----------
3.1 Certificate of Incorporation. (1)
3.2 By-laws. (1)
3.3 Certificate of Correction to the Certificate of Incorporation,
dated March 8, 1995 and filed with the Secretary of State of the
State of Delaware on March 10, 1995. (2)
3.4 Certificate of Amendment to the Certificate of Incorporation,
dated August 21, 1995 and filed with the Secretary of State of the
State of Delaware on August 21, 1995. (3)
4.1 Form of Common Stock Certificate. (1)
4.2 Form of Warrant Certificate. (1)
4.3 Unit Purchase Option Granted to GKN Securities Corp. (1)
4.4 Warrant Agreement between Continental Stock Transfer & Trust
Company and the Company. (1)
4.5 Bogen Communications, International, Inc. 1996 Incentive Stock
Option Plan. (5)
*4.6 Amendment to Unit Purchase Option Granted to GKN Securities Corp.
10.1 Form of Agency Agreement, dated as of June 28, 1993, between the
Company and GKN Securities Corp. (without schedules) (1)
10.2 Form of Indemnification Agreement between the Company and its
officers, directors and advisors. (4)
10.3 Summary of Agreement for Business Credit between Speech Design
GmbH and Statelparkasse Munchen. (6)
10.4 Asset Purchase Agreement, dated as of July 1, 1997, between Bogen
Communications International, Inc. Bog-Comm Acquisition
Corporation, New England Audio Resource, Inc., Mr. William
Kieltyka and Mr. Lee Lareau. (9)
10.5 Stock Purchase Agreement, dated November 26, 1997, between the
Company and Geotek. (7)
10.6 Convertible Preferred Stock Purchase Agreement, dated November
26, 1997, between the Company and the Investors. (7)
10.7 Employment Agreement, dated November 26, 1997, between the Company
and Mr. Jonathan Guss. (7)
10.8 Employment Agreement, dated November 26, 1997, between the Company
and Mr. Michael Fleischer. (7)
10.9 Option Agreement, dated November 26, 1997, between the Company and
Mr. Jonathan Guss. (7)
10.10 Option Agreement, dated November 26, 1997, between the Company and
Mr. Michael Fleischer. (7)
10.11 Common Stock and Warrant Purchase Agreement, dated November 26,
1997 between the Company and D&S Capital, LLC. (7)
10.12 Warrant, dated November 26, 1997, issued by the Company to D&S
Capital, LLC. (7)
10.14 Warrant Purchase Agreement, dated as of November 28, 1997, between
Helix Capital II, LLC and Bogen Communications International,
Inc. (8)
10.15 Warrant, dated November 28, 1997, issued by Bogen Communications
International, Inc. to Helix Capital II, LLC. (8)
10.16 Share Transfer Agreement, dated May 20, 1998, by and among Bogen
Communications International, Inc., Kasimir Arciszewski and Hans
Meiler. (10)
10.17 Management Agreement, dated May 20, 1998, between Speech Design
GmbH and Kasimir Arciszewski. (10)
10.18 Management Agreement, dated May 20, 1998, between Speech Design
GmbH and Hans Meiler.
10.19 Credit Agreement, dated as of April 21, 1998, among Bogen
Communications International, Inc., Bogen Communications, Inc.,
various financial institutions and KeyBank National
Association. (10)
10.20 Guaranty of Payment and Performance, dated April 21, 1998, by
Bogen Corporation. (10)
10.21 Guaranty of Payment and Performance, dated April 21, 1998, by
New England Audio Resource Corp. (10)
10.22 Security Agreement, dated April 21, 1998, by Bogen Communications
International, Inc. in favor of KeyBank National Association. (10)
10.23 Security Agreement, dated April 21, 1998, by Bogen Communications,
Inc. in favor of KeyBank National Association. (10)
10.24 Security Agreement, dated April 21, 1998, by Bogen Corporation in
favor of KeyBank National Association. (10)
10.25 Security Agreement, dated April 21, 1998, by New England Audio
Resource Corp. in favor of KeyBank National Association. (10)
10.26 Borrower Pledge Agreement, dated April 21, 1998, by and between
Bogen Communications International, Inc. and KeyBank National
Association. (10)
10.27 Borrower Pledge Agreement, dated April 21, 1998, by and between
Bogen Communications International, Inc. and KeyBank National
Association. (10)
10.28 Guarantor Pledge Agreement, dated April 21, 1998, by and between
Bogen Corporation and KeyBank National Association. (10)
10.29 Guarantor Pledge Agreement, dated April 21, 1998, by and between
Bogen Communications, Inc. and KeyBank National Association. (10)
*10.30 Term Sheet for Acquisition Line, dated September 18, 1998, between
Speech Design GmbH and DG Bak.
*10.31 Amended and Restated Mergers and Acquisition Engagement Agreement,
dated as of October 1, 1998, between Helix Capital Services, Inc.
and Bogen Communications International, Inc.
*10.32 Mergers and Acquisition Engagement Agreement, dated as of
October 1, 1998, between Speech Design GmbH and Helix Capital
Services, Inc.
*21.1 Subsidiaries of the Company
*23.1 Consent of KPMG LLP
*23.2 Consent of Coopers and Lybrand L.L.P.
*27 Financial Data Schedule
- - ---------------
*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.
(9) Incorporated by reference to the Exhibits to the Company's Annual Report on
Form 10-K for the year ended December 31, 1997.
(10) Incorporated by reference to the Exhibits to the Company's Current Report
on Form 8-K, dated May 20, 1998.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BOGEN COMMUNICATIONS INTERNATIONAL, INC.
By: /s/ Jonathan Guss By: /s/ Yoav M. Cohen
--------------------------------- ------------------------------------------
Jonathan Guss, Yoav M. Cohen,
Chief Executive Officer Chief Financial Officer, and Secretary
(Principal Executive Officer) (Principal Financial Officer)
By: /s/ Michael P. Fleischer
---------------------------------
Michael P. Fleischer,
President
(Principal Executive Officer)
Date: March 31, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed on March 31, 1999 by the following persons on behalf of
the Registrant in the capacities indicated.
/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/ Kasimir Arciszewski Director
- - --------------------------
Kasimir Arciszewski
/s/ David Jan Mitchell Director
- - --------------------------
David Jan Mitchell
/s/ Zivi R. Nedivi Director
- - --------------------------
Zivi R. Nedivi
/s/ Daniel Schwartz Director
- - --------------------------
Daniel Schwartz
EXHIBIT INDEX
Exhibit
No.
- - -------
4.6 Amendment to Unit Purchase Option Granted to GKN Securities Corp.
10.30 Term Sheet for Acquisition Line, dated September 18, 1998, between
Speech Design GmbH and DG Bak.
10.31 Amended and Restated Mergers and Acquisition Engagement Agreement, dated as of October
1, 1998, between Helix Capital Services, Inc. and Bogen Communications International, Inc.
10.32 Mergers and Acquisition Engagement Agreement, dated as of October 1, 1998, between Speech
Design GmbH and Helix Capital Services, Inc.
21.1 Subsidiaries of the Company
23.1 Consent of KPMG LLP
23.2 Consent of Coopers and Lybrand L.L.P.
27 Financial Data Schedule