UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 

FORM 10-Q

 

For the quarterly period ended June 30, 2002

 

OR

 

For the transition period from                  to                  .

 

Commission File Number:  0-22046

 

Bogen Communications International, Inc.

(Exact name of registrant as specified in its charter)

 

 

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      ý      No      o

 

As of July 22, 2002, 7,848,821 shares of the registrant’s common stock, par value $.001 per share, were outstanding.

 

BOGEN COMMUNICATIONS INTERNATIONAL, INC.

AND SUBSIDIARIES

 

INDEX

 

PART I.  FINANCIAL INFORMATION
	Item 1.	Financial Statements
		•    Consolidated Balance Sheets as of June 30, 2002, and December 31, 2001
		•    Consolidated Statements of Operations for the three and six months ended June 30, 2002 and 2001
		•      Consolidated Statement of Changes in Stockholders’ Equity for the six months ended June 30, 2002
		•    Consolidated Statements of Cash Flows for the six months ended June 30, 2002 and 2001
		•    Notes to Consolidated Financial Statements
	Item 2.	Management’s Discussion and Analysis of Financial Condition And Results of Operations
	Item 3.	Market Risk Discussion
PART II.  OTHER INFORMATION
	Item 1.	Legal Proceedings
	Item 2.	Changes in Securities
	Item 3.	Defaults Upon Senior Securities
	Item 4.	Submission of Matters to a Vote of Security Holders
	Item 5.	Other Information
	Item 6.	Exhibits and Reports on Form 8K

 

2

 

BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In Thousands of Dollars, Except Share and Per Share Amounts)

 

		June 30, 2002			December 31, 2001
		(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	12,007		$	11,001
Marketable securities		3,505			3,970
Trade receivables (net of allowance for doubtful accounts of $578 and $471 at June 30, 2002, and December 31, 2001, respectively)		7,948			5,819
Other receivables		248			172
Inventories, net		11,311			12,306
Prepaid expenses and other current assets		442			519
Current deferred income taxes		1,461			1,454
TOTAL CURRENT ASSETS		36,922			35,241
Equipment and leasehold improvements, net		3,321			3,746
Goodwill, net		15,386			15,189
Other intangible assets, net		981			896
Deferred income taxes		908			590
Other assets		180			145
TOTAL ASSETS		$	57,698		$	55,807
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Amounts outstanding under revolving credit agreements		$	42		$	973
Current maturities of capital lease obligations		136			267
Accounts payable		1,907			1,910
Accrued expenses		4,886			4,376
Income taxes payable		435			104
TOTAL CURRENT LIABILITIES		7,406			7,630
Advances and notes payable to related parties		—			120
Capital lease obligations, less current maturities		11			11
Minority interest		240			219
Other long-term liabilities		70			81
TOTAL LIABILITIES		7,727			8,061
STOCKHOLDERS’ EQUITY
Preferred stock - $.001 par value; 1,000,000 shares authorized; none issued and outstanding at June 30, 2002, and December 31, 2001		—			—
Common stock - $.001par value; 50,000,000 shares authorized; 9,455,995 shares issued and outstanding at June 30, 2002, and 9,100,745 shares issued and outstanding at December 31, 2001		9			9
Additional paid-in-capital		46,635			45,565
Deferred compensation		(1,017		)	—
Retained earnings		4,933			3,590
Accumulated other comprehensive loss		(557		)	(1,386		)
Treasury stock at cost - 3,572 shares at June 30, 2002, and December 31, 2001		(32		)	(32		)
TOTAL STOCKHOLDERS’ EQUITY		49,971			47,746
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY		$	57,698		$	55,807

 

See accompanying notes to consolidated financial statements.

 

3

 

BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands of Dollars, Except Share and Per Share Amounts)

(Unaudited)

 

		Three Months Ended						Six Months Ended
		June 30, 2002			June 30, 2001			June 30, 2002			June 30, 2001
Net sales		$	16,712		$	15,792		$	29,088		$	29,638
Cost of goods sold		8,409			8,393			15,352			15,434
Gross profit		8,303			7,399			13,736			14,204
Operating expenses:
Research and development		1,010			832			1,885			2,135
Selling, general and administrative		4,972			5,309			9,767			11,144
Amortization of goodwill		—			212			—			446
Amortization of intangibles		62			63			102			104
Restructuring and other charges		—			—			—			35
Income from operations		2,259			983			1,982			340
Other (income) expenses:
Interest income		(93		)	(119		)	(192		)	(267		)
Interest expense		39			28			113			59
Minority interest of consolidated subsidiaries		21			—			21			—
Other (income) expense, net		(144		)	(18		)	(140		)	(37		)
Income before income taxes		2,436			1,092			2,180			585
Income tax expense (benefit)		810			416			837			125
Net income		$	1,626		$	676		$	1,343		$	460
Basic net income per common share		$	0.17		$	0.07		$	0.15		$	0.05
Diluted net income per common share		$	0.17		$	0.07		$	0.15		$	0.05
Weighted average number of common shares outstanding-Basic		9,397,803			10,112,956			9,250,094			10,112,956
Weighted average number of common shares outstanding-Diluted		9,416,232			10,112,956			9,257,970			10,112,956

 

See accompanying notes to consolidated financial statements.

 

4

 

BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(In Thousands of Dollars, Except Share and Per Share Amounts)

(Unaudited)

 

		Common Stock					Additional Paid-In Capital			Deferred Compensation			Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock					Total
		Number of Shares		Amount															Number of Shares		Amount
Balance at January 1, 2002		9,100,745		$	9		$	45,565		$	—		$	3,590		$	(1,386	)	3,572		$	(32	)	$	47,746
Employee restricted stock grants		355,250		—			1,070			(1,070		)	—			—			—		—			—
Deferred compensation amortization		—		—			—			53			—			—			—		—			53
Comprehensive income:
Net income		—		—			—			—			1,343			—			—		—
Translation adjustments		—		—			—			—			—			829			—		—
Comprehensive income		—		—			—			—			—			—			—		—			2,172
Balance at June 30, 2002		9,455,995		$	9		$	46,635		$	(1,017	)	$	4,933		$	(557	)	3,572		$	(32	)	$	49,971

 

See accompanying notes to consolidated financial statements.

 

5

 

BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands of Dollars, Except Share and Per Share Amounts)

(Unaudited)

 

		Six Months Ended June 30,
		2002			2001
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	1,343		$	460
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		846			859
Amortization of goodwill		—			446
Amortization of intangible assets		102			104
Deferred compensation		53			—
Provisions for doubtful accounts		137			109
Utilization of pre-acquisition NOL charged to goodwill		54			54
Deferred income taxes		(184		)	(198		)
Forgiveness of notes payable to related parties		(122		)	—
Minority interest		21			—
Change in operating assets and liabilities:
Receivables		(1,795		)	(716		)
Inventories		1,265			(164		)
Prepaid expenses and other current assets		88			(11		)
Accounts payable and accrued expenses		(24		)	413
Other		(45		)	(146		)
Net cash provided by operating activities		1,739			1,210
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and leasehold improvements		(280		)	(749		)
Acquisition of intangibles		(3		)	—
Proceeds from sale of marketable securities		465			—
Net cash provided by (used in) investing activities		182			(749		)
CASH FLOW FROM FINANCING ACTIVITIES:
Principal payments under capital lease obligations		(131		)	(125		)
Forgiveness of notes payable to related parties		122			—
Decrease in borrowings under revolving credit agreements, net		(953		)	(881		)
Net cash used in financing activities		(962		)	(1,006		)
Effects of foreign exchange rate on cash		47			(47		)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		1,006			(592		)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		11,001			12,158
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	12,007		$	11,566
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest		$	62		$	54
Cash paid for income taxes		801			326

 

See accompanying notes to consolidated financial statements.

 

6

 

BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands of Dollars, Except Share and Per Share Amounts)

(Unaudited)

 

1.             Basis of Presentation

 

The consolidated balance sheet of Bogen Communications International, Inc. and its subsidiaries (the “Company”) as of December 31, 2001, has been derived from the audited consolidated balance sheet contained in the Company’s Annual Report on Form 10-K and is presented for comparative purposes.  The consolidated balance sheet as of June 30, 2002, the consolidated statements of operations for the three and six months ended June 30, 2002 and 2001, the consolidated statements of cash flows for the six months ended June 30, 2002 and 2001, and the consolidated statement of changes in stockholders’ equity for the six months ended June 30, 2002, are unaudited.  In the opinion of management, all significant adjustments, including normal recurring adjustments necessary to present fairly the financial position, results of operations and cash flows for all periods presented have been made.  Certain prior year balances have been reclassified to conform to the current year’s presentation.  The results of operations for interim periods are not necessarily indicative of the operating results for the full year.

 

Footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been substantially omitted in accordance with the published rules and regulations of the Securities and Exchange Commission (“SEC”).  These consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2001.

 

2.             Principles of Consolidation

 

The consolidated financial statements of the Company include the accounts of the Company’s 99% owned subsidiary, Bogen Corporation (“Bogen”); Bogen’s wholly-owned subsidiary, Bogen Communications, Inc. (“BCI”); BCI’s wholly-owned subsidiary, Apogee Sound International, LLC (“Apogee”); the Company’s 98% owned subsidiary, Speech Design International, Inc. (“SDI”); SDI’s wholly-owned subsidiary, Speech Design GmbH (“Speech Design”); and Speech Design’s wholly-owned subsidiaries: Satelco AG (“Satelco”)(effective June 30, 2002), Speech Design (Israel), Ltd., and Speech Design Carrier Systems GmbH (“Carrier Systems”) (formerly Digitronic Computersysteme GmbH).  All significant inter-company balances and transactions have been eliminated in consolidation.

 

The ownership interests of minority owners in the equity and earnings of the Company’s less than 100 percent-owned consolidated subsidiaries are recorded as minority interest.

 

3.             Revenue Recognition

 

The Company derives its revenue from primarily two sources:  (i) sale of sound processing and telecommunications peripheral equipment and (ii) services and support revenue for telecommunications equipment and Unified Messaging products.  The Company recognizes revenue from the sale of equipment.  Services and support revenue are recognized upon customer acceptance where a product deliverable or repair is called for, or ratably over the contract term in case of support or maintenance contracts.  In the case of services subject to customer acceptance, recognition occurs upon the earlier of receipt of a written customer acceptance or expiration of the acceptance period.

 

7

 

In June 2001, the Company adopted the provisions of the Financial Accounting Standards Board’s (“FASB”) Emerging Issues Task Force (“EITF”) Issue No. 00-22, “Accounting for “Point” and Other Loyalty Programs”, which classified customer rebates as a reduction of sales, and Issue No, 00-25, “Accounting for Consideration from a Vendor to a Retailer in Connection with the Purchase or Promotion of the Vendor’s Products”, which classifies such consideration as a reduction of sales.  Consequently, the Company has reclassified such expenses that were previously a component of selling, general, and administrative expenses against sales.  As a result of these reclassifications, sales were decreased by $259 and $503 for the three and six months ended June 30, 2001.  There is no effect on operating income.

 

4.             Comprehensive Income

 

The Company has determined total comprehensive income (loss) to be $2,625 and $2,172, respectively, for the three and six months ended June 30, 2002, and $496 and $(252), respectively, for the three and six months ended June 30, 2001.  The Company’s total comprehensive income or loss represents net income or loss plus the change in the cumulative translation adjustment equity account for the periods presented.

 

5.             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 telecommunications peripherals.  The foreign segment focuses on digital voice processing systems for the mid-sized PABX market and in Unified Messaging products and services, targeting the European voice processing and Unified Messaging markets.

 

The following tables present information about the Company by segment area.  Inter-segment revenues and transfers are considered immaterial:

 

Six Months Ended

		June 30, 2002						June 30, 2001
		Bogen			Speech Design			Bogen			Speech Design
Revenue from external customers		$	21,188		$	7,900		$	19,754		$	9,844
Operating income		1,986			148			682			105

 

Three Months Ended

		June 30, 2002						June 30, 2001
		Bogen			Speech Design			Bogen			Speech Design
Revenue from external customers		$	11,481		$	5,231		$	11,041		$	4,751
Operating income		1,423			919			1,111			82

 

A reconciliation of reportable segment operating income to the Company’s consolidated totals is as follows:

 

		Three Months Ended June 30,						Six Months Ended June 30,
		2002			2001			2002			2001
Operating income:
Total operating income for reportable segments		$	2,342		$	1,193		$	2,134		$	787
Other corporate expenses		(83		)	(210		)	(152		)	(447		)
Operating income		$	2,259		$	983		$	1,982		$	340

 

 

8

 

6.             Inventories

 

Inventories are stated at the lower of cost or market and are valued using the first-in, first-out method.  Inventories are as follows:

 

		June 30, 2002			December 31, 2001
Raw materials and supplies		$	3,242		$	3,367
Work in progress		643			627
Finished goods		7,426			8,312
Total		$	11,311		$	12,306

 

7.             Net Income Per Share

 

Basic income (loss) per common share is computed by dividing net income (loss) per common share by the weighted-average number of common shares outstanding for the periods presented.  Diluted income (loss) per common share is computed by dividing net income (loss) per common share by the weighted-average number of common shares outstanding and all potentially dilutive common shares, consisting of outstanding warrants and stock options, for the periods presented.  At June 30, 2002, there were 1,547,235 options and 825,885 warrants outstanding.

 

8.             Income Tax

 

Domestic and foreign income (loss) before income taxes includes income or loss derived from operations in the respective U.S. and foreign geographic areas, whereas provisions for taxes on income or loss include all income taxes payable to U.S., foreign and other governments as applicable, regardless of the sites in which the taxable income or loss is generated.  Income tax expense (benefit) for the three and six months ended June 30, 2002 and 2001, differs from the amount computed by applying the U.S. Federal statutory rates primarily due to the creation of foreign loss carryforwards, foreign tax exemptions, and the utilization of U.S. pre-acquisition loss carryforwards for which the benefit reduces goodwill.

 

The Company has established valuation allowances covering certain of its deferred tax assets.  These allowances were $791 and $948 as of June 30, 2002, and December 31, 2001, respectively.  The valuation allowance was established due to the uncertainty of the realization of these deferred tax assets.  A 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.

 

9

 

9.                                       Goodwill

 

Pursuant to the terms of the Carrier Systems acquisition agreement, approximately $200 was recorded as additional goodwill.  The terms of the acquisition agreement provided for additional cash consideration to be paid if Carrier Systems sales exceeded certain targeted levels for the two years ended December 31, 2001.  As of June 30, 2002, no additional contingent consideration will be earned by the sellers.

 

In July 2001, the FASB Issued Statement No. 141, “Business Combinations”, (“SFAS 141”) and Statement No. 142, “Goodwill and Other Intangible Assets”, (“SFAS 142”).  SFAS 141 requires that the purchase method of accounting be used for all business combinations completed after June 30, 2001.  SFAS 141 also specifies that intangible assets acquired in a purchase method business combination must meet certain criteria to be recognized and reported apart from goodwill.  SFAS 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized.  Instead, they will be tested for impairment at least annually in accordance with the provisions of SFAS 142.  SFAS 142 also requires that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values and reviewed for impairment in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”.  The Company adopted the provisions of SFAS 141 for acquisitions initiated after June 30, 2001, and SFAS 142 effective January 1, 2002.  In connection with the transitional goodwill impairment evaluation, SFAS 142 requires the Company to perform an assessment of whether there is an indication that goodwill is impaired as of the date of adoption.  To the extent an indication exists that the goodwill may be impaired, the Company must measure the impairment loss, if any.  Any transitional impairment loss will be recognized as the cumulative effect of a change in accounting principle in the Company’s consolidated statements of operations.  The Company had approximately $15,214 of unamortized goodwill as of January 1, 2002, which was subject to the transition provisions of SFAS 142.  The Company completed its transitional goodwill impairment assessment in the second quarter of fiscal year 2002.  The assessment indicated that there was no goodwill impairment.  The Company will perform its annual impairment test in the fourth quarter of each fiscal year, upon completion and approval of the Company’s financial operating plan.

 

The following disclosure presents certain information on the Company’s acquired intangible assets as of June 30, 2002, and December 31, 2001.  All intangible assets are being amortized over their estimated useful lives, as indicated below, with no estimated residual values.

 

Acquired Intangible Assets		Weighted-Average Amortization Period		Gross Carrying Amount			Accumulated Amortization			Net Balance
At June 30, 2002
Amortized acquired intangible assets:
Patents		10 years		$	58		$	(37	)	$	21
Trademarks		15 years		667			(188		)	479
Organization Costs		5 years		53			(53		)	—
Workforce		15 years		—			—			—
Brandnames		7 years		130			(65		)	65
Technology		4 years		461			(230		)	231
Non-compete Agreements		1.5 years		171			—			171
Customer Lists		7 years		148			(134		)	14
				$	1,688		$	(707	)	$	981
At December 31, 2001
Amortized acquired intangible assets:
Patents		10 years		$	55		$	(36	)	$	19
Trademarks		15 years		667			(158		)	509
Organization Costs		5 years		53			(53		)	—
Workforce		15 years		224			(54		)	170
Brandnames		7 years		—			—			—
Technology		4 years		271			(91		)	180
Customer Lists		7 years		134			(116		)	18
				$	1,404		$	(508	)	$	896

 

10

 

The aggregate acquired intangible amortization expense for the three and six month periods ended June 30, 2002, was approximately $62 and $102, respectively.  The estimated acquired intangible asset amortization expense for the fiscal year ended December 31, 2002, and for the four subsequent years ended December 31, 2002, is as follows:

 

 

The table below reconciles the change in the carrying amount of goodwill, by operating segment, for the period from December 2001, to June 30, 2002:

 

		Domestic			Foreign			Total
Balance at December 31, 2001		$	10,290		$	4,899		$	15,189
Effect of adoption of SFAS 141 and 142:
Brandname reclassification to Intangible Assets		—			(66		)	(66		)
Technology reclassification to Intangible Assets		—			(80		)	(80		)
Workforce reclassification from Intangible Assets		—			171			171
Balance at January 1, 2002		10,290			4,924			15,214
Increase to Carrier Systems earnout agreement		—			199			199
Utilization of pre-acquisition NOL’s charged to goodwill		(54		)	(38		)	(92		)
Foreign currency translation adjustments		—			65			65
Balance at June 30, 2002		$	10,236		$	5,150		$	15,386

 

11

 

Amortization expense related to goodwill was approximately $212 and $446 for the three and six months ended June 30, 2001.  Other than the non-amortization of goodwill, the Company’s adoption of SFAS 142 is not expected to have a material effect on its revenue, operating results or liquidity.

 

A reconciliation of net income and income per common share under the Company’s adoption of SFAS 142 is as follows:

 

		Three Months Ended June 30,						Six Months Ended June 30,
		2002			2001			2002			2001
Reported net income		$	1,626		$	676		$	1,343		$	460
Add back: Goodwill amortization		—			212			—			446
Adjusted net income		$	1,626		$	888		$	1,343		$	906
Basic net income per common share:
Reported net income		$	0.17		$	0.07		$	0.15		$	0.05
Add back: Goodwill amortization		0.00			0.02			0.00			0.04
Adjusted net income		$	0.17		$	0.09		$	0.15		$	0.09
Diluted net income per common share:
Reported net income		$	0.17		$	0.07		$	0.15		$	0.05
Add back: Goodwill amortization		0.00			0.02			0.00			0.04
Adjusted net income		$	0.17		$	0.09		$	0.15		$	0.09

 

 

10.           Revolving Credit Agreements

 

On April 21, 1998, the Company and BCI entered into a $27,000 credit facility (the “Facility”) with KeyBank National Association (“Key”), which matured on April 30, 2001.  The Facility provided, subject to certain criteria, for a $20,000 revolving line of credit for acquisition financing and a $7,000 working capital line.  Effective June 30, 2001, the Company and Key entered into a Modification Agreement (The “Agreement”), under which the working capital line was reduced to $5,000 and the parties agreed to an unsecured $20,000 line of credit for acquisition financing.  The Agreement extended the provisions, warranties, certifications, and other criteria of the expired Facility to June 30, 2002, and reduced the number of financial covenants required to be met, with which the Company was in compliance for the period ended June 30, 2002.  Effective June 30, 2002, the parties agreed to extend the Agreement to June 30, 2003, and increase the working capital line to $7,000.  The Agreement bears interest at either Key’s prime rate or, at the borrower’s option, LIBOR plus 125 to 200 basis points.  As of June 30, 2002, and December 31, 2001, Bogen had no short-term domestic borrowings outstanding under the Agreement.

 

12

 

Speech Design has credit lines and overdraft facilities of approximately 1,360 Euros (approximately $1,350) from five banks.  Speech Design’s short-term lines of credit are collateralized by all of Speech Design’s accounts receivable and inventory.  Speech Design has a 7,669 Euro ($7,600) credit facility for acquisition financing from D.G. Bank of Frankfurt.  The interest rate under the credit facility is up to 200 basis points above the Euribor rate.

 

At June 30, 2002, and December 31, 2001, Speech Design had short-term borrowings of $42 and $973, respectively.  At June 30, 2002, amounts available under Speech Design’s credit lines were approximately $1,310.  There were no borrowings under either the Bogen or Speech Design acquisition credit facilities.

 

Total outstanding revolving lines of credit are summarized as follows:

 

		June 30, 2002			December 31, 2001
Domestic Lines of Credit Utilized		$	—		$	—
Foreign Lines of Credit Utilized:
•    Speech Design GmbH		—			785
•    Speech Design Israel		—			3
•    Carrier Systems		—			125
•    Satelco		42			60
		$	42		$	973

 

11.           Derivative Instruments and Hedging Activities

 

In June 1998, the FASB issued SFAS No. 133, “Accounting for Derivative Instruments and Certain Hedging Activities.”  In June 2000, the FASB issued SFAS No. 138, “Accounting for Certain Derivative Instruments and Certain Hedging Activity, an Amendment of SFAS 133.”  These statements establish accounting and reporting standards for derivative instruments, including those embedded on other contracts, and for hedging activities.  They require that all derivative instruments be recorded on the balance sheet at their respective fair values.  The Company adopted SFAS No. 133 and SFAS No. 138 on January 1, 2001.  The Company does not purchase or hold derivative instruments for trading, speculative, or hedging purposes.  There were no contracts outstanding as of June 30, 2002, or December 31, 2001, or for the three and six months ending June 30, 2002.

 

12.           Minority Interest

 

On September 27, 2001, an agreement was signed with 2.T-Telematik Venture Beteiligungsgesellschaft mgH (“T-Venture”), a venture capital subsidiary of Deutsche Telekom AG, a world leader in telecommunications, to sell 2% of SDI, a newly-formed Company subsidiary which now holds all equity in Speech Design, the company’s European operation, to T-Venture. Sale of the SDI common stock minority holding was for approximately 842 Euros, about $765 as of the date of the agreement, less expenses of $104.  T-Venture also received a warrant to purchase another 2% of SDI shares at prices that, if SDI becomes separately traded, would be established at a discount to initial public market prices.  As part of the agreement, within thirty days after both the second and third anniversaries of the agreement date, T-Venture has an option to request that the SDI repurchase all of the common shares held by T-Venture for a price, set by mutual determination or by an appraiser, not to exceed 125% of the total amount paid by T-Venture.

 

13

 

13.                                 Block Purchase and Tender Offer

 

From July 1st to the 3rd, 2002, the Company repurchased approximately 1.6 million shares of its common stock in privately negotiated transactions with two shareholder groups at a price of $4.00 per share.

 

On Monday, June 24th, 2002, the Company announced that its Board of Directors has authorized the Company to repurchase up to 2.5 million shares of its common stock in a self-tender offer at a price of $4.00 per share.  The $4.00 offer price represents a premium of 32% percent when compared to Friday June 21st, 2002 closing price of $3.03 per share.  The offer commenced on July 16th, 2002, and expires at 5:00pm, New York City time, August 13^th, 2002.

 

Under the tender offer, shareholders will have the opportunity to tender some or all of their shares at $4.00 per share.  If holders of more than 2,500,000 shares properly tender their shares, the Company will purchase shares tendered by the holders on a pro rata basis.  Shareholders whose shares are purchased in the offer will be paid the purchase price in cash, without interest, after the expiration of the offer period. Shares not purchased will be returned to the tendering stockholder.  The offer is subject to required regulatory filings, and a number of other terms and conditions specified in the offer to purchase that was distributed to shareholders, but will not, however, be contingent on obtaining financing.    The Company has credit facilities in place should the tender offer be fully subscribed.

 

14.           Satelco Minority Interest Acquisition

 

Effective June 30th, 2002, Speech Design acquired the remaining 33% of Satelco it did not already own.  Previously, Satelco had been included in the Company’s consolidated financial statements and, when applicable, minority interest expense was recorded and the related liability reported. Purchase price for the minority share was 250 Swiss Francs, approximately $170 as of the date of acquisition, which represents payment for a non-compete agreement with the former minority shareholders.  This intangible asset will be amortized over its assessed useful life, which management estimates to be 18 months.

 

In addition, a note payable to the former minority shareholders was forgiven, resulting in other income of approximately $122.

 

15.                                 Restricted Stock Grants

 

In April 2002 the Company granted Restricted Stock to certain employees.  Each of Messrs. Guss and Fleischer received 105,000 restricted shares pursuant to their employment contracts.  Other key employees were issued Restricted Stock in exchange for the cancellation of  options they held under the Stock Incentive Plan.  The total number of restricted  shares issued to the other key employees was approximately 145,000.

 

14

 

All statements contained herein that are not historical facts, including, but not limited to, statements regarding Bogen Communications International, Inc. and its subsidiaries, (collectively the “Company”), and its current business strategy, projected sources and uses of cash, and plans for future development and operations, are based upon current expectations.  These statements are forward-looking in nature and involve a number of risks and uncertainties.  Actual results may differ materially.  Among the factors that could cause actual results to differ materially are the following: competitive factors, including the fact that the Company’s competitors are highly focused and may have greater resources and/or name recognition than the Company; changes in technology and the Company’s ability to develop or acquire new or improved products and/or modify and upgrade its existing products, including, but not limited to, the introduction and development of the Company’s products; changes in labor, equipment and capital costs; changes in access to suppliers and sub-contractors; currency fluctuations; changes in United States and foreign regulations affecting the Company’s business; future acquisitions or strategic partnerships; implementation or termination of strategic initiatives or transactions; the availability of sufficient capital to finance potential acquisitions on terms satisfactory to the Company; the effect of the tender offer and possible modifications thereto; general business and economic conditions; political instability in certain regions; employee turnover; issues relating to the Company’s internal systems; and other factors described from time to time in the Company’s reports filed with the Securities and Exchange Commission.  The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which are made pursuant to the Private Litigation Reform Act of 1995 and, as such, speak only as of the date made

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion addresses the financial condition of the Company as of June 30, 2002, and the results of its operations for the three and six-month periods ended June 30, 2002, compared to the same periods last year.  The discussion should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations for the fiscal year ended December 31, 2001, included in the Company’s 2001 Annual Report on Form 10-K for the year ended December 31, 2001.

 

Results of Operations

 

Three Months Ended June 30, 2002, Compared to the Three Months Ended June 30, 2001

 

Net Sales

 

Net sales of $16,712,000 for the three months ended June 30, 2002, increased 5.8% from the $15,792,000 recorded in the same period in 2001.  Bogen’s domestic revenues increased 4.0%.  30.8% growth by Engineered Systems products offset static or declining revenues in the other product lines.  Speech Design revenues in U.S. dollars improved 10.1% from 2001.  In Euros, Speech Design revenues increased 4.4%; currency exchange fluctuations accounted for the remaining percentage increase.

 

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Bogen (domestic)

 

Bogen sales results of $11,481 for the second quarter of 2002 were mixed when compared to the same period in 2001.  Telco net sales in the three months ended June 30, 2002, were $3,641,000 versus $3,581,000 in the same period in 2001, an increase of 1.7%.  Growth in non-OEM product sales was offset by a decrease in OEM product revenues. Net sales of Commercial Audio products totaled $2,314,000 in the second three months of 2002, down $242,000 (9.4%) from net sales of $2,556,000 in the same period in 2001.

 

Net sales of the Engineered System line increased $983,000, to $4,176,000 in the second quarter of 2002 from $3,193,000 in the same period last year.  Net sales of Pro Audio products amounted to $1,350,000 in 2002, down 21.1% from the $1,711,000 recorded in 2001.

 

Speech Design (foreign)

 

Speech Design’s net sales in the second quarter of 2002 were $5,231,000 compared to $4,751,000 in the same period in 2001, an increase of $480,000.  In Euros, net sales in 2002 increased to 5,689,000 Euros, 242,000 Euros more than the 5,447,000 Euros in 2001.  Speech Design’s Telco product line continued to be negatively affected by the continuing softness in the European telecommunications markets, which has caused significant spending reductions by end users, while the Unified Messaging benefited from several large contracts with telecom carriers.  Unified Messaging services increased to $2,207,000 in the second quarter of 2002 from $1,500,000 in the same period in 2001, but Telco sales decreased to $3,024,000 for the three months ended June 30, 2002, from the $3,251,000 reported in the same period in 2001.

 

Gross Profit

 

The Company’s gross profit as a percentage of sales increased to 49.7% for the three months ended June 30, 2002, from 46.9% for the same period last year.  Gross profit was $8,303,000 in 2002, an increase of  $904,000, or 12.2%, from $7,399,000 in 2001.

 

Bogen’s gross profit as a percentage of sales increased to 44.4% in second quarter of 2002 from 43.6% in the second quarter of 2001.  This percentage increase is reflective of fluctuations in Bogen’s product line sales mix and by certain cost efficiencies that were implemented in early 2001.  Gross profit increased to $5,095,000 in 2002 from $4,809,000 in 2001.

 

Speech Design’s gross profit increased to $3,208,000 in the second quarter of 2002 from $2,590,000 in the same period last year.  Gross profit as a percentage of sales grew to 61.3% in 2002 from 54.5% in 2001.  The improvement can be attributed to higher revenues in Unified Messaging products and services, offset partly by the absorption of fixed costs relative to lower Telco sales volume.  Unified Messaging products and services generally have a higher gross margin than Telco products.

 

Research and Development

 

The Company’s Research and Development (“R&D”) programs are designed to efficiently introduce innovative products in a timely manner.  R&D expense was $1,010,000, or 6.0 % of sales in the second quarter of 2002, compared to $832,000, or 5.3% of sales in the same period of 2001.  The $178,000 increase reflects the effect of the expiration in the second quarter of 2002 of an OEM project at Speech Design, wherein certain costs were recognized as cost of sales and reduced R&D expenses, offset by cost reductions achieved by the restructuring of Speech Design’s operations in the third and fourth quarters of 2001.

 

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Selling, General and Administrative Expenses

 

Selling, general and administrative expenses (“SG&A”) in the three months ended June 30, 2002, decreased $337,000 from the same period in 2001.  SG&A expense was $4,972,000, or 29.8% of sales, in 2002 compared to $5,309,000, or 33.6% of sales, in 2001.  Domestic SG&A costs were down primarily due to lower administrative costs, a result of overhead cost control initiatives implemented throughout 2001.  Foreign SG&A expenses decreased due to the restructuring of Speech Design’s operations in the second half of 2001 and decreased selling related costs.

 

Interest Income and Expense

 

Interest income was $93,000 in the second quarter of 2002, a decrease of $26,000 from $119,000 in the same period in 2001.  The decrease is primarily a result of lower interest rates on invested cash in the United States.  Interest expense was $39,000 in 2002, an increase of $11,000 from $28,000 in 2001.

 

Other Income

 

In second quarter 2002, other income included $122,000 resulting from former minority shareholders of Satelco forgiving a related party note payable.

 

Income Taxes

 

The Company’ tax provision was $810,000 in the second quarter of 2002, an increase of $394,000 from a $416,000 tax provision recorded in the same period in 2001.

 

Domestic tax expense was $611,000 in the second quarter of 2002, an increase of $121,000 from the $490,000 tax expense in 2001, primarily due to higher pre-tax income.  Foreign operations recorded a tax provision of $199,000 for the second three months of 2002, an increase of $273,000 from the $74,000 tax benefit recorded in the three months ended June 30, 2001, primarily due to higher pre-tax income, offset by the tax-exempt status of the Israeli subsidiary.

 

Results of Operations

 

Six Months Ended June 30, 2002, Compared to the Six Months Ended June 30, 2001

 

Net Sales

 

Net sales of $29,088,000 for the six months ended June 30, 2002, were 1.9% below the $29,638,000 recorded in the same period in 2001.  Bogen’s domestic revenues increased 7.3%, with 27.8% growth in Engineered Systems sales offsetting flat sales in other product lines.  Speech Design revenues in U.S. dollars declined 20.1% from 2001.  In Euros, Speech Design revenues decreased 20.8%; currency exchange fluctuations accounted for the remaining percentage change.

 

Bogen (domestic)

 

Bogen product line sales results were mixed when compared to 2001.  Telco net sales in the first six months of 2002 were $7,130,000 versus $6,945,000 in the same period in 2001, an increase of $185,000 or 2.7%.  Growth in non-OEM product sales was offset a decrease in OEM product revenues. Net sales of Commercial Audio products totaled $4,539,000 in the first six months of 2002, down $79,000 (1.7%) from net sales of $4,618,000 in the first half of 2001.

 

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Net sales of the Engineered System line increased to $6,933,000 in the first half of 2002, up $1,509,000 from $5,424,000 in the same period last year.  Net sales of Pro Audio products amounted to $2,586,000 in 2002, down 6.6% from the $2,767,000 recorded in 2001.

 

Speech Design (foreign)

 

Speech Design’s net sales in the first six months of 2002 were $7,900,000 compared to $9,884,000 in the same period in 2001, a decrease of $1,984,000.  In Euros, net sales in 2002 decreased to 8,753,000 Euros, 2,297,000 Euros below the 11,050,000 Euros in 2001.  Both of Speech Design’s product lines were negatively affected by the continuing softness in both the European telecommunications and Unified Messaging markets, which has caused significant spending reductions by end users and telecom carriers.  Unified Messaging services declined to $2,325,000 in the six months ended June 30, 2002, from $2,590,000 in 2001 and Telco sales decreased to $5,575,000 for the six months ended June 30, 2002, from the $7,294,000 reported in the same period in 2001.

 

Gross Profit

 

The Company’s gross profit as a percentage of sales decreased to 47.2% for the six months ended June 30, 2002, from 47.9% for the same period last year.  Gross profit was $13,736,000 in 2002, a decrease of  $468,000, or 3.3 %, from $14,204,000 in 2001.  The decline is primarily due to the greater weighting of domestic sales and gross profit as a percentage of total results.

 

Bogen’s gross profit as a percentage of sales was 43.2% in the first six months of 2002, the same as in 2001.  This similarity is due to a combination of fluctuations in Bogen’s product line sales mix, as indicated by increases in Engineered Systems, which historically has lower gross margins as compared to the other Bogen product lines, offset by certain cost efficiencies implemented in early 2001.  Gross profit increased to $9,151,000 in 2002 from $8,542,000 in 2001.

 

Speech Design’s gross profit decreased to $4,585,000 in the first six months of 2002 from $5,662,000 in the period of 2001.  Gross profit as a percentage of sales increased to 58.0% in 2002 from 57.3% in 2001.  The increase can be attributed to the higher revenues in Unified Messaging products and services partly offset by the absorption of fixed costs relative to lower Telco sales volume.  Unified Messaging products and services generally have a higher gross margin than Telco products.

 

Research and Development

 

The Company’s Research and Development (“R&D”) programs are designed to efficiently introduce innovative products in a timely manner.  R&D expense was $1,885,000, or 6.5% of sales, in the first half of 2002, compared to $2,135,000, or 7.2% of sales, in the same period of 2001.  The $250,000 decrease primarily reflects cost reductions achieved by the restructuring of Speech Design’s operations in the third and fourth quarters of 2001.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses (“SG&A”) in the six months ended June 30, 2002, decreased $1,377,000 from the same period in 2001.  SG&A expense was $9,767,000, or 33.6% of sales, in 2002 compared to $11,144,000, or 37.6% of sales, in 2001.  Domestic SG&A costs were down primarily due to lower administrative costs, a result of overhead cost control initiatives implemented throughout 2001.  Foreign SG&A expenses decreased due to the restructuring of Speech Design’s operations in the second half of 2001 and decreased selling related expenses.

 

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Restructuring and Other Charges

 

In the first quarter of 2001, the Company recorded approximately $35,000 for expenses incurred in connection with its exploration of alternatives for enhancing shareholder value, which included a possible separation of the domestic and foreign businesses.

 

Interest Income and Expense

 

Interest income was $192,000 in the first six months of 2002, a decrease of $75,000 from $267,000 in the same period in 2001.  The decrease is primarily a result of lower interest rates on invested cash in the United States.

 

Interest expense was $113,000 in 2002, an increase of $54,000 from $59,000 in 2001.  The increase is primarily from interest on payments made related to prior period tax filings.

 

Other Income

 

Other income for the six months ended June 30^th, 2002, included $122,000 resulting from former minority shareholders of Satelco forgiving a related party note payable.

 

Income Taxes

 

The Company’s tax provision was $837,000 in the first half of 2002, an increase of $712,000 from a $125,000 tax provision recorded in the first half of 2001.

 

Domestic tax expense was $862,000 in the six months ended June 30, 2002, an increase of $591,000 from the $271,000 tax provision for the same period in 2001, primarily due to higher income.  Foreign operations recorded a tax benefit of $25,000 for the first six months of 2002, a decrease of $121,000 from the $146,000 tax benefit recorded in the first six months of 2001, primarily due to higher profits being offset by the tax-exempt status of the Israeli subsidiary.

 

Liquidity and Capital Resources

 

During the six months ended June 30, 2002, the company’s cash position improved due to net profits, which were offset by debt reduction and tax payments.

 

Net cash provided by the Company’s operating activities was $1,739,000, primarily due to net income of $1,343,000.  The increase in net receivables, due to the increase in sales when compared to the fourth quarter of 2001, was offset mostly by the reduction in inventory.

 

Net cash provided by investing activities was $182,000, which was comprised of proceeds from the sale of certain marketable securities $465,000, offset by purchases of $280,000 for fixed assets, primarily computer hardware and software and other office equipment.

 

Net cash used in financing activities was $962,000.  The Company paid down $953,000 of its existing lines of credit and $131,000 of capitalized lease obligations.

 

As of June 30, 2002, the Company’s total liabilities were $7,727,000, of which $7,406,000 is due and payable within one year.

 

19

 

On April 21, 1998, the Company and BCI entered into a $27,000,000 credit facility (the Facility”) with KeyBank National Association (“Key”), which matured on April 30, 2001.  The Facility provided, subject to certain criteria, for a $20,000,000 revolving line of credit for acquisition financing and a $7,000,000 working capital line.  Effective June 30, 2001, the Company and Key entered into a Modification Agreement (The Agreement”), under which the working capital line was reduced to $5,000,000 and the parties agreed to an unsecured $20,000,000 line of credit for acquisition financing.  The Agreement extended the provisions, warranties, certifications, and other criteria of the expired Facility to June 30, 2002, and reduced the number of financial covenants required to be met, with which the Company was in compliance for the period ended June 30, 2002.  Effective June 30, 2002, the parties agreed to extend the Agreement to June 30, 2003, and increase the working capital line to $7,000,000.  The Agreement bears interest at either Key’s prime rate or, at the borrower’s option, LIBOR plus 125 to 200 basis points.  As of June 30, 2002 and December 31, 2001, the Company had no short-term domestic borrowings under the Agreement.

 

Speech Design has credit lines and overdraft facilities of approximately 1,360,000 Euros (approximately $1,350,000) from five banks.  Speech Design’s short-term lines of credit are collateralized by all of Speech Design’s accounts receivable and inventory.  Speech Design has a 7,669,000 Euro (approximately $7,600,000) credit facility for acquisition financing from D.G. Bank of Frankfurt.  The interest rate under the credit facility is up to 200 basis points above the Euribor rate.

 

At June 30, 2002, Speech Design had short-term borrowings amounting to $42,000.  The amounts available under Speech Design’s credit lines were approximately $1,310,000 at June 30, 2002, with rates tied to short-term bank notes and Euromarket loans.  There were no borrowings under either the Bogen or Speech Design acquisition credit facilities.

 

The Company has undertaken an initiative to repurchase approximately 4.1 million shares of its common stock.  In early July 2002, the Company completed two privately negotiated transactions, repurchasing approximately 1.6 million shares at $4.00 per share, utilizing about $6.4 million of the Company’s available cash.

 

On July 16, 2002, the Company commenced a self-tender offer to repurchase up to 2.5 million shares of its common stock at $4.00 per share.  Should this tender offer be fully subscribed, the Company would first draw on its remaining cash resources and then utilize approximately $3.0 million of its existing working capital line with Key.

 

Accordingly, the Company’s operations would need to generate sufficient cash flows to provide operating cash to satisfy ongoing working capital needs.  The Company believes, although there are no guarantees, that the Company will generate sufficient operating cash flows to provide adequate liquidity to finance its ongoing activities, the self-tender offer, and capital expenditures for the near term.

 

The Company’s operating lease commitments have not changed materially since December 31, 2001.

 

ITEM 3.

MARKET RISK DISCUSSION

 

Since the Company operates on a global basis, it is exposed to various foreign currency risks, primarily from the operations of the Company’s German subsidiary, Speech Design.  The Company’s consolidated financial statements are denominated in U.S. dollars, whereas Speech Design and its subsidiaries are denominated in different foreign currencies, as follows: Speech Design’s and Carrier Systems’ currency is the Euro, Satelco’s currency is the Swiss Franc, and Speech Design Israel’s currency is the Israeli Shekel.  All Speech Design subsidiaries’ financial statements are first translated into Euros; then, Speech Design’s consolidated financial statements are then translated into the U.S. dollar.

 

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Accordingly, changes in exchange rates between the applicable foreign currency and the Euro, and changes in the exchange rates between the Euro and the U.S. dollar will affect the translation of each foreign subsidiary’s financial results into U.S. dollars for the purposes of reporting the Company’s consolidated financial results.

 

In general, the Company does not use derivative instruments or hedging to manage its exposure and does not currently hold any material risk sensitive instruments for trading purposes at June 30, 2002.  During the three and six months ended June 30, 2002, the Company had no material changes of its market risk assessment.

 

The above discussion should be read in conjunction with Management’s discussion of market risk as reported on Form 10-K for the year ended December 31, 2001, filed with the Securities and Exchange Commission on March 28, 2002.

 

PART II - OTHER INFORMATION

 

ITEM 1.

LEGAL PROCEEDINGS

 

The Company is party, in the ordinary course of business, to various legal actions and claims that relate to its products, intellectual property, employee matters, or other aspects of its operations.  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.

 

ITEM 2.	CHANGES IN SECURITIES
	Not applicable

 

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES
	Not applicable

 

ITEM 4.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 

On May 29, 2002, the Company held its annual shareholders meeting.  At the meeting, the following matters were approved by the shareholders by the following votes:

 

1.               Election of Directors:

		For		Withheld
Jonathan Guss		7,928,464		283,100
Michael P. Fleischer		7,928,464		283,100
Daniel A. Schwartz		7,929,014		282,550
Yoav Stern		7,928,264		283,300
Zivi R. Nedivi		7,928,414		283,150

 

2.               Approval of Amendment to Amended and Restated Stock Incentive Plan:

For		Against		Abstain		Not Voted
4,470,891		593,971		4,100		3,142,602

 

3.               Ratification of appointment of KPMG LLP as auditors for the fiscal year ending December 31, 2002:

 

For		Against		Abstain
8,191,964		18,250		1,350

 

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ITEM 5.	OTHER INFORMATION
	Not applicable

 

ITEM 6.	EXHIBITS AND REPORTS ON FORM 8-K
	(a)  The following exhibits are included herein:
	10.44	Second Modification Agreement dated July 15, 2002, between and among Bogen Communications International, Inc., Bogen Communications, Inc. and KeyBank National Association.
	10.45	Restricted Stock Agreement dated April 22, 2002, between the Company and Kasimir Arciszewski
	10.46	Restricted Stock Agreement dated April 10, 2002, between the Company and Michael P. Fleischer.
	10.47	Restricted Stock Agreement dated April 22, 2002, between the Company and Maureen A. Flotard.
	10.48	Restricted Stock Agreement dated April 10, 2002, between the Company and Jonathan Guss.
	10.49	Restricted Stock Agreement dated April 22, 2002, between the Company and Hans Meiler.
	10.50	Restricted Stock Agreement dated April 22, 2002, between the Company and Jeffrey Schwarz.
	(b)  Reports on Form 8-K
	The Company filed a Form 8-K, dated June 24, 2002, announcing that it had repurchased an aggregate of approximately 1.6 million shares of its common stock in privately negotiated transactions with two shareholder groups at a price of $4.00 per share.

 

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SIGNATURES

 

Pursuant to the requirements 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.
	(Registrant)
Date:   July 29, 2002		By:	/s/    Michael P. Fleischer
		Name:	Michael P. Fleischer
		Title:	President
Date:   July 29, 2002		By:	/s/    Maureen A. Flotard
		Name:	Maureen A. Flotard
		Title:	Chief Financial Officer
			(Principal Financial and Accounting Officer)

 

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