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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required] for the fiscal year ended December 31, 1997 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] for the transition period from
_______ to ______
Commission file number 0-22046
BOGEN COMMUNICATIONS INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
Delaware 38-3114641
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(State of Incorporation) (I.R.S. Employer Identification No.)
50 Spring Street, Ramsey, New Jersey 07446
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 934-8500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 Par Value
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(Title of class)
Warrants to Purchase One Share of Common Stock
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Registration S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or amendment
to this Form 10-K.
Document Incorporated by Reference:
Part III incorporated by reference to the definitive proxy statement for
the annual meeting of stockholders to be held on April 22, 1998.
As of March 27, 1998, 2,210,494 shares of the Registrant's Common Stock,
par value $.001 per share, were outstanding. The aggregate market value of the
voting stock, based on the closing price of the Registrant's common stock on
March 27, 1998, as reported on the American Stock Exchange, held by
non-affiliates of the Registrant was approximately $15,136,452.
Page 1 of
Exhibit Index Appears on Page 42 Hereof.
BOGEN COMMUNICATIONS INTERNATIONAL, INC.
FORM 10-K
TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business............................................................ 1
Item 2. Properties ......................................................... 14
Item 3. Legal Proceedings .................................................. 15
Item 4. Submission of Matters to a Vote of Security Holders................. 15
PART II
Item 5. Market Price for Registrant's Common Equity and Related
Stockholder Matters.........................................16
Item 6. Selected Financial Data............................................. 19
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................20
Item 8. Financial Statements and Supplementary Data......................... 27
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure......................29
PART III
Item 10. Directors and Executive Officers of the
Registrant...................................................29
Item 11. Executive Compensation................................................29
Item 12. Security Ownership of Certain Beneficial
Owners and Management........................................29
Item 13. Certain Relationships and Related Transactions........................29
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K........................................................30
PART I
All statements contained herein that are not historical facts, including,
but not limited to, statements regarding the Company's current business
strategy, projected sources and uses of cash, and plans for future development
and operations, are based upon current expectations. These statements are
forward-looking in nature and involve a number of risks and uncertainties.
Actual results may differ materially. Among the factors that could cause actual
results to differ materially are the following: competitive factors, including
the fact that the Company's competitors are highly focused and may have greater
resources and/or name recognition than the Company; changes in technology and
the Company's ability to develop or acquire new or improved products and/or
modify and upgrade its existing products; changes in labor, equipment and
capital costs; changes in access to suppliers; currency fluctuations; changes in
regulations affecting the Company's business; future acquisitions or strategic
partnerships; the availability of sufficient capital to finance the Company's
business plans on terms satisfactory to the Company; general business and
economic conditions; political instability in certain regions; and other factors
described from time to time in the Company's reports filed with the Securities
and Exchange Commission. The Company wishes to caution readers not to place
undue reliance on any such forward-looking statements which statements are made
pursuant to the Private Litigation Reform Act of 1995 and, as such, speak only
as of the date made.
Item 1. BUSINESS
Bogen Communications International, Inc., formerly European Gateway
Acquisition Corp., (the "Registrant", and together with its subsidiaries, the
"Company"), develops, produces and sells sound processing equipment and
telecommunications peripherals, through its direct subsidiaries, Bogen
Corporation, a Delaware corporation ("Bogen") and subsidiaries thereof, and
Speech Design GmbH, a German corporation ("Speech Design"), as well as
subsidiaries of Bogen and Speech Design.
Bogen focuses on commercial and engineered sound equipment and
telecommunication peripherals for the voice and sound processing market. For
over six decades, Bogen has been a leader in commercial amplifiers, speakers and
intercom systems for background and foreground music applications, as well as
for security and educational applications, and, since 1991, has produced voice
processing systems, including message/music-on-hold systems ("MOH").
Speech Design focuses on digital voice processing systems for the mid-sized
Private Branch Exchange ("PABX") market, targeting the rapidly growing European
voice processing market. With the launch, in late 1995, of its new product
family called "Memo", Speech Design has added innovative non-PC based voice mail
systems to its existing line of telecommunication peripheral products, which
includes voice-mail, automated attendants, digital announcers and
message/music-on-hold systems.
Bogen's products are sold primarily through a network of distributors,
dealers and contractors. Speech Design sells through leading European telephone
switch manufacturers in Germany, and through major independent dealers outside
Germany.
Suppliers and subcontractors, located primarily in the Republic of South
Korea, as well as Taiwan, China, Israel, Germany, and the United States, produce
sub-assemblies and finished products for the Company.
The Company is a Delaware corporation whose principal executive offices are
located at 50 Spring Street, Ramsey, New Jersey 07446 and its telephone number
is (201) 934-8500.
1
Company History
The Registrant was formed on May 6, 1993 as a Specified Purpose Acquisition
Company ("SPAC") with the objective of acquiring a medium-sized operating
business engaged in industrial manufacturing or industrial services and located
in Germany, Switzerland or Austria. On October 13, 1993, the Registrant
consummated an initial public offering (the "IPO") of 1,550,000 units, which
resulted in $8,120,000 in net proceeds to the Registrant. Each unit consisted of
one share of the Registrant's common stock, $.001 par value per share ("Common
Stock"), and two warrants (the "Warrants"), each entitling the holder thereof to
purchase one share of Common Stock for $5.50 per share (the "Units").
Until April 6, 1995, the Registrant did not engage in any substantive
commercial business other than evaluating prospective companies for acquisition.
On such date, the Registrant entered into an agreement (as amended, the "Stock
Purchase Agreement") with Geotek Communications, Inc. ("Geotek"), to acquire
controlling interests in two communications products companies then held by
Geotek (the "Business Combination").
Pursuant to the Stock Purchase Agreement, on August 21, 1995, the Registrant
acquired from Geotek approximately 67% of the outstanding capital stock of
Speech Design and approximately 99% of the outstanding capital stock of Bogen.
As a result of that Business Combination, Geotek acquired an approximately 64%
controlling interest in the Company. As consideration for such acquisitions,
Geotek received from the Company: (i) 3,701,919 shares of Common Stock; (ii)
200,000 Warrants to purchase Common Stock; (iii) $7,000,000 in cash; and (iv) a
convertible promissory note in the principal amount of $3,000,000 due in
February 1997 and (v) rights to certain contingent payments.
In May 1996, the Company and Geotek amended the Stock Purchase Agreement
effective January 1, 1996. Pursuant to such amendment: (i) the $3,000,000
convertible promissory note payable by the Company to Geotek, due February 1997,
was reduced and restructured to a $500,000 non-convertible promissory note due
and paid in July 1997; (ii) the earnout formula was revised to reflect an
increase in the amount the Company might have had to pay Geotek from $11,000,000
to $13,500,000 in connection with the reduction of the principal amount of the
promissory note; and (iii) Geotek was granted an option to purchase, at any time
through October 31, 1997, from the Company, $3,000,000 worth of Common Stock
with exercise prices ranging from 100% to 65% of market price, depending on the
date of exercise. This option expired on October 31, 1997, and was not
exercised. Based on a review of the earnout calculation by the Company's
independent accountants, which took into account Speech Design and Bogen's
operating results for the last two quarters of 1995, all of 1996 and the first
two quarters of 1997, no contingent consideration payment was paid to Geotek.
On November 26, 1997, the Company acquired and retired all of the
outstanding Common Stock and Warrants held by Geotek, including 3,701,919 shares
of Common Stock and Warrants to purchase 200,000 shares of Common Stock, for
$18,500,000. The purchase price equated to a price of approximately $5.00 per
share of Common Stock outstanding or $4.74 on a diluted basis, including the
Warrants. Coincidental with the stock repurchase, Geotek's nominees to the
Company's Board of Directors resigned and the Company was no longer included in
the consolidated financial statements of Geotek. The repurchase of Geotek's
interest in the Company will enable it to pursue its own independent strategic
development, hence focusing closely on the Company's core competencies.
Simultaneous with the repurchase of the Common Stock and Warrants held by
Geotek, the Company sold 200,000 shares of 9% Series A Convertible Preferred
Stock (the "Preferred Stock") to a group of independent investment funds. The
Preferred Stock was sold at $100 per share, for total proceeds to the Company of
$20,000,000. The Preferred Stock carries a 9% semi-annual cumulative
2
dividend which may be paid in cash or in-kind at the sole discretion of the
Company. Each share of Preferred Stock is automatically convertible into 18.605
shares of Common Stock (or 3,721,000 shares of Common Stock based on an initial
conversion price of $5.375) on December 1, 2002 or at the option of the holder
of Preferred Stock at any time. At the option of the Company, the Preferred
Stock may be redeemed prior to the mandatory conversion date if the bid price of
Common Stock closes above 150% of the initial conversion price, or $8.0625 per
share, for 20 consecutive trading days. The redemption price will be $100 per
share plus accrued dividends. If the Company redeems the Preferred Stock prior
to December 1, 2000, the Company must pay in cash 50% of the dividends that
would have been payable through December 1, 2000, in addition to any accrued,
unpaid dividends.
Except as otherwise provided in the Certificate of Incorporation of the
Company or the General Corporation Law of the State of Delaware, the Preferred
Stock can vote together with all other classes of voting capital stock of the
Company as a single class on all actions to be taken by the stockholders of the
Company. Each share of Preferred Stock entitles the holder thereof to 18.605
votes per share.
As of the date hereof, there are 2,210,494 shares of Common Stock, 200,000
shares of Preferred Stock and 4,260,285 Warrants outstanding.
As a result of the November 1997 transaction described above, a new
management team was put in place and the Board of Directors was reconstituted.
Bogen
Bogen develops, sources, assembles and distributes sound processing
equipment and telecommunication peripherals through its wholly-owned subsidiary,
Bogen Communications, Inc. ("BCI"). Since its founding in 1932, Bogen has been
involved in the commercial sound industry, concentrating its efforts on the
development and sale of equipment for commercial, industrial, professional and
institutional markets and applications.
Traditionally, Bogen's core products (which are sold through the Engineered
Systems and Commercial Sound product lines) include: commercial audio amplifiers
and speakers; related sound and intercom systems equipment for professional,
industrial and commercial system applications; background and foreground music
applications; and intercom and communications systems for the security and
educational industries, and telephone paging systems.
During 1991, Bogen introduced its first product in a line of
telecommunications peripherals, the Telco product line. The first product in
this line was the MMT, a digital announcer with automatic microprocessor
controlled tape download for "on-hold" applications. During 1992, Bogen
introduced various products in the digital telephone peripherals area, including
the Automated Attendant and the Digital Announcer. These products are used in
message/music on-hold and voice mail systems.
On July 1, 1997, Bogen acquired substantially all the net assets of New
England Audio Resources, Inc. ("NEAR") for approximately $242,000 in cash and
assumption of certain liabilities. The acquisition has been accounted for by the
purchase method of accounting. The operating results of NEAR are included in the
Company's consolidated statements of operations from the date of acquisition.
NEAR is a leading manufacturer of high performance, all environment speakers.
NEAR is a part of the Company's Commercial Sound unit and their products will be
marketed with Bogen's product lines.
3
Product Lines
Commercial Sound
Bogen's Commercial Sound product line consists of amplifiers, speakers,
microphones, intercom systems and other sound equipment used in non-consumer
applications, such as industrial public address systems, and background music in
offices, restaurants, hotels, stores, etc. For example, a recent Commercial
Sound product, the PROMATRIX amplifier, was introduced to the market in the
third quarter of 1996 and incorporates three independent amplifier channels in a
single package. The Company believes that the product's user interface sets new
standards in ease of use and provides customers with superior control over
sophisticated background music and paging applications. The PROMATRIX is a
one-box solution for installations that usually require a rack full of costly
equipment. Also added to Commercial Sound's product line during 1997 were the
all environment speakers produced at Bogen's newly acquired entity, NEAR.
Commercial Sound net sales for the years ended December 31, 1997, 1996 and
1995 were $11,250,000, $9,315,000, and $8,436,000, respectively. Commercial
Sound provided 22.6%, 20.1%, and 19.0% of the Company's net sales for the years
ended December 31, 1997, 1996 and 1995, respectively.
Engineered Systems
Bogen's Engineered Systems product line features custom designed
intercom/paging systems that are sold to contractors for installation in
schools. For example, introduced in late 1996, the MULTICOM-DCS? (Digital
Communication System) provides system users with high quality controlled speaker
and telephony functions through a single user interface. MULTICOM-DCS? provides
full integration of the Company's MULTICOM paging technology with COMDIAL PABX
systems.
Engineered Systems net sales for the years ended December 31, 1997, 1996 and
1995 were $8,082,000, $6,682,000, and $5,629,000, respectively. Engineered
Systems net sales amounted to 16.2%, 14.5%, and 12.6% of the Company's net sales
for the years ended December 31, 1997, 1996 and 1995, respectively.
Telco
Bogen's Telco products consist of telephone paging systems and equipment and
digital message/music-on-hold players. These products allow installers to
increase the value of their telephone system offerings by providing users with
enhanced efficiency and convenience. In the fourth quarter of 1997, Bogen
introduced a new MOH system, Pro-Hold DRDX.
Bogen's Telco net sales were $12,402,000, $14,674,000, and $16,613,000,
which include $214,000, $1,552,000 and $4,444,000 of the Company's discontinued
Office Automated Systems product line, for the years ended December 31, 1997,
1996 and 1995, respectively. Speech Design also has a Telco line of products,
see "Speech Design Product Line". The Company's combined Telco net sales through
Bogen and Speech Design amounted to $30,447,000, $30,272,000, and $30,453,000
for the years ended December 31, 1997, 1996 and 1995, respectively. Telco net
sales through Bogen provided 24.9%, 31.7%, and 37.3% of the Company's net sales
for these respective years. Combined Telco sales provided 61.2%, 65.4%, and
68.4% of the Company's net sales for these respective years.
Sales and Marketing
Commercial Sound and Engineered Systems
Bogen distributes its Commercial Sound products through a network of
approximately 2,000 distributors, dealers and contractors, often as complete
system solutions designed to satisfy an end-user's specific sound and
communications needs. In addition, a network of approximately 200 major
4
contractors and dealers market Bogen's school intercom systems on a
territory-exclusive basis.
Bogen's Commercial Sound products are stocked by virtually every major sound
master distributor, industrial equipment distributor, and commercial security
products distributor in North America.
Bogen's Commercial Sound and Engineered Systems products are marketed
generally through a field sales organization and several independent
manufacturers representatives under the direction of Bogen's internal sales
force. Both the field sales group and the representatives are responsible for
assigned territories. The field sales personnel receive a salary and bonus based
on performance and the representatives are compensated on a commission basis.
Sales agreements are maintained with all of Bogen's independent sales
representatives and engineered systems contractors. The sales representative
agreements typically permit the sale of Bogen products by the representative in
a specific territory assigned to one or more sales representatives. Similarly,
the engineered systems contractor agreements typically allow the contractor to
purchase and install specific product lines in a designated territory.
The principal users of these products are industrial, professional,
commercial and civic concerns and institutions such as schools, nursing homes,
correctional facilities, retail stores, restaurants and churches. Bogen's
management believes that these user markets are relatively stable and that Bogen
has developed significant name recognition in these markets.
Telco
Bogen distributes its Telco products to approximately 25 distributors who
operate more than approximately 200 telecommunications distribution centers.
These distributors sell to hundreds of telecommunications installers or
interconnects across North America. The major distributors are Graybar Electric
Co., Inc. ("Graybar"), Alltel Corp. and Sprint/North Supply. In addition to its
distribution network, Bogen has a relationship with approximately 25
message/music-on-hold studios that specialize in creating custom messages. These
studios sell their services along with Bogen's Telco products. Bogen also has an
original equipment manufacturer (OEM) agreement to supply private label on-hold
systems to Lucent Technologies ("Lucent").
Bogen markets its Telco products through a group of independent
manufacturer's representatives comprised of organizations with approximately 40
salespeople who sell Bogen's Telco and other complementary products to
distributors and interconnects in their territory on an exclusive basis. These
representatives are supported by Bogen sales and service staff.
Bogen's Sales Outside the U.S.
Although Bogen's sales are primarily in the United States, Bogen also sells
its products in Canada through a stocking representative that has its
headquarters in Ontario and branch offices throughout Canada. Telco's export
sales to Europe are handled through the Company's subsidiaries in Europe. Export
sales to other foreign countries are handled in the same manner as sales within
the United States (i.e., through distributors, dealers and contractors that
purchase the products and sell them to an established account base overseas).
Operations
All components and materials used in the construction of Bogen's products
are of standard commercial quality or better, and are readily available from
5
overseas and United States suppliers. Bogen relies principally upon an
established network of suppliers and subcontractors primarily located in the
Republic of South Korea, and to a lesser extent elsewhere in East Asia, and the
United States. The Company is currently monitoring the economical crisis in
South Korea closely and will take all measures within its control to ensure that
production of the Company's products will continue without interruption. Should
production by the Company's suppliers be curtailed, the Company believes
suitable suppliers in other parts of the world will be available to satisfy its
production requirements. However, there can be no assurances that events beyond
the Company's control will not disrupt production or that suitable alternative
sources of production can be identified on a timely basis, thereby resulting on
material adverse effects on the Company's results of operations. These suppliers
and sub-contractors either produce sub-assemblies for use in the final assembly
of a finished product or produce the finished products themselves. Products are
based on Bogen designs and are built in accordance with Bogen drawings and
specifications. There can be no assurances that disruptions in supplies will not
occur from time to time, or that any such disruptions will not have a material
adverse effect on the Company.
Patents and Trademarks
"Bogen(TM)" is a trademark of the Company which is registered in the United
States and in certain foreign countries throughout the world. This trademark
expires in the United States in March 2000. The company is currently taking
steps to renew this trademark. Bogen has also obtained U.S. trademark
registration for the trade name "Multicom2000." This trademark is utilized in
connection with Engineered Systems and expires in July 2001. In addition, during
1996, Bogen obtained a U.S. trademark for the tradename "Speech Design(TM)",
which will expire on December 31, 2006 and which can be renewed at that time for
an additional ten years. The Company believes that these trademarks provide
substantial value to the Company. The Company has two provisional patent
applications, one for an on-hold system and the other for an automatic paging
system. In addition, the Company has two pending patent applications, one for an
on-hold system and the other for an amplifier system. The Company has been
notified that the amplifier system may be patented and is awaiting further
notification with respect to the other patent applications.
Research and Development
Bogen's in-house engineering department is responsible for research and
development and production engineering. In 1997, the R&D Department focused on
new innovative solutions for the Telco paging market by developing the pro-Hold
DRDX, a digitally produced, remote downloadable MOH system which was introduced
in the fourth quarter of 1997. In addition, it developed a call completion
system, incorporating paging, voice messaging and wireless messaging into one
integrated system, the APS 2000. There can be no assurance however, that Bogen
will be able to complete the development of APS 2000, nor can there be any
assurance that the new systems will be able to compete with similar products
offered by other manufacturers. Research and development expenditures for the
years ended December 31, 1997, 1996 and 1995 were $1,665,000, $1,865,000, and
$1,415,000, respectively.
Competition and Major Customers
Bogen's competition varies from market to market and product to product. In
areas in which it faces competition, Bogen competes on the basis of several
different factors, including name recognition, price, delivery, availability,
innovation and product features and quality. However, such factors vary in
relative importance depending on the markets and products involved. Bogen's
management has concentrated on markets in which it believes that Bogen can
obtain a significant market share, be one of the top two or three suppliers or
which have substantial growth potential. Bogen's key strength continues to be
its distribution channels and name recognition, especially in the school,
background/foreground, and security markets.
Bogen's Telco products compete in the MOH voice paging niches of the Telco
market.
6
In the Music-On-Hold market, Bogen's competitors are relatively small
companies that offer basic systems. Competition also comes from the many
telephone system manufacturers, which offer small voice mail systems as options
to their telephone equipment. The Message-On-Hold voice processing market
provides Bogen with three competitors, NelTech Labs, Premier, Inc., and
Mackenzie Labs.
In the voice paging market, Bogen's main competitor is Valcom, Inc., a
company which has been established in this market for several decades. Other
competition comes from several other U.S. companies, which have been losing
market share over the past few years, and from several companies attempting to
enter the market. Bogen believes it has increased its share in recent years.
The Commercial Sound customer market is characterized by intense
competition, particularly from several overseas companies, with no one company
accounting for more than 10% of the U.S. market. Bogen's principal competitor is
TOA Electronics, a Japanese Company ("TOA"), and University Sound, a U.S. based
manufacturer ("University"). Bogen also competes with comparatively small
manufacturers that rely mainly on established account relationships. Bogen
concentrates on customer needs to design, manufacture and market tailored
packaged solutions for each particular vertical market. Bogen focuses on
durability and reliability as opposed to state-of-the-art performance in its
product design and positioning.
Bogen's Commercial Sound competition can be divided into two categories:
General Line/Master Distributor competitors, and competitors at the Sound and
Systems Contractor level.
In the distributor channel, Bogen faces full line competitors such as Paso,
Inc., University, Speco, Inc. and others, as well as specialized competitors
such as Atlas Soundolier, Inc., Quam Nichols, Inc., Lowell, Inc., Shure
Brothers, Inc., and CTI/Astatic, which market and sell products such as
microphones, speakers, horns and other non-amplifier items. Bogen believes
itself to be a leading competitor in this channel.
At the contractor level, Bogen faces competition from many sources, a number
of them overseas companies. Bogen's principal competitor at the contractor level
is TOA, comprising approximately 10% of the U.S. market. TOA invests
considerable effort in developing sound systems. Bogen competes with a number of
other amplifier manufacturers such as QSC Electronics, none of which has secured
more than approximately 10% of the market. There are a number of comparatively
small manufacturers Bogen competes with, whose sales and market share depend
upon established reputation for quality and support and solid relationships with
their account base.
The Engineered System customer market is a highly specialized market
characterized by low unit volume and high dollar sales. Bogen's principal
competition comes from Rauland Borg Corp., the market leader in this area, and
Dukane Corporation, which, like Bogen, have been in the market for several years
and have well established name recognition and distribution channels. Rauland
Borg Corp. is currently the acknowledged market leader.
Graybar, Bogen's largest customer, accounted for more than 10% of the
Company's net sales. The loss of Graybar as a customer would likely have a
material adverse effect on the Company.
Backlog of Orders
As of December 31, 1997, Bogen had a backlog of firm orders of approximately
$373,000, all of which it expects to fill within 1998. As of December 31, 1996,
Bogen had a backlog of firm orders of approximately $425,000.
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Speech Design
Speech Design, located in Munich, Germany, develops, manufactures and
markets telephone peripheral hardware utilizing digital voice processing
technologies.
Speech Design products include voice mail systems, automated attendants,
digital announcers and message/music-on-hold systems. Until 1992, Speech Design
was engaged primarily in selling peripheral equipment for cellular telephones
utilized in connection with an analog network. With the advent of the European
GSM digital standard and the related decline in prices of ancillary subscriber
equipment, Speech Design's management decided to refocus its activities from the
cellular market to the telephone peripherals market.
In late 1995, Speech Design launched a new product family called "Memo",
which consists of stand-alone non-PC based voice mail peripherals for
small-to-medium PABXs. The high-end Memo-CDA model includes a CD based music and
information on hold system. Memo offers full integration with most of the
popular PABX models on the European market. Management expects Memo to
contribute significantly to Speech Design's strategic goal of becoming a market
leader in the rapidly growing European voice processing market.
In 1994, Speech Design launched a program to establish an international
market presence. Speech Design signed distribution contracts with partners in
ten European countries and gained national Telecom, Telegraph and Telephone
approval in most major markets. The Company believes that such approval
constitutes a significant market entry barrier to non-European and small
European companies. Also on July 1, 1994, Speech Design acquired a 67% interest
in Satelco AG, a Swiss company, which is a marketer of telephone peripherals and
a distributor of Speech Design's and Bogen's products. In order to further
support its efforts to enter the UK market, Speech Design founded a sales
subsidiary, Speech Design (UK) Ltd., in early 1996. In late 1996, Speech Design
signed a distribution agreement with GEC, a partially owned Siemens subsidiary,
the second largest distributor of PABX peripherals in the UK. Sales outside of
Germany increased from 20% of total sales in 1995 to 24% in 1996 to 26% in 1997
and are expected to reach 40% of total sales within the next 2 to 3 years. There
can be no assurance, however, that Speech Design will achieve such goals and
that Speech Design's growth outside of Germany will continue.
In mid-1996, a manufacturing subsidiary, Speech Design (Israel) Ltd., was
founded in Israel. It has begun to assume the production of certain product
lines from Speech Design Germany, resulting in reduced manufacturing cost and
tax levels. The Israeli facility was granted a 10-year tax exemption, effective
January 1, 1997.
Product Line
Speech Design's products are in the Telco line of products and include voice
mail, automated attendants, digital announcers and message/music-on-hold
systems. Telco net sales provided by Speech Design were $18,045,000,
$15,598,000, and $13,840,000 for the years ended December 31, 1997, 1996 and
1995, respectively. Speech Design Telco sales amounted to 36.3%, 33.7%, and
31.1% of the Company's net sales for these years.
Sales and Marketing
The general market for Speech Design's products is the under-developed, but
rapidly growing, European voice processing market for commercial and industrial
end users. According to the Company's estimates, the current penetration of such
applications of voice mail in Europe is very low compared to the U.S. levels.
PABXs are multiple-line business telephone systems, which are installed at end
users' businesses to facilitate internal and external
8
communications. The PABX is an alternative to providing each employee in a
company with his or her own direct line.
Speech Design markets its PABX peripherals to major manufacturers and
distributors of PABX systems throughout Europe for use by mid-size companies
consisting of approximately 50-200 employees. The major manufacturers integrate
Speech Design products with their PABXs for sale to the end-user as part of a
new system. The increased visibility of Speech Design's products had led to more
Speech Design peripherals being sold to owners of previously installed PABXs.
Speech Design attempts to differentiate itself both from high-end suppliers
of large customized systems and suppliers of semi-professional, price-sensitive
solutions for the small company sector by providing standard, high-quality,
affordable and easy-to-use products for the small to mid-size PABX.
Speech Design sells its products through resellers. In Germany, Speech
Design's main customers are sales organizations of leading PABX manufacturers
and major independent dealers. In other European countries, Speech Design has
exclusive agreements with national distributors, which in Switzerland and the UK
are Speech Design subsidiaries, which market to the reseller base in their
respective territories. In the United States, Bogen is the exclusive distributor
of Speech Design products.
Germany
In Germany, Speech Design has developed an effective approach for local
distribution of voice processing products. Speech Design sells directly to the
regional sales offices of the leading manufacturers of PABX equipment including
Siemens, Alcatel, Bosch Telecom, DeTeWe and Philips. Over 75% of Speech Design's
sales are to these customers (which percentage corresponds to these
manufacturers' approximate joint share of the PABX market). The loss of any one
of these customers is likely to have a material adverse effect on the Company.
Speech Design has obtained central pricing agreements and technical as well as
commercial endorsements from the headquarters of each of these companies. The
regional offices of these companies consist of approximately 200 locations and a
combined sales force of approximately 3,000 people. Speech Design's own sales
and technical team of 15 individuals supports and motivates the regional sales
forces of the large PABX companies to actively market Speech Design's products.
Speech Design routinely updates its data bank of all PABX sales representatives
in Germany to help the sales team optimize communications and efficiency.
Speech Design considers its sales network in Germany, Europe's largest
telecommunications market, to be one of its most valuable assets and a major
market entry barrier to potential competitors.
Outside of Germany
Speech Design utilizes exclusive national distributors in all major European
markets (Austria, Belgium, Denmark, Finland, France, Italy, The Netherlands, The
United Kingdom, Sweden and Switzerland). These distributors, other than Satelco
AG, in which Speech Design holds approximately 67% of the equity, and Speech
Design's wholly-owned U.K. subsidiary, are independent resellers of
telecommunications equipment, who market Speech Design's products to local
manufacturers and distributors of PABXs. In the United States, Bogen is the
designated distributor. In order to achieve the Company's planned rate of growth
in export sales, Speech Design has transferred some of the marketing methods
used in Germany to its other markets. There can be no assurance, however, that
such methods will prove successful in achieving further growth in these markets.
9
Operations
Speech Design manufactures its products in cooperation with a network of
German subcontractors and its Israeli subsidiary. Speech Design purchases all
mechanical and electronic components for its products and ships them for
board-level assembly work by its subcontractors. Speech Design's own
manufacturing group assembles finished products from pre-tested modules and
performs final quality tests. In mid-1996, Speech Design (Israel) Ltd. assumed
the production of certain product lines.
Speech Design maintains a computerized order processing and warehouse system
and a level of product availability that generally enables it to deliver
products in Germany an average of three days after receipt of an order and
within two weeks after receipt of an order for other countries.
Patents and Trademarks
"Speech Design" is a registered trademark in Germany and the U.S. Several of
Speech Design's products also have registered trademarks.
Research and Development
Speech Design's engineering group is responsible for the development,
production engineering and sales engineering of all Speech Design products.
Research and development expenditures for the years ended December 31, 1997,
1996 and 1995 were $926,000, $1,027,000, and $892,000, respectively.
Competition
In Germany, Speech Design is the acknowledged market leader in the small to
mid-size PABX peripherals. Speech Design's main competitor in Germany is a
provider of telephone peripherals primarily at the low-end of the Speech Design
product range (simple music-on-hold units and announcers). Speech Design's
management believes that its new Memo family of voice mail and related products
will increase its competitive advantage in Germany.
There is no single dominating company in the European market for small to
mid-size PABX peripherals. With the exception of Octel, Northern Telecom, Lucent
and a handful of other competitors who are highly focused on the large,
customized systems market, Speech Design's competition comes from a large number
of smaller companies offering PC-based voice mail systems. These companies tend
to be highly focused on their national markets and generally cannot afford to be
global players due to the cost of establishing distribution channels and gaining
regulatory approval for selling telecommunications products in each country.
Some of Speech Design's competitors include Beyer KG (Germany) and Vox S.A.
(France); the only company offering a non-PC-based solution similar to Speech
Design's is VOX S.A. of France.
Management believes that the combination of Speech Design's mid-size PABX
focus, broad and unique product range and Europe-wide distribution presence may
enable Speech Design to become a leading provider of telephone peripherals in
many European countries. There can be no assurance, however, that such results
will occur or that the Memo family of voice mail and related products will
increase Speech Design's competitive advantage in Germany, because this industry
is highly sensitive to general economic conditions and is characterized by rapid
technological change. Speech Design's ability to compete successfully may depend
in substantial measure on its ability to develop or acquire new or improved
equipment, techniques and products and/or to modify and upgrade its existing
equipment, techniques and products, none of which can be assured.
Bosch, Speech Design's largest customer, accounted for more than 10% of the
Company's net sales. The loss of Bosch as a customer would likely have a
material adverse effect on the Company.
10
Backlog of Orders
As of December 31, 1997, Speech Design had a backlog of firm orders of
approximately $1,452,000, all of which it expects to fill in 1998. As of
December 31, 1996, Speech Design had a backlog of firm orders of approximately
$496,000.
Strategy for Growth and Expansion
Management of the Company is seeking to enhance shareholder value through
growth and cost reduction.
The Company's plan for growth includes expansion of its core product line
through both internal and external expansion. Management is focused on
increasing the Company's market share in each market in which it currently
operates. In furtherance of this effort, the Company is implementing a new
marketing focus and is exploring product development and innovation through its
own research and development capabilities. The Company also plans to grow
through acquisitions and joint ventures focused on opportunities which can
enhance the Company's position in its core markets, have immediate near term
synergies with the Company's existing operations, and provide strong management
capability. The Company has retained Helix Capital Services, Inc. ("Helix
Services"), a successor to Helix Capital Services, LLC to be a non-exclusive
advisor in advising the Company on acquisition opportunities and Helix Services
has targeted several potential candidates. In order to support the Company's
plan of acquisitions, the Company is attempting to secure additional lines of
credit for such purposes.
Also in order to further increase the Company's profitability, management is
exploring cost savings through concentration on core products lines, possible
overhead cost reductions and negotiating favorable agreements with its
suppliers.
There can be no assurances that the Company will be able to implement its
internal growth and cost reduction plans or consummate any acquisitions or joint
ventures.
Government Regulations and Industry Certifications
The federal government regulates domestic telecommunications equipment and
related industries. The federal agency vested with primary jurisdiction over the
telecommunication industry is the Federal Communications Commission (the "FCC").
Many telephone peripheral industries, while not directly regulated by the FCC,
are nevertheless substantially affected by the enforcement of its regulations
and changes in its regulatory policy.
The FCC has adopted regulations regarding attachments to the telephone
networks as well as regulations imposing radio frequency emanation standards for
computing and radio equipment and many of Bogen's products require certification
by the FCC. In addition, many of Bogen's products also require the approval of
the Underwriter's Laboratory ("UL"). All such required certifications and/or
approvals have been obtained. As a result of modifications and improvements to
Bogen's products, Bogen will be obligated to seek new certifications and/or
approvals where there is a degradation in the radio frequency emissions. Failure
to obtain such certifications and/or approvals may preclude Bogen from selling
its products in the U.S. Bogen makes all reasonable efforts to ensure that its
products comply with such requirements.
11
To successfully access the Canadian market, Bogen must obtain Underwriters
Laboratory Canada and Canadian Standards Association approvals for all AC
powered products, which it did for all of its current products.
All Speech Design products have been adopted to the technical
(PTT-approvals) and commercial sound requirements of West European markets.
In 1995, Speech Design received the ISO 9001 Quality Certificate for its
research and development, production and customer support operations in Germany.
In 1996, the Quality Mark was extended to include Speech Design's Israel and
U.K. subsidiaries.
Employees
As of December 31, 1997, the Company had approximately 196 full-time
employees engaged in its businesses. The Company also uses temporary and/or
part-time employees, as required. Twenty-one of Bogen's U.S. employees are
subject to collective bargaining agreements which expire in mid-2000. The
Company considers its relationship with its employees to be good.
Year 2000
The Company is in the process of evaluating the effect of modifying its
computer software systems to accommodate Year 2000 transactions. The Company
expects to expend up to $1,000,000, which may be necessary for systems upgrade
projects that will, among other things, address concerns about the Year 2000.
Item 2. PROPERTIES
The Registrant's principal place of business is located at 50 Spring Street,
Ramsey, New Jersey 07446. Bogen also maintains its principal warehouse and
executive offices at that location which is subleased from an unaffiliated third
party. The lease, which covers approximately 70,000 square feet, commenced on
January 1, 1987 and expires on December 31, 2000. Annual base rental payments
over the remainder of the lease are approximately $670,000, plus taxes and other
expenses.
Speech Design leases its facilities in Munich, Germany under leases expiring
in 1999 and 2005. Speech Design also has subsidiaries which have leases in
Israel, the UK and Switzerland. Speech Design and subsidiaries' aggregate annual
rental payments are approximately $450,000.
NEAR leases approximately 10,500 square feet for its facility in Lewiston,
Maine under a lease, which commenced on August 1, 1996 and expires on July 31,
1999. Current annual rental payments are approximately $32,000.
Management of the Company believes that the facilities occupied by the
Company and its subsidiaries are adequate to meet current needs.
Item 3. LEGAL PROCEEDINGS
The Company is not aware of any material pending or threatened legal
proceedings to which it is a party or of which any of its property is subject.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
12
PART II
Item 5. MARKET PRICE FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Registrant's Common Stock and Warrants currently trade on the American
Stock Exchange under the symbols "BGN" and "BGNW," respectively. Between October
7, 1993 and August 21, 1995, the Registrant's Common Stock, Warrants and Units
were quoted on the OTC Bulletin Board under the symbols EGAQ, EGAQW and EGAQU,
respectively. A Unit consisted of one common share and two warrants. The Units
were traded on the American Stock Exchange under the symbol "BGNE" from August
21, 1995 until they were de-registered in December 1996.
The following table sets forth the range of high and low bid prices for the
Common Stock, Warrants and Units for each of the fiscal quarters during the
period from January 1, 1995 through December 31, 1997, as reported by the OTC
Bulletin Board. The quoted prices represent "inter-dealer" prices without retail
markups, markdowns or commissions and may not necessarily represent actual
transactions. Subsequent to August 21, 1995, the quotes represent the high and
low sales prices on the American Stock Exchange for BGN, BGNW and BGNE (from
August 21, 1995 until the Units were de-registered in December 1996).
January 1, 1995 to March 31, 1995
Security High ($) Low ($)
------------- ----------- -------
Common Stock 5 1/4 4 3/8
Warrants 1 1/16 1/8
Units 6 5 1/2
April 1, 1995 to June 30, 1995
Security High ($) Low ($)
------------- ----------- -------
Common Stock 5 3/16 4 7/8
Warrants 15/16 1/2
Units 7 6
July 1, 1995 to September 30, 1995*
Security High ($) Low ($)
------------- ------------- -------
Common Stock 5 1/2 5
Warrants 7/8 5/8
Units 7 1/4 5 3/4
October 1, 1995 to December 31, 1995
Security High ($) Low ($)
------------- -------------- -------
Common Stock 6 2 15/16
Warrants 1 3/16 1/4
Units 6 3/4 4 1/2
13
January 1, 1996 to March 31, 1996
Security High ($) Low ($)
------------- ----------- -------
Common Stock 4 1/2 2 7/8
Warrants 1 3/8
Units 4 4
April 1, 1996 to June 30, 1996
Security High ($) Low ($)
------------- ----------- -------
Common Stock 4 13/16 3 1/8
Warrants 1 3/16 7/16
Units 5 7/8 3 3/4
July 1, 1996 to September 30, 1996
Security High ($) Low ($)
------------- ------------- -------
Common Stock 5 3 3/4
Warrants 1 3/16 9/16
Units 4 3/4 4 1/4
October 1, 1996 to December 31, 1996
Security High ($) Low ($)
------------- -------------- -------
Common Stock 4 1/4 2 15/16
Warrants 15/16 1/2
Units 5 7/8 3 1/2
January 1, 1997 to March 31, 1997
Security High ($) Low ($)
------------- ----------- -------
Common Stock 4 1/4 3 1/8
Warrants 15/16 9/16
April 1, 1997 to June 30, 1997
Security High ($) Low ($)
------------- ----------- -------
Common Stock 5 3 1/8
Warrants 1 1/16 9/16
July 1, 1997 to September 30, 1997
Security High ($) Low ($)
------------- ------------- -------
Common Stock 5 13/16 4 1/8
Warrants 1 7/16 11/16
14
October 1, 1997 to December 31, 1997
Security High ($) Low ($)
------------- -------------- -------
Common Stock 7 3/8 4 5/8
Warrants 2 7/8
*Securities were exchanged on August 21, 1995, the date of the Business
Combination.
The Registrant has not declared or paid any cash dividends on its Common
Stock since commencing operations. In addition, BCI's $7 million line of credit
with Summit Bank, obtained in the first quarter of 1997, prohibits BCI from
declaring or paying any dividends on its capital stock. In November 1997, the
Company issued 200,000 shares of 9% Convertible Preferred Stock at a purchase
price of $100 per share. The Preferred Stock pays a semi-annual dividend, which
may be paid in cash or in-kind, at the sole discretion of the Company. The
Registrant does not anticipate paying any dividends on the Common Stock in the
foreseeable future and intends to retain any earnings for possible future
expansion of the Company's business.
As of March 20, 1998, there were 25 record holders of the Common Stock and
15 record holders of Preferred Stock.
15
Item 6. SELECTED FINANCIAL DATA
For accounting purposes, the Business Combination was treated as a joint
acquisition of the Company by Bogen and Speech Design, companies that were under
the common control of Geotek. The transaction is considered a reverse
acquisition ("Reverse Acquisition") with Geotek as the acquirer for accounting
purposes. The selected financial data of the Company presented below reflect the
combination of Bogen and Speech Design in a manner similar to a
pooling-of-interests. Accordingly, the selected financial data of the Company
presented below reflects the operations of Bogen which was acquired by Geotek in
1991, and Speech Design which was acquired by Geotek in 1993.
In 1994, Speech Design acquired a 67% interest in Satelco AG, and its
financial statements are consolidated with the Company's financial statements in
accordance with pooling-of-interests.
The following table summarizes certain selected consolidated financial
information for the Company and should be read in conjunction with the more
detailed consolidated financial statements and the notes thereto. See "Item 8.
Financial Statements and Supplementary Data."
(In thousands, except per share data)
- -----------------------------------------------------------------------------
For the Year Ended December 31, 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------
Net sales $49,779 $46,269 $44,518 $45,922 $30,072
Gross profit $23,094 $21,265 $17,180 $16,183 $11,623
Income (loss) from operations $ 5,093 $ 3,568 $ (637) $ 1,205 $ 769
Net income $ 2,665 $ 2,008 $(4,543) $ (355) $ (37)
Preferred dividends $ 178 $ - $ - $ - $ -
Net income (loss) available
to common shareholders $ 2,487 $ 2,008 $(4,543) $ (355) $ (37)
Net income (loss) per common
share - Basic and Diluted $ 0.46 $ 0.35 $ (1.37) $ (0.18) $ (0.04)
- --------------------------------------------------------------------------------
As of December 31, 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------
Total assets(1) $31,970 $31,386 $31,304 $32,866 $14,420
Long-term debt (net
of current maturities) $ 212 $ 369 $ 3,458 $ 5,039 $ 5,570
(1) Refer to footnote 2 in the consolidated financial statements for a
discussion of the "Push-Down" of goodwill to Bogen.
The Company did not pay a cash dividend on the Common Stock during any
period indicated.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The consolidated financial statements and the following discussion include
Bogen Corporation ("Bogen") and Bogen's wholly-owned subsidiary, Bogen
Communications, Inc. ("BCI"), BCI's wholly-owned subsidiary, New England Audio
Resource Corp. ("NEAR"), as well as Speech Design, GmbH, a 67% owned subsidiary
("Speech Design"), its 67% owned subsidiary Satelco AG ("Satelco"), and its
wholly-owned subsidiaries, Speech Design (Israel) and Speech Design (UK), Ltd.
All significant intercompany balances and transactions have been eliminated in
consolidation.
16
RESULTS OF OPERATIONS 1997 COMPARED TO 1996
NET SALES
Net sales of $49,779,000 for 1997 increased 7.6% from net sales of
$46,269,000 for 1996. The increase in sales primarily resulted from increased
sales of $4,848,000 in the Company's core products, which includes Telco,
Commercial Sound and Engineered Systems product lines. This increase was
partially offset by the final phase out of the Office Automated Systems ("OAS")
product line, which accounted for $214,000 and $1,552,000 of net sales for the
years ended December 31, 1997 and 1996, respectively. The increased sales were
primarily a result of the maturation of new products, increased sales volume of
the Company's products to existing and new customers, and an increase in the
sales price in the Engineered Systems product line.
Telco net sales in 1997 amounted to $30,233,000 compared to $28,720,000 in
1996, an increase of $1,513,000 or 5.3%. The increase in Telco sales is
primarily attributable to continued successful deployment of the Company's
music/message on hold systems products in the European market. Foreign net sales
stated in local currency increased to 31,345,000 Deutsche Marks ("DM") during
1997, or 33.6% over net sales of 23,467,000 DM for 1996.
Net sales of Commercial Sound products amounted to $11,250,000 in 1997, an
increase of $1,935,000, or 20.8%, from net sales of $9,315,000 of such products
in 1996. This increase is primarily due to the inclusion of NEAR products since
July 1997, the date of acquisition, which are sold through the Commercial Sound
product line and amounted to $804,000, as well as an increase in the number of
units sold due to an aggressive sales and marketing plan implemented in early
1997.
The Engineered System line of products also had an increase in net sales for
the year ended 1997 as compared to 1996. Net sales of the Engineered System line
increased $1,400,000 or 21.0% from $6,682,000 in 1996 to $8,082,000 in 1997.
This increase of $1,400,000 is primarily attributed to the maturation of the
MULTICOM-DCS product which was introduced in late 1996, as well as an average
of a 3% price increase during 1997.
All of the Company's product lines are distributed domestically through
Bogen. Some products are distributed in both domestic and overseas markets.
European Telco distributions are made through Speech Design.
GROSS PROFIT
The Company's gross profit in 1997 was $23,094,000, or approximately 46.4%
of sales, an increase of $1,829,000, compared to $21,265,000, or approximately
46% of sales, in 1996.
The increase in gross profit is attributable to the following cost reduction
measures which were implemented at varying points during 1997: (i) a reduction
in the cost of direct materials due to successful renegotiation with suppliers
in the later part of 1996; (ii) organizational changes which were aimed at
profit enhancement, which were implemented in the beginning of 1997; (iii)
elimination of lower margin products and (iv) price increases on some of Bogen's
products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") increased by $579,000,
or 4.0% during 1997 as compared to 1996. SG&A was $14,939,000 or 30% of sales in
1997 compared to $14,360,000 or 31% of sales in 1996. This increase is a result
of increased personnel and professional services directly
17
attributable to the Company's increased net sales. This increase was partially
offset by decreased commissions paid to outside representatives since sales are
now consummated by Bogen employees for the Engineered Systems product line.
RESEARCH AND DEVELOPMENT
Research and Development expense ("R&D") was $2,591,000 or 5.2% of sales in
1997, compared to $2,892,000, or 6.3% of sales in 1996. This represents a
$301,000 decrease from 1996. The decrease is primarily attributable to
refocusing R&D on specific projects during 1997. The Company anticipates
introducing additional products mainly to the Telco product line. There can be
no assurance, however, that the Company will be able to successfully introduce
additional products.
INTEREST EXPENSE
Interest expense, including interest expense to related parties, was
$429,000 in 1997, a decrease of $239,000 or 35.8%, as compared to $668,000 in
1996. The decrease primarily relates to the new revolving credit line BCI
entered into in February 1997, which decreased BCI's borrowing rate by 2% to 9%
at December 31, 1997, compared to 11% at December 31, 1996, as well as the final
repayment of a $500,000 note to Geotek on July 3, 1997, which accrued interest
at 11% per annum.
INCOME TAXES
The Company incurred approximately $1,494,000 in taxes during 1997, a
$939,000 increase from 1996. The increase is due to increased profits, both
domestic and foreign. Foreign taxes increased by $500,000 which is directly
attributable to increased profits. Domestic taxes increased by $439,000
principally reflecting the utilization of preacquisition tax benefits.
RESULTS OF OPERATIONS 1996 COMPARED TO 1995
NET SALES
Net sales of $46,269,000 for 1996 increased 4% from net sales of $44,518,000
for 1995. The increase in net sales is principally due to an increase in net
sales across all product lines (other than OAS, which was phased out in 1995) as
a result of the introduction of new products, increased sales volume of the
Company's products to existing and new customers, and an increase in the sales
price for most of the Company's domestic products, and was partially offset by a
decline in OAS sales.
Telco net sales in 1996 amounted to $28,720,000 compared to $26,010,000 in
1995, an increase of $2,710,000 or 10%. Domestic Telco sales increased $953,000
in 1996 or 8% over comparable sales in 1995. Foreign Telco sales increased
$1,757,000 in 1996 or 13% over comparable sales in 1995. The increase in both
markets is attributable to the release of new products as well as increased
volume to existing and new customers.
Net sales of Commercial Sound products amounted to $9,315,000 in 1996,
increased $879,000, or 10%, from net sales of $8,436,000 of such products in
1995. The increase of $879,000 is a result of an increase in the number of units
sold due to growth in the consumer sales market and a three percent sales price
increase implemented during the first quarter of 1996.
18
The Engineered System line of products also had an increase in net sales for
the year ended 1996 as compared to 1995. Net sales of the Engineered System line
increased $1,053,000 or 19% from $5,629,000 in 1995 to $6,682,000 in 1996. This
increase of $1,053,000 is attributed to the introduction of the MULTICOM-DCS.
Net sales for the OAS product line for 1996 were $1,552,000, a decrease of
$2,892,000 from sales of $4,444,000 for 1995. The decrease in 1996 as compared
to 1995 is primarily related to the phase-out of this product line. See
"-Phase-Out of OAS Product Line."
GROSS PROFIT
The Company's gross profit in 1996 was $21,265,000, or approximately 46% of
sales, an increase of $4,085,000, compared to $17,180,000, or approximately 39%
of sales, in 1995.
The increase is mainly due to the following: (i)charges of $2.2 million in
1995 to reduce certain inventory to market value; (ii) an increase in 1996 in
the sales price of most of the Company's domestic products; (iii) a reduction in
the cost of direct materials due to successful renegotiation with suppliers.
Gross profit as a percentage of sales for all the Company's product lines
excluding OAS, amounted to 46% in 1996 and 44% in 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") decreased in absolute
dollars and as a percentage of sales in 1996 as compared to 1995. SG&A was
$14,360,000 or about 31% of sales in 1996 compared to $15,067,000 or 34% of
sales in 1995. This decrease of $707,000 is due to the decrease in selling costs
relating to OAS sales, which, in 1995, included an intense marketing effort.
This decrease was partially offset by an increase in administrative expenses
primarily due to additional administrative expenses at Speech Design in
connection with its expansion into Europe.
RESEARCH AND DEVELOPMENT
Research and Development expense ("R&D") was $2,892,000 or 6% of sales in
1996, compared to $2,307,000, or 5% of sales in 1995. This represents a $585,000
increase from 1995. The Company's R&D programs are designed to efficiently
introduce innovative products in a timely manner and support the Company's
planned growth.
INTEREST EXPENSE
Interest expense, including interest expense payable to related parties, was
$668,000 in 1996, a decrease of $538,000, as compared to $1,206,000 in 1995.
This decrease was attributable to (i) a reduction in notes payable to Geotek in
August 1995 in connection with the Company's acquisition of Bogen, and (ii) the
reduction and restructuring of the $3,000,000 Geotek note in 1996.
INCOME TAXES
The Company incurred approximately $555,000 in taxes, a $707,000 decrease
from 1995. The decrease is due to more efficient tax planning at Speech Design
which resulted in a 14% decrease in the effective tax rate at Speech Design, as
well as a $214,000 refund of taxes paid in 1995.
19
PHASE-OUT OF OAS PRODUCT LINE
Effective December 31, 1995 the Company's management decided to phase-out
the OAS product line. This decision was based on the intense competition that
the Company faced from local telephone companies and answering service
companies, both of which offer central voice mail services. The Company's OAS
product line competed with products that were frequently offered at a lower
retail price than the Company's products. In addition, competitors' products
benefited from better brand recognition in the marketplace, which is dominated
by AT&T, Panasonic and PhoneMate. In December 1997, the Company eliminated all
OAS related inventories.
Net OAS sales of $1,552,000 in 1996 decreased $2,892,000 from $4,444,000 of
sales in 1995. Gross profit (deficit) of OAS products of $630,000 in 1996
increased by $1,118,000 from a gross deficit of $(488,000) in 1995. Net income
(loss) from the OAS product line increased by $4,786,000 to $272,000 in 1996
from a net loss of $(4,514,000) in 1995.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
During 1997, the Company focused its efforts on long-term growth by
strengthening its profitable product lines. Cash utilization focused on current
working capital requirements, the paydown of related party debt and subordinated
notes, and the purchase of equipment and leasehold improvements.
The Company's operating activities generated $2,118,000 of cash. The
Company's net income of $2,665,000 includes net non-cash charges of $1,605,000,
which principally consisted of: (i) depreciation and amortization of $1,332,000;
(ii) a decrease in reserves for accounts receivable and inventory obsolescence
of $703,000; (iii) minority interest of consolidated subsidiaries of $537,000;
and (iv) utilization of acquired tax benefits credited to goodwill of $439,000.
Additionally, inventory increased by $1,315,000, accounts payable and accrued
expenses decreased by $1,078,000, accounts receivable decreased by $118,000 and
net changes in other operating assets and liabilities amounted to $123,000.
Net cash used in investing activities amounted to $1,195,000. During 1997,
the Company purchased equipment and other fixed assets for $953,000. Also,
during 1997, the Company acquired substantially all the net assets of NEAR for a
net cash payment of approximately $242,000, which includes direct costs such as
legal and accounting fees which arose from the acquisition and the assumption of
certain liabilities.
Net cash used in financing activities amounted to $695,000. The Company paid
down $2,385,000 of debt, of which $765,000 was paid to Geotek. The Company
received $20,440,000 from the sale of certain equities principally preferred
stock, of which the Company utilized $18,750,000 (including $250,000 of
acquisition expenses) to repurchase shares and warrants owned by Geotek.
As of December 31, 1997, the Company's total liabilities were $10,548,000,
of which $8,773,000 is due and payable within one year.
In the first quarter of 1997, BCI obtained, from Summit Bank, a $7,000,000
revolving credit line for a period of two years. This line is collateralized by
the accounts receivable, inventory, property and equipment and general
intangibles of BCI and is guaranteed by the Company. As of December 31, 1997,
Bogen had short-term domestic borrowings outstanding under the line of credit of
$737,000. The amount available under the credit line based upon eligible
accounts receivable and inventory was approximately $4,000,000 at December 31,
1997.
The Company's previous credit facility of $10,000,000, which had an
outstanding balance of $1,545,000 at December 31, 1996, was paid in full with
proceeds from the new credit facility obtained in 1997, as well as through
proceeds from operations.
20
At December 31, 1997 and 1996, Speech Design had short term lines of credit
and overdraft facilities of $3,988,000 and $4,344,000 respectively, of which
short term borrowings amounted to $2,154,000 and $3,283,000 respectively. The
amounts available under these credit lines were $1,834,000 and $1,061,000 at
December 31, 1997 and 1996, respectively, with rates tied to short-term bank
notes and Euromarket loans. Speech Design's short term lines of credit are
collaterized by all of Speech Design's accounts receivable and inventory. At
December 31, 1997 interest rates on these short term lines ranged from 4.4% to
7.25%.
In November 1997, the Company issued 200,000 shares of 9% Convertible
Preferred Stock at $100 per share. The 9% dividend is payable semi-annually in
cash or in-kind at the sole discretion of the Company. The Company plans to
evaluate its liquidity prior to each semi-annual dividend payment date and
determine at that time, whether to pay the dividend in cash or in-kind.
The Company believes that it has adequate liquidity to finance its ongoing
activities and capital expenditures for the near term but will be required to
seek additional capital in the event it wishes to expand its operations through
acquisitions or otherwise attempting to secure additional lines of credit for
such purpose.
ECONOMIC ENVIRONMENT
Bogen relies principally upon an established network of suppliers and
subcontractors primarily located in the Republic of South Korea, and to a lesser
extent in the Asia Pacific Region, and in the United States. During 1997, the
effects of the adverse economic conditions in the Republic of South Korea and
other countries in the Asia Pacific Region included a national liquidity crisis,
significant depreciation in the value of the Won, high interest rates and a
general reduction in spending throughout the region. The Company is currently
monitoring this situation closely and will take all measures within its control
to ensure that production of the Company's products will continue without
interruption. Should production by the Company's suppliers be curtailed, the
Company believes suitable suppliers in other parts of the world will be
available to satisfy its production requirements. However, there can be no
assurances that events beyond the Company's control will not disrupt production
or that suitable alternative sources of production can be identified on a timely
basis, thereby resulting on material adverse effects on the Company's results of
operations.
INFLATION
Inflation did not have a material effect on the Company's results during the
periods discussed.
CURRENCY FLUCTUATIONS
Approximately thirty six percent of the Company's revenues are derived
outside of the United States, primarily in Germany. Accordingly, currency
fluctuations may impact the Company's earnings. Over the course of 1997, the
Deutsche Mark remained relatively steady to the U.S. dollar. Local currencies
are considered to be the functional currencies of the Company and its
subsidiaries. Translation adjustments that arise from translation of the Company
and its subsidiaries' financial statements are accumulated in a separate
component of stockholders' equity. Transaction gains and losses that arise from
exchange rate changes on transactions denominated in a currency other than local
currencies are included in income as incurred.
21
YEAR 2000
The Company is in the process of evaluating the effect of modifying computer
software systems to accommodate year 2000 transactions. The Company expects to
expend up to $1,000,000, which may be necessary for systems upgrade projects
that will, among other things, address concerns about the Year 2000. The Company
plans to complete such modification and conversions prior to June 30, 1999.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130") and Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information"("SFAS
131").
SFAS 130 establishes standards for the reporting and display of
comprehensive income in the financial statements. Comprehensive income is the
total of net income and all other non-owner changes in equity. SFAS 131 requires
that companies disclose segment data based on how management makes decisions
about allocating resources to segments and measuring their performance. SFAS 130
and 131 are effective for fiscal years beginning after December 15, 1997.
Adoption of these standards is expected to result in additional disclosures,
but will not have an effect on the Company's financial position or results of
operations or cash flows.
22
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Information
The Company's consolidated operations are considered one segment, engaged in
the development and manufacturing of communication and telecommunication
products in the United States (Bogen) and Germany (Speech Design). Financial
information regarding the breakdown of the Company's foreign and domestic
operations is disclosed in footnote 17 to the Company's Consolidated Financial
Statements.
23
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
Pages
-----
Financial Statements:
Report of Independent Auditors F-1
Report of Independent Accountants F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996 F-3
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995 F-5
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1997, 1996 and 1995 F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 F-8
Notes to Consolidated Financial Statements F-10
The following consolidated financial statement schedules of Bogen Communications
International, Inc. are included in Item 14(a)2:
I. Condensed Financial Information of Bogen Communications
International, Inc. (Parent Company Only) 31
II. Valuation and Qualifying Accounts 37
All other schedules are omitted as the required information is inapplicable or
the information is presented in the consolidated financial statements or related
notes.
24
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Bogen Communications International, Inc.:
We have audited the consolidated financial statements of Bogen Communications
International, Inc. and subsidiaries as listed in the accompanying index as of
December 31, 1997 and for the year then ended. In connection with our audit of
the consolidated financial statements, we also have audited the financial
statement schedules for 1997 as listed in the accompanying index. These
consolidated financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedules based on our audit. We did not audit the financial statements and
financial statement schedules of Speech Design GmbH, a 67% owned subsidiary,
which financial statements reflect total assets constituting 21% as of December
31, 1997 and total revenues constituting 36%, for the year then ended of the
related consolidated total. Those financial statements and financial statement
schedules were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to the amounts included for Speech Design
GmbH, is based solely on the report of the other auditors.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, based on our audit and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Bogen Communications International,
Inc. and subsidiaries as of December 31, 1997, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles. Also in our opinion, based on our
audit and the report of other auditors, the related financial statement
schedules for 1997, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly, in all material respects,
the information set forth therein.
KPMG PEAT MARWICK LLP
Short Hills, New Jersey
March 18, 1998
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
of Bogen Communications International, Inc.:
We have audited the accompanying consolidated financial statements and financial
statement schedules of Bogen Communications International, Inc. and Subsidiaries
(formerly European Gateway Acquisition Corp.) (the "Company") as of December 31,
1996 and for each of the two years in the period ended December 31, 1996. These
financial statements and financial statement schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
mistatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Bogen
Communications International, Inc. and Subsidiaries as of December 31, 1996, and
the results of its operations and its cash flows for each of the two years in
the period ended December 31, 1996 in conformity with generally accepted
accounting principles. In addition, in our opinion, the financial statement
schedules referred to above, when considered in relation to the basic financial
statements taken as a whole, present fairly, in all material respects, the
information required to be included therein.
Coopers & Lybrand L.L.P.
March 7, 1997
New York, New York
F-2
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 and 1996
(In Thousands of Dollars, Except Share and Per Share Amounts)
1997 1996
-------- -------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 964 $ 885
Accounts receivable (less allowance for doubtful accounts of $376 and
$470 at December 31, 1997 and 1996, respectively) 6,291 6,517
Inventories, net 8,285 6,519
Prepaid expenses and other current assets 468 780
------- -------
TOTAL CURRENT ASSETS 16,008 14,701
Property, equipment and leasehold improvements, net 2,136 2,130
Goodwill and intangible assets, net 13,569 14,308
Other assets 257 247
------- -------
TOTAL ASSETS $31,970 $31,386
======= =======
The accompanying notes are an integral part of these
consolidated financial statements
F-3
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 and 1996
(In Thousands of Dollars, Except Share and Per Share Amounts)
1997 1996
---- ----
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Amounts outstanding under revolving credit agreement $ 2,891 $ 4,828
Accounts payable 2,376 3,707
Accrued expenses 3,084 3,026
Income taxes payable 238 --
Preferred dividends payable 178 --
Advances and notes payable to related parties 6 746
Current maturities of notes payable to non-related parties -- 5
-------- --------
TOTAL CURRENT LIABILITIES 8,773 12,312
Advances and notes payable to related parties 212 361
Notes payable to non-related parties -- 8
Other liabilities 433 536
Minority interest 1,130 593
-------- --------
TOTAL LIABILITIES 10,548 13,810
-------- --------
STOCKHOLDERS' EQUITY
Preferred stock - $.001 par value; 1,000,000 shares authorized;
200,000 shares issued and outstanding at December 31, 1997, none
issued and outstanding in 1996 (Liquidation preference of $100 per
share plus accrued dividends - $20,178) -- --
Common stock - $.001 par value; 50,000,000 shares authorized;
2,118,226 and 5,758,850 shares issued and outstanding at December
31, 1997 and 1996, respectively 2 6
Additional paid-in-capital 23,468 21,774
Accumulated deficit (1,690) (4,177)
Currency translation adjustments (358) (27)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 21,422 17,576
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 31,970 $ 31,386
======== ========
The accompanying notes are an integral part of these
consolidated financial statements
F-4
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 and 1995
(In Thousands of Dollars, Except Share and Per Share Amounts)
1997 1996 1995
---- ---- ----
Net sales $ 49,779 $ 46,269 $ 44,518
Cost of goods sold 26,685 25,004 27,338
----------- ----------- -----------
Gross profit 23,094 21,265 17,180
Operating expenses:
Research and development 2,591 2,892 2,307
Selling, general and administrative 14,939 14,360 15,067
Amortization of goodwill and intangible assets 471 445 443
----------- ----------- -----------
Income (loss) from operations 5,093 3,568 (637)
Other (income) expenses:
Interest expense, net 414 596 587
Interest expense to related parties 15 72 619
Transaction costs -- -- 1,491
Minority interest of consolidated subsidiaries 537 337 184
Other income (32) -- (237)
----------- ----------- -----------
Income (loss) before provision for income taxes 4,159 2,563 (3,281)
Provision for income taxes 1,494 555 1,262
----------- ----------- -----------
Net income (loss) $ 2,665 $ 2,008 $ (4,543)
Preferred dividends 178 -- --
----------- ----------- -----------
Net income (loss) available to common shareholders $ 2,487 $ 2,008 $ (4,543)
=========== =========== ===========
Basic net income (loss) per common share $ 0.46 $ 0.35 $ (1.37)
=========== =========== ===========
Diluted net income (loss) per common share $ 0.46 $ 0.35 $ (1.37)
=========== =========== ===========
Weighted average number of common
shares outstanding-Basic and Diluted 5,399,199 5,759,075 3,311,668
=========== =========== ===========
The accompanying notes are an integral part of these
consolidated financial statements
F-5
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands of Dollars, Except Share and Per Share Amounts)
Preferred Stock Common Stock Additional
Number of Number of Paid-in
Shares Amount Shares Amount Capital
------ ------ ------ ------ -------
Balance at December 31, 1994 -- -- 1,615,155 $ 2 $ 12,638
Recapitalization by foreign subsidiary -- -- -- -- (967)
Accretion of redemption value of common stock
subject to redemption -- -- -- -- (52)
Reclass of common stock subject to redemption
to common stock upon the Company's
acquisition of Bogen and Speech Design -- -- 309,845 -- 1,627
Forgiveness of Bogen inter-company debt
by Geotek -- -- -- -- 7,155
Issuance of common stock and other adjustments to
effect combination of Bogen and Speech
Design -- -- 3,701,919 4 (1,966)
Issuance of common stock and warrants to purchase
60,000 shares of common stock for services
provided to facilitate the acquisition of
Bogen and Speech Design -- -- 132,431 -- 740
Dividend paid by subsidiary to minority shareholders -- -- -- -- --
Translation adjustments
Net loss -- -- -- -- --
-------- -------- ----------- ----------- -----------
Balance at December 31, 1995 -- -- $ 5,759,350 $ 6 $ 19,175
Restructuring of $3,000 related party
note with related interest -- -- -- -- 2,602
Repurchased and cancelled common
Stock -- -- (500) -- (3)
Translation adjustments -- -- -- -- --
Net income -- -- -- -- --
-------- -------- ----------- ----------- -----------
Balance at December 31, 1996 -- -- 5,758,850 $ 6 $ 21,774
Currency
Accumulated Translation
Deficit Adjustments Total
------- ----------- -----
Balance at December 31, 1994 $ (2,428) $ 37 $ 10,249
Recapitalization by foreign subsidiary 967 -- --
Accretion of redemption value of common stock -- -- (52)
Reclass of common stock subject to redemption
to common stock upon the Company's
acquisition of Bogen and Speech Design -- -- 1,627
Forgiveness of Bogen inter-company debt
by Geotek -- -- 7,155
Issuance of common stock and other adjustments to
effect combination of Bogen and Speech
Design -- -- (1,962)
Issuance of common stock and warrants to purchase
60,000 shares of common stock for services
provided to facilitate the acquisition of
Bogen and Speech Design -- -- 740
Dividend paid by subsidiary to minority shareholders (181) -- (181)
Translation adjustments 110 110
Net loss (4,543) -- (4,543)
----------- ----------- -----------
Balance at December 31, 1995 $ (6,185) $ 147 $ 13,143
Restructuring of $3,000 related party
note with related interest -- -- 2,602
Repurchased and cancelled common
stock -- -- (3)
Translation adjustments -- (174) (174)
Net income 2,008 -- 2,008
----------- ----------- -----------
Balance at December 31, 1996 $ (4,177) $ (27) $ 17,576
The accompanying notes are an integral part of these
consolidated financial statements
F-6
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands of Dollars, Except Share and Per Share Amounts)
Preferred Stock Common Stock Additional
Number of Number of Paid-in
Shares Amount Shares Amount Capital
------ ------ ------ ------ -------
Sale of preferred stock 200,000 -- -- -- 20,000
Acquisition and retirement of
common stock held by Geotek,
including acquisition costs of $250 -- -- (3,701,919) (4) (18,746)
Sale of common stock and warrants -- -- 61,295 -- 440
Translation adjustments -- -- -- -- --
Preferred dividends -- -- -- -- --
Net income -- -- -- -- --
------- ------ ---------- ---------- ----------
Balance at December 31, 1997 200,000 -- 2,118,226 $ 2 $ 23,468
======= ====== ========= ========== ==========
Currency
Accumulated Translation
Deficit Adjustments Total
------- ----------- -----
Sale of preferred stock -- -- 20,000
Acquisition and retirement of
common stock held by Geotek,
including acquisition costs of $250 -- -- (18,750)
Sale of common stock and warrants -- -- 440
Translation adjustments -- (331) (331)
Preferred dividends (178) -- (178)
Net income 2,665 -- 2,665
---------- ---------- ----------
Balance at December 31, 1997 $ (1,690) $ (358) $ 21,422
========== ========== ==========
The accompanying notes are an integral part of these
consolidated financial statements
F-7
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 and 1995
(In Thousands of Dollars, Except Share and Per Share Amounts)
1997 1996 1995
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,665 $ 2,008 $ (4,543)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Non-cash transaction costs -- -- 740
Depreciation and amortization 861 978 868
Amortization of goodwill and intangible assets 471 445 443
Provisions for doubtful accounts and
inventory obsolescence (703) (1,362) 1,344
Utilization of acquired tax benefits credited to goodwill 439 -- --
Minority Interest 537 337 184
Change in operating assets and liabilities
(net of effects from acquisitions):
Accounts receivable 118 (1,703) 984
Inventories (1,315) 2,269 (49)
Prepaid expenses and other current assets 260 (532) 200
Payables and accrued expenses (1,078) (1,040) 1,901
Other (137) (138) --
-------- -------- --------
Net cash provided by operating activities 2,118 1,262 2,072
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, equipment and leasehold improvements (953) (1,017) (1,035)
Cash obtained in the acquisition of Speech Design
and Bogen -- -- 8,149
Acquisition of New England Audio Resource, Inc. (242) -- --
Acquisition of investments and intangibles -- (102) (60)
Other -- 18 37
-------- -------- --------
Net cash provided by (used) in investing activities (1,195) (1,101) 7,091
-------- -------- --------
CASH FLOW FROM FINANCING ACTIVITIES
Acquisition of common stock and warrants held by Geotek (18,750) -- --
Proceeds from sale of preferred stock, common stock and warrants 20,440 -- --
Amounts (paid to) non-related parties, net -- (161) (688)
Amounts (paid) borrowed under revolving credit agreements (1,506) 23 (691)
Dividend paid to Geotek related to combination
of Bogen and Speech Design -- -- (7,000)
Dividend paid by subsidiary to minority shareholders -- (294) (181)
Advances and notes payable - related parties (879) (341) 415
-------- -------- --------
Net cash used in financing activities (695) (773) (8,145)
-------- -------- --------
Effects of foreign exchange rate on cash (149) 221 110
-------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 79 (391) 1,128
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 885 1,276 148
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 964 $ 885 $ 1,276
======== ======== ========
The accompanying notes are an integral part of these
consolidated financial statements
F-8
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 and 1995
(In Thousands of Dollars, Except Share and Per Share Amounts)
1997 1996 1995
---- ---- ----
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 496 $ 609 $ 829
Cash paid for income taxes 490 2,175 4
NON CASH INVESTING AND FINANCING ACTIVITIES
Preferred stock dividends accrued 178 -- --
Restructuring of $3,000 related party note and related interest -- 2,602 --
Forgiveness of Bogen debt by Geotek treated
as an equity contribution -- -- 7,155
Adjustments to combine companies -- -- 1,966
Notes payable to Geotek in consideration for
acquiring Bogen and Speech Design -- -- 3,000
Common stock issued to Geotek in consideration
for acquiring Bogen and Speech Design -- -- 4
Common stock and warrants issued as consideration for certain services
provided to the Company in connection with the acquisition of Bogen and
Speech Design -- -- 740
The accompanying notes are an integral part of these
consolidated financial statements
F-9
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars, Except Share and Per Share Amounts)
1. Organization
Bogen Communications International, Inc. (and, together with its
subsidiaries, the "Company") is engaged in the development, manufacturing
and marketing of sound and telecommunication products. Product lines sold
by the Company include; Telephone Paging Products ("Telco"), Commercial
Audio Products ("Commercial Sound") and Intercom/Paging Equipment
("Engineered Systems"). The Company's operations are located in the
northeastern United States, Germany, England, Switzerland and Israel.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements of the Company include the accounts
of Bogen Corporation ("Bogen") and Bogen's wholly-owned subsidiary, Bogen
Communications, Inc. ("BCI"), BCI's wholly-owned subsidiary, New England
Audio Resource Corp. ("NEAR"), as well as Speech Design GmbH, a 67% owned
subsidiary ("Speech Design"), its 67% owned subsidiary Satelco AG
("Satelco"), and its wholly-owned subsidiaries, Speech Design (Israel),
Ltd. and Speech Design (UK), Ltd. All significant intercompany balances
and transactions have been eliminated in consolidation.
The ownership interest of minority owners in the equity and earnings of
the Company's less than 100 percent-owned consolidated subsidiaries is
recorded as minority interest.
Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and reported amounts of revenues and
expenses during the reporting period. Some of the more significant
estimates made by management involve the reserve for doubtful accounts,
provision for slow moving and obsolete inventory and evaluation of the
recoverability of assets. Actual results could differ from those
estimates.
Basis of Presentation
On August 21, 1995, the Company acquired a 99% interest in Bogen and a 67%
interest in Speech Design from Geotek Communications, Inc.
F-10
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars, Except Share and Per Share Amounts)
("Geotek"). The Company paid Geotek $7,000 in cash, a convertible
promissory note in the aggregate principal amount of $3,000, 3,701,919
shares of the Company's common stock and warrants to acquire 200,000
shares of common stock of the Company plus contingent consideration based
on attainment of specified levels of operating performance of Bogen and
Speech Design. As a result, Geotek acquired approximately 64% of the stock
of the Company, thereby giving it a controlling interest in the Company.
In addition, Geotek contributed approximately $7,155 of intercompany
indebtedness from Bogen to equity as part of the transaction. The Company
incurred transaction costs of $1,491 in connection with the acquisition of
Bogen and Speech Design which were charged to non-operating expenses for
the year ended December 31, 1995. These costs consist of non-recurring
legal and other professional fees and other costs of the transaction
amounting to $751 and a non-cash charge of $740 for the estimated fair
value of 132,400 shares of common stock of the Company and warrants to
purchase 60,000 shares of the Company's common stock at $5.25 per share,
for services provided to the Company by various unrelated parties in
connection with facilitating the acquisition of Bogen and Speech Design.
In May 1996, the Company and Geotek amended the Stock Purchase Agreement
effective January 1, 1996. Pursuant to such agreement, (i) the $3,000
convertible promissory note payable by the Company to Geotek, due February
1997, was reduced and restructured to a $500 non-convertible promissory
note due and paid in July 1997, (ii) the contingent consideration formula
was revised, and (iii) Geotek was granted an option to purchase, at any
time through October 31, 1997, from the Company, $3,000 worth of common
stock with exercise prices ranging from 100% to 65% of market price,
depending on the date of exercise. This option expired unexercised on
October 31, 1997.
For accounting purposes, the acquisition was treated as a joint
acquisition of the Company by Bogen and Speech Design, companies under the
common control of Geotek. The transaction was considered a reverse
acquisition with Geotek as the acquiror for accounting purposes. The
historical financial statements reflect the combination of Bogen and
Speech Design in a manner similar to a pooling of interests. Accordingly,
the historical financial statements reflect the combined operations of
Bogen and Speech Design prior to the transaction.
On November 26, 1997, the Company acquired and retired all of the
outstanding com