BROOKTROUT INC - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

	ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2004

OR

	o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File No.: 000-20698

BROOKTROUT, INC.

(Exact Name of Registrant as Specified in Its Charter)

MASSACHUSETTS		04-2814792
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

250 FIRST AVENUE, NEEDHAM, MASSACHUSETTS 02494
(Address of Principal Executive Offices) (Zip Code)

Registrant’s Telephone Number, Including Area Code: (781) 449-4100

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes ý No o

As of July 30, 2004, 13,001,985 shares of common stock, $.01 par value per share, were outstanding.

BROOKTROUT, INC.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2004

TABLE OF CONTENTS

PART I FINANCIAL INFORMATION		Page
Item 1.	Condensed Consolidated Financial Statements	1
	Unaudited Condensed Consolidated Balance Sheets as of June 30, 2004 and December 31, 2003	1
	Unaudited Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2004 and June 30, 2003	2
	Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2004 and June 30, 2003	3
	Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2004 and June 30, 2003	4
	Notes to Unaudited Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
	Overview	11
	Application of Critical Accounting Policies	11
	Results of Operations	12
	Liquidity and Capital Resources	17
	Factors That May Affect Future Results	19
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	27

PART II OTHER INFORMATION
Item 2.	Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities	28
Item 4.	Submission of Matters to a Vote of Security Holders	28
Item 6.	Exhibits and Reports on Form 8-K	29
	Signatures	31
	Exhibit Index	32

“BROOKTROUT” and the “NEW NETWORK” are trademarks or registered trademarks of Brooktrout, Inc.

PART I FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

BROOKTROUT, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)

	June 30, 2004			December 31, 2003
Assets
Current assets:
Cash and cash equivalents	$	21,382		$	28,081
Marketable debt securities	28,926			27,869
Accounts receivable (less allowances for doubtful accounts and sales returns of $847 at June 30, 2004 and $843 at December 31, 2003)	9,196			10,232
Inventory	4,423			4,465
Income tax receivable	74			433
Deferred tax assets	4,312			3,830
Prepaid expenses and other current assets	2,337			2,354

Total current assets	70,650			77,264

Equipment and furniture, less accumulated depreciation	2,424			2,245
Deferred tax assets	14,402			9,413
Intangible assets, less accumulated amortization	6,200			5,909
Other assets, less accumulated amortization	1,999			1,748

Total assets	$	95,675		$	96,579
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	5,061		$	5,350
Accrued expenses and other	5,318			5,128
Accrued compensation and commissions	2,328			2,405
Accrued warranty costs	1,197			1,138
Customer deposits	726			758

Total current liabilities	14,630			14,779

Deferred rent and other long-term liabilities	132			146

Total liabilities	14,762			14,925

Commitments and contingencies (Note 8)

Stockholders’ equity:
Preferred stock, $1.00 par value; authorized 100,000 shares; issued and outstanding, none	—			—
Common stock, $0.01 par value; authorized 80,000,000 shares at June 30, 2004 and 40,000,000 shares at December 31, 2003; issued 13,344,329 at June 30, 2004 and 12,937,019 at December 31, 2003	133			129
Additional paid-in capital	71,285			68,270
Accumulated other comprehensive loss	(169		)	(45		)
Notes receivable — officers	(9,845		)	(9,845		)
Retained earnings	24,197			26,942
Treasury stock, 348,237 shares at June 30, 2004 and 260,386 shares at December 31, 2003, at cost	(4,688		)	(3,797		)

Total stockholders’ equity	80,913			81,654
Total liabilities and stockholders’ equity	$	95,675		$	96,579

See notes to unaudited condensed consolidated financial statements.

BROOKTROUT, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)

	Three Months Ended June 30,				Six Months Ended June 30,
	2004		2003		2004		2003
Revenue	$	19,193	$	17,390	$	37,886	$	32,924

Costs and expenses:
Cost of product sold	6,306		6,270		12,274		12,600
Research and development	4,847		4,827		9,332		9,413
In-process research and development	2,490