-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, G+EfSYA6pZBg1qq9opnb/CDB0uHXmYYOA4t0mIxjgkvT925SU7O2IJAwLQ6VHthi IEAO6KRl1PotfOVSB3bUKA== 0000950135-96-002744.txt : 19960624 0000950135-96-002744.hdr.sgml : 19960624 ACCESSION NUMBER: 0000950135-96-002744 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960529 ITEM INFORMATION: Acquisition or disposition of assets ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 19960621 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: BROOKTROUT TECHNOLOGY INC CENTRAL INDEX KEY: 0000754516 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER INTEGRATED SYSTEMS DESIGN [7373] IRS NUMBER: 042184792 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-20698 FILM NUMBER: 96584192 BUSINESS ADDRESS: STREET 1: 410 FIRST AVE CITY: NEEDHAM STATE: MA ZIP: 02194 BUSINESS PHONE: 6174494100 MAIL ADDRESS: STREET 2: 410 FIRST CITY: NEEDHAM STATE: MA ZIP: 02194 8-K/A 1 BROOKTROUT TECHNOLOGY, INC. 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------------- FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 ---------------------------------- Date of Report (Date of earliest event reported): MAY 29, 1996 ------------ BROOKTROUT TECHNOLOGY, INC. (Exact name of Registrant as specified in charter) MASSACHUSETTS 0-20698 04-2814792 - ---------------------------- ------------------------ ------------------- (State or other jurisdiction (Commission file number) (IRS employer of incorporation) identification no.) 410 FIRST AVENUE, NEEDHAM, MA 02194 --------------------------------------------------- (Address of principal executive offices) (Zip Code) (617) 449-4100 ---------------------------------------------------- (Registrant's telephone number, including area code) There are __ pages in this Report, including exhibits. Page 1 of __ Exhibit Index Begins on Page __ 2 ITEM 2. ACQUISITION OF ASSETS On May 29, 1996, Brooktrout Technology, Inc. (the "Registrant") consummated the acquisition of all of the outstanding equity interests of Technically Speaking, Inc., a Massachusetts corporation ("TSI"), for 475,328 shares of the Registrant's newly issued common stock. The amount of the consideration was determined on the basis of the Registrant's valuation of TSI. The Registrant acquired TSI from Andrew Fox, Beverly Fox, Robert Friedman, Raymond Phillips, Michael Tinglof, Joe Finegold, Diamentino Fidalgo and Michael Healy, none of whom was affiliated with the Registrant, any director or officer of the Registrant or any associate of any such director or officer. The acquisition was structured as a tax-free reorganization to be accounted for as a pooling of interests. The terms of this transaction are described more fully in a press release issued on March 8, 1996, a copy of which is included as an exhibit hereto and incorporated herein by reference. The Registrant has agreed to register approximately 50% of the shares of its common stock issued to the equity holders of TSI for resale under the Securities Act of 1933. 2 3 ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (a) Financial Statements of Business Acquired. Balance sheet of TSI as of December 31, 1995, and related statements of income, shareholders' equity and cash flows for the year then ended, audited by Deloitte & Touche, LLP and unaudited financial statements of TSI as of December 31, 1994 and 1993 and unaudited condensed balance sheet as of March 31, 1996 and related statements of income and cash flows for the three month periods ended March 31, 1996 and 1995. (b) Pro Forma Condensed Combining Balance Sheet at March 31, 1996 and Pro Forma Condensed Combining Income Statements for the three months ended March 31, 1996 and the years ended December 31, 1995, 1994 and 1993. (c) Exhibits 23.1 Consent of Deloitte & Touche LLP 3 4 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of Technically Speaking, Inc.: We have audited the accompanying balance sheet of Technically Speaking, Inc. (the "Company") as of December 31, 1995, and the related statements of income, shareholders' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. 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 financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of the Company at December 31, 1995, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. As described in Note 1 to the financial statements, on March 8, 1996, the Company and its shareholders entered into an Agreement and Plan of Merger with Brooktrout Technology, Inc. DELOITTE & TOUCHE LLP Boston, Massachusetts March 8, 1996 4 5 TECHNICALLY SPEAKING, INC. BALANCE SHEETS DECEMBER 31, 1994 AND 1995
1995 1994 ----------- ----------- (UNAUDITED) ASSETS CURRENT ASSETS: Cash......................................................... $ 28,274 $ -- Accounts receivable (net of allowance for doubtful accounts of $33,026 in 1994 and $71,913 in 1995)..................... 220,086 1,639,537 Inventory.................................................... 37,759 71,000 ----------- ----------- Total current assets.................................... 286,119 1,710,537 PROPERTY AND EQUIPMENT, Net....................................... 46,085 184,402 OTHER ASSETS...................................................... 1,720 13,676 ----------- ----------- TOTAL............................................................. $ 333,924 $ 1,908,615 =========== ========= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Line of credit borrowings.................................... $ -- $ 50,000 Accounts payable and accrued expenses........................ 144,637 446,194 Due to shareholders.......................................... 1,928 -- Deferred revenue............................................. -- 188,000 ----------- ----------- Total current liabilities............................... 146,565 684,194 ----------- ----------- SHAREHOLDERS' EQUITY: Common stock, no par value: Series A; 200,000 shares authorized, 100,000 shares issued and outstanding; at issuance price........................ 100 100 Series B; 200,000 shares authorized, none issued or outstanding;.............................................. -- -- Retained earnings............................................ 187,259 1,224,321 ----------- ----------- Total shareholders' equity.............................. 187,359 1,224,421 ----------- ----------- TOTAL............................................................. $ 333,924 $ 1,908,615 =========== =========
See notes to financial statements. 5 6 TECHNICALLY SPEAKING, INC. STATEMENTS OF INCOME PERIOD FROM SEPTEMBER 1, 1993 (DATE OF INCEPTION) TO DECEMBER 31, 1993 AND YEARS ENDED DECEMBER 31, 1994 AND 1995
1993 1994 1995 ----------- ----------- ----------- (UNAUDITED) (UNAUDITED) REVENUES: Software licenses................................. $ 208,926 $ 584,032 $ 2,316,453 Hardware.......................................... 122,470 869,492 1,441,550 Consulting........................................ -- 10,000 769,693 Maintenance....................................... -- -- 13,000 ----------- ----------- ----------- Total revenues............................... 331,396 1,463,524 4,540,696 ----------- ----------- ----------- COST AND EXPENSES: Cost of sales -- licenses......................... 11,585 44,885 111,488 Cost of sales -- hardware......................... 85,607 625,534 1,108,038 Cost of sales -- consulting....................... -- 39,858 166,387 Selling and marketing............................. 27,769 266,588 969,416 Research and development.......................... 82,714 235,181 622,286 General and administrative........................ 21,030 170,178 516,465 ----------- ----------- ----------- Total costs and expenses..................... 228,705 1,382,224 3,494,080 ----------- ----------- ----------- OPERATING INCOME....................................... 102,691 81,300 1,046,616 OTHER INCOME, Net...................................... -- 3,268 12,745 ----------- ----------- ----------- NET INCOME............................................. $ 102,691 $ 84,568 $ 1,059,361 =========== ========= ========= HISTORICAL INCOME PER COMMON SHARE..................... $ 1.03 $ 0.85 $ 10.39 =========== ========= ========= PRO FORMA DATA: Historical net income............................. $ 102,691 $ 84,568 $ 1,059,361 Provision for income taxes........................ 42,000 34,000 424,000 ----------- ----------- ----------- PRO FORMA NET INCOME................................... $ 60,691 $ 50,568 $ 635,361 =========== ========= ========= PRO FORMA INCOME PER COMMON SHARE...................... $ 0.61 $ 0.51 $ 6.23 =========== ========= ========= WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES... 100,000 100,000 101,953 =========== ========= =========
See notes to financial statements. 6 7 TECHNICALLY SPEAKING, INC. STATEMENTS OF SHAREHOLDERS' EQUITY PERIOD FROM SEPTEMBER 1, 1993 (DATE OF INCEPTION) TO DECEMBER 31, 1993 AND YEARS ENDED DECEMBER 31, 1994 AND 1995
COMMON STOCK -------------------- RETAINED SERIES A SERIES B EARNINGS TOTAL -------- -------- ---------- ---------- INITIAL CAPITALIZATION OF THE COMPANY (Unaudited)................................... $100 $-- $ -- $ 100 Net income (Unaudited) .................... -- -- 102,691 102,691 -------- -------- ---------- ---------- BALANCE, DECEMBER 31, 1993 (Unaudited).......... 100 -- 102,691 102,791 Net income (Unaudited) .................... -- -- 84,568 84,568 -------- -------- ---------- ---------- BALANCE, DECEMBER 31, 1994 (Unaudited).......... 100 -- 187,259 187,359 Net income ................................ -- -- 1,059,361 1,059,361 Distributions to shareholders.............. -- -- (22,299) (22,299) -------- -------- ---------- ---------- BALANCE, DECEMBER 31, 1995...................... $100 $-- $1,224,321 $1,224,421 ======== ======= ========= =========
See notes to financial statements. 7 8 TECHNICALLY SPEAKING, INC. STATEMENTS OF CASH FLOWS PERIOD FROM SEPTEMBER 1, 1993 (DATE OF INCEPTION) TO DECEMBER 31, 1993 AND YEARS ENDED DECEMBER 31, 1994 AND 195
1994 ------------ 1995 1993 (UNAUDITED) ------------ ------------ (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES: Net income...................................... $ 102,691 $ 84,568 $ 1,059,361 Adjustments to reconcile net income to cash used in operating activities: Depreciation............................... 388 4,382 22,896 Changes in assets and liabilities: Account receivable.................... (127,771) (92,315) (1,419,451 ) Inventory............................. -- (37,759) (33,241 ) Due to (from) shareholders............ 1,828 100 (1,928 ) Other assets.......................... (280) (1,440) (11,956 ) Accounts payable and accrued expenses............................ 29,373 115,264 301,557 Deferred revenue...................... -- -- 188,000 ------------ ------------ ------------ Cash provided by operating activities..................... 6,229 72,800 105,238 ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES -- Purchase of property and equipment................. (5,825) (45,030) (161,213 ) ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Distributions to shareholders...................... -- -- (22,299 ) Proceeds from issuance of common stock............. 100 -- -- Net proceeds from line of credit................... -- -- 50,000 ------------ ------------ ------------ Cash provided by financing activities..................... 100 -- 27,701 ------------ ------------ ------------ INCREASE (DECREASE) IN CASH.......................... 504 27,770 (28,274 ) CASH AT BEGINNING OF PERIOD.......................... -- 504 28,274 ------------ ------------ ------------ CASH AT END OF PERIOD................................ $ 504 $ 28,274 $ -- ============ ============ ============
See notes to financial statements. 8 9 TECHNICALLY SPEAKING, INC. NOTES TO FINANCIAL STATEMENTS (Information for 1993 and 1994 is Unaudited) 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business -- Technically Speaking, Inc. (the "Company") was incorporated in Massachusetts to engage in the business of computer software and hardware development in the area of telecommunications and other related technical fields. The Company's operating facility is located in Massachusetts, although the Company does business throughout the United States. Agreement and Plan of Merger -- On March 8, 1996, the shareholders entered into an Agreement and Plan of Merger with Brooktrout Technology, Inc. ("BTI") whereby the shareholders agreed to exchange their shares of common stock for shares of common stock of BTI. The transaction is expected to close in May 1996. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Unaudited Financial Statements -- The 1993 and 1994 financial statements are unaudited, but include all adjustments necessary for the fair presentation of the information provided, in the opinion of management. Revenue Recognition -- The Company recognizes revenue from software license sales upon delivery of the software. Revenue from maintenance and support contracts is deferred and recognized as the services are performed. Maintenance and support revenues included with an initial license fee are unbundled and recognized as the services are performed. Concentration of Credit Risk -- The majority of the Company's revenues are from customers in high technology industries, who are not required to provide collateral for amounts owed to the Company. The Company's customers are dispersed over a wide geographic area and are subject to periodic review under the Company's credit policies. Inventory -- Inventory, which consists of finished goods, is carried at the lower of cost or market, determined on a first-in, first-out basis. Property and Equipment -- Property and equipment are recorded at cost and depreciated using the straight-line method over their estimated useful lives. Research and Development and Software Costs -- Research and development costs are expensed as incurred. Costs associated with the development of software are expensed prior to establishing technological feasibility. To date, no development costs have qualified for capitalization. Income Taxes -- The Company and its shareholders have elected to be treated as a Subchapter S corporation under the Internal Revenue Code. As a result, the Company's income is taxed at the shareholder level and no provision is made for income taxes by the Company. Concurrent with the change in ownership described above, this election will terminate and the Company will be subject to income taxes on a prospective basis. Although not subject to income taxes since the Company's income is taxed at the shareholder level, differences have arisen between the reported amounts of assets and liabilities and the related tax bases of these items due to the use of the cash method of accounting for income tax purposes. At December 31, 1994 and 1995, these differences are approximately as follows:
1994 1995 -------- ----------- (UNAUDITED) Accounts receivable......................................... $220,000 $ 1,640,000 Accounts payable and accrued expenses....................... (145,000) (446,000) Deferred revenue............................................ -- (188,000) -------- ----------- Gross temporary differences................................. $ 75,000 $ 1,006,000 ======== =========
9 10 TECHNICALLY SPEAKING, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) Had the Company been subject to income taxes, these temporary differences would have resulted in the recording of deferred tax liabilities of approximately $30,000 and $402,000 at December 31, 1994 and 1995, respectively. Cash Flow Information -- Supplemental disclosure of cash flow information is as follows:
PERIOD ENDED DECEMBER 31, -------------------------- 1993 1994 1995 ------ ------ ------ Cash paid for interest expense............................ $ -- $ -- $3,216
Income Per Common Share -- Income per common share is computed using the weighted average number of common and common equivalent shares outstanding during each period. Common equivalent shares consist of stock options using the treasury stock method. Pro forma income per common share is based upon reported net income adjusted for a pro forma tax charge. Distributions to Stockholders -- The Company's policy is to distribute annually to its shareholders an amount sufficient to pay the income taxes on the Subchapter S income reported on their personal returns. In 1995 and 1996, distributions of $22,299 and $12,000 were made based on 1994 and 1995 Subchapter S income, respectively. No significant tax liability was incurred for 1993 income, therefore, no distribution was required. Use of Estimates -- The preparation of financial statements requires, of necessity, the use of estimates to determine the appropriate carrying value of certain assets and liabilities. Actual results could differ from these estimates. Fair Value of Financial Instruments -- Financial instruments held or used by the Company consist of cash, accounts receivable, accounts payable, and the line of credit. The fair value of these instruments is based on management's estimates as of December 31, 1994 and 1995, which could change if market conditions change. Given the nature of the items considered financial instruments and the variable rate borne by the line of credit, management believes that carrying value approximates fair value for all financial instruments. NEW ACCOUNTING PRONOUNCEMENTS Accounting for Long-Lived Assets -- In 1994, the FASB issued SFAS No. 121, "Accounting for Impairment of Long-Lived Assets and for Assets Held for Sale," which will be effective for fiscal 1996. Adoption is not expected to have a material impact on the Company's financial position. Accounting for Stock Compensation -- In 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation," which is effective in fiscal 1996. SFAS No. 123 prescribes a fair value approach to measuring the compensation element of grants or awards of equity instruments to employees or outsiders. SFAS No. 123 will allow companies to continue to use the intrinsic value methodology provisions of APB 25 for measuring compensation to employees; however, companies are required to use the fair value method to measure compensation to outsiders. The Company has not yet determined the impact of adoption of this accounting pronouncement. 10 11 TECHNICALLY SPEAKING, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 2. PROPERTY AND EQUIPMENT Property and equipment and estimated useful lives consist of the following at September 30:
1995 1994 -------- ------------ (UNAUDITED) Computer and office equipment (5 years).......... $ 5,825 $150,196 Other equipment (7 years)........................ 44,403 42,403 Furniture (7 years).............................. 627 19,469 ------------ -------- Total............................................ 50,855 212,068 Less accumulated depreciation.................... 4,770 27,666 ------------ -------- Property and equipment, net...................... $ 46,085 $184,402 ============ ========
3. COMMON STOCK Stock Option Plan -- The Company's 1995 Stock Plan (the "Plan"), adopted in January 1995, provides for grants of options to purchase up to 200,000 shares of the Company's class B common stock. Grants may be in the form of incentive stock options or nonstatutory options. Exercise prices and vesting periods are determined by the Compensation Committee of the Board of Directors on the date of grant. All grants made under the Plan have been at estimated fair market value, as determined by the Board of Directors. Options generally vest ratably over a four-year period, although all option grants contain acceleration provisions in the event of a change in control of the Company. A summary of activity in the plan is as follows:
NUMBER OF EXERCISE SHARES PRICE ---------- --------- Granted in January 1995 and outstanding at December 31, 1995............................... 2,040 $5.00 =========== ======== Exercisable at December 31, 1995.................. 488 ===========
4. COMMITMENTS The Company leases its office facilities under noncancellable operating leases. The lease contains rent holiday and escalation clauses. Rent expense under the lease is recognized on a straight-line basis. Total rent expense was approximately $4,900, $19,900 and $87,100 for the period from September 1, 1993 to December 31, 1993 and for the years ended December 31, 1994 and 1995, respectively. Future minimum payments under noncancellable leases for years ending December 31 are as follows: 1996........................................................... $145,144 1997........................................................... 214,700 1998........................................................... 233,968 1999........................................................... 235,344 2000........................................................... 238,096 Thereafter..................................................... 79,824
11 12 TECHNICALLY SPEAKING, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 5. SIGNIFICANT CUSTOMERS During the year ended December 31, 1994, one customer represented approximately 33% of the Company's total revenue. During the year ended December 31, 1995, two customers represented 35% and 15% of the Company's total revenue. 6. LINE OF CREDIT On March 16, 1995, a working capital line of credit in the amount of $100,000, collateralized by the assets of the Company, was made available for use by the Company by a bank. At December 31, 1995, there were $50,000 of borrowings outstanding under this facility. Borrowings bear interest at the bank's prime rate plus 1.25% (9.75% at December 31, 1995). In connection with this facility, the Company must meet certain covenants contained in the agreement. Borrowings under the line are collateralized by substantially all of the Company's assets and repayment is guaranteed by the shareholders. 7. EMPLOYEE RETIREMENT PLAN The Company has a 401(k) employee savings plan, established in 1995, which allows employees to defer specified amounts of their compensation on a pretax basis. The Company will contribute $.50 for every $1 contributed by an eligible employee up to a maximum of 6% of that employee's compensation. Company contributions to the plan were $19,900 in 1995. * * * * * * 12 13 TECHNICALLY SPEAKING, INC. UNAUDITED CONDENSED BALANCE SHEET MARCH 31, 1996 (dollars in thousands) Assets: Cash $ 279 Accounts receivable 879 Inventory 36 Prepaid expenses 12 ------ Total current assets 1,206 ------ Property and equipment, net 243 ------ Total assets $1,449 ====== Liabilities and Stockholders' Equity: Line of credit borrowings $ 50 Accounts payable and accrued expenses 169 ------ Total current liabilities 219 ------ Common stock, no par value Retained earnings 1,230 ------ Total stockholders' equity 1,230 ------ Total liabilities and stockholders' equity $1,449 ======
13 14 TECHNICALLY SPEAKING, INC. UNAUDITED CONDENSED INCOME STATEMENTS THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (in thousands, except per share data)
1995 1996 ------ ------ Revenue $ 523 $1,130 Cost and expenses: Cost of product sold 278 358 Research and development 84 176 Selling, general and administrative 239 584 ------ ------ Total cost and expenses 601 1,118 ------ ------ Net income (loss) $ (78) $ 12 ====== ====== Net income (loss) per share $(0.78) $ 0.12 ====== ====== Weighted average common and common equivalent shares outstanding 100 102 ====== ======
14 15 TECHNICALLY SPEAKING, INC. UNAUDITED CONDENSED STATEMENTS OF CASH FLOW THREE MONTHS ENDED MARCH 31, 1995 AND 1996 (dollars in thousands)
1995 1996 ----- ----- Net income (loss) $ (78) $ 12 Adjustments to reconcile to cash provided by (used in) operations: Depreciation and amortization 2 9 Working capital changes 195 332 ----- ----- Cash provided by (used in) operations 119 353 ----- ----- Purchase of property and equipment (16) (62) ----- ----- Distributions to stockholders (22) (12) ----- ----- Increase (decrease) in cash 81 279 Cash, beginning of period 28 - ----- ----- Cash, end of period $ 109 $ 279 ===== =====
15 16 TECHNICALLY SPEAKING, INC. NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS MARCH 31, 1996 1. In the opinion of management, the accompanying interim unaudited financial statements as of March 31, 1996 and the three month periods ended March 31, 1995 and 1996 have been prepared on the same basis as the audited financial statements and include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial position and results of operations of the Company for such periods. 2. Inventory is comprised primarily of finished goods, available for delivery to customers, carried at the lower of cost or market. 16 17 PRO FORMA CONDENSED COMBINING BALANCE SHEET AT MARCH 31, 1996 AND PRO FORMA CONDENSED COMBINING INCOME STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 1996, AND THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993. PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS The following unaudited Pro Forma Condensed Combining Balance Sheet at March 31, 1996 and Pro Forma Condensed Combining Income Statements for the three months ended March 31, 1996 and years ended December 1995, 1994 and 1993 (the "Pro Forma Condensed Combining Financial Statements") illustrate the effect of the Merger as if the Merger had occurred as of the beginning of the earliest period presented. Pursuant to the terms of the Merger, each holder of TSI Common Stock will be entitled to receive shares of Brooktrout Common Stock based on an exchange ratio of 4.6681 shares of Brooktrout Common Stock for each share of TSI Common Stock. The Pro Forma Condensed Combining Balance Sheet combines Brooktrout's March 31, 1996 consolidated balance sheet with TSI's March 31, 1996 balance sheet appearing elsewhere herein. The Pro Forma Condensed Combining Income Statements combine Brooktrout's historical results for the three months ended March 31, 1996 and each of the three fiscal years ended December 31, 1995, 1994 and 1993 with the corresponding TSI results for the three months ended March 31, 1996 and three fiscal years ended December 31, 1995, 1994 and 1993, respectively. The Pro Forma Condensed Combining Income Statements do not give effect to any transaction charges associated with the consummation of the Merger; such costs are reflected in the March 31, 1996 pro forma balance sheet. All such costs are estimated to approximate $1.2 million ($1.0 million, net of related tax effects). The Pro Forma Combining Condensed Financial Statements have been prepared on the basis that the Merger will be accounted for as a pooling of interests. The accompanying pro forma condensed combined financial statements do not purport to be indicative of the results of operations or financial condition that would have been achieved if the Company and TSI had operated as a combined company during the period presented. In addition, the accompanying pro forma condensed combined financial statements do not purport to be indicative of the results of operations or financial condition which may be achieved in the future. The accompanying pro forma condensed combined financial statements have been prepared using the principles and assumptions set forth in the accompanying Notes to Pro Forma Condensed Combining Financial Statements and should be read in conjunction with the consolidated financial statements and notes thereto of the Company incorporated herein by reference and the financial statements and notes thereto of TSI included in Appendix B to this Proxy Statement. 17 18 PRO FORMA CONDENSED COMBINING BALANCE SHEET AS OF MARCH 31, 1996 (IN THOUSANDS, EXCEPT SHARE DATA)
PRO FORMA ----------------------- BROOKTROUT TSI ADJUSTMENTS COMBINED ---------- ------ ----------- -------- Assets: Cash and equivalents $ 14,515 $ 279 $ 14,794 Marketable securities 7,585 7,585 Accounts receivable 4,839 879 5,718 Inventory 4,310 36 4,346 Prepaid expenses and other 966 12 978 -------- -------- -------- Total current assets 32,215 1,206 33,421 -------- -------- -------- Property and equipment, net 2,501 243 2,744 -------- -------- -------- Other assets 574 -- 574 -------- --------- -------- Total assets $ 35,290 $ 1,449 $ 36,739 ======== ======== ======== Liabilities and Stockholders' Equity: Line of credit borrowings $ 50 $ 50 Accounts payable and accrued exp $ 8,683 169 $ 1,200 10,052 -------- -------- -------- Total current liabilities 8,683 219 10,102 -------- -------- -------- Deferred rent 35 35 Common stock 60 5 65 Additional paid in capital 17,153 (5) 17,148 Unrealized gain on marketable securities 14 14 Retained earnings 9,345 1,230 (1,200) 9,375 -------- -------- -------- Total stockholders' equity 26,572 1,230 (1,200) 26,602 -------- -------- -------- Total liabilities and stockholders' equity $ 35,290 $ 1,449 $ 36,739 ======== ======== ========
The accompanying notes are an integral part of these Pro Forma Condensed Combining Financial Statements. 18 19 BROOKTROUT TECHNOLOGY, INC. PRO FORMA CONDENSED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 1996 (in thousands, except per share data)
PRO FORMA ----------------------- BROOKTROUT TSI ADJUSTMENTS COMBINED ---------- ------ ----------- -------- INCOME STATEMENT: Revenues $10,183 $ 1,130 $ (13)(3) $11,300 Cost and expenses: Cost of product sold 4,752 358 (13)(3) 5,097 Research and development 1,380 176 1,556 Selling, general and administrative 2,400 584 2,984 ------- ------- ------- Income from operations 1,651 12 1,663 Other income (expense) 263 -- 263 ------- ------- ------- Income before income taxes 1,914 12 1,926 Income tax provision 760 -- 760 ------- ------- ------- Net income $ 1,154 $ 12 $ 1,166 ======= ======= ======= Net income per share $ 0.18 $ 0.07 $ 0.17 ======= ======= ======= Weighted average number of common and common equivalent shares 6,569 102 7,036 ======= ======= =======
The accompanying notes are an integral part of these Pro Forma Condensed Combining Financial Statements. 19 20 PRO FORMA CONDENSED COMBINING INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1995 (IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA ----------------------- BROOKTROUT TSI ADJUSTMENTS COMBINED ---------- ------ ----------- -------- Revenue........................................ $ 34,392 $4,541 $(260)(7) $38,673 Cost and expenses: Cost of product sold...................... 16,633 1,386 (260)(7) 17,759 Research and development.................. 4,200 622 4,822 Selling, general and administrative....... 7,658 1,486 9,144 ---------- ------ ----------- -------- Total cost and expenses.............. 28,491 3,494 (260) 31,725 ---------- ------ ----------- -------- Income from operations......................... 5,901 1,047 -- 6,948 ---------- ------ ----------- -------- Other income: Interest/other income..................... 952 15 -- 967 Interest expense.......................... (4) (3) (7 ) ---------- ------ -------- Total other income................... 948 12 960 ---------- ------ -------- Income before income tax provision............. 6,849 1,059 7,908 Income tax provision(6)........................ 2,705 -- 2,705 ---------- ------ ----------- -------- Net income..................................... $ 4,144 $1,059 $-- $ 5,203 ========= ====== =========== ========= Net income..................................... $ 4,144 $1,059 $ 5,203 Pro forma tax charge........................... -- 424 424 ---------- ------ -------- Pro forma net income........................... $ 4,144 $ 635 $ 4,779 ========= ====== ========= Pro forma income per common share:............. $ 0.66 $ 6.23 $ 0.71 ========= ====== ========= Weighted average number of common and common equivalent shares outstanding................ 6,243 102 6,718 ========= ====== =========
The accompanying notes are an integral part of these Pro Forma Condensed Combining Financial Statements. 20 21 PRO FORMA CONDENSED COMBINING INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1994 (IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA ------------------------ BROOKTROUT TSI ADJUSTMENTS COMBINED ----------- ------ ------------ --------- Revenue........................................ $23,462 $1,464 $ (38)(7) $24,888 Cost and expenses: Cost of product sold......................... 11,383 710 (38)(7) 12,055 Research and development..................... 3,288 235 3,523 Selling, general and administrative.......... 5,248 438 5,686 ----------- ------ ------------ --------- Total cost and expenses................... 19,919 1,383 (38) 21,264 ----------- ------ ------------ --------- Income from operations......................... 3,543 81 -- 3,624 ----------- ------ ------------ --------- Other income: Interest/other income........................ 600 4 604 Interest expense............................. (10) -- (10) ----------- ------ --------- Total other income........................ 590 4 594 ----------- ------ --------- Income before income tax provision............. 4,133 85 4,218 Income tax provision(6)........................ 1,589 -- 1,589 ----------- ------ ------------ --------- Net income..................................... $ 2,544 $ 85 $ -- $ 2,629 ========== ====== ============ ========== Net income..................................... $ 2,544 $ 85 $ 2,629 Pro forma tax charge........................... -- 34 34 ----------- ------ --------- Pro forma net income........................... $ 2,544 $ 51 $ 2,595 ========== ====== ========== Pro forma income per common share:............. $ 0.42 $ 0.51 $ 0.40 ========== ====== ========== Weighted average number of common and common equivalent shares outstanding................ 6,087 100 6,562 ========== ====== ==========
The accompanying notes are an integral part of these Pro Forma Condensed Combining Financial Statements. 21 22 PRO FORMA CONDENSED COMBINING INCOME STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1993 (IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA BROOKTROUT TSI COMBINED ----------- ---- ---------- Revenue......................................................... $17,729 $331 $ 18,060 Cost and expenses: Cost of product sold.......................................... 8,637 97 8,734 Research and development...................................... 2,501 83 2,584 Selling, general and administrative........................... 4,246 48 4,294 ----------- ---- ---------- Total cost and expenses.................................... 15,384 228 15,612 ----------- ---- ---------- Income from operations.......................................... 2,345 103 2,448 ----------- ---- ---------- Other income: Interest/other income......................................... 494 494 Interest expense.............................................. (14) (14) ----------- ---- ---------- Total other income......................................... 480 -- 480 ----------- ---- ---------- Income before income tax provision and change in accounting principle..................................................... 2,825 103 2,928 Income tax provision(6)......................................... 986 -- 986 ----------- ---- ---------- Income before change in accounting principle.................... 1,839 103 1,942 Change in accounting principle.................................. 337 337 ----------- ---- ---------- Net income...................................................... $ 2,176 $103 $ 2,279 ========== ===== ========== Net income...................................................... $ 2,176 $103 $ 2,279 Pro forma tax charge............................................ -- 42 42 ----------- ---- ---------- Pro forma net income............................................ $ 2,176 $61 $ 2,237 ========== ===== ========== Pro forma income per common share: Before change in accounting principle......................... $0.30 $.61 $0.29 ------- --- ------ ------- --- ------ Net income.................................................... $0.36 $.61 $0.34 ------- --- ------ ------- --- ------ Weighted average number of common and common equivalent shares outstanding................................................... 6,047 100 6,522 ========== ===== ==========
The accompanying notes are an integral part of these Pro Forma Condensed Combining Financial Statements. 22 23 BROOKTROUT TECHNOLOGY, INC. NOTES TO PRO FORMA CONDENSED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 1996 1. See notes to pro forma condensed combining financial statements as of December 31, 1995 and for each of the three years then ended. 2. The pro forma balance sheet at March 31, 1996 includes the effect of approximately $1.2 million in nonrecurring costs expected to be incurred in connection with the Merger. 3. To eliminate intercompany sales and costs of revenue. 23 24 BROOKTROUT TECHNOLOGY, INC. AND TECHNICALLY SPEAKING, INC. NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINING FINANCIAL STATEMENTS 1. The Pro Forma Condensed Combining Financial Statements are presented for illustrative purposes only and do not give effect to any synergies which could be expected to occur due to the integration of Brooktrout's and TSI's operations. Additionally, the Pro Forma Condensed Combining Income Statements exclude (1) the transaction costs related to the Merger and (2) nonrecurring costs and expenses associated with integrating the operations of the businesses. The Pro Forma Condensed Combining Balance Sheet at March 31, 1996 reflects these costs. The nonrecurring cost estimate is preliminary and is therefore subject to change. The transaction costs and other nonrecurring expenses will be charged to operations upon consummation of the merger. The Pro Forma Condensed Combining Financial Statements assume that the Merger qualifies as a "tax-free" reorganization for federal income tax purposes and a "pooling of interests" for accounting purposes. 2. Stockholders' equity as of March 31, 1996 has been adjusted to reflect the issuance of 475,328 shares of Brooktrout Common Stock in exchange for all of the issued and outstanding shares of TSI common stock and options. 3. Pro forma combined net income per share is based on the combined weighted average number of common and common equivalent shares, after adjusting TSI's historical weighted average common shares for the conversion into Brooktrout shares at a ratio of 4.6681. Common equivalent shares consist of common stock issuable upon the exercise of outstanding options and warrants. 4. All intercompany transactions or balances included in the Pro Forma Condensed Combining Financial Statements have been eliminated and no adjustments are required to conform the accounting policies of Brooktrout and TSI. 5. Total costs associated with the Merger are estimated to be approximately $1.2 million. Transaction costs incurred by Brooktrout and TSI include fees to financial advisors, legal, accounting and other related expenses. Nonrecurring costs and expenses associated with integrating the operations of the two companies will be charged against income of the combined company at the consummation of the Merger which is anticipated to occur in May 1996. The Pro Forma Condensed Combining Balance Sheet includes the effect of recording these costs. 6. Brooktrout adopted Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes ("FAS No.109"), effective in 1993. TSI has elected to be treated as a Subchapter S corporation for income tax purposes. Under this election, income is taxed directly to the shareholders. Accordingly, TSI's historical financial statements do not reflect a provision for income taxes. Pro forma income per share reflects tax charges of $452, $34, and $42 in 1995, 1994 and 1993 respectively, to provide taxes on TSI's income for those periods at a 40% effective tax rate. 7. To eliminate intercompany sales and purchases. 24 25 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be filed on its behalf by the undersigned thereunto duly authorized BROOKTROUT TECHNOLOGY, INC. Dated: June 21, 1996 By: /s/ Robert C. Leahy ----------------------- Robert C. Leahy Vice President 25 EX-23.1 2 CONSENT OF DELOITTE & TOUCHE LLP 1 Exhibit 23.1 INDEPENDENT AUDITOR'S CONSENT We consent to the incorporation by reference in Registration Statement No. 33-55708 on Form S-8, and in Registration Statement No. 33-55900 on Form S-8, both of Brooktrout Technology, Inc., of our report dated March 8, 1996 (which expresses an unqualified opinion and includes an explanatory paragraph relating to the merger with Brooktrout Technology, Inc.) on the financial statements of Technically Speaking, Inc. as of December 31, 1995 and for the year then ended, appearing in the Current Report on Form 8-K of Brooktrout Technology, Inc. filed on June 21, 1996. Deloitte & Touche, LLP Boston, Massachusetts June 21, 1996 -----END PRIVACY-ENHANCED MESSAGE-----