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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1996 COMMISSION FILE NUMBER 0-22804
ACTIVE VOICE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
WASHINGTON 91-1235111
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NUMBER)
2901 THIRD AVENUE, SUITE 500 98121-9800
SEATTLE, WASHINGTON (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(206) 441-4700
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Securities registered pursuant to Section 12(b) of the Act
None
Securities registered pursuant to Section 12(g) of the Act
Common Stock, No Par Value
(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 Regulation S-K is not contained herein,
and will not be contained, to the best of the registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K / /.
The aggregate market value of the Common Stock held by
non-affiliates of the registrant, based on the closing price on June
14, 1996, as reported by the Nasdaq Stock Market was $42,008,239. (1)
The number of shares of the registrant's Common Stock outstanding as
of June 14, 1996, was 4,573,028.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's Proxy Statement relating to the
registrant's 1996 Annual Meeting of Stockholders to be held on August 30,
1996, are incorporated by reference into Part III of this Report.
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(1) Excludes shares held of record on that date by directors and officers of the
registrant. Exclusion of such shares should not be construed to indicate that
any such person directly or indirectly possesses the power to direct or cause
the direction of the management of the policies of the registrant.
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TABLE OF CONTENTS
Page
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PART I
Item 1. Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Industry Background . . . . . . . . . . . . . . . . . . . . . . 1
Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Product Technology . . . . . . . . . . . . . . . . . . . . . . . 6
Sales and Marketing . . . . . . . . . . . . . . . . . . . . . . 7
Product Development . . . . . . . . . . . . . . . . . . . . . . 10
Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . 10
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Proprietary Rights . . . . . . . . . . . . . . . . . . . . . . . 11
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . 13
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . 14
Item 4A. Executive Officers of the Registrant . . . . . . . . . . . . . . 14
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . . . . 16
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . 17
Item 8. Financial Statements and Supplementary Data . . . . . . . . . 24
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . . . 37
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . 38
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . 38
Item 12. Security Ownership of Certain Beneficial Owners and Management . 38
Item 13. Certain Relationships and Related Transactions . . . . . . . . . 38
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K . 39
PART I.
ITEM 1. BUSINESS
Active Voice Corporation (Active Voice or the Company) is a leading
provider of PC-based voice processing systems and computer telephone
integration (CTI) products. The Company's software products enable small- to
medium-sized businesses and offices to communicate more effectively by
integrating their traditional office telephone systems with their local area
network (LAN) and desktop PCs and with message servers providing voice mail,
automated attendant, interactive voice response, fax mail, and desktop
PC-based call handling.
Active Voice products are designed to be "people-oriented," with
features that can be readily used without special training or manuals. The
Company's principal products, Repartee, Replay Plus and Replay, incorporate
Active Voice's "1 for yes, 2 for no" user dialogue. The Company's products
use standard, open-architecture PC platforms and operating systems, thereby
facilitating the rapid adoption of new PC-based technologies and reducing
overall product costs. The Company concentrates its development efforts on
software rather than hardware because it believes product value is created most
efficiently by emphasizing software solutions to meet customer needs. During
fiscal 1995, the Company introduced TeLANophy, a set of new CTI products that
offer a subscriber on one of the Company's Repartee systems: (1) the ability
to use a desktop PC on a LAN for real-time control of multiple incoming
and outgoing calls with the drag and drop features of Microsoft Windows, (2)
graphical management of voice mail and facsimile messages, and (3) the ability
to listen and respond to e-mail remotely.
Founded in 1983, the Company was one of the pioneers of PC-based
voice processing. Its initial products were based upon technological
approaches identified at Massachusetts Institute of Technology's Media
Laboratory for Speech and Artificial Intelligence. A central business purpose
of the Company is developing software that empowers people to communicate using
telephones, PCs, the LAN, and the Internet, four of the most fundamental
business tools.
INDUSTRY BACKGROUND
The voice processing industry, like the computer industry, had its
origins in large proprietary systems and has grown to include smaller, more
open systems. Early voice processing systems were based on proprietary
technology, which often could be used only in conjunction with a single type
of private branch exchange (PBX) switch. These systems were designed for
use by large corporations and typically cost several hundred thousand
dollars. By the early 1980s, new market entrants began to develop systems
that were somewhat more affordable, often costing $100,000 or more,
but were still based on proprietary hardware and operating system
architectures. As the processing power of PCs increased and disk storage,
microprocessor and other microcomputer component costs fell, PCs also
became a viable platform for voice processing applications. PC-based
products, utilizing standard, open-architecture platforms and operating
systems, now offer small- to medium-sized businesses and offices the
benefits of many of the same features currently found in large proprietary
systems, but at substantially lower price points ranging from about $3,800 to
$150,000.
According to industry statistics, the domestic market for voice
processing systems comprises more than 35 manufacturers, whose voice
messaging products accounted for aggregate end-user revenues of
approximately $1.9 billion in 1995, compared with about $989
million in 1991. Manufacturers of voice messaging systems include switch
suppliers (such as AT&T, Northern Telecom, Inc. and Rolm Co.); independent
manufacturers of proprietary systems (such as Centigram Communications
Corporation and Octel Communications Corporation); and independent
manufacturers of PC-based, open-architecture systems (such as Active
Voice, Applied Voice Technologies, Inc., Compass Technology, Inc., and
Microlog Corporation). Although sales of the Company's products in 1995
represented only about 5.5% of domestic end-user revenues for voice
messaging systems, the Company ranked third behind only AT&T and
Northern Telecom in total domestic voice
messaging systems shipped, according to industry
statistics. (References in this paragraph, as
-1-
well as elsewhere in this Report, to industry statistics concerning sales
and shipments by the Company and its competitors are based on estimates
compiled relative to the U.S. market by Dataquest Corporation, an
independent research firm specializing in high technology.)
Until recently, voice processing systems had not been widely accepted
in most foreign countries, due to various factors such
as less advanced communications infrastructures, cultural differences and
regulatory requirements. The Company, however, believes that the current
markets in Australia, Japan and much of Western Europe exhibit
characteristics similar to the U.S. voice processing market in the
mid-1980s. In these regions, a few large organizations have installed
voice processing systems, and product inquiries by potential customers and
distributors are increasing. While the Company believes that small- to
medium-sized enterprises in most developed countries have the same needs
for improved telephone communications as in the United States, it is
difficult to predict the rate and extent of future development of demand for
voice processing products in these markets. Although there
are several foreign manufacturers of PC-based and proprietary voice
processing systems, foreign markets are generally not yet as
competitive as the U.S. market.
Voice processing has traditionally encompassed various types of
computer assistance to facilitate interaction over the telephone between a
caller, one or more persons and a computer. With voice processing
technology, telephone users can utilize voice and touch tones to manipulate
calls, interact with computer databases, and access and respond to
messages or data from voice or other electronic media, thereby making
internal and external communications more efficient. The three most common
voice processing features are:
VOICE MAIL -- allows a caller to store voice messages and replies in
a computer, and thereby conduct a dialogue with any person, potentially
anywhere in the world, without having to be on the same line at the same
time. Typical voice mail features include the ability to record, store and
delete messages, and to direct messages to multiple subscribers.
AUTOMATED ATTENDANT -- allows a caller to direct the computer to switch
the call to a telephone extension different from the one dialed, without
the manual intervention of an operator. A typical automated attendant
system gives the caller the option of directing the call to the extension
number of a particular telephone user in the system ("subscriber") or of a
particular department, or holding for a live operator.
INTERACTIVE VOICE RESPONSE (IVR) -- allows a caller to obtain requested
information in voice form from a local or nonlocal database. Examples of IVR
range from simply selecting announcements from a list of options stored
in the computer (also known as AUDIOTEXT) to more complex interactive
exchanges such as querying a database for information.
These basic voice processing functions offer people integrated and
simplified access to various types of communications and information through
the traditional telephone system. Over the past decade, there has been a
proliferation of new methods of business communication, such as facsimile
(fax) and electronic mail (e-mail). At the same time, it has become easier
to access communications through pagers, cellular phones and portable
computers with communications capability. As a result, voice
processing systems can now access and interact with a broad variety of
communications sources offering unified messaging. For example,
text-to-speech and other voice processing technologies permit a subscriber
to hear or send e-mail through touch tones or voice recognition. In
addition, today the telecommunications industry is delivering a wide array
of CTI products. CTI merges data networks and telephones, dramatically
increasing connectivity among the various means of electronic communication
and improving the way people communicate and the way they work. Integration
of telephone based communications with the LAN (also known as the Intranet)
and the Internet are now allowing people to manage their telephone no matter
where they are.
-2-
STRATEGY
The Company's strategy is to develop friendly, easy-to-use, PC-based
voice processing systems and CTI products that offer integrated access to a
broad range of communications with other people and information sources. The
Company's strategy is built around five basic elements:
- - EMPHASIZE SOFTWARE, NOT HARDWARE. The Company concentrates its
development efforts on software rather than on the design or
modification of hardware. The Company believes product value is
created most efficiently by emphasizing software solutions
to meet customer needs.
- - USE STANDARD, OPEN SYSTEMS AND HARDWARE. The Company's products use
standard, open-architecture PC platforms and operating
systems rather than proprietary computer hardware and operating
systems. As a result, the Company can rapidly adopt new
PC-based technologies and thereby leverage the substantial
expenditures made by third parties who develop new technologies
for the general PC environment. The use of commonly available
hardware components and software minimizes the Company's
manufacturing activity and helps reduce the overall cost of its
products.
- - FOCUS ON SMALL- TO MEDIUM-SIZED OFFICES. The Company's products are
designed for use by small- to medium-sized businesses
and offices in a wide range of enterprises, including
manufacturing, retail, service, health-care, governmental and
institutional settings. Since 1986, the Company's products have
offered many of the features commonly available in large,
proprietary voice processing systems, at price points more affordable
to this target market.
- - MAKE PRODUCTS EASY TO USE, INSTALL AND MODIFY. The Company
strives to maximize ease of use for each subscriber, for the
system manager and for the installer. The Company's products are
designed to be "people-oriented," with features that can be
used readily without special training or manuals. For example, a new
user need only know the Company's "1 for yes, 2 for no"
user dialogue to begin immediate use of all features. Other examples
of this product philosophy are the Company's voice mail
prompts that encourage conversation between callers and
subscribers, and its simplified installation screens and menus,
which allow automatic configuration to over 100 different PBX, key
system and Centrex switches and enable the system manager
to tailor features to subscriber needs.
- - MINIMIZE DISTRIBUTION OVERHEAD. The Company achieves broad market
coverage for its products domestically, without the use
of a direct sales force, primarily through a nationwide network of
over 700 independent telephone system dealers, and
through original equipment manufacturers (OEMs). A similar
distribution strategy is being pursued by the Company in foreign
markets. This distribution structure enables the Company to
limitreduce its selling expense overhead, focus its resources on
product development, leverage its sales efforts, and achieve
exposure to the substantial installed customer bases of these
organizations.
PRODUCTS
The Company has three principal products. Its first product,
Repartee, which was introduced in 1986, accounted for approximately 25% of
the Company's revenues in fiscal 1996. In 1991, the Company introduced its
most affordable product, Replay, to segment its target market and appeal to
more price-sensitive, smaller enterprises. Replay accounted for
approximately 15% of the Company's fiscal 1996 revenues. This was followed in
1992 by the introduction of Replay Plus, which was positioned between
Repartee and Replay in terms of price point, features and capacity. Replay
Plus accounted for approximately 40% of the Company's revenues in fiscal
1996. All of these products offer voice mail, automated attendant, audiotext
and fax mail features, and require the assistance of a dealer or other
trained installer to configure them to the end-user's telephone switch and
set up initial greetings, schedules and other subscriber features.
-3-
The remaining 20% of the Company's fiscal 1996 revenues was comprised of
TeLANophy software, vertical market applications, switch integrations, fax
products, replacement hardware and other miscellaneous items.
REPARTEE -- offers the largest call handling capacity of the
Company's products, plus additional features such as fax detect and transfer,
fax mail (the ability to verbally annotate, collect and store faxes),
fax-on-demand (the ability to request that a certain fax be sent to the
caller), call screening, multi-office networking and easy message access.
The Company's CTI products integrate exclusively with Repartee. Repartee
includes a computer screen and keyboard that the installer or system manager
can utilize to tailor features to subscriber needs.
The Company's newly released Large System Platform (LSP) adds
enhanced computing power to Repartee. With up to 60 ports of capacity for
an unlimited number of subscribers, the Large System Platform is advantageous
for larger customers.
REPLAY PLUS -- a mid-priced product that offers most of the features
available on Repartee. Replay Plus is the current platform for the Company's
Hospitality package. Replay Plus also includes a computer screen and keyboard
for tailoring features to subscriber needs.
REPLAY -- a simple "plug and play" voice processing product intended
for small office settings. Its features are correspondingly reduced, which makes
configuration and installation much simpler. Replay does not require a computer
screen or keyboard, and most of the installation is performed by the
end-user. Replay can be integrated with many telephone switches commonly found
in small office settings.
Certain performance and other characteristics of the Company's
principal products are set forth in the following table:
CURRENT MAXIMUM NUMBER OF HOURS OF TYPICAL RETAIL
PRODUCT VERSION SUBSCRIBERS (1) PORTS (2) MESSAGE STORAGE PRICE RANGE (3)
- ------- ------- -------------- --------- --------------- ---------------
Repartee . . . . 7.4 8,000 4 to 60 14 to 500 $12,000-$150,000
Replay Plus . . . 6.6 1,000 2 to 16 18 to 45 $ 7,300-$ 18,000
Replay . . . . . 2.5 100 2 to 6 18 $ 3,500-$ 5,800
(1) Based on the Company's current suggested usage assumptions. The
number of subscribers actually supported may be more or less
depending upon specific customer usage. The Company's products can be
upgraded on site, by increasing the number of ports and disk
drive capacity, to accommodate more subscribers up to the limits shown.
(2) Ports are physical connections of the product to telephone lines.
The number of ports determines the maximum number of telephone calls that
can be managed simultaneously by the voice processing system.
(3) Ranges shown are the Company's estimates based on its observations
of prices commonly quoted by members of its dealer network, exclusive of
maintenance. Prices vary depending upon the size and features of the system
purchased. Additional charges may be added for certain switch integrations.
TELANOPHY -- A suite of CTI products that include client software
installed at the desktop PC and a voice processing server attached to the
LAN. Together, they offer Repartee subscribers: (1) the ability to use a
desktop PC on a LAN for real-time control of multiple incoming and outgoing
calls with the drag and drop feature of Microsoft Windows, (2) graphical
management of voice mail and facsimile messages, and (3) the ability to
listen and respond to e-mail remotely. TeLANophy allows the user to
utilize the mouse and keyboard
-4-
to perform all the functions normally done on the telephone keypad.
ViewCall, ViewMail, ViewFax, E-Mail Integration, and the
recently released ViewCall Plus are modules of TeLANophy.
- - VIEWCALL -- ViewCall is a call control module for TeLANophy. With
ViewCall the user can see incoming calls on the PC screen and manage
multiple calls as they arrive. When Repartee routes a call to an
extension, ViewCall instantly displays information about the call on the
desktop. ViewCall alerts subscribers with visual and audio cues and opens
the call window. Users have the power to take the call, ask the caller to
hold, take a message or transfer calls to a different extension. ViewCall's
monitor feature allows the user to listen to a voice message as it is being
recorded and if desired, retrieve the call from voicemail. ViewCall does
not just display calls; it identifies callers and collects important data
about them. With this information, ViewCall can retrieve records from
Personal Information Managers (PIMSs) and display them on screen
automatically before the call is answered.
- - VIEWMAIL -- ViewMail makes voice and fax messages available on a
desktop PC. Using a Microsoft Windows interface, ViewMail displays the
sender's name, subject and the date and time messages were sent. Messages
are managed with a few clicks of ViewMail's easy-to-use buttons, letting
the user hear, reply, redirect, archive, delete and leave messages, and
rewind, pause and fast forward them during playback. With a sound device
on a multimedia PC, ViewMail allows a user to play and record messages
without picking up the telephone.
- - VIEWFAX -- ViewFax gives a user complete fax handling capabilities.
ViewFax also enables the user to redirect faxes to other subscribers,
managing inbound and outbound faxes from any networked PC. ViewFax works
with the Active Fax module to notify the user, via telephone, when new
faxes arrive, and it also works with the ViewMail module to show the
status of inbound and outbound faxes. Using Print-to-Fax, ViewFax also
integrates with personal database applications, so each user can deliver
faxes to any contact or several contacts at once, in just a few seconds
right from their desktop.
- - E-MAIL INTEGRATION -- The E-Mail Integration package provides 24-hour
two-way access to e-mail without a laptop or modem connection. When
users checks their universal mailbox, the E-Mail Notify/Delivery module
includes e-mail with voice and fax messages. Information is provided about
each message so they can be quickly prioritized. The software also
provides the option of forwarding e-mail to the nearest fax machine. With
the E-Mail Reader module, users can listen to any e-mail message using
text-to-speech conversion, and then record a reply that is sent as a voice
mail message or an e-mail attachment.
- - VIEWCALL PLUS -- ViewCall Plus uses the power of Telephony Application
Programming Interface (TAPI) and Telephony Services Application
Programming Interface (TSAPI) to provide complete control of inbound and
outbound calls with the use of a windows-based mouse. Using the power of
TAPI and TSAPI, ViewCall Plus has three integrated windows: the Telephone
Control window shows the flow of calls to and from the
telephone extension; the Call Log window records all call activity; and
the Contact List window manages data about each caller. Setting
up conference calls is accomplished by dragging and dropping
contacts to the Telephone Control Window. ViewCall Plus prevents callers
from being disconnected or lost during transfer.
OTHER PRODUCTS AND FEATURES -- PhoneMax is the Company's first
stand-alone CTI software product. It provides the power of TeLANophy's
ViewCall Plus on a stand-alone PC without a voice processing system and
without a LAN. It can be used in any size business, by any number of people,
with a TAPI or TSAPI compliant telephone system. Active Fax gives users of
Repartee and Replay Plus complete fax handling capabilities. It includes fax
mail to store incoming faxes electronically and fax-on-demand to let outside
callers retrieve documents from a fax library. To leverage its core product
technology, the Company has also developed a specialized vertical market
application for the lodging and hospitality industry. The Company's
Hospitality Package provides hotel guests with easy, timely and accurate
messaging that is available in several
- 5 -
multilingual guest conversation modules. It increases the efficiency of the
hotel office staff by providing unified messaging and on-screen call
management. Optional features, such as tape backup, disk redundancy and tool
kits, are also offered with Repartee and Replay Plus, and can be configured
by dealers according to a particular end-user's application. In the future,
the Company may develop similar applications for other vertical markets.
The Company does not presently customize its products for dealers or
end users, but does perform limited feature customizations as requested by
certain OEM customers.
PRODUCT TECHNOLOGY
Each of the Company's voice processing products includes the following
principal components: an IBM-compatible PC platform; one or more voice
processing circuitboards (voice boards), which contain signal processors to
compress and digitize voice and detect various tones; and the
Company-designed software. The diagram below illustrates a sample
configuration of a Repartee installation:
(See Appendix 1 for diagram description)
REPARTEE ROUTES INCOMING CALLS TO TELEPHONES VIA THE SWITCH. UNANSWERED
CALLS ARE ROUTED BACK TO VOICE MAIL. FAX CALLS ARE AUTOMATICALLY ROUTED TO A
FAX MACHINE OR SAVED IN FAX MAIL FOR TELEPHONE RETRIEVAL. SUBSCRIBERS CAN
ACCESS BOTH VOICE MAIL AND FAX MAIL FROM ANY EXTENSION OR FROM THE PUBLIC
TELEPHONE NETWORK.
The following diagram illustrates a sample configuration of Repartee
with TeLANophy features:
(See Appendix 2 for diagram description)
BY INSTALLING A NETWORK INTERFACE CARD IN THE REPARTEE/TELANOPHY
SERVER, AND CLIENT SOFTWARE IN THE DESKTOP PC, REPARTEE CAN COMMUNICATE
ACROSS A LAN. REPARTEE SENDS CALLER INFORMATION TO THE DESKTOP PC WHEN
ROUTING INCOMING CALLS. MESSAGES IN VOICE MAIL CAN BE GRAPHICALLY MANAGED
THROUGH A DESKTOP PC AND LISTENED TO VIA TELEPHONE OR A PC SPEAKER.
STORED FAXES CAN ALSO BE VIEWED AT THE DESKTOP. E-MAIL CAN BE LISTENED
TO REMOTELY WITH REPARTEE'S TEXT-TO-SPEECH SYNTHESIZER. VOICE REPLIES CAN
BE RETURNED AS E-MAIL ATTACHMENTS TO THE ORIGINAL SENDER.
- 6 -
The Company has developed software that enables certain of its products
to be integrated with over 100 different PBX, key system and Centrex
telephone switching systems, which the Company believes represent
approximately 90% of the installed switches in the United States.
The following is a list of certain major telephone switching systems with
which the Company's Repartee and Replay Plus products can be integrated:
MANUFACTURER SELECTED SWITCH INTEGRATIONS
AT&T Definity System 75/85, Dimension 400,
Horizon, Merlin II FP2/FP3, System 25
Centrex IAESS, 5ESS, DMS100
Fujitsu Focus 196, Focus Elite, Focus 9600, Starlog (SBCs)
Hitachi HCX5000
Iwatsu ZTD, ADIX
Mitel Panther, SX-50, SX-100/SX-200, SX-200 Digital,
SX-2000
NEC Electra Mark II, NEAX 1400, NEAX 2400, NEAX 2400
with IMG, NEAX 2400 with MMG, NEAX 2400 with SIM,
NEAX 2400 with UMG, Professional I and II
Northern Telecom SL-1, Meridian, Northstar Modular DR3/DR4/DR5
Panasonic 308, 616, 1232, DBS
Premier ESP 816, ESP 1224, ESP 2464, ESP DX, ESP MDX
Rolm CBX 9000 Series, Redwood
Siemens 480, Saturn IIE, SD 192, HCM 200
Telrad 2464
Toshiba DK 24/56/96/280, Perception, Strata VI/XII/XX,
Strata VI/XII/XXE, Strata VI/XII/XXER2
Vodavi Starplus, Starplus Digital
All of the Company's software is written to standard PC hardware and
operating system architecture. Repartee and Replay Plus also conform to Audio
Messaging Interchange Specification (AMIS) networking standards. Replay and
Replay Plus are presently based on the Microsoft DOS operating system. Early
in 1994, Repartee migrated to IBM's OS/2 operating system. The Company is in
the process of developing the use of the Microsoft Windows NT operating
system in its more complex products.
SALES AND MARKETING
The Company achieves broad market coverage for its products through a
variety of wholesale distribution channels, which the Company believes to be
optimal considering the technical knowledge and skill required to sell and
install voice processing products. Domestically, the Company distributes its
products primarily through a nationwide network of over 700 independent
telephone system dealers, and also through OEM arrangements with various
manufacturers of telephone systems and business equipment. While the Company
supports its dealers and OEMs with Company personnel, this distribution
strategy limits the Company's selling expense overhead by largely
avoiding the costs of direct sales, installation and customer support
activities. The Company leverages its sales efforts through its affiliation
with numerous established dealer and OEM sales organizations, thereby
achieving exposure to the substantial installed customer bases of these
organizations. A similar distribution strategy is being pursued for the
Company's foreign sales. The Company has employees engaged in domestic sales,
sales management and dealer or OEM support activities,
- 7 -
has sales representatives in Australia, Canada and the United Kingdom, and
has distribution relationships with dealers, distributors or OEMs in 28
other foreign countries. The following table illustrates the respective
amounts and percentages of the Company's revenues contributed by sales
through each of these channels during the periods shown:
FISCAL YEAR ENDED MARCH 31,
------------------------------------------------------
1996 1995 1994
----------------- --------------- ----------------
(Dollars in thousands)
SALES PERCENT SALES PERCENT SALES PERCENT
Domestic sales:
Dealers $33,081 73.3% $28,275 76.5% $21,403 76.1%
OEMs 5,644 12.5 4,539 12.3 3,637 12.9
------- ----- ------- ----- ------- -----
Subtotal 38,725 85.8 32,814 88.8 25,040 89.0
International
sales: 6,413 14.2 4,136 11.2 3,081 11.0
------- ----- ------- ----- ------- -----
Total $45,138 100.0% $36,950 100.0% $28,121 100.0%
------- ----- ------- ----- ------- -----
------- ----- ------- ----- ------- -----
The Company's marketing effort is focused on small- to
medium-sized businesses, as well as small or local offices of larger
companies. The Company's products are utilized by a broad variety of
enterprises in manufacturing, retail, service, health-care, governmental and
institutional settings. The Company markets its products principally by
attending trade shows and advertising in periodicals oriented toward dealers
and end users.
DOMESTIC DEALER NETWORK
The Company's domestic dealer network consists of over 700
independent telephone system dealers. A typical dealer for the Company's
products is a small business operator who primarily sells telephone systems
to small- and medium-sized businesses and relies upon the Company's products
to augment such sales. Most dealers also handle competing voice processing
products. The Company attempts to maintain relationships with a large number
of dealers and, because of the potential for dealer turnover, considers it
advantageous not to become overly dependent upon a few dealers.
The Company believes that the loyalty of its dealers is dependent upon
maintaining and enhancing the value inherent in its products and the quality
of its dealer support. Dealers are required to attend initial
Company-sponsored training sessions on system usage, installation,
maintenance and customer support. Advanced training is also available on an
ongoing basis. The Company maintains a staff of technical and sales support
personnel who are available to assist dealers, free of charge. The dealer
network is managed by full-time regional and divisional managers, who often
accompany dealers on sales calls and are compensated through a commission
plan based on quarterly quotas.
Since the company began selling TeLANophy systems in April of 1994, it
has been necessary to augment additional training for its dealer network.
Sales and installation of TeLANophy requires both telephony and computer
networking expertise. The greater technical complexity of these products
requires a level of PC and LAN technical knowledge and support capability
that only a small portion of independent telephone system dealers presently
have. The Company provides advanced training for system usage, installation,
maintenance and customer support. In addition, the Company is currently
pioneering the creation of a new channel of distribution for these products,
as evident in the recent strategic agreement with Inacom Corporation, a
technology management services company.
Dealers normally purchase turnkey voice processing systems from the
Company, but may also purchase voice board-and-software kits that
they can combine with PCs of their own selection. Dealers provide
installation and post-sale customer service, and often sell maintenance
contracts along with the
-8-
Company's products. Dealers are subject to agreements with the Company
covering matters such as payment terms, protection of proprietary rights and
nonexclusive sales territories, but these agreements do not restrict the
dealer's ability to carry competing products and are terminable by either
party on short notice.
ORIGINAL EQUIPMENT MANUFACTURERS (OEMs)
The second major channel of distributing the Company's products is through
domestic OEMs, who are typically manufacturers of telephone systems,
including Panasonic Communications and Systems Company, NEC America, Inc.,
Electronic Tele-Communications, Inc., Harris Corporation, Comdial
Corporation, and Inter-Tel Equipment, Inc. The Company has had long term
relationships with a number of these manufacturers, and believes that its OEM
relationships enable it to develop up-to-date switch integrations, with
broader features for the OEM's switches, and to gain early insight into
market trends. In addition, by customizing its products to take advantage of
the unique features of a specific OEM telephone system, the Company is able
to further establish its voice processing systems as the product of choice
for companies wanting to leverage their existing hardware and software
investments.
OEMs generally market the Company's products under their own equipment
name, with their own literature, and through their own sales and technical
support networks. Domestic OEM contracts typically have a term of one or more
years and provide for volume discounts and initial or minimum sales volumes.
INTERNATIONAL SALES
Voice processing systems have only recently
experienced wide acceptance in most foreign countries due
to various factors such as less advanced communications infrastructures,
cultural differences and regulatory requirements. The Company, however,
believes that the current markets in Australia, Japan and much of Western
Europe exhibit characteristics similar to the U.S. market in the mid-1980s.
In these regions, a few large organizations have installed voice processing
systems, and product inquiries by potential customers and distributors are
increasing. Although the Company believes that smaller enterprises in most
developed countries have the same needs for improved telephone communications
as in the United States, it is difficult to predict the rate and extent of
future development of demand for voice processing products in these markets.
The Company believes that alliances with local entities familiar with local
telephone systems and local business conditions are important to
successful penetration of most foreign markets.
The Company's international distribution strategy, like its domestic
strategy, seeks broad market coverage through a variety of wholesale
distribution channels. The Company's products are distributed internationally
through arrangements that differ by country, including dealerships, national
distributorships, and relationships with foreign OEMs (such as NEC
Corporation, Phillips Communications Systems B.V., Crane Telecommunications,
Ltd., and Grupo Delta Delta Telecom). The Company has offices in Australia,
Canada, and the United Kingdom. In addition, the Company's products are
presently sold through dealers or distributors in 28 other countries. The
Company sells its products to international customers through Active Voice
International Corp., a wholly-owned "foreign sales corporation" established
to obtain certain U.S. federal income tax benefits.
Sales of voice processing products in foreign countries often require
additional configuration to adapt to local telephone systems or signal
standards. Conversion to foreign language and local conversation patterns has
historically been performed by the local dealer, distributor or OEM; however,
the Company intends to increase its research and development efforts to
localize its core products. Foreign sales also frequently require governmental
approvals of part or all of the voice processing system, typically relative to
electrical safety and compatibility with local telephone systems and equipment.
To date, component approvals have been obtained primarily by the voice board
manufacturer.
-9-
PRODUCT SUPPORT
The Company's dealers and OEM customers are primarily responsible for
supporting end users who purchase one of the Company's products. The Company
does, however, provide a substantial amount of technical support to its
dealers and OEM customers, at no additional cost to them. The Company
maintains a technical support staff, devoted to dealer and OEM support.
Technical support is available on a toll-free basis 12 hours per day on
weekdays and emergency support is available on weekends and holidays. The
Company also generally provides a limited warranty on elements of its
products, permitting factory returns within 12 months after sale. Although
the Company does not offer maintenance contracts for its systems, dealers
often independently sell maintenance contracts to end users.
PRODUCT DEVELOPMENT
The Company believes that it has numerous product development
opportunities, which it intends to pursue principally through the development
of software, with very little effort or expense devoted to hardware
development or modification. The Company believes that its current products
are competitive with products offered by others in its industry segment.
Nonetheless, it believes that it must continue to make substantial
expenditures on product development in order to maintain its competitive
position. The Company has not to date capitalized any of its software
development costs.
The Company's product development efforts are performed by four engineering
groups. The Enterprise/Server Products group responds to the needs of the high
end offering, Repartee, as well as switch integrations and vertical market
applications. The Small Business Systems group works on solutions for that
segment, specifically, Replay and Replay Plus. The Desktop/Client Products group
concentrates on the TeLANophy products. Advanced Products and Technology focuses
on the development of new products and features that the Company believes will
be important on a three to five year horizon.
Voice processing systems are often considered "mission critical" to an
end-user's business. The importance of incoming business calls, coupled with
the real-time nature of voice processing functions, makes system reliability
an important competitive requirement. A separate staff of engineers is
devoted to product testing and quality assurance. The Company has not in the
past experienced any significant post-release errors or bugs in its products,
but there can be no assurance that such problems will be avoided in the
future, particularly as its products become more complex and sophisticated.
MANUFACTURING
The Company's product strategy emphasizes the development of software as
opposed to hardware, and the use of standard PC-related hardware components
in its products, in part to limit its manufacturing activity. The Company's
manufacturing operations consist primarily of final assembly and
quality-control testing of materials, subassemblies and systems. The Company
does not manufacture or perform significant modifications on any hardware
components, and is therefore dependent upon third-party manufacturers or
vendors of certain critical hardware components such as PCs and circuitboards.
The Company's products incorporate a number of commercially available
application cards, fax boards, voice boards and other circuitboards that enable
integrations with certain telephone switches. Voice boards are available in
quantity from very few domestic suppliers. To date, the Company's products have
incorporated only voice boards manufactured by Dialogic Corporation, primarily
because of the cost and effort required to develop telephone switch integrations
for an alternate voice board. Although Dialogic Corporation has been a reliable
and timely source of voice boards, for strategic reasons the Company is in the
process of developing a second source for voice boards.
-10-
COMPETITION
The voice processing industry in general is highly competitive, and the
Company believes that the competitive pressures it faces are intensifying. The
Company has, however, been successful in this competitive environment in the
past, ranking third behind only AT&T and Northern Telecom in total voice
messaging systems shipped in 1995, according to domestic industry statistics.
The segment of the industry that supplies voice processing systems to
small- and medium-sized businesses and offices is extremely competitive,
having endured intense price competition and pressure on margins in the past
few years. This industry segment has also experienced several recent new
market entrants and consolidations of smaller competitors into larger
entities. In the domestic dealer channel of distribution, product pricing,
system features, ease of use and installation, technical and sales support,
and product reliability are the primary bases of competition. Voice
processing system manufacturers compete intensely for the loyalties and
attention of these independent telephone system dealers. In the domestic OEM
channel, product pricing is important but other factors such as product
quality and reliability, ease of use and OEM support are also significant
competitive factors.
The Company's principal competitors, at present, fall into two categories:
telephone equipment manufacturers that offer their own voice processing
systems, or a private label OEM system not produced by the Company (for
example: AT&T, Northern Telecom, Rolm Corporation and Toshiba
America Information Systems, Inc.); and independent voice processing system
manufacturers whose products integrate with multiple telephone systems and
either are based on proprietary hardware (for example, Centigram
Communications Corporation and Octel Communications Corporation), or are
PC-based, like the Company's products (for example, Applied Voice
Technologies Inc., Microlog Corporation, and Compass Technology, Inc.). The
same principal competitors are encountered in all the Company's distribution
channels, with the addition of Comverse Technology, Inc., a U.S.-based
manufacturer encountered frequently in the European market. The Company's OEM
customers compete with the Company's dealer network for sales to certain
customers. The Company's voice processing systems also compete indirectly
with voice processing services offered by independent service bureaus and
other companies. Such services are offered by most Regional Bell Operating
Companies (RBOCs), which could also become significant direct competitors if
certain existing judicial restrictions on their business activities were to
be relaxed. The Company does not presently have dealer or OEM relationships
with any RBOCs.
The Company has limited patent protection for its products and believes
that patents generally will not impose significant barriers to entry into the
Company's market, especially by companies with established technical
capabilities and market positions in related technologies. The Company
anticipates intensified competition from larger companies having
substantially greater technical, financial and marketing resources than the
Company, as well as larger customer bases and greater name recognition than
the Company. As the Company's products evolve to further integrate telephones
with PCs, the Company anticipates that it will encounter a broader variety of
competitors, including new entrants from related computer and communications
industries, and added competition as it seeks to augment its distribution
network to include more dealers with PC and LAN expertise.
PROPRIETARY RIGHTS
The Company holds four patents (expiring 2008 to 2012) relating to: (1)
detection of telephone signaling tones; (2) detection of stutter tones for
CO-based voice mail; (3) method and apparatus for processing a live incoming
call in a communication system; and (4) configurable telephone interface for
electronic devices. In general, however, the Company has limited patent
protection for its products. While the Company's success will depend in part
upon its ability to protect its technology, the Company believes that
technological expertise, innovation and product value are more critical to its
success. The Company has copyrights on elements of its products, and also
attempts to protect its software through a trade secrets program that involves,
among other things, using various forms of copy protection in its systems and
obtaining confidentiality agreements. The Company cannot guarantee that its
-11-
efforts to protect its intellectual property will be effective to prevent
misappropriation, reverse engineering or independent development by
competitors.
In the course of its product development efforts, the Company from time to
time identifies certain technologies owned by third parties that either would
be useful to incorporate in its products or are necessary in order to remain
competitive in light of industry trends. In these cases, the Company has in
the past sought to obtain licenses of such third-party technologies. The
Company expects that it will continue to find it desirable or necessary to
obtain additional technology licenses from third parties in the future, but
there can be no assurance that any particular license will be available at
all, or on acceptable terms, at any future time.
The voice processing industry is characterized by rapid technological
change, with frequent new product and feature introductions. As a result,
industry participants often find it necessary to develop products and
features similar to those introduced by others, with incomplete knowledge of
whether patent protection may have been applied for or may ultimately be
obtained by competitors or others. The voice processing industry has
historically witnessed numerous allegations of patent infringement among
competitors, and considerable related litigation. The Company itself had
received claims of patent infringement from several parties, including
certain competitors, such as Dytel Corporation (a subsidiary of Syntellect
Inc.) and VMX, Inc., (a subsidiary of Octel Communications Corporation), both
of whom have since licensed patented technology to the Company. Although the
Company's investigation of some of these claims has been limited by the
claims' lack of specificity, by the limited availability of factual
information and documentation related to the claims and by the expense of
pursuing exhaustive patent reviews, the Company believes, based in part upon
its investigations and upon discussions and correspondence with its patent
counsel, that its systems do not currently infringe valid patents of any of
such claimants. In response to prior infringement claims, the Company has
pursued and obtained nonexclusive licenses entitling the Company to utilize
certain fundamental patented voice mail and automated attendant functions
that are widely licensed and used in the voice processing industry. These
licenses expire upon expiration of the underlying patents. Although the
Company believes that it currently owns or has adequate rights to utilize all
material technologies relating to its products, as it continues to develop
new products and features in the future, it anticipates that it may receive
additional claims of patent infringement. Such claims could result in the
Company's incurring substantial legal expenses and being required to obtain
licenses, pay damages for infringement, or cease offering products that
infringe such patents.
Active Voice, Repartee, Replay Plus, Replay, TeLANophy, ViewMail,
ViewCall, ViewCall Plus, and Resource are registered trademarks, and ViewFax,
E-Mail Reader, PhoneMax and ActiveNet are trademarks of Active Voice. All
other trademarks used herein are the property of their respective owners. The
names of the Company and its products are also protected or sought to be
protected to varying degrees by filings in various foreign countries.
EMPLOYEES
At March 31, 1996, the Company had 213 full-time employees, including 24
in finance and administration, 19 in manufacturing, 71 in engineering and
product development, and 99 in sales, marketing and technical support, as
well as 19 part-time employees. Company employees enter into agreements
containing confidentiality restrictions, as well as provisions relative to
noncompetition during employment with the Company and for six months after
termination. The Company has never had a work stoppage and no employees are
represented by a labor organization. The Company considers its employee
relations to be good.
-12-
ITEM 2. PROPERTIES
The Company's headquarters and administrative, engineering, manufacturing
and marketing operations are located in leased space in Seattle, Washington
under a lease expiring in June 2002, which the Company has a right to renew
for two additional five-year periods. Sales offices in Melbourne, Australia
and London, England are located in leased facilities under leases expiring in
August 1997 and September 2000, respectively. The Company believes that these
facilities are adequate to meet its current needs and that suitable
additional or alternative space will be available as needed in the future on
commercially reasonable terms. See Note 7 of Notes to Consolidated Financial
Statements.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings.
-13-
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are elected annually at the
meeting of the Board of Directors held in conjunction with the annual
meeting of stockholders. The following are the current executive officers of
the Company:
NAME AGE POSITION
- ---------------------------- --- -------------------------------------
Robert L. Richmond 45 Chief Executive Officer and
Chairman of the Board
Robert C. Greco 41 Vice President -- Product Development,
Secretary, Treasurer and Director
Douglass S. Anderson 46 Vice President -- Sales and Marketing
Jose S. David 39 Chief Financial Officer
ROBERT L. RICHMOND, a co-founder of the Company, has been Chief
Executive Officer and Chairman of the Board of the Company since its
inception in 1983. From 1971 to 1980, Mr. Richmond was a consultant, and from
1980 to 1983 he was a project manager for Intermetrics Incorporated, a public
software company, performing software validation for NASA and The Boeing
Company, and creating new products for the airline industry. Mr. Richmond
holds a Bachelor of Computer Science and Engineering from Massachusetts
Institute of Technology.
ROBERT C. GRECO, a co-founder of the Company, has been a director and
Vice President--Product Development of the Company since its inception in
1983. from 1977 to 1983, Mr. Greco worked as an independent software
consultant for such firms as The Boeing Company, Scandinavian airlines System
(Denmark) and General Electric Company. Mr. Greco holds a Bachelor of Arts,
Mathematics, from City University of New York, and a Masters of Science,
General Systems Science, from the State University of New York. Mr. Greco was
a director of the Washington Software Association from 1992 to 1994.
DOUGLASS S. ANDERSON joined the Company in 1989 as National Sales
Manager and was appointed Vice President--Sales and Marketing on July 1,
1995. Mr. Anderson was Vice President--Sales and Marketing at Automation
Electronics Corporation between 1986 and 1989. Prior to that, he served as
Western Regional Sales Manager for Code-A-Phone. Mr. Anderson holds a
Bachelor of Science in Marketing from the University of Southern California
and a Master of Business Administration from Arizona State University.
JOSE S. DAVID joined the Company in 1989 as its Controller and Manager
of Operations and was named Chief Financial Officer in July 1992. From 1984 to
1989, Mr. David was Manager of Finance for Wang Laboratories, Inc., a
computer manufacturer. Prior to that, he was employed by Price Waterhouse, an
independent public accounting firm. Mr. David is a Certified Public
Accountant and holds a Bachelor of Arts in Business Administration,
Accounting, from the University of Washington.
- 14 -
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
QUARTERLY FINANCIAL DATA AND MARKET INFORMATION (UNAUDITED)
First Second Third Fourth
Year ended March 31, 1996 Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------------------------------------
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
Net sales $10,407 $11,292 $12,437 $11,002
Gross profit 6,606 7,221 7,714 6,579
Research and development expense 1,232 1,322 1,462 1,690
Sales and marketing expense 2,486 2,720 3,094 3,191
General and administrative expense 957 1,127 1,093 875
Operating income 1,931 2,053 2,066 821
Net income 1,428 1,522 1,543 669
Net income per common share $0.31 $0.33 $0.33 $0.14
Shares used in per share calculations 4,629 4,654 4,652 4,639
Stock price range
High $29.50 $33.00 $30.50 $28.50
Low $24.50 $25.75 $24.25 $11.00
First Second Third Fourth
Year ended March 31, 1995 Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------------------------------------
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
Net sales $8,274 $8,735 $9,917 $10,024
Gross profit 5,431 5,724 6,380 6,475
Research and development expense 973 1,016 1,125 1,249
Sales and marketing expense 2,055 2,186 2,462 2,439
General and administrative expense 884 918 930 930
Operating income 1,520 1,605 1,863 1,858
Net income 1,142 1,199 1,386 1,383
Net income per common share $0.25 $0.26 $0.30 $0.30
Shares used in per share calculations 4,634 4,599 4,579 4,602
Stock price range
High $22.25 $22.25 $23.00 $28.25
Low $17.00 $16.00 $19.50 $20.25
The stock price range reflects the range of trading prices for
each period, as reported by the Nasdaq Stock Market. The Company has not
paid cash dividends on its Common Stock. At present, the Company intends
to retain earnings for the expansion of its business and does not
anticipate declaring a cash dividend in the near future. As of March 31,
1996, there were approximately 100 stockholders of record.
- 15 -
ITEM 6. SELECTED FINANCIAL DATA
YEAR ENDED MARCH 31, 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF INCOME DATA
Net sales $ 45,138 $ 36,950 $ 28,121 $ 18,548 $14,309
Operating income 6,871 6,845 4,984 2,187 1,964
Net income 5,162 5,110 3,579 1,587 1,450
Net income per common share $ 1.11 $ 1.11 $ 0.88 $ 0.42 $ 0.38
Average number of common and
common equivalent shares outstanding 4,644 4,603 4,062 3,778 3,816
BALANCE SHEET DATA
Working capital $ 20,912 $ 12,147 $ 10,409 $ 6,220 $ 5,027
Total assets 37,400 28,698 25,411 10,768 7,738
Total debt 0 0 0 0 0
Series A Convertible preferred stock 0 0 0 3,965 3,965
Total stockholders' equity $ 31,797 $ 25,450 $ 20,943 $ 3,404 $ 2,025
- 16 -
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
NET SALES
1996 Change 1995 Change 1994
- ------------------------------------------------------------------------------------------
Dollars in thousands)
Net sales $45,138 22.2% $36,950 31.4% $28,121
- ------------------------------------------------------------------------------------------
FISCAL 1996 COMPARED TO FISCAL 1995
Net sales to the Company's domestic dealer network increased 17.0%
during the year ended March 31, 1996, reflecting continued increased customer
demand for PC-based voice processing systems. Net sales to the domestic
dealer network represented 73.3% and 76.5% of total net sales in the years
ended March 31, 1996 and 1995, respectively. Of the aggregate increase in net
sales to the domestic dealer channel, approximately 30% was attributable to
increased unit sales of Replay, partially offset by lower average selling
prices of the systems (during the third quarter of fiscal 1996, the Company
announced a 25% reduction in the selling price of the Replay product line.)
In addition, approximately 25% of the aggregate increase in net sales to the
domestic dealer network was attributable to increased unit sales of Replay
Plus systems, and approximately 25% was attributable to increased sales of
TeLANophy software, hospitality and fax products and switch integration
packages. During the year ended March 31, 1996, the Company added
approximately 170 new dealers to its domestic distribution channel and
expanded its domestic sales force by approximately 10% to support them.
Net sales to original equipment manufacturers (OEMs) increased by 24.3%
during the year ended March 31, 1996. Net sales to OEM customers represented
12.5% of total net sales for the year ended March 31, 1996, compared to 12.3%
of total net sales for the year ended March 31, 1995. The aggregate increase
in net sales in the OEM channel was principally attributable to an
approximately 300% increase in unit sales of Replay, primarily to a single
new OEM customer. The increase in unit sales of Replay was partially offset
by a decline in unit sales of Repartee kits, particularly during the fourth
quarter of fiscal 1996, as the Company's largest OEM customer, Comdial,
purchased the manufacturer of a competing product line. As of March 31, 1996,
the Company had six domestic OEM relationships. The largest OEM customer
accounted for approximately 43% of total OEM sales, and approximately 5% of
total Company sales during fiscal 1996, which declined from prior year
amounts.
Net sales to international customers increased by 55.1% during the year
ended March 31, 1996, reflecting increased penetration of international voice
mail markets and the successful launch of new products for international OEM
customers. International sales represented 14.2% of total net sales for the
year ended March 31, 1996, compared to 11.2% of total net sales for the prior
year. Approximately 50% of the aggregate increase was due to increased unit
sales of Replay Plus. An additional 15% of the aggregate increase in net
sales to international customers was attributable to Repartee kits, due to
both increased unit sales and a shift to larger average port sizes. During
fiscal 1996, the Company significantly expanded its UK operations and signed
an agreement with Crane Telecommunications Ltd. to provide a fully integrated
voice processing system for the growing British market. In January 1996, the
Company announced an OEM agreement with Grupo Delta of Mexico whereby the
entire line of Active Voice products will be marketed under the Grupo Delta
label. Beyond the usual risks associated with foreign sales (currency
fluctuations and restrictions; export-import regulations; customs matters;
foreign collection problems; and military, political and transportation
risks), the Company's international sales involve additional governmental
regulation, product adaptations to local languages and switching systems, and
uncertainties arising from local business practices and cultural
considerations.
- 17 -
During fiscal 1996, revenue from TeLANophy was not significant
(less than 5%); however, the Company experienced growing demand for TeLANophy
systems during the last six months of the fiscal year. Sales and installation
of TeLANophy requires both telephony and computer networking expertise. The
Company is pioneering the creation of a new channel of distribution for these
products.
The Company experiences significant quarterly variability in the
level of sales through its three distinct distribution channels. The
diversification provided by these three channels has in the past reduced the
quarterly volatility of aggregate net sales.
FISCAL 1995 COMPARED TO FISCAL 1994
Net sales to the Company's domestic dealer network increased 32.1%
between 1994 and 1995, reflecting continued increased customer demand for
PC-based voice processing systems. Of the aggregate increase in net sales,
approximately 40% was attributable to increased unit sales of Replay Plus,
approximately 30% was attributable to increased unit sales of Repartee
systems, and approximately 20% was attributable to increased unit sales of
Replay. During the year ended March 31, 1995, the Company added approximately
140 new dealers to its domestic distribution channel and expanded its
domestic sales force by approximately 25% to support them. Increased
productivity of the individual regional sales managers resulted in sales
growth exceeding the growth in sales personnel.
Net sales to OEMs increased by 24.8% during the year ended March
31, 1995. Of the aggregate increase in net sales, approximately 85% was
attributable to increased unit sales of Repartee kits. As of March 31, 1995,
the Company had six domestic OEM relationships. The largest OEM customer
accounted for approximately 66% of total OEM sales, and approximately 8% of
total Company sales during fiscal 1995, which were comparable to prior year
amounts. In December 1994, Active Voice signed an agreement with the
Corporate Networks Group of NEC America, Inc. (NEC America), allowing NEC
America to market and distribute the full line of Active Voice products
through the NEC America Associate Network of dealers. The two companies have
also jointly developed a proprietary digital voice processing system for the
Electra Professional telephone system that NEC America markets under the
trade name ElectraMail.
Net sales to international customers increased by 34.2% during the
year ended March 31, 1995, reflecting increasing penetration of existing
international voice mail markets as well as entry into new regions.
Approximately 60% of the aggregate increase was due to increased unit sales
of Repartee Systems. International sales represented 11.2% of total net sales
for the year ended March 31, 1995, compared to 11.0% of total net sales for
the prior year. International sales during fiscal 1994 included an initial
inventory stocking order for NEC Corporation (NEC), an international OEM
customer, without which international sales would have represented 8.7% of
net sales. During fiscal 1995, Active Voice established two joint ventures
to market its products in China and in Belgium, the Netherlands, Luxembourg,
Germany and France. During December 1994, Active Voice announced that it had
signed an agreement with Philips Communications Systems B.V. (Philips) of
Eindhoven, the Netherlands, under which Philips markets and distributes
Active Voice products in 22 countries where Philips' full line of PBX and
telephone key systems are sold. The jointly engineered products began
shipping in April 1995.
During fiscal 1995, Active Voice introduced the first modules of
TeLANophy, the Company's local area network (LAN) product. Revenue from
TeLANophy was not significant during fiscal 1995.
-18-
GROSS MARGIN
1996 Change 1995 Change 1994
- -----------------------------------------------------------------------------------------
(Dollars in thousands)
Gross profit $28,120 17.1% $24,011 27.1% $18,894
Percentage of net sales 62.3% 65.0% 67.2%
- -----------------------------------------------------------------------------------------
The Company's gross margin varies in part depending upon the mix
of higher-margin voice board-and-software kit sales (an option available only
with Repartee and Replay) and software-only sales (available only to OEM
customers) as opposed to turnkey system sales. The proportion of sales
contributed from each distribution channel also affects the overall gross
margin, as OEM and International sales historically have had higher gross
margins than sales to the domestic dealer network.
FISCAL 1996 COMPARED TO FISCAL 1995
The most significant factor contributing to the decline in gross
margin between fiscal 1996 and 1995 was a shift in the sales mix to the lower
margin Replay product line. A 25% price reduction on Replay implemented
during the third quarter of fiscal 1996 contributed to the shift in sales mix
and reduced the gross margin on Replay units. During the third quarter of
fiscal 1996, the Company made a large one-time sale to a new customer which
was replacing unsatisfactory competing products at its own end-user sites.
The sale was competitively priced to introduce Active Voice products to the
new customer and encourage a long-term relationship. The competitive pricing
also contributed to the decline in gross margin. Other factors leading to the
decrease in gross margin were a reduction in unit sales of OEM kits, as
discussed under "Net Sales", price promotion on the TeLANophy product line
and usage of higher quality PC platforms with increased memory capacity.
Offsetting the decline in gross margin was an increase in the percentage of
net sales to the higher margin international sales channel and increased
sales of high margin TeLANophy and fax-related software. Management expects
that gross margins will continue to decline steadily as a result of price
competition and further shifts in product mix.
FISCAL 1995 COMPARED TO FISCAL 1994
The decrease in gross margin between fiscal 1994 and fiscal 1995
was attributable to a competitive marketplace, shifts in product mix within
sales channels, and increasing PC memory requirements. In the domestic dealer
distribution channel, gross margin was negatively impacted both by a shift
from Repartee kits to lower-margin Repartee systems and by higher unit sales
of the lower-margin Replay product. Inventory stocking sales of high-margin
software-only product to an international OEM customer reduced the decline in
gross margin during fiscal 1994.
RESEARCH AND DEVELOPMENT
GROSS MARGIN
1996 Change 1995 Change 1994
- -----------------------------------------------------------------------------------------
(Dollars in thousands)
Research and development $5,706 30.8% $4,363 40.4% $3,107
Percentage of net sales 12.6% 11.8% 11.1%
- -----------------------------------------------------------------------------------------
FISCAL 1996 COMPARED TO FISCAL 1995
The increase in research and development expenses, both in dollar
amount and as a percentage of net sales between comparable periods, was
primarily attributable to an increase of approximately 25% in engineering and
development personnel. The increase in personnel was primarily due to the
Company's effort to localize products for new international markets, as well
as customization of products for new OEM customers, and increasing emphasis
on developing new products, particularly CTI-related products. During
-19-
fiscal 1996, the Company announced several significant product releases
including a new fault-tolerant Large System Platform (LSP) with hot-swappable
components and the ability to handle up to 60 ports of voice processing;
E-Mail Integration which provides access to e-mail messages by telephone and
fax; and PhoneMax which provides incoming and outgoing call management and
the ability to set up conference calls using the drag and drop features of a
Windows-based desktop PC.
During fiscal 1996, the Company announced its intention to
allocate additional resources to the development of products for the
international market. The Company believes that the international market has
significant growth opportunities but that localization of its products will
be necessary to successfully penetrate the world market for voice processing
equipment. The Company also believes that in order to remain competitive in a
rapidly changing technological environment, it will continue to be necessary
to allocate significant resources to the development of new products. The
Company expects the dollar amount of research and development expenditures to
continue to increase for the foreseeable future, and that these expenses as a
percentage of sales will vary from period to period.
FISCAL 1995 COMPARED TO FISCAL 1994
The increase in research and development expenses, both in dollar
amount and as a percentage of net sales between comparable periods, was
primarily attributable to an increase in engineering and development
personnel, which grew from 50 at March 31, 1994 to 73 at March 31, 1995, and
related expenses for project-based contract development staff. The increase
in personnel was attributable to the Company's effort to complete and release
two additional TeLANophy modules, localization of products for international
markets, customization of products for newly signed OEM customers, and
increasing emphasis on developing new products and adding customer requested
features to existing products.
SALES AND MARKETING
1996 Change 1995 Change 1994
- -----------------------------------------------------------------------------------------
(Dollars in thousands)
Sales and marketing $11,491 25.7% $9,142 19.9% $7,627
Percentage of net sales 25.5% 24.7% 27.1%
- -----------------------------------------------------------------------------------------
FISCAL 1996 COMPARED TO FISCAL 1995
Approximately 45% of the aggregate increase in sales and marketing
expenses was due to increased compensation-related expenses associated with
approximately 25% growth in sales and marketing personnel and increased
commission expense due to higher sales levels. Of the total increase in sales
and marketing personnel, approximately one-half represented additional
international and domestic sales representatives and approximately one-half
represented additional support personnel directly associated with service to
the Company's growing base of independent dealers. An additional 20% of the
aggregate increase in sales and marketing expenses was attributable to added
promotional and advertising costs, including trade show-related expenses and
associated travel costs. Sales and marketing expense as a percentage of net
sales increased during fiscal 1996 as growth in personnel exceeded growth in
net sales due to lower than anticipated revenues in the fourth quarter.
FISCAL 1995 COMPARED TO FISCAL 1994
Approximately 45% of the aggregate increase in sales and marketing
expenses was due to increased compensation-related expenses associated with
the growth in sales and marketing personnel from 65 at March 31, 1994 to 84
at March 31, 1995. During fiscal year 1995, the Company doubled the number of
employees associated with its international sales efforts and added six new
domestic regional sales managers. These additions accounted for more than
two-thirds of the increase in sales and marketing personnel. Approximately
-20-
20% of the aggregate increase was attributable to added promotional costs,
including advertising and trade show-related expenses, including related
travel costs. Sales and marketing expense as a percentage of net sales
decreased during fiscal 1995 due to leveraging fixed sales and marketing
expenses over a growing revenue base.
GENERAL AND ADMINISTRATIVE
1996 Change 1995 Change 1994
- -----------------------------------------------------------------------------------------
(Dollars in thousands)
General and administrative $4,052 10.7% $3,661 15.3% $3,175
Percentage of net sales 9.0% 9.9% 11.3%
- -----------------------------------------------------------------------------------------
FISCAL 1996 COMPARED TO FISCAL 1995
Of the aggregate increase in general and administrative expenses
during the year ended March 31, 1996, approximately 70% was attributable to
higher compensation-related expenses due to an approximate 25% increase in
administrative personnel. General and administrative expenses, being
relatively fixed in nature, decreased as a percentage of net sales due to the
Company's ability to leverage these costs over a growing revenue base.
FISCAL 1995 COMPARED TO FISCAL 1994
Approximately 60% of the increase in general and administrative
expenses during fiscal year 1995 was due to increased compensation-related
expenses primarily associated with the increase in general and administrative
personnel from 32 at March 31, 1994 to 38 at March 31, 1995. An additional
25% of the increase was attributable to added costs associated with SEC
reporting and compliance.
INTEREST INCOME
1996 Change 1995 Change 1994
- -----------------------------------------------------------------------------------------
(Dollars in thousands)
Interest income $701 31.3% $534 163.1% $203
- -----------------------------------------------------------------------------------------
FISCAL 1996 COMPARED TO FISCAL 1995
Interest income increased during fiscal 1996 primarily due to
higher average cash and marketable security balances and to a lesser extent,
higher average yields earned on investments. The increase in cash and
marketable security balances was due to positive cash flow generated from
operations.
FISCAL 1995 COMPARED TO FISCAL 1994
The increase in interest income during fiscal year 1995 was
primarily attributable to higher average cash and marketable securities
balances and, to a lesser extent, increasing interest rates. Proceeds from
the Company's initial public stock offering were available for investment
during all of fiscal 1995, compared to the last three and one-half months of
fiscal 1994.
-21-
INCOME TAX PROVISION
1996 Change 1995 Change 1994
- -----------------------------------------------------------------------------------------
(Dollars in thousands)
Income tax provision $2,410 6.2% $2,269 41.1% $1,608
Effective tax rate 31.8% 30.7% 31.0%
- -----------------------------------------------------------------------------------------
Variations in the customary relationship between the income tax
provision and the statutory income tax rate of 34% result from certain
nondeductible expenses, tax exempt investment income, research and
development tax credits, and the benefit provided by the Company's foreign
sales corporation. The Company expects the effective tax rate to increase in
the future due to the impact of declining research and development tax
credits, tax exempt interest income, and foreign sales corporation benefits
as a percentage of taxable income.
FISCAL 1996 COMPARED TO FISCAL 1995
The Company's effective tax rate for fiscal 1996 increased to
31.8% from 30.7% in fiscal 1995. The increase in the effective tax rate was
primarily attributable to the expiration of the research and development tax
credit in June 1995, partially offset by increased tax exempt income from
municipal securities.
FISCAL 1995 COMPARED TO FISCAL 1994
The Company's effective tax rate for fiscal 1995 decreased
marginally to 30.7% from 31.0% in fiscal 1994. The decrease in the effective
tax rate was primarily attributable to a significant increase in tax exempt
interest income, offset by declines in the research and development tax
credit, and foreign sales corporation benefit as a percentage of taxable
income.
NET INCOME AND NET INCOME PER COMMON SHARE
1996 Change 1995 Change 1994
- -----------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)
Net income $5,162 1.0% $5,110 42.8% $3,579
Percentage of net sales 11.4% 13.8% 12.7%
Net income per common share $1.11 0.0% $1.11 26.1% $0.88
- -----------------------------------------------------------------------------------------
FISCAL 1996 COMPARED TO FISCAL 1995
Net Income and net income per common share for the year ended
March 31, 1996 remained essentially even with the prior year despite a 22%
increase in net sales. The decline in net income as a percentage of net sales
was primarily attributable to lower than anticipated revenues in the fourth
quarter, as previously discussed, coupled with a 2.7% decline in gross margin
and gradually increasing operating expenses during fiscal 1996.
FISCAL 1995 COMPARED TO FISCAL 1994
The increase in net income during fiscal 1995 over fiscal 1994,
both in dollar amount and as a percentage of net sales, was primarily
attributable to the Company's ability to leverage its fixed selling, general
and administrative costs over a growing revenue base. The percentage increase
in net income per common share lagged behind the percentage increase in net
income due to an increase of approximately 13% in the number of common and
common equivalent shares outstanding. The increase in outstanding shares was
primarily attributable to the 700,000 shares sold in the Company's December
1993 initial public offering
-22-
being outstanding during all of fiscal 1995, partially offset by the
Company's repurchase of 112,500 shares of common stock during August 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents, and marketable securities
increased to $19,068,000, or 51.0% of total assets, at March 31, 1996 from
$15,109,000, or 52.6% of total assets, at March 31, 1995. The Company had net
working capital of $20,912,000 at March 31, 1996.
Accounts receivable, net of allowances, increased to $8,628,000 at
March 31, 1996 from $6,461,000 at March 31, 1995, due to higher sales levels
and an approximate increase of 5% in days sales outstanding. Inventory levels
increased to $5,483,000 at March 31, 1996 from $3,430,000 at March 31, 1995
to meet the increasing raw material stocking requirements due to a
growing sales base and increased number of hardware platform options.
The Company made $1,130,000 in capital expenditures during fiscal 1996,
compared to $1,408,000 during fiscal 1995. The majority of the capital
expenditures during fiscal 1996 consisted of computer equipment and related
hardware for new employees, and expansion of the Company's research
laboratories. The Company currently has no specific commitments with respect
to additional capital expenditures during fiscal 1997, but expects to spend
an aggregate of approximately $1,200,000 for the year.
The Company has a $10,000,000 revolving credit line from a bank for
financing working capital. No borrowings were outstanding under this
agreement during fiscal 1996 or 1995. The agreement expires on September 30,
1996.
The Company believes that ongoing maturity of securities in its
investment portfolio, together with funds from operations and the revolving
credit line, will provide sufficient funds to finance operations for the next
several years.
CERTAIN STATEMENTS IN THIS ANNUAL REPORT CONTAIN "FORWARD LOOKING"
INFORMATION (AS DEFINED IN THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995) THAT INVOLVE RISKS AND UNCERTAINTIES, INCLUDING WITHOUT LIMITATION,
PROJECTIONS FOR SALES AND EXPENDITURES, AND VARIOUS BUSINESS ENVIRONMENT AND
TREND PROJECTIONS. ACTUAL FUTURE RESULTS AND TRENDS MAY DIFFER MATERIALLY
DEPENDING ON A VARIETY OF FACTORS, INCLUDING, BUT NOT LIMITED TO, THE RISKS
DISCUSSED IN DOCUMENTS FILED BY THE COMPANY WITH THE SECURITIES AND EXCHANGE
COMMISSION.
- 23 -
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ACTIVE VOICE CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Year Ended March 31,
-----------------------------------------------------
1996 1995 1994
----------- ----------- -----------
Net sales $45,138,163 $36,949,635 $28,121,000
Cost of goods sold 17,018,072 12,939,000 9,227,410
----------- ----------- -----------
Gross profit 28,120,091 24,010,635 18,893,590
Operating expenses:
Research and development 5,706,412 4,363,202 3,107,372
Sales and marketing 11,490,892 9,141,864 7,626,881
General and administrative 4,051,708 3,661,004 3,175,134
----------- ----------- -----------
Total operating expenses 21,249,012 17,166,070 13,909,387
----------- ----------- -----------
Operating income 6,871,079 6,844,565 4,984,203
Interest income 700,863 533,892 202,873
----------- ----------- -----------
Income before income taxes 7,571,942 7,378,457 5,187,076
Income tax provision 2,410,028 2,268,732 1,607,929
----------- ----------- -----------
Net income $5,161,914 $5,109,725 $3,579,147
----------- ----------- -----------
----------- ----------- -----------
Net income per common share $1.11 $1.11 $0.88
----------- ----------- -----------
----------- ----------- -----------
Average number of common and
common equivalent shares
outstanding 4,643,744 4,603,461 4,061,598
----------- ----------- -----------
----------- ----------- -----------
The accompanying notes are an integral part of these consolidated
financial statements.
- 24 -
ACTIVE VOICE CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31,
-----------------------------------
1996 1995
------------ -----------
ASSETS
Current assets:
Cash and cash equivalents $ 3,389,760 $ 649,553
Marketable securities 7,216,738 3,300,596
Accounts receivable, less allowances of $1,365,000
($934,000 in 1995) 8,628,280 6,460,765
Inventories 5,482,704 3,430,224
Income taxes receivable 334,453
Deferred tax asset 1,023,324 601,177
Prepaid expenses and other assets 774,316 618,709
------------ ------------
Total current assets 26,515,122 15,395,477
Marketable securities 8,461,607 11,158,801
Furniture and equipment, net 2,094,480 1,907,540
Other assets 328,503 235,754
------------ ------------
Total assets $37,399,712 $28,697,572
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,138,073 $1,209,772
Accrued compensation and benefits 1,871,755 1,649,096
Other accrued expenses 762,340 389,178
Income taxes payable 830,888
------------ ------------
Total current liabilities 5,603,056 3,248,046
Commitments
Stockholders' equity:
Preferred stock, no par value:
Authorized shares - 2,000,000 - none outstanding
Common stock, no par value:
Authorized shares - 10,000,000
Issued shares, including repurchased shares - 4,976,933 16,790,931 16,104,792
Retained earnings 17,301,477 12,378,168
------------ ------------
34,092,408 28,482,960
Less 421,988 repurchased shares (507,036 in 1995), at cost (2,295,752) (3,033,434)
------------ ------------
Total stockholders' equity 31,796,656 25,449,526
------------ ------------
Total liabilities and stockholders' equity $37,399,712 $28,697,572
------------ ------------
------------ ------------
The accompanying notes are an integral part of these consolidated
financial statements.
- 25 -
ACTIVE VOICE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended March 31,
--------------------------------------------------
1996 1995 1994
------------- ------------ ------------
Operating activities
Net income $5,161,914 $5,109,725 $3,579,147
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 896,624 747,843 530,926
Provisions for accounts receivable 431,000 209,000 160,000
Deferred income taxes (475,577) 144,505 (237,741)
Loss on disposal of equipment 46,434 33,596 26,872
Changes in operating assets and liabilities:
Increase in accounts receivable (2,598,515) (2,321,337) (108,478)
Increase in inventories (2,052,480) (232,763) (1,295,318)
Decrease (increase) in prepaid expenses
and other assets 86,097 (735,429) 13,428
Increase (decrease) in accounts payable 928,301 (372,763) 438,997
Increase in other liabilities 1,962,973 191,340 1,104,784
----------- ------------ ----------
Net cash provided by operating activities 4,386,771 2,773,717 4,212,617
Investing activities
Purchases of marketable securities (4,583,409) (7,349,868) (15,923,025)
Proceeds from sales of marketable securities 3,521,609 7,076,775 3,012,078
Purchases of furniture and equipment (1,129,998) (1,407,668) (768,555)
----------- ------------ -----------
Net cash used in investing activities (2,191,798) (1,680,761) (13,679,502)
Financing activities
Proceeds from exercise of common stock options 565,859 615,987 365,082
Repurchase of common stock (20,625) (2,137,500)
Payment on license agreement (128,183)
Proceeds from issuance of common stock, net of
issuance - costs 9,283,306
----------- ------------ -----------
Net cash provided by (used in) financing
activities 545,234 (1,521,513) 9,520,205
----------- ------------ -----------
Increase (decrease) in cash and cash equivalents 2,740,207 (428,557) 53,320
Cash and cash equivalents at beginning of year 649,553 1,078,110 1,024,790
----------- ------------ -----------
Cash and cash equivalents at end of year $3,389,760 $ 649,553 $1,078,110
----------- ------------ -----------
----------- ------------ -----------
The accompanying notes are an integral part of these consolidated financial
statements.
-26-
ACTIVE VOICE CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock
---------------------------------- Total
Net Shares Retained Repurchased Stockholders'
Outstanding Issued Earnings Shares Equity
--------------- ------------- --------------- ----------- -------------
Balance at April 1, 1993 2,807,141 $1,084,652 $ 5,319,793 $(3,000,251) $3,404,194
Issuance of shares upon exercise of
stock options 170,102 365,082 365,082
Tax benefit related to stock options 347,007 347,007
Conversion of Series A Convertible
preferred stock into 740,740 shares
of common stock 740,740 3,964,763 3,964,763
Issuance of shares in public offering 700,000 9,283,306 9,283,306
Net income 3,579,147 3,579,147
--------------- ------------- --------------- ----------- -------------
Balance at March 31, 1994 4,417,983 15,044,810 8,898,940 (3,000,251) 20,943,499
Issuance of shares upon exercise of
stock options 164,414 97,306 (1,510,336) 2,104,317 691,287
Tax benefit related to stock options 962,676 962,676
Repurchase of common stock (112,500) (2,137,500) (2,137,500)
Net unrealized loss on marketable
securities (120,161) (120,161)
Net income 5,109,725 5,109,725
--------------- ------------- --------------- ----------- -------------
Balance at March 31, 1995 4,469,897 16,104,792 12,378,168 (3,033,434) 25,449,526
Issuance of shares upon exercise of
stock options 85,798 149,875 (342,323) 758,307 565,859
Tax benefit related to stock options 536,264 536,264
Repurchase of common stock (750) (20,625) (20,625)
Change in net unrealized loss on
marketable securities 103,718 103,718
Net income 5,161,914 5,161,914
--------------- ------------- --------------- ----------- -------------
Balance at March 31, 1996 4,554,945 $16,790,931 $17,301,477 $(2,295,752) $31,796,656
--------------- ------------- --------------- ----------- -------------
--------------- ------------- --------------- ----------- -------------
The accompanying notes are an integral part of these consolidated
financial statements.
-27-
ACTIVE VOICE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
Active Voice Corporation (the Company) is a leading manufacturer of PC-based
voice processing systems and computer telephone integration (CTI) products.
The Company's products are sold worldwide through a network of independent
telecommunications dealers and computer resellers.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary, Active Voice International Corp. Intercompany
accounts and transactions have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Company considers highly liquid investments with an original maturity of
three months or less to be cash equivalents. Excess cash is primarily
invested in treasury bills, securities of government agencies, and commercial
paper rated A-1. Cash equivalents are carried at cost, which approximates
fair market value.
MARKETABLE SECURITIES
Marketable securities, which consist primarily of municipal securities, are
carried at market value. Market values are determined based on quoted prices.
Marketable securities are classified in the balance sheet as current and
noncurrent based on maturity dates and the Company's expectation of sales and
redemptions in the following year.
INVENTORIES
Inventories are stated at the lower of cost or market value. Cost is determined
on a first-in, first-out (FIFO) basis.
The Company currently purchases all of its voice boards, a significant
component of its products, from one supplier. Although there are a limited
number of manufacturers of voice boards, management believes that other
suppliers could provide similar product on comparable terms. A change in
suppliers, however, could cause a delay in manufacturing and a possible loss
of sales, which would affect operating results adversely.
FURNITURE AND EQUIPMENT
Furniture and equipment are recorded at cost and depreciation is computed
using accelerated methods over estimated useful lives. Estimated useful lives
are as follows: furniture and fixtures, seven years; office and computer
equipment, five years; and leasehold improvements, the lesser of ten years or
the remainder of the lease term. Repairs and maintenance that do not improve
or extend the lives of the respective assets are expensed in the period
incurred.
-28-
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of," which requires impairment losses to
be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount. The
Company will adopt Statement No. 121 in the first quarter of fiscal year
1997, as allowed for in the statement, and based on current circumstances,
does not believe the effect of adoption will be material.
REVENUE RECOGNITION
Revenue is generally recognized upon shipment to customers, with allowances
made for estimated returns. The Company accrues estimated costs of technical
support to customers as the related revenues are recognized.
INCOME TAXES
The provision for income taxes includes federal and state taxes currently
payable and deferred taxes arising from temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Deferred income taxes have been
recorded using the liability method in recognition of these temporary
differences.
SOFTWARE DEVELOPMENT COSTS
No software development costs have been capitalized to date. Under the
Company's current practices of developing new products and enhancements, the
technological feasibility of the underlying software is not established until
substantially all related product development is complete and the product is
released for production.
ADVERTISING EXPENSE
The cost of advertising is expensed as incurred. The Company incurred
$292,116, $258,088 and $179,416 in advertising costs during the years ended
March 31, 1996, 1995 and 1994, respectively.
NET INCOME PER COMMON SHARE
Net income per common share is based on the weighted average number of shares
of common stock outstanding and dilutive common equivalent shares from stock
options, using the treasury stock method.
NOTE 2. MARKETABLE SECURITIES
In May 1993, the FASB issued Statement No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" (FAS 115). The Company adopted the
provisions of the new standard for investments held as of, or acquired after,
April 1, 1994. Adoption of this standard did not result in a material change
to results of operations or financial condition.
Management determines the appropriate classification of debt securities at
the time of purchase and reevaluates such designation as of each balance
sheet date. Management has classified the Company's marketable securities as
available-for-sale, in accordance with provisions of FAS 115. Accordingly,
the securities are carried at fair value, with unrealized holding gains and
losses excluded from net income and recorded as an adjustment to
stockholders' equity. Interest, dividends, and realized gains and losses are
included in net income.
-29-
The following is a summary of marketable securities at March 31, all of which
are classified as available-for-sale:
1996
----------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------ ------------
Municipal bonds:
Due in one year or less $ 7,246,174 $ 5,821 $(35,257) $ 7,216,738
Due after one year through three 7,721,633 28,553 (31,016) 7,719,170
Due after three years 735,453 10,451 (3,467) 742,437
----------------------------------------------------------
$15,703,260 $44,825 $(69,740) $ 15,678,345
----------------------------------------------------------
----------------------------------------------------------
1995
----------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------ ------------
Municipal bonds:
Due in one year or less $ 3,313,837 $ 2,099 $ (15,340) $ 3,300,596
Due after one year through three 9,757,328 7,905 (190,223) 9,575,010
Due after three years 1,570,295 17,162 (3,666) 1,583,791
----------------------------------------------------------
$14,641,460 $27,166 $(209,229) $14,459,397
----------------------------------------------------------
----------------------------------------------------------
Net unrealized holding gains of $103,718 and net unrealized holding losses of
$120,161, net of federal income taxes, during the years ended March 31, 1996
and 1995, respectively, are included as adjustments to retained earnings.
NOTE 3. INVENTORIES
Inventories are comprised of the following:
March 31, 1996 1995
---------- -----------
Computer equipment $2,544,034 $2,219,280
Custom component parts 2,211,527 733,078
Supplies 727,143 477,866
---------- -----------
$5,482,704 $3,430,224
---------- -----------
---------- -----------
-30-
NOTE 4. FURNITURE AND EQUIPMENT
Major classes of furniture and equipment are as follows:
March 31, 1996 1995
---------- ----------
Office and computer equipment $2,922,758 $2,396,195
Furniture and fixtures 1,477,828 1,200,162
Leasehold improvements 266,379 175,128
---------- ----------
4,666,965 3,771,485
Accumulated depreciation (2,572,485) (1,863,945)
---------- ----------
$2,094,480 $1,907,540
---------- ----------
---------- ----------
NOTE 5. LINE OF CREDIT
The Company has a $10,000,000 revolving line of credit from a bank.
Borrowings under this agreement bear interest at the bank's prime rate or at
LIBOR, plus 1.25%, at the election of the Company. At March 31, 1996 and 1995
there were no borrowings outstanding under this agreement. This agreement
includes certain covenants, including financial covenants requiring that the
Company maintain certain financial ratios. Borrowings under this agreement
are payable on demand if these covenants are not met, or upon the expiration
of the agreement in September 1996.
NOTE 6. INCOME TAXES
During fiscal year 1994, the Company retroactively adopted a change in
accounting for income taxes from the deferred method to the liability method
required by FASB Statement No. 109, "Accounting for Income Taxes." There was
no impact on net income as a result of adopting Statement No. 109.
The principal reason for variations in the customary relationship between the
provision for income taxes and the statutory tax rate applied to income
before taxes is the effect of certain nondeductible expenses, nontaxable
income, and the utilization of research and development tax credits. A
reconciliation from the U.S. statutory rate to the effective tax rate is as
follows:
Year ended March 31, 1996 1995 1994
-------------------- ------------------- ---------------------
Tax at U.S. statutory rate $ 2,574,460 34.0% $2,508,675 34.0% $1,763,606 34.0%
Research and development credit (28,724) (0.4) (163,248) (2.2) (139,633) (2.7)
Tax exempt income (216,500) (2.9) (162,166) (2.2) (43,998) (0.8)
Foreign sales corporation benefit (74,375) (1.0) (97,879) (1.3) (92,281) (1.8)
Other items, net 155,167 2.1 183,350 2.4 120,235 2.3
---------- ----- ---------- ---- ---------- -----
$2,410,028 31.8% $2,268,732 30.7% $1,607,929 31.0%
---------- ----- ---------- ---- ---------- -----
---------- ----- ---------- ---- ---------- -----
-31-
The provision for income taxes, primarily related to U.S. federal income taxes,
is as follows:
Year ended March 31, 1996 1995 1994
-----------------------------------------
Current taxes on income $2,885,605 $2,124,227 $1,845,670
Deferred income taxes (475,577) 144,505 (237,741)
-----------------------------------------
$2,410,028 $2,268,732 $1,607,929
-----------------------------------------
-----------------------------------------
Deferred taxes result primarily from temporary differences relating to the
accounting for bad debts, inventories, and certain other accruals expensed for
financial reporting purposes but not currently deductible for income tax
purposes.
Significant components of the Company's deferred tax asset are as follows:
March 31, 1996 1995
-----------------------------------
Deferred tax assets:
Accounts receivable allowances $ 464,100 $317,560
Accrued compensation and benefits 276,373 147,502
Adjustment to unrealized loss
on marketable securities 8,471 61,900
Other items, net 274,380 162,427
------------------------------------
Total deferred tax assets 1,023,324 689,389
Deferred tax liabilities:
Prepaid expenses and other (88,212)
------------------------------------
Net deferred tax asset $1,023,324 $601,177
------------------------------------
------------------------------------
The Company made cash payments of income taxes of $1,534,000, $1,832,500 and
$1,290,000, during the years ended March 31, 1996, 1995 and 1994,
respectively.
NOTE 7. LEASE COMMITMENTS
The Company leases its facilities under operating leases with initial terms
of 5 to 10 years. Certain leases contain renewal and escalation clauses and
space expansion provisions. The Company incurred $1,234,414, $1,042,403 and
$690,401, of rent expense for the fiscal years ended March 31, 1996, 1995 and
1994, respectively.
Future minimum rental payments required per fiscal year under leases with
noncancelable lease terms in excess of one year at March 31, 1996 are as
follows:
1997 $1,331,514
1998 1,419,295
1999 1,436,230
2000 1,441,995
2001 1,454,489
Thereafter 1,798,148
----------
$8,881,671
----------
----------
- 32 -
In connection with the execution of a lease and related amendments, the
Company effectively prepaid rent by paying certain architectural and real
estate fees and costs on behalf of the lessor in exchange for reduced future
lease payments. The prepayments of $263,238 and $259,448 at March 31, 1996
and 1995, respectively, bear interest at the prime rate plus 2% and are
included in prepaid expenses in the accompanying consolidated balance sheets.
An additional $194,640 in related costs are included in prepaid expenses at
March 31, 1996 and other non-current assets at March 31, 1995. These costs
are to be reimbursed by the lessor on January 1, 1997, or alternately, used
to offset rent payments from that date.
NOTE 8. STOCK OPTIONS
In October 1995, the FASB issued Statement No. 123, "Accounting for
Stock-Based Compensation," which requires stock-based compensation expense to
be measured using either the intrinsic-value method as prescribed by
Accounting Principles Board Opinion (APB) No. 25 or the fair-value method
described in Statement No. 123. Companies choosing the intrinsic-value
method will be required to disclose the pro forma impact of the fair-value
method on net income and earnings per share. The Company will adopt
Statement No. 123 in the first quarter of fiscal year 1997, as allowed for
in the statement, using the intrinsic-value method of APB Opinion No. 25;
there will be no effect of adopting the Statement on the Company's financial
position or results of operations.
At March 31, 1996 there were 589,248 shares of common stock reserved for
future issuance upon exercise of outstanding stock options and stock options
available for grant under existing option plans. These include 144,046 shares
issuable upon exercise of options granted under the 1984 Incentive Stock
Option Plan and the 1988 Nonqualified Stock Option Plan; 432,077 shares
reserved for issuance under the 1993 Stock Option Plan and the Directors
Stock Option Plan, under which options for 292,293 shares have been granted;
and 13,125 shares reserved for options granted outside of these plans. In
adopting the 1993 Stock Option Plan and the Directors Stock Option Plan, the
Company's Board of Directors determined that no further options would be
granted under the 1984 plan or the 1988 plan.
A summary of the activity of the Company's stock options is as follows:
OUTSTANDING
-----------
Balance, April 1, 1993 564,317 $0.44 - 7.20
Granted 18,750 7.20 - 21.75
Canceled (12,505) 3.20 - 7.20
Exercised (170,102) 0.44 - 5.40
---------
Balance, March 31, 1994 400,460 0.98 - 21.75
Granted 115,184 15.00 - 21.13
Canceled (4,150) 7.20 - 16.00
Exercised (164,414) 1.60 - 13.50
---------
Balance, March 31, 1995 347,080 0.98 - 21.75
Granted 292,886 12.00 - 28.50
Canceled (104,704) 5.40 - 28.00
Exercised (85,798) 0.98 - 21.13
---------
Balance, March 31, 1996 449,464 $0.98 - 28.50
---------
---------
At March 31, 1996, options to purchase 213,992 shares were exercisable. The
weighted average exercise price for all outstanding options at March 31, 1996
was $13.33 per share.
- 33 -
NOTE 9. STOCKHOLDERS' EQUITY
CERTAIN TRANSACTIONS WITH CORPORATE OFFICERS AND OTHERS
During August 1994, the Company repurchased a total of 112,500 shares of its
common stock from a significant stockholder. The purchase price was $19.00
per share for a total of $2,137,500, which was less than the closing price of
the stock on the closing date.
On November 7, 1994, the Company and two of its officers and principal
shareholders entered into an Amended and Restated Buy-Sell Agreement (the
"Agreement") which modified the terms of the original agreement dated
December 31, 1991. Under the Agreement, the Company is required to maintain
$4,250,000 of term insurance on the life of each shareholder. Upon the death
of one of the shareholders, the Company is required to buy up to one-half of
the shareholder's common stock holdings, but in no event, more shares than
can be purchased with the life insurance proceeds. The per share price is
determined by a formula set forth in the Agreement, and is to be paid in cash.
INITIAL PUBLIC OFFERING
In December 1993, the Company completed an initial public offering of
700,000 shares of common stock at $15.00 per share, resulting in total
proceeds of $9,283,306 after deducting underwriting discounts and offering
expenses.
NOTE 10. TECHNOLOGY LICENSES
The voice processing industry is characterized by rapid technological change
and has historically witnessed numerous allegations of patent infringement
among competitors, and considerable related litigation. Such claims have been
made against the Company in the past. In response to certain of these claims,
the Company has pursued and obtained nonexclusive licenses to certain
fundamental patents. Although the Company believes that it currently owns or
has adequate rights to use all material technologies relating to its
products, as it continues to develop new products and features in the future,
it anticipates that it may receive additional claims of patent infringement.
Such claims could result in the Company incurring substantial legal expenses
and being required to obtain licenses, to pay damages, or to cease offering
products that infringe such patents.
Royalty expense on licensed technology was $286,002, $216,172 and $210,004
during the fiscal years ended March 31, 1996, 1995 and 1994, respectively.
NOTE 11. EMPLOYEE BENEFIT PLAN
The Company provides a defined contribution 401(k) profit-sharing plan
covering employees meeting certain eligibility requirements (generally, 21
years of age and six months of service). Company contributions are
discretionary based on annual declarations by the Company's Board of
Directors. The Company made contributions of $102,480, $93,800 and $35,100
for the years ended March 31, 1996, 1995 and 1994, respectively.
NOTE 12. CONCENTRATION OF CREDIT RISK
The Company distributes its products primarily through a worldwide network
of independent telephone system dealers. The Company also distributes its
products through sales to original equipment manufacturers (OEMs) of
telephone and other business systems who often sell through their own dealer
networks. Sales through the Company's domestic dealer network, OEMs, and
export sales through various international distribution channels represented
73%, 13% and 14%, respectively, of fiscal 1996 revenues; 77%, 12% and 11%,
respectively, of fiscal 1995 revenues; and 76%, 13% and 11%, respectively, of
fiscal 1994 revenues. Export sales aggregated $6,413,000, $4,135,000 and
$3,082,000 for the fiscal years ended March 31, 1996, 1995 and 1994,
respectively.
- 34 -
The Company performs ongoing credit evaluations of its customers' financial
condition, and generally no collateral is required. The Company maintains
reserves for credit losses and such losses have historically been within
management's expectations.
- 35 -
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Stockholders and Board of Directors
Active Voice Corporation
We have audited the accompanying consolidated balance sheets of Active Voice
Corporation as of March 31, 1996 and 1995, and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the
three years in the period ended March 31, 1996. Our audits also included
the financial statement schedule listed in the Index at Item 14(a). These
financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule 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
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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Active Voice Corporation at March 31, 1996 and 1995, and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended March 31, 1996, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly in all material respects the information set
forth therein.
ERNST & YOUNG LLP
Seattle, Washington
May 3, 1996
- 36 -
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
-37-
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is contained in part in the
sections captioned "Board of Directors--Nominees for Director" and "Voting
Securities and Principal Holders--Exchange Act Compliance" in the Proxy
Statement for the Company's Annual Meeting of Stockholders scheduled to be
held on August 30, 1996, and such information is incorporated herein by
reference.
The remaining information required by this Item is set forth as
Item 4A in Part I of this report under the caption "Executive Officers of the
Registrant."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference
to the information contained in the section captioned "Compensation and
Benefits" of the Proxy Statement for the Company's Annual Meeting of
Stockholders scheduled to be held on August 30, 1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference
to the information contained in the sections captioned "Voting Securities and
Principal Holders" and "Compensation and Benefits--Certain Transactions" of
the Proxy Statement for the Company's Annual Meeting of Stockholders
scheduled to be held on August 30, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference
to the information contained in the section captioned "Compensation and
Benefits" of the Proxy Statement for the Company's Annual Meeting of
Stockholders scheduled to be held on August 30, 1996.
-38-
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Statements of Income--Years ended March 31, 1996,
1995 and 1994
Consolidated Balance Sheets--March 31, 1996 and 1995
Consolidated Statements of Cash Flows--Years ended March 31, 1996,
1995 and 1994
Consolidated Statements of Stockholders' Equity--Years ended March
31, 1996, 1995 and 1994
Notes to Consolidated Financial Statements
Report of Independent Auditors
(a)(2) FINANCIAL STATEMENT SCHEDULES
Schedule II: Valuation and Qualifying Accounts
Schedules not listed above have been omitted because the
information required to be set forth therein is not applicable
or is included in the Consolidated Financial Statements or notes
thereto.
(b) REPORTS ON FORM 8-K
None.
(c) EXHIBITS
The following exhibits are filed with this report:
EXHIBIT NO. 3: ARTICLES OF INCORPORATION AND BYLAWS
3.1 Restated Articles of Incorporation of Registrant
3.2 Restated Bylaws of Registrant
EXHIBIT NO. 10: MATERIAL CONTRACTS
EXECUTIVE COMPENSATION PLANS AND AGREEMENTS
10.1 Incentive Stock Option Plan
10.2 1988 Nonqualified Stock Option Plan
10.3 1993 Stock Option Plan
10.4 Amendment to 1993 Stock Option Plan
10.5 Directors Stock Option Plan
10.6 1996 Employee Stock Purchase Plan
10.7 Employment Agreement and Nondisclosure Agreement dated April 17,
1989 between Registrant and Douglass S. Anderson
10.8 Employment Agreement and Nondisclosure Agreement dated July 6,
1989 between Registrant and Jose S. David
10.9 Employment Agreement and Nondisclosure Agreement dated October 2,
1990 between Registrant and Robert L. Richmond
10.10 Employment Agreement and Nondisclosure Agreement dated October 2,
1990 between Registrant and Robert C. Greco
-39-
10.11 1995/1996 Incentive Plan for Robert L. Richmond
10.12 1995 Incentive Plan for Robert C. Greco
10.13 1995 Incentive Plan for Jose S. David
10.14 1996 Incentive Plan for Robert C. Greco
10.15 1996 Incentive Plan for Jose S. David
10.16 1996 Incentive Plan for Douglass S. Anderson
10.17 Split Dollar Agreement/Assignment dated as of April 11, 1994,
between Registrant and Robert L. Richmond
OTHER MATERIAL CONTRACTS
10.18 Loan Agreement dated as of September 30, 1995, between Registrant
and First Interstate Bank of Washington, N.A.
10.19 Office Lease dated January 31, 1991 between Registrant and Martin
Selig, as amended
10.20 Amendment to Office Lease dated April 27, 1994, between Registrant
and Martin Selig
10.21 Amendment to Office Lease dated August 11, 1994, between
Registrant and Martin Selig
10.22 Subordination, Non-Disturbance and Attornment Agreement dated
January 19, 1995, between Registrant and The
Bank of Nova Scotia
10.23 Amended and Restated Buy-Sell Agreement dated August 8, 1994,
among Registrant, Robert L. Richmond and Robert C. Greco
10.24 Volume Purchase Agreement dated September 1, 1993, between
Registrant and Dialogic Corporation (Confidential treatment
requested)
10.25 Patent License Agreement dated March 2, 1990, between Registrant
and Dytel Corporation (Confidential treatment requested)
10.26 Automated Attendant Patent License Agreement between Registrant
and VMX, Inc. (Confidential treatment requested)
10.27 Voice Mail Patent License Agreement between Registrant and VMX,
Inc. (Confidential treatment requested)
10.28 Assignment of Rights Under Patent Application dated October 22,
1990 by Robert L. Richmond and Michael J. Robinson
10.29 Acknowledgment and Assignment of Proprietary Rights dated October
22, 1990 by Robert C. Greco and Michael J. Robinson
EXHIBIT NO. 11: STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
11.1 Computation of Earnings Per Share
EXHIBIT NO. 21: SUBSIDIARIES OF THE REGISTRANT
21.1 Subsidiaries of Registrant
EXHIBIT NO. 23: CONSENTS OF EXPERTS AND COUNSEL
23.1 Consent of Ernst & Young LLP
EXHIBIT NO. 24: POWER OF ATTORNEY
24.1 Powers of Attorney
EXHIBIT NO. 27: FINANCIAL DATA SCHEDULE
27.1 Financial Data Schedule
-40-
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
ACTIVE VOICE CORPORATION
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
COL. A COL. B COL. C COL. D COL. E
- -----------------------------------------------------------------------------------------------------------
ADDITIONS
DESCRIPTION BALANCE AT (1) (2) DEDUCTIONS: BALANCE AT
BEGINNING CHARGED TO CHARGED TO DESCRIBE END OF
OF PERIOD COSTS OTHER PERIOD
AND EXPENSES ACCOUNTS:
DESCRIBE
- -----------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31, 1996
Deducted from asset accounts:
Allowance for doubtful accounts $725,000 $586,891 0 $225,891 (A) $1,086,000
Allowance for sales returns 209,000 70,000 0 0 279,000
-------- -------- ---------- -------- ----------
Totals $934,000 $656,891 0 $225,891 $1,365,000
-------- -------- ---------- -------- ----------
-------- -------- ---------- -------- ----------
YEAR ENDED MARCH 31, 1995
Deducted from asset accounts:
Allowance for doubtful accounts $445,000 $490,249 0 $210,249 (A) $ 725,000
Allowance for sales returns 280,000 0 0 71,000 (B) 209,000
-------- -------- ---------- -------- ----------
Totals $725,000 $490,249 0 $281,249 $ 934,000
-------- -------- ---------- -------- ----------
-------- -------- ---------- -------- ----------
YEAR ENDED MARCH 31, 1995
Deducted from asset accounts:
Allowance for doubtful returns $285,000 $458,845 0 $298,845 (A) $ 445,000
Allowance for sales returns 280,000 0 0 0 280,000
-------- -------- ---------- -------- ----------
Totals 565,000 $458,845 0 $298,845 $ 725,000
-------- -------- ---------- -------- ----------
-------- -------- ---------- -------- ----------
(A) Uncollectible accounts written off, net of recoveries
(B) Reduction of estimated future sales returns
-41-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this Report
to be signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Seattle, State of Washington, on June 27, 1996.
ACTIVE VOICE CORPORATION
By /s/ Jose S. David
-------------------------
Jose S. David
CHIEF FINANCIAL OFFICER
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints Robert L. Richmond and Jose S. David, and each of them severally,
his true and lawful attorneys-in-fact and agents, with full power to act
without the other and with full power of substitution and resubstitution, to
execute in his name and on his behalf, individually and in each capacity
stated below, any and all amendments and supplements to this Report, and any
and all other instruments necessary or incidental in connection herewith, and
to file the same with the Commission.
Pursuant to the requirements of the Securities Exchange Act of
1934, this Report has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Robert L. Richmond Chief Executive Officer and June 27, 1996
- ------------------------ Chairman of the Board
Robert L. Richmond Principal Executive Officer
/s/ Robert C. Greco Vice President--Product June 27, 1996
- ------------------------ Development, Secretary,
Robert C. Greco Treasurer and Director
/s/ Jose S. David Chief Financial Officer June 27, 1996
- ------------------------ (Principal Financial and
Jose S. David Accounting Officer)
/s/ Tom A. Alberg Director June 27, 1996
- ------------------------
Tom A. Alberg
/s/ Harold H. Kawaguchi Director June 27, 1996
- ------------------------
Harold H. Kawaguchi
-42-
APPENDIX 1
Repartee Configuration:
The diagram illustrates the configuration of Repartee. Repartee is a
dedicated PC running the Company's software with circuit cards
that connect it to the telephone switch. This in turn is linked to all the
phone extensions in the company. Calls come through the
outside network into the telephone system and are answered by our
autoattendant. The call is then routed to the given telephone
extension, and if the call is not answered, it is returned to Repartee. Repartee
then offers a greeting in the called party's voice.
APPENDIX 2
TeLANophy Configuration:
The diagram illustrates the configuration of TeLANophy. TeLANophy's
configuration is similar to Repartee's configuration. It is a
dedicated PC running software with circuit cards that connect it to the
telephone switch. The difference is that there is a local area
network (LAN) card in the Repartee. This makes the features of the call
processor now available to every desktop PC on the LAN. The
dashed lines in the configuration show that each desktop is now connected to
its own phone since both lines of communication, the LAN
and the phone lines, are in the call processor.
-43-
EXHIBIT INDEX
SEQUENTIALLY
NUMBERED
PAGE
EXHIBIT NO. 3: ARTICLES OF INCORPORATION AND BYLAWS
3.1 Restated Articles of Incorporation of Registrant
(incorporated by reference from Exhibit 3.1 to the
Registrant's Registration Statement on Form S-1
filed with the Securities and Exchange Commission on
October 29, 1993 (File No. 33-71024))
3.2 Restated Bylaws of Registrant (incorporated by
reference from Exhibit 3.2 to the Registrant's
Registration Statement on Form S-1 filed with the
Securities and Exchange Commission on
October 29, 1993 (File No. 33-71024))
EXHIBIT NO. 10: MATERIAL CONTRACTS
EXECUTIVE COMPENSATION PLANS AND AGREEMENTS
10.1 Incentive Stock Option Plan (incorporated by
reference from Exhibit 10.1 to the Registrant's
Registration Statement on Form S-1 filed with the
Securities and Exchange Commission on
October 29, 1993 (File No. 33-71024))
10.2 1988 Nonqualified Stock Option Plan (incorporated by
reference from Exhibit 10.2 to the Registrant's
Registration Statement on Form S-1 filed with the
Securities and Exchange Commission on
October 29, 1993 (File No. 33-71024))
10.3 1993 Stock Option Plan (incorporated by reference
from Exhibit 10.3 to the Registrant's Registration
Statement on Form S-1 filed with the Securities and
Exchange Commission on October 29, 1993
(File No. 33-71024))
10.4 Amendment to 1993 Stock Option Plan (incorporated by
reference from Exhibit 10. to the Registrant's
Quarterly Report on Form 10-Q for its fiscal quarter
ended December 31, 1995 (File No. 0-22804))
10.5 Directors Stock Option Plan (incorporated by
reference from Exhibit 10.4 to the Registrant's
Registration Statement on Form S-1 filed with the
Securities and Exchange Commission on
October 29, 1993 (File No. 33-71024))
10.6 1996 Employee Stock Purchase Plan
10.7 Employment Agreement and Nondisclosure Agreement
dated April 17, 1989 between Registrant and Douglass
S. Anderson
10.8 Employment Agreement and Nondisclosure Agreement
dated July 6, 1989 between Registrant and Jose S.
David (incorporated by reference from Exhibit 10.15
to the Registrant's Registration Statement on
Form S-1 filed with the Securities and Exchange
Commission on October 29, 1993 (File No. 33-71024))
10.9 Employment Agreement and Nondisclosure Agreement
dated October 2, 1990 between Registrant and Robert
L. Richmond (incorporated by reference from
Exhibit 10.16 to the Registrant's Registration
Statement on Form S-1 filed with the Securities and
Exchange Commission on October 29, 1993
(File No. 33-71024))
SEQUENTIALLY
NUMBERED
PAGE
10.10 Employment Agreement and Nondisclosure Agreement
dated October 2, 1990 between Registrant and Robert
C. Greco (incorporated by reference from
Exhibit 10.17 to the Registrant's Registration
Statement on Form S-1 filed with the Securities and
Exchange Commission on October 29, 1993
(File No. 33-71024))
10.11 1995/1996 Incentive Plan for Robert L. Richmond
(incorporated by reference from Exhibit 10.13 to the
Registrant's Annual Report on Form 10-K for its
fiscal year ended March 31, 1995 (File No. 0-22804))
10.12 1995 Incentive Plan for Robert C. Greco
(incorporated by reference from Exhibit 10.14 to the
Registrant's Annual Report on Form 10-K for its
fiscal year ended March 31, 1995 (File No. 0-22804))
10.13 1995 Incentive Plan for Jose S. David (incorporated
by reference from Exhibit 10.16 to the Registrant's
Annual Report on Form 10-K for its fiscal year ended
March 31, 1995 (File No. 0-22804))
10.14 1996 Incentive Plan for Robert C. Greco
10.15 1996 Incentive Plan for Jose S. David
10.16 1996 Incentive Plan for Douglass S. Anderson
10.17 Split Dollar Agreement/Assignment dated as of
April 11, 1994, between Registrant and Robert L.
Richmond (incorporated by reference from
Exhibit 10.17 to the Registrant's Annual Report on
Form 10-K for its fiscal year ended March 31, 1995
(File No. 0-22804))
OTHER MATERIAL CONTRACTS
10.18 Loan Agreement dated as of September 30, 1995,
between Registrant and First Interstate Bank of
Washington, N.A.
10.19 Office Lease dated January 31, 1991 between
Registrant and Martin Selig, as amended
(incorporated by reference from Exhibit 10.6 to the
Registrant's Registration Statement on Form S-1
filed with the Securities and Exchange Commission on
October 29, 1993 (File No. 33-71024))
10.20 Amendment to Office Lease dated April 27, 1994,
between Registrant and Martin Selig (incorporated by
reference from Exhibit 10.21 to the Registrant's
Annual Report on Form 10-K for its fiscal year ended
March 31, 1995 (File No. 0-22804))
10.21 Amendment to Office Lease dated August 11, 1994,
between Registrant and Martin Selig (incorporated by
reference from Exhibit 10.22 to the Registrant's
Annual Report on Form 10-K for its fiscal year ended
March 31, 1995 (File No. 0-22804))
10.22 Subordination, Non-Disturbance and Attornment
Agreement dated January 19, 1995, between Registrant
and The Bank of Nova Scotia (incorporated by
reference from Exhibit 10.23 to the Registrant's
Annual Report on Form 10-K for its fiscal year ended
March 31, 1995 (File No. 0-22804))
SEQUENTIALLY
NUMBERED
PAGE
10.23 Amended and Restated Buy-Sell Agreement dated
August 8, 1994, among Registrant, Robert L. Richmond
and Robert C. Greco (incorporated by reference from
the Registrant's Current Report on Form 8-K filed
with the Securities and Exchange Commission on
November 14, 1994 (File No. 0-22804))
10.24 Volume Purchase Agreement dated September 1, 1993
between Registrant and Dialogic Corporation
(Confidential treatment granted) (incorporated by
reference from Exhibit 10.8 to Amendment No. 2 to
the Registrant's Registration Statement on Form S-1
filed with the Securities and Exchange Commission on
December 2, 1993 (File No. 33-71024))
10.25 Patent License Agreement dated March 2,1990 between
Registrant and Dytel Corporation (Confidential
treatment granted) (incorporated by reference from
Exhibit 10.9 to Amendment No. 2 to the Registrant's
Registration Statement on Form S-1 filed with the
Securities and Exchange Commission on
December 2, 1993 (File No. 33-71024))
10.26 Automated Attendant Patent License Agreement between
Registrant and VMX, Inc. (Confidential treatment
granted) (incorporated by reference from
Exhibit 10.10 to Amendment No. 2 to the Registrant's
Registration Statement on Form S-1 filed with the
Securities and Exchange Commission on
December 2, 1993 (File No. 33-71024))
10.27 Voice Mail Patent License Agreement between
Registrant and VMX, Inc. (Confidential treatment
granted) (incorporated by reference from
Exhibit 10.11 to Amendment No. 2 to the Registrant's
Registration Statement on Form S-1 filed with the
Securities and Exchange Commission on
December 2, 1993 (File No. 33-71024))
10.28 Assignment of Rights Under Patent Application dated
October 22, 1990 by Robert L. Richmond and Michael
J. Robinson (incorporated by reference from
Exhibit 10.12 to the Registrant's Registration
Statement on Form S-1 filed with the Securities and
Exchange Commission on October 29, 1993
(File No. 33-71024))
10.29 Acknowledgment and Assignment of Proprietary Rights
dated October 22, 1990 by Robert C. Greco and
Michael J. Robinson (incorporated by reference from
Exhibit 10.13 to the Registrant's Registration
Statement on Form S-1 filed with the Securities and
Exchange Commission on October 29, 1993
(File No. 33-71024))
SEQUENTIALLY
NUMBERED
PAGE
EXHIBIT NO. 11: STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
11.1 Computation of Earnings Per Share
EXHIBIT NO. 21: SUBSIDIARIES OF THE REGISTRANT
21.1 Subsidiaries of Registrant (incorporated by
reference from Exhibit 21.1 to the Registrant's
Registration Statement on Form S-1 filed with the
Securities and Exchange Commission on
October 29, 1993 (File No. 33-71024))
EXHIBIT NO. 23: CONSENTS OF EXPERTS AND COUNSEL
23.1 Consent of Ernst & Young LLP
EXHIBIT NO. 24: POWER OF ATTORNEY
24.1 Powers of Attorney (included on signature pages)
EXHIBIT NO. 27: FINANCIAL DATA SCHEDULE
27.1 Financial Data Schedule