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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
OR
// TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD
FROM TO
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COMMISSION FILE NUMBER 0-22046
BOGEN COMMUNICATIONS INTERNATIONAL, INC.
----------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 38-3114641
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(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
50 SPRING STREET, RAMSEY, NEW JERSEY 07446
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (201) 934-8500
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $0.001 PAR VALUE
(TITLE OF CLASS)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES /x/ NO.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Registration S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or amendment
to this Form 10-K. //
The aggregate market value of the voting stock, based on the closing price
of the Registrant's common stock on March 15, 2001, as reported on the Nasdaq
National Market System ("NASDAQ"), held by non-affiliates of the Registrant was
approximately $23,734,811.
As of March 15, 2001, 10,112,956 shares of the Registrant's Common Stock, par
value $.001 per share, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III of this Form 10-K is incorporated by
reference to the definitive proxy statement for the 2001 annual meeting of
stockholders of Bogen Communications International, Inc., which definitive proxy
statement will be filed no later than 120 days after December 31, 2000.
PART I
All statements contained herein that are not historical facts, including,
but not limited to, statements regarding Bogen Communications International,
Inc. and its subsidiaries (collectively, the "Company") and its current business
strategy, projected sources and uses of cash, and plans for future development
and operations, are based upon current expectations. These statements are
forward-looking in nature and involve a number of risks and uncertainties.
Actual results may differ materially. Among the factors that could cause actual
results to differ materially are the following: competitive factors, including
the fact that the Company's competitors are highly focused and may have greater
resources and/or name recognition than the Company; changes in technology and
the Company's ability to develop or acquire new or improved products and/or
modify and upgrade its existing products including, but not limited to, the
introduction and development of the Company's products; changes in labor,
equipment and capital costs; changes in access to suppliers and sub-contractors,
including recurrence of instability in Asia which may adversely affect the
Company's suppliers and subcontractors; currency fluctuations; changes in United
States and foreign regulations affecting the Company's business; future
acquisitions or strategic partnerships; the availability of sufficient capital
to finance the Company's business plans on terms satisfactory to the Company;
general business and economic conditions; political instability in certain
regions; employee turnover; issues relating to the Company's internal systems;
and other factors described from time to time in the Company's reports filed
with the Securities and Exchange Commission. The Company wishes to caution
readers not to place undue reliance on any such forward-looking statements,
which are made pursuant to the Private Litigation Reform Act of 1995 and, as
such, speak only as of the date made.
ITEM 1. BUSINESS
Bogen Communications International, Inc., (the "Registrant", and together
with its subsidiaries, the "Company"), develops, produces and sells sound
processing equipment, telecommunications peripherals and Unified Messaging
products and services, through its direct subsidiaries.
The Company's United States business develops, manufactures, and
distributes commercial telecommunications and audio products through Bogen Corp.
("Bogen") and through its subsidiaries, Bogen Communications, Inc. ("BCI") and
Apogee Sound International, LLC ("Apogee").
The Company's European business develops, produces, and markets voicemail
systems and Unified Messaging products and services through Speech Design GmbH
("Speech Design"), based in Germany, and through its subsidiaries, Digitronic
Computersysteme GmbH ("Digitronic"), based in Germany, Satelco AG ("Satelco"),
based in Switzerland, and Speech Design (Israel) Ltd., based in Israel.
As used herein, the "Company" shall refer to the Registrant, "Bogen" shall
mean the business of Bogen Corp. and its subsidiaries, and "Speech Design" shall
mean Speech Design GmbH and its subsidiaries. Certain financial information
about the Company's two business segments is included in Note 17 to the
Company's Consolidated Financial Statements, included herein.
Bogen focuses on commercial and engineered sound equipment and
telecommunication (Telco) peripherals for the voice and sound processing market.
For almost 70 years, Bogen has been a leader in commercial amplifiers, speakers
and intercom systems for background and foreground music applications, as well
as for security and educational applications, and since 1991, has produced
voice-processing systems, including message/music-on-hold systems ("MOH").
Bogen's products are sold primarily through a network of distributors, dealers
and contractors.
Speech Design focuses on digital voice processing systems for the mid-sized
Private Branch Exchange ("PABX") market, targeting the underdeveloped, but
growing, European voice processing market. With the launch in late 1995 of its
product family called "Memo", Speech Design has added innovative non-PC based
voice mail systems to its existing line of telecommunication peripheral
products, which includes voice-mail, automated attendants, digital announcers
and message/music-on-hold systems. In late 1998, Speech Design introduced the
Teleserver Pro range of modular, higher-end (2-8 ports) voice and call
processing peripherals. In addition to a higher capacity voice mail than
possible with Memo, Teleserver also offers LAN connectivity to PC networks and
ACD (automatic call distribution) functionality. In 1999, Speech Design added
Unified Messaging products and services, through its flagship product Thor(TM).
Thor improves communications within any enterprise and delivers value-added
services to Internet service providers ("ISPs"), as well as mobile and
fixed-line network operators ("carriers"). Thor integrates fax and voice-mail
into an existing e-mail environment, and e-mail and fax into the mobile-phone
environment.
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Speech Design sells through leading European telephone switch manufacturers
in Germany, and through major independent dealers outside Germany. Speech
Design's Thor unified messaging system in its enterprise version is sold through
switch manufacturers and IT system integrators. In addition, Thor unified
messaging services and platforms are sold to mobile and fixed-line carriers and
Internet Service Providers ("ISPs").
The Registrant is a Delaware corporation whose principal executive offices
are located at 50 Spring Street, Ramsey, New Jersey 07446 and its telephone
number is (201) 934-8500.
COMPANY HISTORY
The Registrant, formerly known as European Gateway Acquisition Corp., was
formed on May 6, 1993, with the objective of acquiring a medium-sized operating
business engaged in industrial manufacturing or industrial services and located
in Germany, Switzerland or Austria. On October 13, 1993, the Registrant
consummated an initial public offering (the "IPO") of units consisting of one
share of the Registrant's common stock, $.001 par value per share ("Common
Stock"), and two warrants (the "Warrants"), each entitling the holder thereof to
purchase one share of Common Stock. The Company called such Warrants for
redemption as of May 1, 2000. An aggregate of 64,615 warrants were not exercised
prior to such date and were cancelled and redeemed for $.01 per Warrant.
In 1995, the Registrant acquired from Geotek Communications Inc. ("Geotek")
approximately 67% of the outstanding capital stock of Speech Design and
approximately 99% of the outstanding capital stock of Bogen. As partial
consideration for such acquisitions, Geotek received from the Company: (i)
3,701,919 shares of Common Stock; (ii) warrants to purchase 200,000 shares of
Common Stock; (iii) $7,000,000 in cash; and (iv) a convertible promissiory note
in the principal amount of $500,000 and repaid in 1997. On November 26, 1997,
the Company re-acquired from Geotek all 3,701,919 shares of common Stock and
200,000 warrants for $18,500,000 in cash.
Simultaneously with the repurchase from Geotek, the Company sold 200,000
shares of 9% Series A Convertible Preferred Stock (the "Preferred Stock") to a
group of independent investment funds, for total proceeds to the Company of
$20,000,000. The Preferred Stock's semi-annual cumulative dividend was payable
in cash or in-kind at the sole discretion of the Company and each share of
Preferred Stock was convertible into 18.605 shares of Common Stock (or 3,721,000
shares of Common Stock based at the initial conversion price of $5.375). Also at
the time, of the transaction described above, a new senior executive team was
put in place and the Board of Directors was reconstituted.
On May 20, 1998, the Company consummated the acquisition of the remaining
33% equity interest in Speech Design, held by the founders and managing
directors of Speech Design. The aggregate consideration paid by the Company for
the 33% equity interest approximated $8.8 million before acquisition costs,
consisting of DM 7,570,000 (approximately U.S. $4.8 million) in cash and 458,000
restricted shares of the Common Stock.
On July 1, 1998, all Preferred Stock Shareholders elected to convert their
Preferred Shares to Common Stock. After converting all Preferred Shares and
accrued dividends (10,775 new Preferred Shares were issued as accrued interest)
into Common Stock, the Preferred Shareholders received a total of 3,921,477
Common Shares of Bogen.
On December 31, 1998, Speech Design acquired 100% of Digitronic, located in
Northern Germany. Digitronic is a developer and manufacturer of LAN and Internet
based unified messaging products. The aggregate purchase price, including direct
costs of $145,000, amounted to approximately $1.2 million in cash and assumption
of certain liabilities. The terms of the acquisition agreement also provide for
additional cash consideration up to DM 2.8 million (or approximately $1.7
million) to be paid if Digitronic's sales during 2000 and 2001 exceed certain
targeted levels. Targeted levels have been set substantially above the
historical experience of Digitronic at the time of acquisition.
On August 26, 1999, Bogen Communications Inc., through Apogee Sound
International, LLC ("Apogee"), a newly formed Bogen subsidiary, acquired
substantially all of the assets of Apogee Sound Inc., a privately held company
headquartered in Petaluma, California. Consideration for the acquisition was the
assumption or payment of approximately $2.6 million of Apogee Sound Inc.'s
liabilities.
2
See below under the headings "Bogen" and "Speech Design" for a discussion
of other acquisitions consummated by the Company. To further its growth
objectives, the Company continually seeks out, and evaluates other acquisitions
of companies or product lines that are complementary to its current businesses
and products, and considers itself adequately capitalized to consummate
acquisitions that may be desirable. In addition, in consultation with its
lawyers and investment banker the Company is engaged in a comprehensive
evaluation of strategic and financing alternatives to enhance shareholder value.
Such alternatives, which would only be undertaken by the Company under favorable
market conditions, include evaluation of separating the Bogen and Speech Design
operations, or the transfer or sale of all, or a part, of either business in a
strategic transaction, public or private sale, or a recapitalization.
BOGEN (DOMESTIC OPERATIONS)
Since its founding in 1932, Bogen has been involved in the commercial audio
industry and currently develops, sources, assembles and distributes sound
processing equipment and telecommunication peripherals through its wholly-owned
subsidiary, BCI.
Bogen's audio products include: commercial audio amplifiers and speakers;
related sound and intercom systems equipment for professional, industrial and
commercial system applications; background and foreground music applications;
and intercom and communications systems for the security and educational
markets, and telephone paging systems. Bogen also markets a line of high
performance, all environment speakers, based on technology of New England Audio
Resource Corp. ("NEAR"), acquired in 1997, and whose operations were combined
into Bogen in 1999. In the third quarter of 1999, Bogen acquired through its
newly formed subsidiary, Apogee, substantially all of the assets of Apogee
Sound, Inc., a privately held company headquartered in California. Through
Apogee, Bogen manufactures and distributes amplifiers, speakers, and related
products to the professional Audio market.
BOGEN'S PRODUCT LINES
TELCO U.S.
Bogen's Telco U.S. products consist of telephone-based overhead paging
systems and equipment and digital message/music-on-hold players. These products
allow installers to increase the value of their telephone system offerings by
providing users with enhanced efficiency and convenience. In 1997, Bogen
introduced a new MOH system, Pro-Hold DRDX. The DRDX products allow
music-on-hold programs to be downloaded to the user site remotely over telephone
lines, using a digital modem transfer, whereas the traditional Pro-Hold required
a cassette tape to be physically delivered to the user site. During 1999,
Bogen's Easy Install(TM) Speakers (2 models) and Easy Design(TM) Speakers (5
models) were introduced to the market. These products and their corresponding
design support tools are targeted at market segments that require faster install
time and have little experience in designing sound systems. Although the
speakers were initially designed for Telco products, they are adaptable for all
of Bogen's product lines.
Bogen's Telco U.S. net sales for the years ended December 31, 2000, 1999
and 1998 were $17,174,000, $13,574,000 and $12,850,000, respectively. Telco U.S.
net sales provided 25.9%, 22.9% and 24.4% of the Company's net sales for these
respective years. Speech Design also has a Telco line of products, the sales of
which are included below under the heading "Speech Design - Product Line".
COMMERCIAL AUDIO
Bogen's Commercial Audio product line consists of amplifiers, speakers,
microphones, intercom systems and other sound equipment used in non-consumer
applications, such as industrial public address systems, and background music in
offices, restaurants, hotels, stores, etc. During 1997, NEAR's All Environment
Speakers were added to Commercial Audio's product line.
Commercial Audio net sales for the years ended December 31, 2000, 1999 and
1998 were $9,739,000, $11,124,000 and $10,480,000, respectively. Commercial
Audio provided 14.7%, 18.7% and 19.9% of the Company's net sales for the years
ended December 31, 2000, 1999 and 1998, respectively.
3
PRO-AUDIO
In August 1999, Bogen acquired the Apogee product line, which includes
speakers and speaker systems, amplifiers, processors, and system-balancing and
design equipment for entertainment sound systems. Pro-Audio sales for the year
ended December 31, 2000, and the four months ended December 31, 1999, were
$5,906,000 and $2,185,000, respectively. Pro-Audio sales accounted for 8.9% and
3.7% of the Company's consolidated net sales for those years.
ENGINEERED SYSTEMS
Bogen's Engineered Systems product line features custom designed
intercom/paging systems that are sold to contractors for installation in
schools. For example, introduced in late 1996, the MULTICOM-DCS (Digital
Communication System) provides system users with high quality controlled speaker
and telephony functions through a single user interface. MULTICOM-DCS provides
full integration of the Company's MULTICOM paging Technology with COMDIAL PABX
systems.
During the second quarter of 1999, Bogen added a new line of Multi-Media
Controllers, marketed under the trade name "iQuest(TM)". Its Internet Protocol
("IP") based communication format allows educators to administer, schedule, view
and control educational media resources (such as multiple VCRs, DVDs, Laser
Disks, and others devices) remotely located in their school's media center.
Engineered Systems net sales for the years ended December 31, 2000, 1999
and 1998 were $12,647,000, $10,741,000 and $9,073,000 respectively. Engineered
Systems net sales accounted for 19.1%, 18.1% and 17.2% of the Company's net
sales for the years ended December 31, 2000, 1999 and 1998, respectively.
BOGEN'S SALES AND MARKETING
TELCO U.S. PRODUCT LINES
Bogen distributes its Telco products to approximately 90 distributors who
operate over 200 telecommunications distribution centers. These distributors
sell to thousands of telecommunications installers or interconnects across North
America. In addition to its distribution network, Bogen has a relationship with
over 70 message/music-on-hold studios that specialize in creating custom
messages. These studios sell their services along with Bogen's Telco products.
Bogen also has an original equipment manufacturer (OEM) agreement to supply
private label overhead paging systems to Avaya Communications, a recent spin-off
from Lucent Technologies ("Lucent").
Bogen markets its Telco products through a team of regional sales
representatives, who sell Bogen's Telco and other complementary products to
distributors in their assigned territories.
COMMERCIAL AUDIO, PRO-AUDIO, AND ENGINEERED SYSTEMS PRODUCT LINES
Bogen's Commercial Audio and Engineered Systems products are marketed
generally through an external field sales organization and several independent
manufacturers representatives under the direction of Bogen's internal sales
force. Both the external field sales group and the representatives are
responsible for assigned territories. The field sales personnel receive a salary
and bonus based on performance and the representatives are compensated on a
commission basis. Sales agreements are maintained with all of Bogen's
independent sales representatives and Engineered Systems contractors. The sales
representative agreements typically permit the sale of Bogen products by the
representative in a specific territory assigned to one or more sales
representatives. Similarly, the Engineered Systems contractor agreements
typically allow the contractor to purchase and install specific product lines in
a designated territory.
4
Bogen distributes its Commercial Audio products through about 1,000 active
distributors, dealers and contractors, often as complete system solutions
designed to satisfy an end-user's specific needs. Bogen's Commercial Audio
products are stocked by virtually every major sound master distributor,
industrial equipment distributor, and commercial security products distributor
in North America. In addition, approximately 150 major contractors and dealers
market Bogen's Engineered Systems. The principal users of these products are
industrial, professional, commercial and civic concerns and institutions such as
schools, nursing homes, correctional facilities, retail stores, restaurants and
churches. Bogen's management believes that these user markets are relatively
stable and that Bogen has developed significant name recognition in these
markets.
The Apogee product line was acquired by Bogen in August 1999 and consists
of a worldwide network of about 200 distributors, touring companies, and
contractors who specialize in the area of entertainment sound systems. The wide
Apogee line includes speakers and speaker systems, amplifiers, processors and
system balancing and design equipment. Apogee speaker products range from
compact cabinets for foreground music applications to large arrays that can
accommodate applications in theaters, arenas, stadiums, and other larger
facilities where high-quality entertainment sound is required. In addition to a
base of loyal customers in the United States, approximately 46% of Apogee's
business in 2000 was derived from export sales.
NEW PRODUCTS INTRODUCTION
In 2000, Bogen's new product introductions were heavily focused on the
commercial audio line. During 2000 Bogen introduced the M-Class power amplifier.
The M-Class is a family of 3 dual channel amplifiers with output powers ranging
from 300-watts/ channel to 600-watts/channel. These power levels are
significantly higher than any previous Bogen amplifier. All models allow users
to customize the product for their particular application through the use of
modules that plug into the amplifier. This amplifier line will help position
Bogen as a manufacturer of high power amplifier products, a valuable market
position that was previously unapproachable by Bogen because of a lack of
product offering.
Bogen also introduced the NEAR A-Series of "all environment loudspeakers" in
2000. This is a second-generation line of eighteen products, including product
variations, and builds off the successes of the previous AEL series of speakers.
This new line of speakers capitalizes on all the NEAR patented technology but
provides a more progressive look and better product finish than the products it
replaces and is expected to appeal to a wider range of applications.
A line of products closely associated with the A-Series, and also introduced in
2000, is the NEAR Rocks series. This is a line of high-quality landscape
loudspeakers designed for commercial applications in theme parks and other
outdoor venues. The line consists of four products, two basic "rock" styles each
available for either low impedance or 70V applications. NEAR designed sound
components are housed in a heavy, rugged and extremely realistic, artificial
"rock" cabinet. These speakers share many of the major audio components as the
A-Series and provide an excellent level of sound quality and environmental
resistance.
Microphones are a natural complement to both Bogen's product line and its
distribution channels. In 2000 Bogen introduced 9 new models of microphones
covering a wide range of applications. These additions increased Bogen's
microphone offering from 3 to 11 different models. The new models were designed
to Bogen's specifications and manufactured by one of the world's largest
manufacturers of microphones. They provide exceptional quality at price levels
that are expected to be attractive to Bogen's customers.
Bogen introduced a family of two high-quality microphone-line mixers. These
products allow the signals from up to eight different signal sources to be
combined into a single signal. Bogen's previous offerings in this product area
were limited. This product is a modified and private labeled version from a high
quality niche manufacturer located in the US. The addition of this product and
the microphones provides customers with a suitable number of alternative
products when it comes to providing the "front end" equipment for live sound and
sound reinforcement applications.
5
The TPU250 amplifier was introduced in 2000 to the Telco products market. The
TPU250 is the latest addition to the popular TPU series of amplifier. The TPU
amplifiers are designed expressly for telephone paging applications and consist
of four models total. The TPU250 more than doubles the maximum power handling
capacity of this amplifier family. The ability to provide significantly higher
powers expands the applications for the TPU amplifiers into larger venues
including warehouse style retail environments, which are believed to be a
growing application segment.
Bogen's Engineered Systems group introduced a line of clock products for
institutional use. The line consists of two families of analog faced clocks with
ten product variations, two families of digital readout clocks, with 15 product
variations, two versions of programmable master clock system controllers and a
global positioning receiver that provides accurate synchronization to the
national time standard. These products are private labeled exclusively for Bogen
by a US manufacturer.
BOGEN'S SALES OUTSIDE THE U.S.
Although Bogen's sales are primarily in the United States, Bogen also sells
its products in Canada through a stocking representative with offices throughout
Canada. Telco U.S.'s export sales to Europe are handled through the Company's
subsidiaries in Europe. Export sales to other foreign countries are handled in
the same manner as sales within the United States (i.e., through distributors,
dealers and contractors that purchase the products and sell them to an
established account base overseas). Sales outside the U.S. accounted for less
than 10% of Bogen's revenues in each of the last three fiscal years. Bogen
recognizes sales as foreign based upon shipping destination.
BOGEN'S SOURCING AND MATERIALS
All components and raw materials used in the construction of Bogen's
products are of standard commercial quality or better, and are readily available
from overseas and United States suppliers. Bogen relies principally upon
established suppliers and subcontractors primarily located in the Republic of
South Korea, and to a lesser extent elsewhere in East Asia, and the United
States. These suppliers and sub-contractors either produce sub-assemblies for
use in the finished product or produce and assemble the finished products
themselves. Products are based on Bogen designs and are built in accordance with
Bogen drawings and specifications. The majority of Apogee's finished products
are manufactured in its Petaluma, California, facility. Efforts to optimize all
aspects of Apogee's supply chain began in 2000 and will continue into 2001. Cost
savings and quality improvements realized during 2000 are intended to
significantly improve Apogee's performance in 2001.
In view of periodic economic instability in Asia, the Company takes
precautions to ensure that production will continue without interruption such as
assuring, to the extent practicable, that alternative sources of supplies and
subcontractors are available. There can be no assurance, however, that events
beyond the Company's control, including, without limitation, the financial
requirements of any of the Company's suppliers and subcontractors, will not
disrupt the production schedule or the Company's source of supplies. Any such
disruption may have a material adverse effect on the Company's results of
operations.
BOGEN'S PATENTS AND TRADEMARKS
"Bogen(R)" is a trademark of the Company, which is registered in the United
States and in certain foreign countries throughout the world. This trademark
expired in the United States in March 2000 and the Company filed for renewing it
for an additional 10 years. Bogen has also obtained U.S. trademark registration
for the trade name "Multicom2000(R)". This trademark is utilized in connection
with Engineered Systems and expires in June 2001. In addition, Bogen holds a
U.S. trademark for the mark "Speech Design(R)", which will expire on December
31, 2006 and which can be renewed at that time for an additional ten years. The
Company believes that certain of these trademarks provide substantial value to
the Company.
In June 1998, Bogen was awarded a patent for the technology of its Pro
Matrix(TM) amplifier product. In June 1999, Bogen was awarded a US patent for
its Pro DRDX product (an MOH system) technology. In addition, the Company has
one pending patent application for its automatic paging system technology
("APS2000") and additional pending claims for MOH. NEAR(TM) has two patents
related to its speaker products, one for its MLS (Magnetic Liquid Suspension)
Spider less cone speaker expiring in 2011 and the other for an in-ground
sub-woofer, which was granted in 1998, expiring in 2015.
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In 2000, the Company applied for a patent for its highly innovative Easy
Install(TM) speakers and received a design patent on its NEAR A-Series(TM)
speakers. There is no assurance that the Company's patent applications will be
granted, or, if granted, that they will provide the Company with exclusive
rights to sell or market a particular line of such product.
BOGEN'S RESEARCH AND DEVELOPMENT
Bogen's in-house engineering department ("R&D") is responsible for all
phases of new product development, continuing support of existing product,
specification and project management of products developed by its offshore
development group and OEM product evaluations. During 2000 much of Bogen's
engineering resources was focused on product development targeted at improving
Bogen's position in commercial audio products.
TELCO U.S.
In 2000, Bogen began development work on a next generation of the APS product.
This product is targeted for sale through Bogen's distributor channels. The new
APS product is being developed to keep the best features of the current APS
system but improve areas important to distributors, such as ease of
installation, intuitive operation and features, and a selling price appropriate
to the intended channel of distribution.
R&D also worked on an Underwriters Laboratory-listed ("UL") Easy-Install
speaker. Although there is no requirement for Easy Install speakers to meet UL
requirements, doing so may improve acceptance in certain areas of the country.
These areas have extremely rigorous fire codes that induce contractors to
install only UL listed products to avoid inspection issues.
Much of the latter part of 1999 was devoted to designing/customizing
products for Lucent. Over 40 products have been developed specifically for
Lucent. Introduced at the end of 1999, they had a material effect on Bogen's
sales in the year 2000.
COMMERCIAL AUDIO
A large portion of Bogen's R&D resources was concentrated on work on the M-Class
amplifier products and their associated input modules. The M-Class began
development in 1999 and finalization of a production-ready unit was performed
during 2000. The extremely demanding performance specifications, and the
complications of packaging such large amplifiers into relatively small
enclosures, proved challenging and led to improvements in Bogen's engineering
processes. Both the improvement in specification and the small format package
are favorable attributes, desired by the higher-end market segment at which this
product is targeted.
The M-Class amplifier relies on a family of six input modules that allow users
to tailor the amplifier for their specific applications. This diverse family of
modules was developed to address a wide variety of commercial audio, telco and
paging applications. Because of the large number of different modules, a second
development team was employed to complete their development.
Through the purchase of NEAR several years ago, Bogen acquired expertise in the
design of electro-acoustical drivers. The term "driver" in speaker development
refers to the actual component that converts the electrical energy to acoustical
energy. This expertise has been used to redesign many of drivers used in
Apogee's speaker systems. This redesign has provided Apogee with alternative and
more cost-effective sources for driver components in their speaker systems.
These custom-manufactured drivers conform to the performance and quality levels
required in Apogee's high-end products, while reducing costs by avoiding the
high markup of brand-named products and vendors who are sometimes in direct
competition with Apogee.
During 2000, Bogen also introduced a line of Landscape Loudspeakers under the
NEAR name. These speakers employ the same durable all-weather materials and
technologies as the new NEAR A-Series speakers, but in an extremely convincing
and durable rock-shaped cabinet. This product family is targeted for use by
commercial venues with outdoor entertainment areas, theme parks and high-end
residences. Bogen teamed up with a well-known manufacturer of theme park
sculptures to create and manufacture these realistic-looking speaker systems.
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Bogen's venerable CAM microphone mixer was redesigned during 2000 to improve
product features. The feature improvements surpass features found on competitive
units and are expected to make this product more desirable to the distributor
channel though which the majority of this product sells.
Historically, Bogen's selection of microphones was not considered a strongpoint
in its total product offering. To strengthen this area, Bogen teamed with one of
the world's largest manufacturers of microphones to develop a proprietary line
of products. Nine models of microphones, covering 6 different types of
microphones, were developed. R&D worked directly with the manufacturer,
evaluating and detailing the various modifications required. The resulting
models exhibit excellent audio performance with a high-quality look and finish,
while being priced at levels compatible with the intended distribution channels.
Bogen can now offer customers 11 different microphone, up from three, including
two of its classic microphones that are being retained.
PRO-AUDIO
During 2000, Apogee's in-house engineering department completed development of
its largest Linear Array Loudspeaker Model, the ALA-9. This product has been
developed specifically for large-scale events in arenas or stadiums, as well as
for permanent installation in any facility requiring an extremely powerful and
highly focused sound field. The ALA-9 gives Apogee access to a segment of the
market not previously addressed by its product line.
Additionally, research was completed and development was underway at the end of
2000 for a new line of self-powered loudspeakers to be released in the early
part of 2001. This new line has been specifically designed to position Apogee in
a new area of the product market.
ENGINEERED SYSTEMS
During 2000, R&D was involved with developing a Windows-based personal computer
interface (PCI) for its Multicom 2000 intercom system. This PCI allows Multicom
dealers to remotely maintain and modify the system parameters of individual
Multicom systems through a modem link. Additionally the Windows graphical users
interface was designed in such a way as to make entering or reviewing existing
system data much more intuitive than the previous DOS-based version of PCI.
ALL PRODUCT LINES
To attend to Bogen's traditional markets, a new line of high-powered, dual
channel amplifiers with unique and flexible features was in development during
the year. These amplifiers combine high styling as well as many advanced
features that provide excellent application flexibility and reliability in a
compact package. Work done in conjunction with an OEM vendor during 1999 is
providing two new models of rack mounted microphone/line mixers designed to
address a weak product coverage area in Bogen's current offering. Similarly, a
new line of microphones, also from an OEM vendor, will improve Bogen's product
scope in that area. There can be no assurances that any new products will be
able to compete with similar products offered by other manufacturers.
Research and development expenditures for the years ended December 31,
2000, 1999, and 1998 were $1,703,000, $1,971,000 and $1,567,000 respectively.
BOGEN'S COMPETITION AND MAJOR CUSTOMERS
Bogen's competition varies by market and product line. Bogen competes on
name recognition, price, delivery, availability, innovation and product features
and quality. However, such factors vary in relative importance depending on the
markets and products involved. Bogen has concentrated on markets in which it
believes that it can obtain a significant market share, be one of the top two or
three suppliers or which have substantial growth potential. Bogen's key strength
continues to be its distribution channels and name recognition, especially in
the school market, background/foreground music market, and the security markets.
8
Bogen's Telco U.S. products compete in the Music-On-Hold (`MOH") and over-head
paging niches of the Telco market. In the MOH market, Bogen's competitors are
relatively small companies that offer basic systems. Competition also comes from
the many telephone system manufacturers, which offer small voice mail systems as
options to their telephone equipment. In the over-head paging market, Bogen's
main competitor is Valcom, Inc., a company that has been established in this
market for several decades. Several other U.S. companies, which have been losing
market share over the past few years, and several companies attempting to enter
the market also compete with Bogen's over-head paging products. Bogen believes
it has increased its share in recent years.
The Commercial Audio customer market is characterized by intense
competition, particularly from several overseas companies, with no one company
accounting for more than 10% of the U.S. market. At the contractor level, Bogen
faces competition from many sources, including a number of overseas companies.
There are a number of comparatively small manufacturers with whom Bogen
competes, whose sales and market share depend upon established reputation for
quality and support and solid relationships with their account base. Bogen
concentrates on customer needs to design, manufacture and market tailored
packaged solutions for each particular vertical market.
The Engineered System customer market is a highly specialized market
characterized by low unit volume and high dollar sales. Bogen's principal
competition comes from Rauland Borg Corp., the market leader in this area, and
Dukane Corporation, each of which, like Bogen, has been in the market for
several decades and has well established name recognition and distribution
channels.
BACKLOG OF ORDERS
As of December 31, 2000, Bogen had a backlog of firm orders of about
$1,320,000, all of which it expects to fill within 2001. As of December 31,
1999, Bogen had a backlog of firm orders of approximately $1,733,000, all of
which were filled in 2000.
SPEECH DESIGN (FOREIGN OPERATIONS)
Speech Design, located in Munich, Germany, develops, manufactures and
markets telephone peripheral hardware utilizing digital voice processing
technologies.
Speech Design product lines include voice mail systems, automated
attendants, digital announcers, message/music-on-hold systems and Unified
Messaging products and services. Speech Design's products are in the Telco line
of products.
In late 1995, Speech Design launched its "Memo(TM)" product line of
stand-alone non-PC based voice mail peripherals for small-to-medium PABX's. The
high-end Memo-CDA model includes a CD based music and information on hold
system. Memo offers full integration with most of the popular PABX models on the
European market and has rapidly become one of the fastest selling voice mail
systems in the 2 - 4 port (channel) category. In late 1998, Speech Design
introduced the "Teleserver Pro(TM)" range of modular, higher-end (2 - 8 port)
voice and call processing peripherals. In addition to higher capacity voice mail
than possible with Memo, Teleserver also offers ACD (automatic call
distribution) functionality.
On December 31, 1998, Speech Design acquired 100% of Digitronic, located in
Northern Germany. Digitronic is a developer and manufacturer of LAN and
Internet-based Unified Messaging products. Digitronic's flagship product,
Thor(TM), improves communications within any enterprise and delivers value-added
services to Internet service providers ("ISPs") and mobile as well as fixed-line
carriers. Thor integrates fax and voice mail into an existing e-mail
environment. The user can retrieve and manipulate all messages either locally,
using the familiar PC-desktop, or remotely, via an Internet computer, telephone
or fax machine from anywhere in the world. Services such as listening to e-mails
on the telephone, forwarding e-mails or faxes to a fax machine nearby, or
message notification to a mobile phone are available. Thor has been sold to
several major ISPs operating in Europe, including America On Line, 1&1, GMX,
Freenet, Easynet and others. A first contract with a major carrier, Deutsche
Telekom, (DT) provides for the introduction of Thor-based services on DT's
fixed-line network in early 2001. The enterprise version, compatible with MS
Exchange, Lotus Notes and other corporate e-mail servers, was launched in
mid-1999.
9
SPEECH DESIGN'S PRODUCT LINE
Speech Design's products are in the Telco line. Telco net sales provided by
Speech Design were $20,797,000, $21,742,000 and $20,352,000 for the years ended
December 31, 2000, 1999 and 1998, respectively. Speech Design Telco sales
amounted to 31.4%, 36.6% and 38.6% of the Company's consolidated net sales for
these years.
SPEECH DESIGN'S SALES AND MARKETING
The general market for Speech Design's products is the underdeveloped, but
growing, European voice processing market for commercial and industrial
end-users. According to the Company's estimates, the current penetration in
Europe of applications such as voice mail is very low compared to the levels in
the U.S. In 1999, Speech Design entered the innovative and rapidly growing
Unified Messaging market.
In 1994, Speech Design acquired a 67% interest in Satelco, a Swiss company that
is a marketer of telephone peripherals and a distributor of Speech Design's and
Bogen's products. In order to further support its efforts to enter the UK
market, Speech Design founded a sales subsidiary, Speech Design (UK) Ltd., in
early 1996. Due to a slower-than-expected UK market development, Speech Design
(UK) Ltd. was closed effective December 31, 2000 (Speech Design continues to
sell to UK customers directly from Germany). Sales outside of Germany
constituted 16% of total sales in 2000 (down from 18% in 1999, largely due to
the strong growth of Digitronic with its mainly German sales).
In mid-1996, a manufacturing subsidiary, Speech Design (Israel) Ltd., was
founded in Israel and has assumed production of certain product lines from
Speech Design, resulting in reduced manufacturing cost and tax levels. The
Israeli facility was granted a 10-year income-tax exemption effective January 1,
1997. In 2000, approximately 35% of all units manufactured by Speech Design came
from the Israel facility.
Speech Design markets its PABX peripherals to major manufacturers and
distributors of PABX systems throughout Europe for use by mid-size companies
consisting of approximately 50-200 employees. PABX's are multiple-line business
telephone systems, which are installed at end users' businesses to facilitate
internal and external communications. The PABX is an alternative to providing
each employee in a company with his or her own direct line. The major
manufacturers integrate Speech Design's products with their PABX's for sale to
the end-user as part of a new system. The increased visibility of Speech
Design's products has led to more Speech Design peripherals being sold to owners
of previously installed PABX's.
Speech Design attempts to differentiate itself both from high-end suppliers
of large customized systems and suppliers of semi-professional, price-sensitive
solutions for the small company sector by providing standard, high-quality,
affordable and easy-to-use products for the small to mid-size PABX.
Speech Design sells its products through resellers. In Germany, Speech
Design's main customers are sales organizations of leading PABX manufacturers
and major independent dealers. In other European countries, Speech Design has
exclusive agreements with national distributors, which in Switzerland is a
Speech Design subsidiary, that market to the reseller base in their respective
territories. Sales to three customers of Speech Design totaled approximately
$13,734,000, accounting for 66% of Speech Design's net sales in 2000.
Thor unified messaging systems are sold directly to service providers
(ISP's and telecommunications carriers) as well as indirectly (through PABX
manufacturers and IT system integrators) to corporate customers. In 2000, Speech
Design has focused on developing sales of Thor platforms to mobile and fixed
line network operators ("carriers"). A major contract was signed with Deutsche
Telekom ("DT") in late 2000, with services to be launched in early 2001.
Revenues consist of per-mailbox pricing, maintenance fees and certain
development/customization fees. In addition, some contracts with ISP's/carriers
are based on revenue-sharing: the ISP or carrier provides access to their
customer base and marketing support, while the end-user pays a per-minute toll
to access Thor services (for example e-mail reading on the mobile phone) and a
portion of this revenue is passed back to Speech Design.
10
GERMANY
In Germany, Speech Design has developed an effective approach for local
distribution of voice processing products. Speech Design sells directly to the
regional sales offices of the leading manufacturers of PABX equipment including
Siemens, Tenovis (formerly Bosch Telecom), DeTeWe and DT. Approximately 70% of
Speech Design's sales are to these customers (which percentage corresponds to
these manufacturers' approximate joint share of the PABX market). Speech Design
has achieved central pricing agreements and technical as well as commercial
endorsements from the headquarters of each of these companies. The regional
offices of these companies consist of approximately 200 locations and a combined
sales force of approximately 3,000 people. Speech Design's own sales and
technical team of 20 individuals supports and motivates the regional sales
forces of the large PABX companies to actively market Speech Design's products.
Speech Design routinely updates its data bank of all PABX sales representatives
in Germany to help the sales team optimize communications and efficiency. In
late 1999, Speech Design entered into an OEM agreement with DT, under which DT
resells the full range of Speech Design's voice mail products. DT, Europe's
largest telecommunications company, offers the systems under its own "Octopus
Mail" trademark to its installed base of customers, as well as to new switch
customers.
In 2000, Speech Design intensified its efforts to sell voice mail systems
to the installed switch base ("the aftermarket"). Since the Company's
distributors mainly focus on sales to new switch customers, the aftermarket is
largely under penetrated and offers a significant sales potential. In late 1999
and 2000, Speech Design expanded its sales force to address the aftermarket,
mainly with the high-end Teleserver product.
Speech Design considers its sales network in Germany, Europe's largest
telecommunications market, to be one of its most valuable assets and a market
entry barrier to potential competitors.
For the enterprise version of Thor, Speech Design uses the existing PABX
sales channel and builds an additional IT system integrator reseller network.
For Thor sales to ISP's and carriers, potential German customers in this field
are being approached directly by Speech Design's senior key account executives.
OUTSIDE OF GERMANY
Speech Design utilizes exclusive national distributors in all major
European markets (Austria, Belgium, Denmark, Finland, France, Italy, The
Netherlands, The United Kingdom, Sweden and Switzerland). These distributors -
other than Satelco - are independent resellers of telecommunications equipment,
who market Speech Design's products to local manufacturers and distributors of
PABX's. In order to achieve the Company's planned rate of growth in export
sales, Speech Design has transferred some of the marketing methods used in
Germany to its other markets. There can be no assurance, however, that such
methods will prove successful in achieving further growth in these markets.
Speech Design's key account managers based in Germany are offering Thor
platforms and services to selected European ISP's and carriers.
SPEECH DESIGN'S SOURCING AND MATERIAL
Speech Design manufactures its products in cooperation with a network of
German subcontractors and its Israeli subsidiary. Speech Design purchases all
mechanical and electronic components for its products and ships them for
board-level assembly work by its subcontractors. Speech Design's own
manufacturing group assembles finished products from pre-tested modules and
performs final quality tests.
Thor Unified Messaging systems are assembled from standard PC-server
components (mainly sourced from Compaq) and standard communications boards from
several suppliers.
Speech Design maintains a computerized order processing and warehouse
system and a level of product availability that generally enables it to deliver
products in Germany on an average of three days after receipt of an order and
within two weeks after receipt of an order from other countries.
11
SPEECH DESIGN'S PATENTS AND TRADEMARKS
"Speech Design(TM)" is a registered trademark in Germany and the U.S.
Several of Speech Design's products also have registered trademarks including:
Mozart(TM), Genius(TM), and Sissy(TM) (Germany only).
SPEECH DESIGN'S RESEARCH AND DEVELOPMENT
Speech Design's in-house engineering department is responsible for research
and development and production engineering of all Speech Design products. In
2000, the R&D department focused on the development of Speech Design's next
generation call processing platform, suitable both for integration into PABX's
(switches) and for stand-alone operation. The platform offers higher scalability
(up to 30 ports), digital (ISDN) interfaces and a standard, open-platform
operating system (Linux). In comparison, the currently marketed Memo and
Teleserver product lines cannot be switch-integrated, scale to a maximum of 8
ports, have analog-only interfaces and are based on a proprietary operating
system. Under an EOM and Licensing Agreement, the first implementation of the
new platform will be an integrated voice mail system for a leading European
switch manufacturer.
The R&D team responsible for the development of the Thor unified messaging
platform and services is based at Digitronic in Northern Germany. In 2000, the
main effort was to develop a turnkey system aimed at ISPs and mobile telcos,
offering customers a rapid service rollout with a minimum investment of their
own in-house resources. The package includes web-based registration
infrastructure, database management and customized front-end design.
Customization of Thor for several added-value services at Deutsche Telekom and
evaluation projects with other potential carrier customers accounted for a
significant portion of the engineering effort in 2000.
Research and development expenditures for the years ended December 31, 2000,
1999 and 1998 were $1,048,000, $2,448,000, and $1,368,000. Most of the decrease
from 1999 to 2000 resulted from the accounting treatment of an OEM development
project (development costs charged to COGS) and from the capitalization of
third-party costs to subcontractors for the development of TeamPro (the
Teleserver call distribution subsystem).
SPEECH DESIGN'S COMPETITION
In Germany, Speech Design is the acknowledged market leader in the small to
mid-size PABX peripherals market. Speech Design's main competitor in Germany is
a provider of telephone peripherals primarily at the low-end of the Speech
Design product range (simple music-on-hold units and announcers). Speech
Design's management believes that its new Teleserver family of voice mail, ACD
and related products will increase its competitive advantage in Germany.
There is no single dominating company in the European market for small to
mid-size PABX peripherals. With the exception of Octel, Northern Telecom,
Lucent, and a handful of other competitors who are highly focused on the large,
customized systems market, Speech Design's competition comes from a large number
of smaller companies offering PC-based voice mail systems. These companies tend
to be highly focused in their national markets and generally cannot afford to be
global players due to the cost of establishing distribution channels and gaining
regulatory approval for selling telecommunications products in each country.
In the emerging market of Unified Messaging, Speech Design's main
competitor in the corporate area in Germany is Cycos, while the competition in
the carrier market mainly consists of companies that have supplied mobile and
fixed-line operators with their voice mail infrastructure. Such vendors
(Comverse, Lucent, Unisys and others) see Unified Messaging as an opportunity to
up-sell to the existing voice mail-only customer base.
Management believes that the combination of Speech Design's mid-size PABX
focus, broad and unique product range and Europe-wide distribution presence may
enable Speech Design to become a leading provider of telephone peripherals in
many European countries. There can be no assurance, however, that such results
will occur or that the Teleserver family of voice mail and related products and
Thor Unified Messaging System will increase Speech Design's competitive
advantage in Europe, because this industry is highly sensitive to general
economic conditions and is characterized by rapid technological change. Speech
Design's ability to compete successfully may depend in substantial measure on
its ability to develop or acquire new or improved equipment, techniques and
products and/or to modify and upgrade its existing equipment, techniques and
products.
12
SPEECH DESIGN'S BACKLOG OF ORDERS
As of December 31, 2000, Speech Design had a backlog of firm orders of
approximately $552,000, all of which it expects to fill in 2001. As of December
31, 1999, Speech Design had a backlog of firm orders of approximately
$1,012,000, all of which were filled in 2000.
GOVERNMENT REGULATIONS AND INDUSTRY CERTIFICATIONS
The U.S. federal government regulates domestic telecommunications equipment
and related industries. The federal agency vested with primary jurisdiction over
the telecommunication industry is the Federal Communications Commission (the
"FCC"). Many telephone peripheral producers and distributors, while not directly
regulated by the FCC, are nevertheless substantially affected by the enforcement
of its regulations and changes in its regulatory policy.
The FCC has adopted regulations regarding attachments to the telephone
networks as well as regulations imposing radio frequency emanation standards for
computing and radio equipment and many of Bogen's products require authorization
by the FCC. In addition, many of Bogen's products also require the authorization
of the Underwriter's Laboratory ("UL"). All such required authorizations have
been obtained. As a result of modifications and improvements to Bogen's
products, Bogen will be obligated to seek new authorizations where there is
degradation in the radio frequency emissions. Failure to obtain such
authorizations may preclude Bogen from selling its products in the U.S. Bogen
makes all reasonable efforts to ensure that its products comply with such
requirements.
To successfully access the Canadian market, Bogen must obtain Underwriters
Laboratory Canada and Canadian Standards Association authorizations for all AC
powered products, which it has done for all of its current products.
All Speech Design products have been adapted to the technical
(PTT-approvals) and commercial audio requirements of West European markets. All
Speech Design products carry the Community European ("CE") marking, which is the
equivalent of a UL certification in the United States.
In 1995, Speech Design received the ISO 9001 Quality Certificate for its
research and development, production and customer support operations in Germany.
In 1996, the Quality Mark was extended to include Speech Design's Israel
subsidiary. In 1999, Digitronic was certified. ISO 9001 is an internationally
recognized Quality Assurance certification.
EMPLOYEES
As of December 31, 2000, the Company had approximately 285 full-time
employees engaged in its businesses. The Company also uses temporary and/or
part-time employees, as required. About 20 of Bogen's U.S. employees are subject
to collective bargaining agreements, which expire in June and September of 2003.
The Company considers its relationship with its employees to be satisfactory.
ITEM 2. PROPERTIES
The Registrant's principal place of business is located at 50 Spring
Street, Ramsey, New Jersey 07446, which is subleased from an unaffiliated third
party. Bogen also maintains its principal warehouse and executive offices at
that location. The lease, which covers approximately 70,000 square feet,
commenced on January 1, 1987 and was extended for 10 years on November 28, 2000.
Annual base rental payments over the remainder of the lease are approximately
$527,000, plus taxes and other expenses. Apogee leases approximately 30,000
square feet for its facility in Petaluma, California under a lease, which
commenced in April 2000, and expires on March 31, 2005. Annual rental payments
over the remainder of the lease are approximately $265,000.
Speech Design leases its facilities in Munich, Germany, under a lease
expiring in September 2005. It is comprised of a warehouse and executive
offices, covering a total of 13,500 square feet. Speech Design's subsidiaries
have leases in Wedel, Germany, Israel, and Switzerland, which expire over the
next five years. Speech Design and subsidiaries' aggregate annual rental
payments are approximately $375,000.
Management of the Company believes that the facilities occupied by the Company
and its subsidiaries are adequate to meet current needs.
13
ITEM 3. LEGAL PROCEEDINGS
The Company is not aware of any material pending or threatened legal
proceedings to which it is a party or of which any of its property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
PART II
ITEM 5. MARKET PRICE FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Registrant's Common Stock currently trades on the NASDAQ National
Market System ("NASDAQ") under the symbol "BOGN
The following table sets forth the range of high and low closing prices for
the Common Stock on NASDAQ, and for Warrants (see Note 12 regarding redemption
and cancellation of Warrants) as reported by the OTC Bulletin Board, for each of
the fiscal quarters during the period from January 1, 1999, through December 31,
2000. The quoted prices represent "inter-dealer" prices without retail markups,
markdowns or commissions and may not necessarily represent actual transactions.
JANUARY 1 TO MARCH 31, 1999
SECURITY HIGH ($) LOW ($)
-------- ----- ----
Common Stock................................ 8 5/8 5 13/16
Warrants.................................... 3 3/8 1 11/16
APRIL 1 TO JUNE 30, 1999
SECURITY HIGH ($) LOW ($)
-------- ---- ----
Common Stock................................. 9 3/8 6 1/8
Warrants..................................... 3 7/16 1 11/16
JULY 1 TO SEPTEMBER 30, 1999
SECURITY HIGH ($) LOW ($)
-------- ----- ----
Common Stock................................. 6 15/16 5 7/16
Warrants..................................... 2 7/16 1 1/4
OCTOBER 1 TO DECEMBER 31, 1999
SECURITY HIGH ($) LOW ($)
-------- ---- ---
Common Stock................................ 9 5/16 5 1/4
Warrants.................................... 2 5/8 1 1/8
JANUARY 1 TO MARCH 31, 2000
SECURITY HIGH ($) LOW ($)
-------- ---- ---
Common Stock............................... 16 6 5/8
Warrants................................... 9 3/8 1 11/16
14
APRIL 1 TO JUNE 30, 2000
SECURITY HIGH ($) LOW ($)
-------- ---- ---
Common Stock............................... 10 3/16 5 9/16
Warrants................................... 4 7/16 1/2
JULY 1 TO SEPTEMBER 30, 2000
SECURITY HIGH ($) LOW ($)
-------- ----- ----
Common Stock............................... 7 5/8 5 1/2
OCTOBER 1 TO DECEMBER 31, 2000
SECURITY HIGH ($) LOW ($)
-------- ----- ----
Common Stock................................ 6 19/64 3 11/16
The Registrant has not declared or paid any cash dividends on its Common
Stock since commencing operations and currently does not anticipate paying any
dividends on the Common Stock in the foreseeable future. As of March 15, 2001,
there were approximately 143 record holders of the Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes certain selected consolidated financial
information for the Company and should be read in conjunction with the more
detailed consolidated financial statements and the notes thereto. See "Item 8.
Financial Statements and Supplementary Data."
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Net sales (1)........... $66,263 $59,366 $52,757 $50,522 $46,987
Gross profit (1)........ $31,103 $29,048 $24,656 $22,114 $20,320
Purchased In-Process Research
and Development........ - - $ 3,885 - -
Income from
operations............. 4,135 $ 5,206 $ 2,730 $ 5,093 $ 4,658
Net income.............. 3,066 $ 3,500 $ 342 $ 2,665 $ 2,008
Preferred dividends...... - - $ 900 $ 178 -
Net income (loss)
Available to common
shareholders............ $ 3,066 $ 3,500 $ (558) $ 2,487 $ 2,008
Net income (loss) per
Common share - Basic.... $ 0.33 $ 0.52 $ (0.12) $ 0.46 $ 0.35
Net income (loss) per
Common share - Diluted.. $ 0.31 $ 0.45 $ (0.12) $ 0.46 $ 0.35
(1) In 2000, the Company adopted the provisions of the FASB's Emerging Issues
Task Force (EITF), Issue No. 00-10, "Accounting for Shipping and Handling Fees
and Costs," which requires the Company to report all amounts billed to a
customer related to shipping and handling costs as revenue and report all costs
incurred by the seller for shipping and handling as cost of goods sold.
Consequently, the Company has reclassified such revenues and expense
15
amounts, which were previously netted in selling, general, and administrative,
to sales and cost of goods sold. As a result of this reclassification, sales
were increased by $1,009, $879, $654, $743, and $718 and cost of sales were
increased by $2,261, $1,924, $1,443, and $1,723, and $1,663 for the years ended
December 31, 2000, 1999, 1998, 1997, and 1996, respectively. There is no effect
on operating income. BALANCE SHEETS FOR THE YEARS ENDED DECEMBER 31,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Total assets................ $61,112 $43,478 $37,747 $ 31,970 $31,386
Long-term debt
(net of current maturities) $ 288 $ 699 $ 227 $ 212 $ 370
The Company did not pay a cash dividend on the Common Stock during any
period indicated.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The consolidated financial statements and the following discussion include
the Registrant's 99% owned subsidiary Bogen; Bogen's wholly-owned subsidiary,
BCI; BCI's wholly-owned subsidiaries, NEAR (until December 31, 1999) and, as of
August 27, 1999, Apogee; Speech Design, a wholly-owned subsidiary of the
Registrant as of May 21, 1998, when the Registrant acquired the remaining 33%
equity it did not previously own; Satelco, a 67% owned subsidiary of Speech
Design; and Speech Design's wholly-owned subsidiaries, Speech Design (Israel)
Ltd., Speech Design (UK) Ltd. (closed effective December 31, 2000), and
Digitronic, which was acquired December 31, 1998. All significant inter-company
balances and transactions have been eliminated in consolidation. Certain prior
years balances have been reclassified to conform to the current year
presentation.
The ownership interest of minority owners in the equity and earnings of the
Company's less than 100 percent-owned consolidated subsidiaries is recorded as
minority interest.
RESULTS OF OPERATIONS 2000 COMPARED TO 1999
NET SALES
Net sales of $66,263,000 for 2000 increased 11.6% from 1999 net sales of
$59,366,000. Bogen's revenues excluding Apogee grew by 11.6%, primarily due to
growth in Telco and Engineered Systems, which increased $3,600,000 and
$1,906,000, respectively, over 1999. Speech Design revenues declined 4.3% in
U.S. dollars from 1999 although in local currency Speech Design revenues grew
9.1 %; currency exchange fluctuation negatively impacted reported revenues.
BOGEN (DOMESTIC)
Telco (U.S.) net sales in 2000 amounted to $17,174,000 compared to
$13,574,000 in 1999, an increase of $3,600,000 or 26.5%. The increase of Telco
sales is attributable to sales achieved under the Lucent OEM agreement entered
into in November 1999, partly offset by a decrease in sales of non-OEM product.
Net sales of Commercial Audio products amounted to $9,739,000 in 2000, a
decrease of 12.5% from net sales of $11,124,000 of such products in 1999. The
decrease reflects the continued weakness of overall demand and the withdrawal
from the NEAR Home Theater market.
Net sales of Pro Audio products, through Apogee, amounted to $5,906,000 in
2000, up significantly from $2,185,000 in 1999. The increase results from the
full year inclusion of Apogee, which was acquired in August 1999.
Net sales of the Engineered System line increased $1,906,000, or 17.7%,
from $10,741,000 in 1999 to $12,647,000 in 2000. This increase is primarily
attributed to the introduction of new products, the expansion of the Bogen sales
force and continuing availability of funding for school technology and
communications installations.
16
SPEECH DESIGN (FOREIGN)
Speech Design's products are in the Telco line. Net sales in 2000 amounted
to $20,797,000 compared to $21,742,000 in 1999, a decrease of 4.3%. In Deutsche
Marks ("DM"), net sales in 2000 increased to 43,890,000 DM, 9.1% over 40,245,000
DM for 1999.
GROSS PROFIT
The Company's gross profit in 2000 was $31,103,000, or approximately 46.9%
of sales, an increase of $2,055,000, or 7.1%, compared to $29,048,000, or 48.9%
of sales, in 1999.
Bogen's gross profit increased from $16,319,000 in 1999, to $19,530,000 in
2000. Gross profit as a percentage of sales decreased slightly from 43.4% in
1999 to 43.0% in 2000. This decrease reflects the full year inclusion of Apogee
product sales, which traditionally obtain lower gross margins than core Bogen
products, offset by improvements achieved by reducing overhead cost through the
outsourcing of the NEAR manufacturing operations in July 1999 and the better
absorption of fixed costs relative to sales volume.
Speech Design's gross profit decreased from $12,729,000 in 1999 to $
11,573,000 in 2000. Gross profit as a percentage of sales decreased from 58.5%
to 55.6% from 1999 to 2000. The decrease in gross profit as a percentage of
sales is primarily a result of the recognition, as cost of goods sold, of
certain research and development expenses incurred for developing a software
enhancement to a standard Speech Design product for an OEM development project
in 2000. The project generated increased cost of goods sold, offset by the
reduction of research and development expenses.
ONGOING RESEARCH AND DEVELOPMENT
Research and Development expense (R&D) was $2,751,000, or 4.2 % of sales in
2000, compared to $4,419,000, or 7.6% of sales in 1999. This decrease primarily
reflects Speech Design's reduction of research and development expenses,
relating to fees for an OEM project which were recognized as cost of sales, and
Bogen's reduction of certain outside development fees offset by the full year
inclusion of research and development expenses at Apogee.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") increased by
$4,643,000, or 25.0%, from 1999 to 2000. SG&A expense was $23,200,000, or 35.0%
of sales, in 2000 compared to $18,557,000, or 31.3% of sales, in 1999. SG&A
expenses include approximately $1,400,000 of additional costs due to the full
year inclusion of Apogee. The remaining increase is generally a result of
expenses incurred to support sales and marketing programs for existing and new
product lines at Bogen, in particular the Lucent OEM business, the marketing of
Speech Design's new Teleserver Pro and Thor platforms in Europe, and the
expansion of the sales force at Speech Design to address the PABX after-market.
SG&A expenses also increased approximately $310,000 for expense incurred in
connection with the Company's ongoing exploration of alternatives for enhancing
value, including but not limited to, a possible separation of the U.S. and
European businesses, entirely or in stages.
INTEREST INCOME AND EXPENSE
Interest income was $465,000 in 2000, an increase of $408,000 from $57,000
in 1999. The increase in interest income primarily reflects the Company's
investment of net cash proceeds from the warrants exercised in the first half of
2000.
Interest expense, was $173,000 in 2000, a decrease of $92,000, or 34.7%,
from $265,000 in 1999. The decrease is primarily a result of the Company's
overall reduced borrowing requirements on short-term credit lines.
INCOME TAXES
The Company incurred approximately $1,381,000 in taxes in 2000, a decrease
of $56,000 from
17
$1,437,000 in 1999. Foreign taxes decreased by $748,000, mainly as a result of
the Company's ability to utilize certain foreign loss carry forwards, the
reduction of a portion of the foreign operations' valuation allowances and
reduced profits. Domestic taxes increased by $692,000 from 1999 primarily
resulting from the reduction of a portion of the U.S. operation's valuation
allowance in 1999, which did not recur in 2000.
RESULTS OF OPERATIONS 1999 COMPARED TO 1998
NET SALES
Net sales of $59,366,000 for 1999 increased 12.5% from 1998 net sales of
$52,757,000. Approximately 47% of the improvement came from organic growth at
Bogen and Speech Design. The remainder was a result of the acquisitions of
Digitronic and Apogee, representing $1,337,000 and $2,185,000, respectively.
Bogen's revenues, excluding Apogee grew by 9.4%, mainly in Engineered Systems,
which increased $1,668,000 over 1998. Speech Design revenues, excluding
Digitronic, were virtually flat compared to 1998. Although in local currency
Speech Design revenues grew 4.6%, currency exchange fluctuation negatively
impacted reported revenues.
BOGEN (DOMESTIC)
Telco (U.S.) net sales in 1999 amounted to $13,574,000 compared to
$12,850,000 in 1998, an increase of $724,000 or 5.6%. The increase of Telco
sales is primarily attributable to sales achieved under the Lucent OEM agreement
entered into in November 1999.
Net sales of Commercial Audio products amounted to $11,124,000 in 1999, an
increase of 6.1% from net sales of $10,480,000 of such products in 1998. This
increase is primarily due to higher sales volume and a better focus by the
Company's commercial audio sales force.
Net sales of Pro Audio products, through Apogee, acquired in August of 1999
amounted to $2,185,000 in 1999.
Net sales of the Engineered System line increased $1,668,000, or 18.4%,
from $9,073,000 in 1998 to $10,741,000 in 1999. This increase is primarily
attributed to expanding the Bogen sales force and increased availability of
funding for school technology and communications installations.
SPEECH DESIGN (FOREIGN)
Speech Design's products are in the Telco line. Net sales amounted to
$21,742,000 in 1999 as compared to $20,352,000 in 1998, an increase of 6.8%.
Foreign net sales stated in local currency increased to 40,245,000 Deutsche
Marks ("DM") in 1999, 12.0% over net sales of 35,943,000 DM for 1998. The
increase is primarily due to the inclusion of Digitronic's revenues, which was
acquired in December 1998.
GROSS PROFIT
The Company's gross profit in 1999 was $29,048,000, or approximately 48.9%
of sales, an increase of $4,392,000, or 17.8%, compared to $24,656,000, or 46.7%
of sales, in 1998.
Bogen's gross profit increased from $13,408,000, or 41.4% of sales in 1998,
to $16,319,000, or 43.4% of sales in 1999. This increase is due primarily to a
reduction of direct materials from successful negotiation with suppliers in 1999
and a moderate price increase in the second quarter of 1998 for the Engineered
Systems product line. In addition, re-engineering of certain products
contributed to further cost reductions.
Speech Design's gross profit increased from $11,248,000 in 1998 to
$12,729,000 in 1999. Gross profit as a percentage of sales increased from 55.3%
to 58.5% from 1998 to 1999. The increase in gross profit as a percentage of
sales is primarily a result of increased sales of products with higher
contribution margins.
ONGOING RESEARCH AND DEVELOPMENT
Research and Development expense (R&D) was $4,419,000, or 7.4% of sales in
1999, compared to $2,935,000, or 5.5% of sales in 1998. This represents a
planned $1,484,000 increase from 1998. The increase is primarily attributable to
the additional development costs for Speech Design's Teleserver Pro and Thor
products, continuing development of new products at Bogen, and the effects of
the Digitronic and Apogee acquisitions, which approximated $385,000.
18
IN-PROCESS RESEARCH & DEVELOPMENT
During 1998, the Company recorded charges of $3,885,000 for the write-off
of in-process R&D acquired in connection with the Company's business
acquisitions. The charges were comprised of (i) $2,905,000 as an in-process R&D
charge for the purchase of the remaining 33% equity in Speech Design not
previously owned by the Company and (ii) $980,000 for the acquisition of
Digitronic.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") increased by
$4,063,000, or 28.0%, from 1998 to 1999. SG&A expense was $18,557,000, or 31.3%
of sales, in 1999 compared to $14,494,000, or 27.4% of sales, in 1998. This
planned increase is generally a result of expenses incurred as part of the
Company's implementation of new sales and marketing programs for existing and
new product lines at Bogen, the marketing of Speech Design's new Teleserver Pro
and Thor platforms in Europe, and the establishment of a sales force at Speech
Design to address the PABX after-market. Additionally, the Company incurred
certain costs for the installation and implementation of an enterprise resource
planning (ERP) system at Bogen. SG&A expenses also increased approximately
$1,379,000 due to the additions of Digitronic and Apogee.
INTEREST EXPENSE, NET
Interest expense, net, was $208,000 in 1999, a decrease of $67,000, or
24.4%, from to $275,000 in 1998. The decrease is primarily a result of the
Company's overall reduced borrowing requirements on short-term credit lines from
1998, offset by additional interest expense on short-term debt assumed with the
Digitronic acquisition on December 31, 1998, and the assumption or payment of
liabilities related to the Apogee acquisition.
INCOME TAXES
The Company incurred approximately $1,437,000 in taxes in 1999, a $472,000
decrease from 1998. Foreign taxes decreased by $544,000, mainly as a result of
reduced profits. Domestic taxes increased by $72,000, resulting from increased
profits at Bogen.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
During 2000, the Company continued to focus on long-term growth in its
profitable product lines. Cash utilization focused on current working capital
requirements, the reduction of debt, and systems hardware and software
improvements.
The Company's operating activities used $2,967,000 of net cash. The
Company's net income of $3,066,000 included net non-cash charges of $2,703,000,
which were: depreciation and amortization expenses of $2,566,000; increased
accounts receivable and inventory obsolescence reserves of $483,000; acquired
tax benefits charged to goodwill of $107,000, and minority interest expense of
$80. These non-cash expenses were partly offset by deferred income taxes of
$533,000. Receivables increased by $260,000, inventory increased by $5,637,000,
prepaid expenses and other current assets increased $352,000, accounts payable
decreased by $2,036,000, and net changes in other operating assets and
liabilities amounted to $451,000.
Net cash expended for investing activities amounted to $2,373,000 including
$2,061,000 for equipment, computer hardware and software, and other fixed assets
and $312,000 for goodwill and other intangible assets.
Net cash provided by financing activities was $16,750,000. Net proceeds of
$18,140,000 were received from sales of shares of Common Stock upon the exercise
of warrants and stock options. The Company paid down $1,150,000 of its existing
lines of credit and $240,000 of capitalized lease obligations.
As of December 31, 2000, the Company's total liabilities were $9,565,000,
of which $8,074,000 is due and payable within one year.
On April 21, 1998, the Registrant and BCI entered into a $27 million credit
facility (the Facility") with KeyBank N.A., which matures on April 30, 2001. The
Facility replaced a previous bank agreement.
19
The Facility provides, subject to certain criteria, for a $20 million revolving
line of credit for acquisition financing and a $7 million working capital line.
The Facility bears interest at either the bank's prime rate or, at the
borrower's option, LIBOR plus 125 to 200 basis points, based on certain
financial conditions. The Facility is collateralized by substantially all the
domestic assets of the Company and guaranteed by Bogen financial covenants, with
which it was not in compliance as of December 31, 2000. The Company has received
a waiver from KeyBank N.A.
Speech Design has credit lines and overdraft facilities of approximately
9,100 DM (approximately $4.4 million) from seven banks. Speech Design's
short-term lines of credit are collateralized by all of Speech Design's accounts
receivable and inventory. During the third quarter of 1998, Speech Design
secured a 15 million DM ($7.2 million) credit facility for acquisition financing
from D.G. Bank of Frankfurt. The interest rate under the new credit facility is
up to 200 basis points above the German LIBOR rate.
As of December 31, 2000, Bogen had no short-term domestic borrowings
outstanding under the Facility. At December 31, 2000, Speech Design had
short-term borrowings amounting to $1,201,000. The amounts available under these
credit lines were $3,177,000 at December 31, 2000, with rates tied to short-term
bank notes and Euromarket loans. At December 31, 2000, interest rates on these
short-term lines ranged from 5.4% to 11.5%. There were no borrowings under
either acquisition credit facilities.
The Company believes that it has adequate liquidity to finance its ongoing
activities and capital expenditures for the near term.
INFLATION
Inflation did not have a material effect on the Company's results during
the periods discussed herein.
CURRENCY FLUCTUATIONS
Approximately 31% of the Company's 2000 revenues were derived outside of
the United States, primarily in Germany. Accordingly, currency fluctuations may
impact the Company's earnings. Over the course of 2000, the Deutsche Mark
exchange rate averaged DM 2.1216 to the U.S. dollar, with a low of 1.8772 and a
high of 2.3768. This represents a 26.6% movement of the DM vs. the U.S. dollar
throughout the year.
Local currencies are considered to be the functional currencies of the
Company and its subsidiaries. Translation adjustments that arise from
translation of the Company and its subsidiaries' financial statements are
accumulated in a separate component of stockholders' equity. Transaction gains
and losses that arise from exchange rate changes on transactions denominated in
a currency other than local currencies are included in income as incurred.
ECONOMIC ENVIRONMENT-ASIA
Bogen relies principally upon an established network of suppliers and
subcontractors primarily located in the Republic of South Korea, and to a lesser
extent in the Asia Pacific Region, and in the United States. Over the last two
years, since the economic crisis of 1997 and 1998 in the Asia Pacific Region,
financial conditions have improved and stabilized in the Republic of South
Korea. The Company's manufacturing partners are believed to be financially
stable. Due to growth within the Company and within certain industries, these
partners have expanded operations and hired additional resources.
The Company continues to enjoy the long-established relationships it has
built with these manufacturing partners. The Company approved additional
manufacturing partners in 1999 in the United States, Mexico, and Switzerland as
part of an effort to diversify and expand its manufacturing sources. However,
there can be no assurances that events beyond the Company's control will not
disrupt production or that suitable alternative sources of production can be
identified on a timely basis, thereby resulting in material adverse effects on
the Company's results of operations.
OTHER
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, The Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that a company recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments
20
at fair value. If certain conditions are met, a derivative may be specifically
designated as a hedge. The accounting for changes in the fair value of a
derivative (i.e., gains and losses) depends on the intended use of the
derivative and the resulting designation. SFAS No. 133, as amended by SFAS No.
138, will be effective for the Company's fiscal year beginning January 1, 2001.
The Company has only limited involvement with derivative financial instruments
and uses them only to manage foreign currency risks. As of December 31, 2000,
the Company does not have any derivative financial instruments.
In 2000, the Company adopted the provisions of the FASB's Emerging Issues
Task Force (EITF), Issue No. 00-10, "Accounting for Shipping and Handling Fees
and Costs," which requires the Company to report all amounts billed to a
customer related to shipping and handling costs as revenue and report all costs
incurred by the seller for shipping and handling as cost of goods sold.
Consequently, the Company has reclassified such revenues and expense amounts,
which were previously netted in selling, general, and administrative, to sales
and cost of goods sold. As a result of this reclassification, sales were
increased by $1,009; $879; and $654 and cost of sales were increased by $2,261;
$1,924; and $1,443 for the years ended December 31, 2000, 1999 and 1998;
respectively. There is no effect on operating income.
EURO CONVERSION
On January 1, 1999, eleven of the fifteen member countries of the European
Union (the "participating countries") established fixed conversion rates between
their existing sovereign currencies (the "legacy currencies") and the Euro. The
participating countries adopted the Euro as their common legal currency on that
date. As of January 1, 1999, a newly created European Central Bank was
established to control monetary policy, including money supply and interest
rates for the participating countries. The legacy currencies are scheduled to
remain legal tender in the participating countries as denominations of the euro
between January 1, 1999, and January 1, 2002 (the "transition period"). During
the transition period, public and private parties may pay for goods and services
using either the Euro or the participating country's legacy currency on a "no
compulsion, no prohibition" basis.
The Company has evaluated and continues to evaluate on an on-going basis
the effects, if any, of the Euro conversion upon its business. Factors being
considered include, but are not limited to: the possible impact of the Euro
conversion on revenues, expenses, and income from operations, the ability to
adapt information technology to accommodate Euro-denominated transactions, the
market risks with respect to financial instruments, the continuity of material
contracts, and the potential tax consequences.
The Company does not believe that the Euro-conversion has had or will have
a material operational or financial impact.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, the Company is exposed to fluctuations in
interest rates on the Company's debt and credit facilities. The Company is also
exposed to fluctuations in foreign currency exchange rates as the financial
results of its foreign subsidiaries are translated into U.S. dollars in
consolidation. In general, the Company does not use derivative instruments or
hedging to manage its exposures and does not currently hold any material market
risk sensitive instruments for trading purposes at December 31, 2000.
The information below summarizes the Company's market risk associated with
its debt obligations as of December 31, 2000. Fair value included herein has
been estimated taking into consideration the nature and term of the debt
instrument and the prevailing economic and market conditions at the balance
sheet date. The table below presents principal cash flows by year of maturity
based on the terms of the debt. The variable interest rate disclosed represents
the rate at December 31, 2000. Changes in the LIBOR and Prime interest rates
during fiscal 2001 will have a positive or negative effect on the Company's
interest expense. Each 1% fluctuation in the LIBOR and Prime interest rates will
increase or decrease annual interest expense for the Company by approximately
$13, based on the debt outstanding as of December 31, 2000. Further information
specific to the Company's debt is presented in Notes 7 and 8 to the consolidated
financial statements.
21
ESTIMATED CARRYING YEAR OF
DESCRIPTION FAIR VALUE AMOUNT MATURITY 2001
----------- ---------- -------- -------------
Revolving credit
facilities................ $1,201,000 $1,201,000 $1,201,000
Variable Interest Rate
o Prime........... 9.5000%
o LIBOR....... 6.5650%
o LIBOR-Germany.. 4.8500%
Advances and notes payable
to third party............. $ 124,000 $ 124,000 $ 124,000
o Swiss variable interest rate 4.25%
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FINANCIAL INFORMATION
(a) The Company operates in two reportable business segments, Bogen
(domestic) and Speech Design (foreign). The domestic operations are engaged in
the development and manufacturing of sound processing and telecommunication
products in the United States (Bogen). The foreign operations, through Speech
Design, are engaged in the development, manufacturing and marketing of telephone
peripheral hardware and Unified Messaging products and services.
Financial information regarding the breakdown of the Company's foreign and
domestic operations is disclosed in note 17 to the Company's Consolidated
Financial Statements.
22
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
PAGES
-----
Financial Statements:
Report of Independent Auditors F-1
Consolidated Balance Sheets as of December 31, 2000 and 1999 F-2
Consolidated Statements of Operations for the years ended
December 31, 2000, 1999, and 1998 F-3
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 2000, 1999, and 1998 F-4
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999, and 1998 F-5-6
Notes to Consolidated Financial Statements F-7-21
The following consolidated financial statement schedule of Bogen Communications
International, Inc. is included in Item 14(a) 2:
II. VALUATION AND QUALIFYING ACCOUNTS
All other schedules are omitted as the required information is inapplicable or
the information is presented in the consolidated financial statements or related
notes.
23
INDEPENDENT AUDITOR'S REPORT
The Stockholders and Board of Directors
Bogen Communications International, Inc:
We have audited the consolidated financial statements of Bogen Communications
International, Inc. and subsidiaries as listed in the accompanying index as of
December 31, 2000 and 1999, and for each of the years in the three-year period
ended December 31, 2000. In connection with our audits of the consolidated
financial statements, we also have audited the financial statement schedule as
listed in the accompanying index. These consolidated financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
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 financial position of Bogen Communications
International, Inc. and subsidiaries as of December 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States of America. Also in our
opinion the related financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
KPMG LLP
Short Hills, New Jersey
February 28, 2001
F-1
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
2000 1999
-------- --------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 12,158 $ 792
Trade receivables (less allowance for doubtful amounts
of $557 and $650 at December 31, 2000 and 1999, respectively) 7,433 8,359
Other receivables 847 96
Inventories, net 14,608 9,310
Prepaid expenses and other current assets 1,063 658
Deferred income taxes 1,591 882
-------- --------
TOTAL CURRENT ASSETS 37,700 20,097
Equipment and leasehold improvements, net 4,299 3,837
Goodwill and intangible assets, net 18,840 19,730
Other assets 273 214
-------- --------
TOTAL ASSETS $ 61,112 $ 43,878
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Amounts outstanding under revolving credit agreements $ 1,201 $ 2,339
Advances and notes payable to related parties 124 -
Current maturities of capital lease obligations 245 224
Accounts payable 2,684 4,199
Accrued expenses 3,428 3,167
Income taxes payable 392 1,431
-------- --------
TOTAL CURRENT LIABILITIES 8,074 11,360
Advances and notes payable to related parties - 194
Deferred income taxes 1,123 1,024
Capital lease obligations 288 505
Minority interest 80 -
-------- --------
TOTAL LIABILITIES 9,565 13,083
-------- --------
STOCKHOLDERS' EQUITY
Preferred stock - $.001 par value; 1,000,000
shares authorized; none issued and
outstanding at December 31, 2000 and 1999 - -
Common stock - $.001 par value; 50,000,000
shares authorized; 10,112,956 and
6,784,121 shares outstanding at December 31,
2000 and 1999, respectively 10 7
Additional paid-in-capital 48,283 30,093
Retained earnings 4,318 1,252
Accumulated other comprehensive loss (1,032) (557)
Treasury stock at cost - 3,572 shares at December 31, 2000 (32) -
-------- --------
TOTAL STOCKHOLDERS' EQUITY 51,547 30,795
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 61,112 $ 43,878
======== ========
See accompanying notes to consolidated financial statements.
F-2
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
2000 1999 1998
---- ---- ----
Net sales $ 66,263 $ 59,366 $ 52,757
Cost of goods sold 35,160 30,318 28,101
------ ------ ------
Gross profit 31,103 29,048 24,656
Operating expenses:
Research and development 2,751 4,419 2,935
Purchased in-process research and development - - 3,885
Selling, general and administrative 23,200 18,557 14,494
Amortization of goodwill and intangible assets 1,017 866 612
------ ------ ------
Income from operations 4,135 5,206 2,730
Other (income) expenses:
Interest income (465) (57) (14)
Interest expense 173 265 289
Minority interest of consolidated subsidiaries 80 - 254
Other (income) expense, net (100) 61 (50)
------ ------ ------
Income before income taxes 4,447 4,937 2,251
Income taxes 1,381 1,437 1,909
------ ------ ------
Net income 3,066 3,500 342
Preferred dividends - - 900
------ ------ ------
Net income (loss) available to common shareholders $ 3,066 $ 3,500 $ (558)
====== ====== =======
Basic net income (loss) per common share $ 0.33 $ 0.52 $ (0.12)
====== ====== =======
Diluted net income (loss) per common share $ 0.31 $ 0.45 $ (0.12)
====== ======= =======
Weighted average number of common
shares outstanding-Basic 9,178,790 6,697,530 4,502,547
========= ========= =========
Weighted average number of common
shares outstanding-Diluted 9,780,582 7,737,921 4,502,547
========= ========= =========
See accompanying notes to consolidated financial statements.
F-3
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENED DECEMBER 31, 2000, 1999 AND 1998
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
PREFERRED STOCK COMMON STOCK RETAINED ACCUMULATED
--------------- ----------------- ADDITIONAL EARNINGS OTHER TREASURY STOCK
NUMBER OF NUMBER OF PAID-IN (ACCUMULATED COMPREHENSIVE # OF
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT) INCOME SHARES AMOUNT TOTAL
------- ------ --------- ------ ------- -------- ------ ------ ------ -----
Balance at
January 1, 1998 200,000 - 2,118,226 $ 2 $ 23,468 $(1,690) $(358) - $ - $ 21,422
Purchase of Speech Design
minority interest - - 458,000 1 4,064 - - - - 4,065
Conversion of Preferred
Stock and related s (200,000) - 3,921,477 4 1,074 - - - - 1,078
dividend
Sale of Common Stock
and Warrants - - 156,768 - 862 - - - - 862
Acquisition costs of Common
Stock held by Geotek - - - - (35) - - - - (35)
Preferred dividends - - - - - (900) - - - (900)
Comprehensive income:
Net Income - - - - - 342 - - -
Translation adjustments - - - - - 221 - -
Comprehensive income - - - - - - - - - 563
------- ---- --------- ------ ------- ------- ----- ---- ----- ------
Balance at
December 31, 1998 - - 6,654,471 $ 7 $ 29,433 $(2,248) $(137) - - $ 27,055
Sale of Common Stock
and Warrants - - 129,650 - 713 - - - - 713
Tax benefit from exercise
of Common Stock options - - - - 44 - - - - 44
Costs of secondary public
offering - - - - (97) - - - - (97)
Comprehensive income:
Net income - - - - - 3,500 - - -
Translation adjustments - - - - - - (420) - -
Comprehensive income - - - - - - - - - 3,080
------- ---- --------- ------ ------- ------- ----- ---- ----- ------
Balance at
December 31, 1999 - - 6,784,121 $ 7 $30,093 $1,252 $(557) - - 30,795
Sale of Common Stock
and Warrants - - 3,328,835 3 18,137 - - - - $18,140
Tax benefit from exercise
of Common Stock options - - - - 53 - - - - 53
Treasury Stock - - - - - - - 3,572 (32) (32)
Comprehensive income:
Net income - - - - - 3,066 - - -
Translation adjustments - - - - - - (475) - -
Comprehensive income - - - - - - - - - 2,591
------- ---- --------- ------ ------- ------- ----- ---- ----- ------
Balance at
December 31, 2000 - - 10,112,956 $ 10 $48,283 $4,318 $(1,032) 3,572 $ (32) $51,547
======= ==== ========= ===== ======= ======= ======== ===== ====== ======
See accompanying notes to consolidated financial statements.
F-4
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
2000 1999 1998
--------- -------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,066 $ 3,500 $ 342
Adjustments to reconcile net income
to net cash used in operating activities:
Depreciation and amortization 1,549 1,033 875
Amortization of goodwill and
intangible assets 1,017 866 612
Provisions for doubtful accounts
And inventory obsolescence 483 484 269
Utilization of pre-acquisition
NOL charged to goodwill 107 107 440
Deferred income taxes (533) (478) (470)
Purchased in-process research
and development - - 3,885
Minority interest 80 - 254
Change in operating assets and liabilities
(net of effects from acquisitions):
Receivables (260) (2,806) 652
Inventories (5,637) (1,484) 194
Prepaid expenses and other current assets (352) 33 (170)
Accounts payable and accrued expenses (2,036) 71 364
Other (451) (134) (156)
--------- -------- ---------
Net cash (used in) provided by operating activities (2,967) 1,192 7,091
--------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and leasehold improvements (2,061) (1,825) (1,082)
Acquisition of minority interest in Speech Design - - (4,797)
Acquisition of Digitronic - - (1,199)
Acquisition of intangibles (312) (36) -
--------- -------- ---------
Net cash used in investing activities (2,373) (1,861) (7,078)
--------- -------- ---------
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from sale of common stock and warrants 18,140 757 862
Acquisition costs of common stock held by Geotek - (35)
Costs of secondary offering - (97) -
Payments under Apogee pre-acquisition debt - (422) -
Principal payments under capital lease obligations (240) (180) -
(Decrease) Increase in borrowings under
revolving credit agreements (1,150) 323 (797)
--------- -------- ---------
Net cash provided by financing activities 16,750 381 30
--------- -------- ---------
See accompanying notes to consolidated financial statements.
F-5
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(CONTINUED)
2000 1999 1998
--------- -------- ---------
Effects of foreign exchange rate on cash (44) 32 41
--------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 11,366 (256) 84
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 792 1,048 964
--------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $12,158 $ 792 $ 1,048
======= ======== =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 197 $ 212 $ 291
Cash paid for income taxes 3,493 1,136 1,154
NON-CASH FINANCING ACTIVITIES
Common stock issued to pay current
and accrued dividends - - 1,078
Capital lease obligations related
to new office equipment 58 867 -
See accompanying notes to consolidated financial statements.
F-6
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. ORGANIZATION
Bogen Communications International, Inc., together with its subsidiaries, (the
"Company") is engaged in the development, manufacturing and marketing of audio
and communication products. Product lines sold by the Company include Telephone
Paging Products, voicemail, and Unified Messaging products and services
("Telco"), Commercial Audio Products ("Commercial Audio") and Intercom/Paging
Equipment ("Engineered Systems"). The Company's operations are located in the
United States, Germany, Switzerland and Israel.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Company include the accounts of the
Company's 99% owned subsidiary, Bogen Corporation ("Bogen"); Bogen's
wholly-owned subsidiary, Bogen Communications, Inc. ("BCI"); BCI's wholly-owned
subsidiaries: New England Audio Resource Corp. ("NEAR"), which combined with BCI
in 1999, and Apogee Sound International, LLC ("Apogee"); the Company's
wholly-owned subsidiary, Speech Design GmbH ("Speech Design"), which was a 67%
owned subsidiary through May 19, 1998; Speech Design's 67% owned subsidiary
Satelco AG ("Satelco"); and Speech Design's wholly-owned subsidiaries: Speech
Design (Israel), Ltd., and Digitronic Computersysteme GmbH ("Digitronic"). All
significant inter-company balances and transactions have been eliminated in
consolidation.
The ownership interest of minority owners in the equity and earnings of the
Company's less than 100 percent-owned consolidated subsidiaries are recorded as
minority interest.
REVENUE RECOGNITION
Sales, net of expected returns, are recognized upon shipment. In 2000, the
Company adopted the provisions of the FASB's Emerging Issues Task Force (EITF),
Issue No. 00-10, "Accounting for Shipping and Handling Fees and Costs," which
requires the Company to report all amounts billed to a customer related to
shipping and handling costs as revenue and report all costs incurred by the
seller for shipping and handling as cost of goods sold. Consequently, the
Company has reclassified such revenues and expense amounts, which were
previously netted in selling, general, and administrative, to sales and cost of
goods sold. As a result of this reclassification, sales were increased by
$1,009; $879; and $654 and cost of sales were increased by $2,261; $1,924; and
$1,443 for the years ended December 31, 2000, 1999 and 1998; respectively. There
is no effect on operating income.
GOODWILL
Goodwill represents the excess of cost over the fair value of net assets
acquired in purchase transactions. Goodwill is being amortized using the
straight-line method over periods of between 7 to 40 years. The Company assesses
the recoverability of this intangible asset by determining whether the
amortization of the goodwill balance over its remaining life can be recovered
through undiscounted future operating cash flows of the acquired operation. The
amount of goodwill impairment, if any, is measured based on projected discounted
future operating cash flows using a discount rate reflecting the Company's
average cost of funds. The assessment of the recoverability of goodwill will be
impacted if estimated future operating cash flows are not achieved.
CASH AND CASH EQUIVALENTS
Cash includes cash on-hand and all highly liquid debt instruments purchased with
original maturities of three months or less.
F-7
INVENTORIES
Inventories are stated at the lower of cost or market and are valued using the
first-in, first-out method.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are recorded at cost, less accumulated
depreciation and amortization. Depreciation of equipment is provided using the
straight-line method over the estimated useful lives of the related assets.
Leasehold improvements are amortized on a straight-line basis over the shorter
of the term of the lease or the estimated useful life of the improvement. The
estimated useful lives used in computing depreciation of equipment and leasehold
improvements are:
o Machinery, equipment and tooling 3-17 years
o Furniture and office equipment 4-7 years
o Leasehold improvements lesser of 10 years or remaining lease term
Expenditures for maintenance, repairs and renewals of minor items are charged to
operations as incurred. Major renewals and improvements are capitalized. Upon
disposition, the cost and related accumulated depreciation is removed from the
accounts and the resulting gain or loss is reflected in operations for the
period.
RESEARCH AND DEVELOPMENT
Internal research and development costs are expensed as incurred.
INCOME TAXES
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carry-forwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on tax-deferred assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
No provision has been made for Federal income or withholding taxes which may be
payable on the remittance of undistributed retained earnings of foreign
subsidiaries. These earnings have been reinvested to meet future operating
requirements and the Company intends to continue such policy for the foreseeable
future. Such undistributed earnings were $3,842 and $2,136 at December
31, 2000 and 1999, respectively.
INCOME (LOSS) PER COMMON SHARE
Basic EPS is calculated by dividing net income available to common shareholders
by the weighted-average number of common shares outstanding for the periods
presented. Diluted EPS is calculated by dividing net income available to common
shareholders by the weighted-average number of common shares outstanding,
adjusted for the dilutive effect of options and warrants (601,792 in 2000;
1,040,391 in 1999, and anti-dilutive in 1998).
STOCK-BASED COMPENSATION
The Company applies the intrinsic value-based method of accounting prescribed by
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees," and related interpretations including FASB Interpretation No. 44,
"Accounting for Certain Transactions involving Stock Compensation an
interpretation of APB Opinion No. 25" issued in March 2000, to account for its
fixed plan stock options. Under this method, compensation expense is recorded on
the date the grant only if the current market price of the underlying stock
exceeded the exercise price. SFAS No. 123, "Accounting for Stock-Based
Compensation," established accounting and disclosure requirements using a fair
value-basis method of accounting for stock-based employee compensation plans. As
allowed by SFAF No. 123, the Company has elected to continue to apply the
intrinsic value-based method of accounting described above, and has adopted the
disclosure requirements of SFAS No. 123.
F-8
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and reported amounts of
revenues and expenses during the reporting period. Some of the more significant
estimates made by management involve the reserve for doubtful accounts,
provision for slow moving and obsolete inventory and evaluation of the
recoverability of assets. Actual results could differ from those estimates.
CREDIT RISK
The Company develops, manufacturers, markets and sells commercial audio, paging,
communications and other equipment and telecommunications peripherals. The
Company performs on-going credit evaluations of its customers. The Company
provides reserves for potential losses from these receivables.
TRANSLATION OF FOREIGN CURRENCIES
Foreign denominated assets and liabilities of the Company are translated from
local currencies into U.S. dollars at the exchange rates in effect at the end of
the period. Revenues and expenses are translated at average exchange rates
prevailing during the period. Translation adjustments that arise from
translation of subsidiary financial statements denominated in foreign currency
are accumulated in a separate component of other comprehensive income (loss).
Transaction gains and losses that arise from exchange rate changes on
transactions denominated in a currency other than local currencies are included
in operations as incurred.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The recorded amount of cash, cash equivalents, accounts receivable, accounts
payable, accrued expenses, advances and notes payable, approximates fair value
due to the short-term maturities of these assets and liabilities and the
variable interest rate of others.
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Certain Hedging Activities." In June 2000, the FASB issued SFAS
No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activity, an Amendment of SFAS 133." These statements establish accounting and
reporting standards for derivative instruments, including those embedded in
other contracts, and for hedging activities. They require that all derivative
instruments be recorded on the balance sheet at their respective fair values.
The Company will adopt SFAS No. 133 and SFAS No. 138 on January 1, 2001.
The Company has only limited involvement with derivative financial instruments
and uses them only to manage foreign currency risks. The Company does not
purchase or hold derivative instruments for trading or speculative purposes.
As of December 31, 2000 and 1999, the Company did not have any derivative
financial instruments and there were no contracts outstanding.
COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income". SFAS 130 establishes standards for reporting and presentation of
comprehensive income and its components in a full set of financial statements.
Comprehensive income consists of net income and translation adjustments and is
presented in the consolidated statement of stockholder's equity. The Statement
requires only additional disclosures in the consolidated financial statements;
it does not affect the Company's financial position or results of operations.
F-9
SEGMENT INFORMATION
The Company operates in two reportable business segments, Bogen (domestic) and
Speech Design (foreign) and follows the requirements of SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." (See Note
17).
The domestic segment is primarily engaged in commercial and engineered sound
equipment and telecommunication peripherals. The foreign segment focuses on
digital voice processing systems for the mid-sized PABX market and in Unified
Messaging products and services, targeting the growing European voice processing
and Unified Messaging markets.
The Company's reportable segments are strategic business units that offer
different products and services. They are managed separately because each
business requires different technology, marketing and distribution strategies.
The accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Company evaluates performance
based on profit or loss from operations before income taxes not including other
income (expense), nonrecurring gains and losses, and foreign exchange gains and
losses.
RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform to the current
year presentation.
3. ACQUISITIONS
On May 20, 1998, the Company acquired the remaining 33% equity interest in
Speech Design not previously owned by the Company. As a result of this
acquisition, Speech Design became a wholly owned subsidiary of the Company. The
aggregate purchase price of $8,845, including direct acquisition costs
(estimated at $482), consisted of approximately $4,780 in cash and 458,000
shares of common stock of the Company valued at approximately $4,065 ($8.875 per
share). The acquisition has been accounted for by the purchase method of
accounting and accordingly, the purchase price has been allocated to the assets
acquired and liabilities assumed based on an independent appraisal of fair
values at the date of acquisition. Such appraisal allocated $2,905 to purchased
in-process research and development, which has been reflected as a charge in the
accompanying consolidated statement of operations for the year ended December
31, 1998. Other intangible assets acquired include existing technology, trade
names, workforce and goodwill totaling $5,109.
On December 31, 1998, the Company, through its wholly owned subsidiary Speech
Design, acquired Digitronic. Digitronic is in the business of Unified Messaging
and Internet communications. The aggregate purchase price, including direct
costs of $145, amounted to $1,199 in cash and assumption of certain liabilities.
The acquisition has been accounted for by the purchase method of accounting, and
accordingly, the purchase price has been allocated to the assets acquired and
liabilities assumed based on an independent appraisal of fair values at the date
of acquisition. Such appraisal allocated $980 to purchased in-process research
and development, which has been reflected as a charge in the accompanying
consolidated statement of operations for the year, ended December 31, 1998.
Other intangible assets acquired include existing technology, trade names and
workforce totaling approximately $424. The terms of the acquisition agreement,
as amended, provide for additional consideration to be paid if Digitronic's
sales during 2000 and 2001 exceed certain targeted levels. Targeted levels have
been set substantially above the historical experience of Digitronic at the time
of acquisition. Such additional consideration of $288 for 2000 has been recorded
as goodwill.
On August 26, 1999, Bogen Communications, Inc., through Apogee, a newly formed
Bogen subsidiary, acquired substantially all of the assets of Apogee Sound,
Inc., a privately owned company headquartered in Petaluma, California.
Consideration for the acquisition was the assumption or payment of approximately
$2,600 of Apogee Sound Inc.'s liabilities. The acquisition has been accounted
for by the purchase method of accounting and accordingly, the purchase price has
been allocated to the assets acquired and liabilities assumed based on estimate
of fair market values at the date of acquisition. In connection with the
acquisition, the Company recorded a non-cash investment in goodwill of $1,836.
F-10
The following table presents unaudited pro forma results of operations as if the
acquisition of the minority interest of Speech Design had occurred on January 1,
1998. The pro forma impact of the acquisitions of Digitronic on December 31,
1998, and Apogee on August 27, 1999, is not considered material. These pro forma
results have been prepared for comparative purposes only and do not purport to
be indicative of what would have occurred had the acquisition been made at the
beginning of the periods presented which may occur in the future. The pro forma
information below includes nonrecurring in-process research and development
charges of $3,885.
YEAR ENDED DECEMBER 31,1998
---------------------------
Revenues $ 52,757
Net income 578
Net income (loss) available to common shareholders (322)
Net income (loss) per common share - Basic and Diluted (.07)
4. INVENTORIES
Inventories, net of reserves, as of December 31, 2000 and 1999, are as follows:
2000 1999
------ -----
Raw materials and supplies $ 4,199 $3,649
Work in progress 771 770
Finished goods 9,638 4,891
------ -----
$14,608 $9,310
====== =====
5. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements at December 31, 2000 and 1999, is comprised
of the following items:
2000 1999
---- ----
Machinery, equipment and tooling $ 4,623 $4,562
Furniture and office equipment 5,969 4,365
Leasehold improvements 906 861
------- -------
11,498 9,788
Less: accumulated depreciation and
Amortization (7,199) (5,951)
------- -------
$ 4,299 $3,837
======= ======
In 2000 and 1999, furniture and office equipment includes amounts of $925 and
$867, respectively, under capital lease obligations (see Note 10).
Depreciation and amortization expense was $1,549, $1,033 and $875 for the years
ended December 31, 2000, 1999, and 1998, respectively.
6. GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets consist of the following at December 31, 2000 and
1999:
2000 1999
----- ----
Goodwill $21,837 $ 22,375
Other intangibles 2,297 1,672
------- --------
24,134 24,047
Less: accumulated amortization (5,294) (4,317)
------- --------
$18,840 $ 19,730
======= ========
F-11
Goodwill in the amount of $4,235 represents the excess of cost over the fair
value of net assets acquired as a result of the acquisition of the remaining 33%
interest in Speech Design in May 1998. This goodwill is being amortized using
the straight-line method over 20 years. Other intangible assets acquired totaled
$874. These assets include existing technology, trade names and workforce and
are being amortized over an average period of 15 years.
Other intangible assets acquired as a result of the acquisition of Digitronic
totaled $424. These assets, which are being amortized over an average of 7
years, include existing technology trade names and workforce.
Goodwill in the amount of $1,836 relates to the Company's purchase of the assets
and assumption of liabilities of Apogee Sound Inc. This goodwill is being
amortized over 10 years.
Amortization of goodwill and other intangibles was $1,017, $866 and $612 for the
years ended December 31, 2000, 1999, and 1998, respectively.
7. REVOLVING CREDIT AGREEMENTS
On April 21, 1998, BCI and the Company entered into a $27,000 credit facility
(the "Facility") with KeyBank N.A., which matures on April 30, 2001. The
Facility replaced a previous bank agreement. The Facility provides, subject to
certain criteria, a $20,000 revolving line for acquisition financing and a
$7,000 working capital line. The Facility bears interest at either the bank's
prime rate or, at the Company's option, LIBOR plus 125 to 200 basis points,
based on certain financial conditions. The interest rate at December 31, 2000,
was 9.6%. At December 31, 2000 and 1999, there were no borrowings under the
Facility for acquisition financing. At December 31, 2000 and 1999, Bogen had
short-term domestic borrowings outstanding under the working capital line of $0
and $1,150, respectively. The amounts available under the working capital line
at December 31, 2000 and 1999, were $7,000 and $5,850, respectively. The Company
is required to meet certain working capital and financial covenants, with which
it was not in compliance as of December 31, 2000. The Company has received a
waiver from KeyBank N.A.
Speech Design has credit lines and overdraft facilities of approximately 9,100
DM, or $4,378, from 7 banks. Speech Design's short-term lines of credit are
collateralized by all of Speech Design's accounts receivable and inventory. At
December 31, 2000 and 1999, Speech Design had short-term lines of credit and
overdraft facilities of $4,378 and $4,664, respectively, of which short-term
borrowings amounted to $1,201 and $1,189, respectively. The amounts available
under these credit lines were $3,177 and $3,475 at December 31, 2000 and 1999,
respectively, with rates tied to short-term bank notes and Euromarket loans. At
December 31, 2000, interest rates on these short-term lines ranged from 5.4% to
11.5%. During the third quarter of 1998, Speech Design secured a 15 million DM
($7.2 million) credit facility for acquisition financing from D.G. Bank of
Frankfurt. The interest rate under this facility is up to 200 basis points above
the German LIBOR rate, which was 4.85% at December 31, 2000. There were no
borrowings under this facility.
Total outstanding revolving lines of credit are summarized as follows at
December 31, 2000 and 1999:
2000 1999
---- ----
Domestic Lines of Credit Utilized - $1,150
Foreign Lines of Credit Utilized:
o Speech Design GmbH 958 627
o Speech Design Israel 24 -
o Digitronic 200 405
o Satelco 19 157
----- -----
$1,201 $2,339
===== =====
F-12
8. NOTES PAYABLE TO RELATED PARTIES
There is a $315 original note to the minority shareholders of Satelco, payable
in quarterly installments of $31 plus interest at the Zurich Kantonal Bank rate,
with installments beginning February 1995. The payments of this note were
suspended (with the approval of the note holders) until such time as the Satelco
subsidiary became profitable. Payments resumed in 2000 and this note is now
classified as short-term at December 31, 2000. The balances were $124 and $194
at December 31, 2000 and 1999, respectively.
9. INCOME TAXES
The Company's pre-tax book income is as follows for the years ended December 31,
2000, 1999 and 1998:
2000 1999 1998
---- ---- ----
Domestic U.S. operations $2,508 $2,875 $(1,579)
Foreign operations 1,939 2,062 3,830
----- ----- -----
Total $4,447 $4,937 $ 2,251
===== ===== =====
The components of income tax expense are as follows for the years ended December
31, 2000, 1999 and 1998:
2000 1999 1998
---- ---- ----
Current income tax $1,872 $1,701 $ 1,832
Utilization of acquired tax benefits
credited to goodwill 107 107 440
Deferred income tax benefit (598) (371) (363)
------- ------- -------
Total income tax expense $1,381 $1,437 $ 1,909
======= ======= =======
The difference between the provision for income taxes computed at the U.S.
Federal income tax rate of 34% and the provision as reported are as follows:
2000 1999 1998
---- ---- ----
Computed "expected" tax expense $1,512 $1,679 $ 765
State tax expense 301 134 149
Non-deductible expenses 401 159 207
Change in valuation allowance (514) (959) (1,321)
Foreign taxes greater (less)
than U.S. taxes (426) 280 230
Utilization of acquired tax benefits
credited to goodwill 107 107 440
In-process research and development - - 1,321
Other - 37 118
----- ------ ------
Income taxes as reported $1,381 $1,437 $1,909
====== ====== =======
The components of deferred tax assets and liabilities at December 31, 2000 and
1999, were as follows:
2000 1999
---- ----
Deferred tax assets:
NOL carryforwards $ 764 $ 871
Foreign loss carryforwards 290 565
Deferred rent 2 48
Inventory 973 387
Allowance for doubtful accounts 137 169
Accrued liabilities 269 171
Equipment 102 131
------ ------
Total deferred tax assets 2,537 2,342
Less: valuation allowance ( 946) (1,460)
------ ------
Net deferred tax assets: $1,591 $ 882
====== =======
Deferred tax liabilities-
Intangible assets $1,057 $ 1,024
Other 66 -
------ ------
$1,123 $ 1,024
====== =======
F-13
The Company has net operating loss ("NOL") carryforwards of approximately $2,246
for U.S. Federal tax purposes as of December 31, 2000, which expire between the
years 2004 through 2010. Under Section 382 of the Internal Revenue Code of 1986,
as amended, these operating loss carryforwards are subject to certain
limitations on their utilization as a result of the changes in control of the
Company in 1991 and 1995. Subsequently recognized tax benefits, in the amount of
$764, relating to the reduction of the valuation allowance as these NOL
carryforwards are realized, will be allocated to Goodwill and other intangible
assets.
The Company has foreign loss carryforwards of approximately $762, as of December
31, 2000. Certain of these loss carryforwards expire between the years 2001
through 2005.
The valuation allowance for deferred tax assets as of December 31, 2000 and
1999, was $946 and $1,460, respectively. The net change in the total valuation
allowance for the years ended December 31, 2000 and 1999 was a decrease of $514
and $959, respectively. In assessing the reliability of deferred tax assets,
management considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable income
during the periods in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax liabilities,
projected future taxable income, certain limitations on the utilization of
operating loss carryforwards and tax planning strategies in making this
assessment. Based upon the level of historical taxable income and projections
for future taxable income, by jurisdictions, over the periods which the deferred
tax assets are deductible, management believes it is more likely than not the
Company will realize the benefits of these deductible differences, net of the
existing valuation allowances at December 31, 2000. The amount of the deferred
tax asset considered realizable, however, could be reduced in the near term if
estimates of future taxable income during the carryforward period are reduced.
10. LEASES
The Company is obligated under various capital leases for certain office
equipment that expire over the next five years. At December 31, 2000 and 1999,
the gross amount of assets and related accumulated amortization recorded under
capital leases were as follows:
2000 1999
---- ----
Office equipment $925 $867
Less: accumulated amortization 356 80
---- ----
$569 $787
==== ====
Amortization of assets held under capitalized leases is included with
depreciation expense.
The Company occupies its plant and office facilities and operates certain
equipment and vehicles under leases expiring at various dates through 2010. The
facility leases contain escalation clauses and provide for payments of taxes and
expenses over base rent. The facility leases also contain renewal options of
varying lengths.
F-14
Future minimum annual lease payments under non-cancelable operating leases (with
initial or remaining lease terms in excess of one year) and future minimum
capital lease payments as of December 31, 2000, are as follows:
YEAR ENDING DECEMBER 31, CAPITAL LEASES OPERATING LEASES
- ------------------------ -------------- ----------------
2001 304 1,528
2002 302 1,341
2003 6 1,203
2004 6 1,188
2005 1 828
Thereafter - 2,814
---- ------
Total minimum lease payments $619 $8,902
======
Less: sales taxes 31
----
Net minimum lease payments 588
Less: amount representing interest
(at rates between 7.6% and 17.9%) 55
----
Present value of net minimum capital
lease payments 533
Less: current installments of obligations
under capital leases 245
----
Obligations under capital leases, excluding
Current installments 288
====
Bogen's facility lease includes scheduled rent increases over the lease term.
Rent expense has been recorded on a straight-line basis and the related deferred
rent obligation of $0 and $119 at December 31, 2000 and 1999, respectively.
Rent expense charged to operations totaled approximately $1,740, $1,552, and
$1,142 for the years ended December 31, 2000, 1999, and 1998, respectively.
11. COMMITMENTS AND CONTINGENCIES
EMPLOYMENT CONTRACTS
The Company has entered into employment contracts with several officers of the
Company. The employment contracts of the Chief Executive Officer and the
President of the Company both extend through November 2001. The management
agreement with the President of BCI's subsidiary, Apogee Sound International,
expires in August 2002. The management agreements of the two Managing Directors
of Speech Design expire on June 30, 2001. The management agreements with the two
managing directors at Speech Design's subsidiary, Digitronic, expire in December
2003. Compensation accrues to the officers over the term of the contract as
their respective services are provided.
LITIGATION
The Company is party, in the ordinary course of business, to various legal
actions and claims. In the opinion of management, the ultimate disposition of
these matters will not have a material adverse effect on the Company's
consolidated financial position, results of operations, or liquidity.
F-15
12. STOCKHOLDERS' EQUITY
PREFERRED STOCK
The Company is authorized to issue 1,000,000 shares of preferred stock with such
designations, voting and other rights, and preferences as may be determined from
time to time by the Board of Directors.
On November 26, 1997, the Company sold 200,000 shares of 9% Cumulative Series A
Convertible Preferred Stock (the "Preferred Stock") to a group of unrelated
independent third-party investors (the "Investors"). The 200,000 shares of
Preferred Stock were sold for $100 per share for total proceeds to the Company
of $20,000 of which $18,500 was used to finance the acquisition and retirement
of Common Stock and warrants and $1,500 was to be used for general corporate
purposes. The Preferred Stock carried a redemption value of $100 per share. Each
share of Preferred Stock plus any accrued dividends was convertible, at the
option of the holder, at any time prior to the close of business on the third
day prior to the date on which notice of conversion was given, into 18.605
shares of common stock based on an initial conversion price of $5.375 per common
share ("Conversion Price"). Any shares of Preferred Stock still outstanding as
of December 1, 2002, would automatically convert into common stock at the rate
specified above.
Holders of Preferred Stock were entitled to one vote for each share of common
stock into which such shares can be converted. The Preferred Stock carried a 9%
semi-annual cumulative dividend which was to be paid in cash or in-kind at the
option of the Company. Dividends on Preferred Stock were to be paid before any
dividends on common stock.
On July 1, 1998, the Company issued 3,921,477 shares of its common stock upon
conversion of all of the issued and outstanding shares of the Preferred Stock by
the holders thereof. Included in such issuance were 200,477 shares of common
stock, which represented the payment of accrued dividends in shares of common
stock through the date of conversion.
COMMON STOCK AND WARRANTS
In June 1993, 300,000 Warrants were issued to various individuals in
consideration for providing the Company bridge financing until its initial
public offering ("Offering") on October 15, 1993. The Company issued 3,100,000
Warrants to purchase its common stock in connection with the Offering. Another
60,000 Warrants were issued as consideration for providing certain financings
and services provided to the Company.
On March 30, 2000, the Company called these Warrants for redemption for $.01 per
Warrant, effective May 1, 2000, after which date all remaining warrants would be
cancelled. Such redemption was authorized by the terms of the Warrant Agreement
dated as of October 7, 1993 following any period of twenty trading days on which
the Company's Common Stock market price closes at $10 per share or higher.
On November 26, 1997, D&S Capital, LLC, a limited liability company whose
interests are owned by the Chief Executive Officer and President of the Company,
acquired 46,295 shares of common stock and warrants to purchase 250,000 shares
of restricted common stock at an exercise price of $5.00 per share, for an
aggregate purchase price of $250,000. The warrants are exercisable in specified
increments through January 1, 2003. Another 575,885 warrants to purchase common
stock were issued on November 28, 1997, to Helix Capital II, LLC and
subsequently distributed to its former owners and employees.
At December 31, 2000 and 1999, the Company had the following warrants
outstanding:
SHARES WEIGHTED
------- AVERAGE
2000 1999 EXERCISE PRICE EXPIRATION
---- ---- -------------- ----------
WARRANTS TO PURCHASE
COMMON STOCK:
1993 warrants - 3,238,750 $ 5.50 October 2000
1995 warrants - 60,000 $ 5.50 October 2000
1997 warrants 825,885 825,885 $ 5.35 November 2002/
------- --------- January 2003
825,885 4,124,635
======= =========
F-16
In connection with the Company's initial public offering of its units (the
"Units"), the Company granted to GKN Securities Corp. and its affiliates
(collectively, "GKN") an option to purchase (the UPO) an aggregate of 150,000
Units at $6.60 per Unit. Each unit issuable upon exercise of the UPO will
consist of one share of Common Stock and warrants to purchase two shares of
Common stock at $5.50 per share. The GKN UPO contained certain anti-dilution
provisions that were broader than the anti-dilution provisions set forth in the
publicly held UPO's and its original expiration date was October 7, 1998. On
December 31, 1998, the Company and GKN agreed to extend the expiration date to
October 7, 1999 and to amend the GKN UPO by narrowing the anti-dilution
protection for GKN to that protection provided in the publicly held UPO's. This
had no effect on the Company's results of operations or stockholder's equity.
This GKN UPO expired without being exercised on October 7, 1999.
13. STOCK OPTIONS
The Company has a Stock Option Incentive Plan (the "Plan") under which 1,253,335
shares of the Company's Common Stock are reserved for issuance pursuant to the
Plan. As of March 29, 2000, the stockholders of the Company approved an
amendment to increase the available shares under the plan to 1,500,000. The Plan
can award stock options to eligible employees of the Company and its
subsidiaries (including employee directors), non-employee directors, and
independent contractors and consultants who perform services for the Company.
The options vest over a period of five years and are exercisable at prices
determined on a case-by-case basis but not less than the fair market value of
the stock at the date of grant and none may be exercised more than 10 years from
the date of grant. From time to time, the Company grants additional stock
options to individuals outside of the Plan. During 1997, the Company granted a
total of 325,885 options outside the 1996 Plan to the Company's newly appointed
CEO and President. These options were granted at an exercise price of $5.00 per
share, vest at a specified rate over a three-year period and expire 10 years
from the date of grant.
Information with respect to the Company's stock options under the 1996 Plan and
discretionary grants are as follows:
WEIGHTED
AVERAGE EXERCISE
STOCK OPTIONS SHARES PRICE
------------- ------ ------
Outstanding at January 1, 1998 969,553 5.30
Granted 220,300 8.24
Cancelled (18,000) 5.50
Exercised (68,667) 5.50
Forfeited ( 22,000) 7.89
---------
Outstanding at December 31, 1998 1,081,186 5.83
Granted 76,450 6.04
Exercised (55,500) 5.50
Forfeited (115,471) 5.58
---------
Outstanding at December 31, 1999 986,665 5.92
Granted 474,300 6.78
Exercised (94,700) 5.24
Forfeited (135,500) 5.34
---------
Outstanding at December 21, 2000 1,230,765 6.37
=========
The number of shares and weighted average price of options exercisable at
December 31, 2000, was 667,105 shares at $5.87 per share and had a weighted
average contractual life remaining of 7.1 years. At December 31, 2000, 361,253
options were available for future grants under the terms of the 1996 Plan.
Outstanding options expire prior to December 31, 2010, and are exercisable at
prices ranging from $5.00 to $8.50 per share.
F-17
The Company has adopted the disclosures provisions of SFAS 123, "Accounting for
Stock-Based Compensation". This statement defines a fair value method of
accounting for an employee stock option or similar equity instrument. However,
it allows an entity to continue to measure compensation cost for those
instruments using the intrinsic-value-based method of accounting prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" provided it discloses the effect of SFAS 123 in footnotes to the
financial statements. The Company has chosen to continue to account for
stock-based compensation using the intrinsic value method. Had the Company,
however, elected to recognize compensation cost based on fair value of the stock
options at the date of grant under SFAS 123, such costs would have been
recognized ratably over the vesting period of the underlying instruments and the
Company's net income available to common shareholders and net income per common
share would have decreased to the pro forma amounts indicated in the table
below.
Pro forma net income (loss) available to common shareholders and net income
(loss) per common share for the years ended December 31, 2000, 1999, and 1998
was, as follows:
2000 1999 1998
---- ---- ----
Net income (loss) available to common shareholders:
As reported .......................... $3,066 $3,500 $ (558)
Pro forma ............................ 2,421 2,849 (937)
Net income (loss) per common share:
Basic:
As reported ................................. .33 .52 (.12)
Pro forma ................................... .26 .44 (.21)
Diluted:
As reported ................................. .31 .45 (.12)
Pro forma ................................... .25 .38 (.21)
The fair value of the options granted was estimated using the Black-Scholes
option-pricing model based on the weighted average exercise price at date of
grant of $6.78 in fiscal 2000 and the following weighted average assumptions:
risk-free interest rate of 9.24%; expected option life of 7 years; volatility of
78% and no dividend yield. The average fair value of options granted during 2000
was $6.78.
The fair value of the options granted was estimated using the Black-Scholes
option-pricing model based on the weighted average exercise price at date of
grant of $6.04 in fiscal 1999 and the following weighted average assumptions:
risk-free interest rate of 8.00%; expected option life of 7.50 years; volatility
of 39% and no dividend yield. The average fair value of options granted during
1999 was $5.84.
The fair value of the options granted was estimated using the Black-Scholes
option-pricing model based on the weighted average exercise price at date of
grant of $8.24 in fiscal 1998 and the following weighted average assumptions:
risk-free interest rate of 5.50%; expected option life of 6.84 years; volatility
of 45% and no dividend yield. The average fair value of options granted during
1998 was $7.67.
14. INCOME (LOSS) PER COMMON SHARE
Basic earnings per common share is computed by dividing net earnings per common
share by the weighted average number of common shares outstanding during the
period. Diluted earnings per common share gives effect to all diluted potential
common shares that were outstanding during the period. Potential common shares
are not included in the calculation of diluted earnings per share if their
inclusion would be anti-dilutive. Potential common shares attributable to the
Preferred Stock as a result of applying the if-converted method (see Note 12)
and outstanding options and warrants have not been included in the calculation
of diluted earnings per common share for the year ended December 31, 1998, since
their inclusion would have been anti-dilutive.
F-18
15. RELATED PARTY TRANSACTIONS
Pursuant to a Mergers & Acquisition Engagement Agreement, dated August 1997, as
amended on November 29, 1997, and the Amended and Restated Mergers & Acquisition
Engagement Agreement, effective as of October 1, 1998, between the Company and
Helix Capital Services, Inc. ("Helix Services"), the Company paid Helix Services
approximately $374 in 1998, including an aggregate of $210 in monthly retainer
fees and $164 for services rendered in connection with the Speech Design
acquisition. Pursuant to the Amended and Restated Mergers & Acquisition
Agreement, Helix Services acted as the principal financial advisor and, subject
to certain exceptions, the exclusive mergers and acquisition advisor for the
Company and all of its domestic subsidiaries. In exchange for such services, the
Company paid Helix Services a $10 monthly retainer fee (prior to October 1,
1998, the monthly retainer fee was $20) and, in the event the Company
consummated a financing or other extraordinary corporate transaction, an
additional fee equal to a minimum of 2% of the acquisition price, subject to
reduction in certain circumstances.
Effective as of October 1, 1998, Speech Design entered into a Mergers &
Acquisition Engagement Agreement with Helix Services pursuant to which Helix
Services acted as the principal financial advisor and, subject to certain
exceptions, the exclusive mergers and acquisition advisor for Speech Design. In
exchange for such services, the Company paid Helix Services a $10 monthly
retainer fee and, in the event the Company consummated a financing or other
extraordinary corporate transaction, an additional fee equal to a minimum 2% of
the acquisition price, subject to reduction in certain circumstances. During
1998, Speech Design paid Helix Services an aggregate of $30 in monthly retainer
fees.
In 1999, the Company and Speech Design combined paid Helix Services $160 in
monthly retainer fees and approximately $20 in expenses associated with the
Apogee acquisition. The Company and Speech Design terminated their agreements
with Helix Services on August 31 and September 1, 1999, respectively. The
Company subsequently entered into a Limited Engagement Agreement with Helix
Services that called for certain payments to be made upon the successful
consummation of merger and acquisition transactions. The Limited Engagement
Agreement expired on December 31, 1999.
16. EMPLOYEE BENEFIT PLANS
Bogen participates in multi-employer pension plans, which cover all union
employees. Contributions for the periods ended December 31, 2000, 1999, and 1998
were approximately $16, $44 and $17, respectively.
Employees of the Company are also eligible to participate in a Company sponsored
defined contribution 401(k) plan. The Company provides a matching contribution
to a portion of funds contributed by employees. Amounts charged to expense were
$132, $100, and $108 for the years ended December 31, 2000, 1999, and 1998,
respectively.
17. SEGMENTS
The Company operates in two reportable business segments, Bogen (domestic) and
Speech Design (foreign). The domestic segment is primarily engaged in commercial
and engineered sound equipment and telecommunication peripherals. The foreign
segment focuses on digital voice processing systems for the mid-sized PABX
market and in Unified Messaging products and services, targeting the growing
European voice processing and Unified Messaging markets.
F-19
The following table presents information about the Company by segment/geographic
area. Inter segment revenues and transfers are not considered material:
SPEECH
BOGEN DESIGN
----- ------
2000:
Revenue from external customers ................ $45,466 $20,797
Depreciation and amortization .................. 1,547 705
Operating profit ............................... 3,084 2,093
Total assets ................................... 41,963 17,528
Expenditures for segment assets ................ 1,132 929
1999:
Revenue from external customers ................ $37,624 $21,742
Depreciation and amortization .................. 962 627
Operating profit ............................... 3,574 2,180
Total assets ................................... 28,433 14,721
Expenditures for segment assets ................ 1,821 803
1998:
Revenue from external customers ................ $32,405 $20,352
Depreciation and amortization .................. 772 716
Operating profit ............................... 4,359 3,281
Total assets ................................... 26,539 12,777
Expenditures for segment assets ................ 289 824
A reconciliation of reportable segment operating profit and assets to the
Company's consolidated totals are as follows:
2000 1999 1998
---- ---- ----
Operating profit
Total operating profit for reportable segments $ 5,177 $ 5,754 $ 7,640
Unallocated amounts --
In-process research and development......... - - (3,885)
Other corporate expenses ..................... (1,042) (548) (1,025)
----- ----- -----
Operating profit ............................ $ 4,135 $ 5,206 $ 2,730
===== ===== =====
Assets
Total assets for reportable segments ......... $59,491 $43,154 $39,316
Elimination of receivables/payables .......... (157) (69) ( 1,675)
Other unallocated amounts .................... 1,778 793 106
------ ------ ------
Consolidated Total ........................... $61,112 $43,878 $37,747
====== ====== ======
18. CREDIT CONCENTRATION
The Company had no customers that individually accounted for more than 10% of
total consolidated net sales in 2000. Speech Design had revenues in 1999 from
two customers that totaled $13,060. Bogen had one customer in 1999 with sales of
$5,885. Each was greater than 10% of the company's total revenues. Sales to two
customers of the Company's foreign segment in 1998 totaled $14,050; each
accounted for more than 10% of the Company's 1998 consolidated net sales.
F-20
19. QUARTERLY FINANCIAL DATA (UNAUDITED)
FIRST SECOND THIRD FOURTH TOTAL
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) QUARTER QUARTER QUARTER QUARTER YEAR
- ---------------------------------------- ------- ------- ------- ------- -------
2000
- ----
Net Sales $16,586 $17,489 $16,815 $15,373 $66,263
Gross Profit 7,912 8,406 8,360 6,425 31,103
Income from Operations 655 1,590 1,843 47 4,135
Net Income 302 872 1,130 762 3,066
Net Income per Share:
Basic 0.04 0.09 0.11 0.09 0.33
Diluted 0.03 0.09 0.11 0.08 0.31
1999
- ----
Net Sales 12,711 13,950 16,234 16,471 59,366
Gross Profit 6,171 6,855 8,284 7,738 29,048
Income from Operations 856 1,644 2,288 418 5,206
Net Income 471 1,135 1,578 316 3,500
Net Income per Share:
Basic 0.07 0.17 0.24 0.04 0.52
Diluted 0.06 0.14 0.22 0.03 0.45
F-21
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
NONE
PART III
Certain information required by Part III is omitted from this report in that the
Company will file a definitive proxy statement pursuant to Regulation 14A (the
"Proxy Statement") not later than 120 days after the end of the fiscal year
covered by this Report, and certain information included therein is incorporated
herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by the Item is incorporated herein by reference to the
Company's Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
Company's Proxy Statement, including the Stock Price Performance Graph and the
Board of Directors Report on Executive Compensation.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference to the
Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference to the
Company's Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements See "Item 8. Financial Statements and
Supplementary Data."
(a)(2) Financial Statement Schedule:
Schedule II: Valuation and Qualifying Accounts
24
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARES AND PER SHARE AMOUNTS)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
- -------- -------- -------- -------- -------- --------
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
OF PERIOD EXPENSES OTHER DEDUCTION OF PERIOD
--------- -------- ----- --------- ----------
DESCRIPTION
- -----------
Year ended December 31, 2000:
Allowance for
Doubtful accounts....... $ 650 $ 321 $ (2) (c) $ (412) (a) $ 557
Reserve for sales returns
And allowances.......... 172 396 (286) 282
Reserve for inventory
obsolescence............ 1,093 318 (24) (c) (29) (b) 1,358
----- ----- ---- --- -----
$ 1,915 $1,035 $ (26) $ (727) 2,197
----- ----- --- --- -----
Year ended December 31, 1999:
Allowance for
doubtful accounts....... $ 424 $ 290 $ 397 (d) $ (461) (a) $ 650
Reserve for sales returns
And allowances.......... 100 72 172
Reserve for inventory
obsolescence............ 743 194 596 (d) (440) (b) 1,093
----- --- --- ---- -----
$ 1,267 $ 556 $ 993 $ (901) $1,915
----- --- --- ---- -----
Year ended December 31, 1998:
Allowance for
doubtful Accounts....... $ 376 $ 196 $ (1) (c) $ (147) (a) $ 424
Reserve for sales returns
And allowances.......... 118 (18) 100
Reserve for inventory
obsolescence............ 529 255 18 (c) (59) (b) 743
----- ---- ---- ---- -----
$ 1,023 $ 451 $ 17 $ (224) $1,267
----- ---- ---- ---- -----
(a) Uncollectible accounts written off, net of recoveries.
(b) Write-off of obsolete inventory.
(c) Currency exchange effect.
(d) Assumption of Apogee allowances and reserves, net of currency
exchange effects.
(b) Reports on Form 8-K
No reports on Form 8-K were filed in the fourth quarter of 2000.
(c) Exhibits
The following exhibits are filed as part of this report (Exhibit
numbers correspond to the exhibits required by Item 601 of Regulation
S-K for an Annual Report on Form 10-K):
25
EXHIBIT
NO. DESCRIPTION
- ------- -------------
3.1 Certificate of Incorporation. (1)
3.2 By-laws. (1)
3.3 Certificate of Correction to the Certificate of Incorporation, dated
March 8, 1995 and filed with the Secretary of State of the State of
Delaware on March 10, 1995. (2)
3.4 Certificate of Amendment to the Certificate of Incorporation, dated
August 21, 1995 and filed with the Secretary of State of the State
of Delaware on August 21, 1995. (3)
4.1 Form of Common Stock Certificate. (1)
4.5 Bogen Communications, International, Inc. 1996 Incentive Stock
Option Plan. (5)
10.1 Form of Indemnification Agreement between the Company and its
officers, directors and advisors. (4)
10.2 Summary of Agreement for Business Credit between Speech Design GmbH
and Statelparkasse Munchen. (6)
10.7 Employment Agreement, dated November 26, 1997, between the Company
and Mr. Jonathan Guss. (7)
10.8 Employment Agreement, dated November 26, 1997, between the Company
and Mr. Michael Fleischer. (7)
10.9 Option Agreement, dated November 26, 1997, between the Company and
Mr. Jonathan Guss. (7)
10.10 Option Agreement, dated November 26, 1997, between the Company and
Mr. Michael Fleischer. (7)
10.11 Common Stock and Warrant Purchase Agreement, dated November 26, 1997
between the Company and D&S Capital, LLC. (7)
10.12 Warrant, dated November 26, 1997, issued by the Company to D&S
Capital, LLC. (7)
10.14 Warrant Purchase Agreement, dated as of November 28, 1997, between
Helix Capital II, LLC and Bogen Communications International, Inc.
(8)
10.15 Warrant, dated November 28, 1997, issued by Bogen Communications
International, Inc. to Helix Capital II, LLC. (8)
10.17 Management Agreement, dated May 20, 1998, between Speech Design GmbH
and Kasimir Arciszewski. (9)
10.18 Management Agreement, dated May 20, 1998, between Speech Design GmbH
and Hans Meiler. (10)
10.19 Credit Agreement, dated as of April 21, 1998, among Bogen
Communications International, Inc., Bogen Communications, Inc.,
various financial institutions and KeyBank National Association. (9)
10.20 Guaranty of Payment and Performance, dated April 21, 1998, by Bogen
Corporation. (9)
10.22 Security Agreement, dated April 21, 1998, by Bogen Communications
International, Inc. in favor of KeyBank National Association. (9)
10.23 Security Agreement, dated April 21, 1998, by Bogen Communications,
Inc. in favor of KeyBank National Association. (9)
26
EXHIBIT
NO. DESCRIPTION
- ------- -----------
10.24 Security Agreement, dated April 21, 1998, by Bogen Corporation in
favor of KeyBank National Association. (9)
10.25 Security Agreement, dated April 21, 1998, by New England Audio
Resource Corp. in favor of KeyBank National Association. (9)
10.26 Borrower Pledge Agreement, dated April 21, 1998, by and between
Bogen Communications International, Inc. and KeyBank National
Association. (9)
10.27 Borrower Pledge Agreement, dated April 21, 1998, by and between
Bogen Communications International, Inc. and KeyBank National
Association. (9)
10.28 Guarantor Pledge Agreement, dated April 21, 1998, by and between
Bogen Corporation and KeyBank National Association. (9)
10.29 Guarantor Pledge Agreement, dated April 21, 1998, by and between
Bogen Communications, Inc. and KeyBank National Association. (9)
10.30 Term Sheet for Acquisition Line, dated September 18, 1998, between
Speech Design GmbH and DG Bank. (10)
10.33 Amendment to Employment Agreement dated February 26, 1997 between
the Company and Mr. Jonathan Guss. (11)
10.34 Amendment to Employment Agreement dated February 26, 1997 between
the Company and Mr. Michael Fleischer. (11)
10.35 Bogen Communications International, Inc. Amended and Restated Stock
Incentive Plan (12)
*10.36 Amendment to premises lease between Ramsey 96, LLC and Bogen
Communications, Inc., dated July 31, 2000.
*21.1 Subsidiaries of the Company
*23.1 Consent of KPMG LLP
*Filed Herewith
(1) Incorporated by reference to the Exhibits to the Company's Registration
Statement on Form S-1 (File No. 33-65294) dated October 7, 1993.
(2) Incorporated by reference to the Exhibits to the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1994.
(3) Incorporated by reference to the Exhibits to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended September 30, 1995.
(4) Incorporated by reference to the Exhibits to the Company's Current Report
on Form 8-K dated August 21, 1995.
(5) Incorporated by reference to the Exhibits to the Company's Registration
Statement on Form S-8 (File No. 333-21245) dated February 4, 1997.
(6) Incorporated by reference to the Exhibits to the Company's Annual Report
on Form 10-K for the year ended December 31, 1996.
(7) Incorporated by reference to the Exhibits to the Company's Current Report
on Form 8-K, dated November 25, 1997.
(8) Incorporated by reference and the Exhibits to the Company's Current
Report on Form 8-K, dated December 12, 1997.
(9) Incorporated by reference to the Exhibits to the Company's Current Report
on Form 8-K, dated May 20, 1998.
(10) Incorporated by reference to the Exhibits to the Company's Annual Report
on Form 10-K for the year ended December 31, 1998.
(11) Incorporated by reference to the Exhibits to the Company's Annual Report
on Form 10-K for the year ended December 31, 1999.
(12) Incorporated by reference to the Exhibits to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended September 30, 2000.
27
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.
BOGEN COMMUNICATIONS INTERNATIONAL, INC.
By: /s/ Jonathan Guss By: /s/ Maureen A. Flotard
Jonathan Guss, Maureen A. Flotard
Chief Executive Officer Chief Financial Officer, and
(Principal Executive Officer) Assistant Secretary
(Principal Financial Officer)
By: /s/ Michael P. Fleischer
Michael P. Fleischer,
President
(Principal Executive Officer)
Date: March 30, 2001
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed on March 30, 2001 by the following persons on behalf of
the Registrant in the capacities indicated.
By: /s/ Jonathan Guss Director, Chief Executive Officer
Jonathan Guss
By: /s/ Michael P. Fleischer Director, President
Michael P. Fleischer
By: /s/ Jeffrey Schwarz Director, Co-Chairman of the Board of
Directors
Jeffrey Schwarz
By: /s/ Yoav Stern Director, Co-Chairman of the Board of
Directors
Yoav Stern
By: /s/ Kasimir Arciszewski Director
Kasimir Arciszewski
By: /s/ Glenn Dubin Director
Glenn Dubin
By: /s/ Zivi R. Nedivi Director
Zivi R. Nedivi
By: /s/ Daniel Schwartz Director
Daniel Schwartz
28
EXHIBIT INDEX
EXHIBIT
NO.
- -------
10.36 Amendment to premises lease between Ramsey 96, LLC and Bogen
Communications, Inc., dated July 31, 2000.
21.1 Subsidiaries of the Company
23.1 Consent of KPMG LLP
29
EXHIBIT 21.1
SUBSIDIARIES OF THE COMPANY
NAME UNDER WHICH
STATE OR OTHER JUEISDICTION OF THE SUBSIDIARY
SUBISDIARY INCORPORATION OR ORGANIZATION DOES BUSINESS
---------- ----------------------------- -------------
Bogen Corporation Delaware Bogen Corporation
(a) Bogen Communications, Inc. (1) Delaware Bogen Communications, Inc.
(b) New England Audio Resource Corp.(2) Delaware New England Audio Resourace
Corp./NEAR
(c) Bogen Communications (Barbados), Ltd. (3) Barbados Bogen Communications
(Barbados), Ltd.
(d) Apogee Sound International, LLC (4) Delaware Apogee Sound International, LLC
Thor USA Delaware Thor USA
Bogen Communications, LLC Delaware Bogen Communications, LLC
Speech Design GmbH Germering, Germany Speech Design CmbH
(d) Satelco AG (5) Switzerland Satelco AG
(e) Speech Design (Israel) Ltd. (6) Israel Speech Design (Israel)
(f) Speech Design (UK) Ltd. (7) United Kingdom Speech Design (UK)
(g) Digitronic Computersystems GmbH (8) Germany Disitronic Computersysteme GmbH
(1) Bogen Communications, Inc. is a wholly owned subsidiary of Bogen
Corporation
(2) New England Audio Resource Corp. is a wholly owned subsidiary of Bogen
Communications, Inc. (merged into Bogen Communications Inc. on December 31,
1999).
(3) Bogen Communications (Barbados) Ltd. is a wholly owned subsidiary of Bogen
Communications, Inc.
(4) Apogee Sound International, LLC is wholly owned subsidiary of Bogen
Communications, Inc.
(5) Satelco AG is a 67% owned subsidiary of Speech Design GmbH
(6) Speech Design (Israel) Ltd. is a wholly owned subsidiary of Speech Design
GmbH
(7) Speech Design (UK) Ltd. is a wholly owned subsidiary of Speech Design GmbH
(closed effective December 31, 2000)
(8) Digitronic Computersysteme GmbH is a wholly owned subsidiary of Speech
Design GmbH
30
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
To Stockholders and Board of Directors
Bogen Communications International, Inc.:
We consent to incorporation by reference in the registration statements (Nos.
333-21245, 333-52774, and 333-52776) on Forms S-8 and (No. 333-76993) on Form
S-3 of Bogen Communications International, Inc. of our report dated February 28,
2001, relating to the consolidated balance sheets of Bogen Communications
International, Inc. and subsidiaries as of December 31, 2000 and 1999, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for each of the years in the three-year period ended December 31,
2000, and related schedule, which report appears in the December 31, 2000,
annual report on Form 10-K of Bogen Communications International, Inc.
KPMG LLP
Short Hills, New Jersey
March 30, 2001
31
EXHIBIT 10.36
AMENDMENT TO SUBLEASE AGREEMENT
AGREEMENT made on July 31, 2000, by and between RAMSEY 96, L.L.C., a New
Jersey limited liability company, with an address c/o James R. Poole & Co.,
Inc., 550 Broad Street, Newark, New Jersey 07102-4598 (hereinafter
sometimes referred to as "Landlord") and BOGEN COMMUNICATIONS, INC., a Delaware
corporation, with an address at 50 Spring Street, Ramsey, New Jersey 07446
(hereinafter sometimes referred to as "Tenant").
Recitals:
1. Ramsey '83 Associates, a New Jersey limited partnership, as
landlord and Lear Siegler, Inc., as tenant executed and delivered a Lease dated
August 8, 1985 (hereinafter referred to as "Lease") wherein tenant leased
certain premises (hereinafter referred to as the "Premises") located at 50
Spring Street, Ramsey, New Jersey (hereinafter referred to as the "Property").
2. Ramsey '83 Associates previously assigned its entire interest in
the Lease as landlord to George Rothman.
3. George Rothman, as landlord and Ramsey 96, L.L.C., a New Jersey
liability company, as tenant entered into an Operating Lease dated March 20,
1996 (hereinafter referred to as the "Operating Lease") for the Property,
wherein George Rothman assigned all of his interest as landlord in the Lease to
Ramsey 96, L.L.C. until the termination of the Operating Lease.
4. Lear Siegler, Inc. and Bogen Corporation have executed and
delivered an Interim Sublease Agreement dated December 31, 1986 (hereinafter
referred to as the "Interim Sublease") in which Lear Siegler, Inc. subleased the
Premises to Bogen Corporation.
5. Lear Siegler, Inc. and Bogen Corporation have executed and
delivered a Sublease Agreement effective as of December 31,1986 which more
clearly defined the obligations of the parties set forth in the Interim
Sublease.
6. Bogen Corporation and Bogen Communications, Inc. have executed
and delivered a Sublease Agreement effective as of December 31, 1986
(hereinafter referred to as the "Sublease") wherein Bogen Corporation subleased
the Premises to Bogen Communications, Inc.
NOW, THEREFORE, in consideration of ten dollars ($10.00) and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. The Recitals set forth above are hereby incorporated into this
Agreement with the same force and effect as if same were more fully set forth at
length herein.
2. All of the terms and provisions of the Lease are hereby
incorporated into this Agreement except as specifically modified herein. Tenant
is subject to all of the terms and provisions of the Lease. All references in
the Lease to "Tenant" shall be deemed to refer to the Tenant. All references in
the Lease to "Landlord" shall be deemed to refer to Landlord, except that any
references in Paragraph 11 of the Lease to Landlord shall be deemed to also
include George Rothman and Ramsey 96, L.L.C. In the event of any conflict
between the terms and provisions of the Lease and this Agreement, then the terms
and provisions of this Agreement shall govern and prevail.
3. All of the terms and provisions of the Sublease are also hereby
incorporated into this Agreement except as specifically modified herein. All
references in the Sublease to "Sub-Subtenant" shall be deemed to refer to
Tenant. In the event of any conflict between the terms and provisions of the
Sublease and this Agreement, then the terms and provisions of this Agreement
shall govern and prevail.
4. The term of the Lease is hereby extended for a period of
approximately ten (10) years, commencing on November 28, 2000 and terminating on
December 31, 2010 (hereinafter referred to as the "Extended Term").
5. The net annual Basic Rent (as defined in the Lease) to be paid
by Tenant to Landlord monthly during the Extended Term shall be as follows:
Monthly Installments of
Period Net Annual Basic Rent
------ -----------------------
November 29, 2000 $40,250.00
December 31, 2003
January 1, 2004 $44,583.34
December 31, 2006
January 1, 2007 $46,250.00
December 31, 2010
6. Upon expiration of the Extended Term of the Lease as set forth
in Paragraph 4 above, Tenant shall have the right and option to extend the term
of the Lease for one period of five (5) years. The right and option to extend
the term of the lease shall be subject to and contingent upon each and every of
the conditions set forth hereinafter. Tenant's right and option to extend the
term of the lease shall be exercisable by Tenant giving written notice of the
exercise of the right and option to Landlord at lease nine (9) months prior to
the expiration of the Extended Term as set forth in Paragraph 4 above. In the
event Tenant fails to give written notice of its intention to exercise its right
and option as provided above and its notice of acceptance of the rent within the
state time periods, Tenant's right and option to extend the term of the lease
shall (upon the date by which written notice should have been received by
Landlord) be deemed to have been waived by Tenant and shall be of no further
force or effect. In the event Tenant exercises its right and option in
accordance with the provisions hereof the term of the lease shall be extended
accordingly, and all references contained in the lease to the term shall be
construed to refer to the original term of the lease, as extended, whether or
not specific reference is made thereto in the lease. Unless otherwise expressly
provided to the contrary, the extended term of the lease shall be upon the same
terms, conditions and covenants as set forth in the lease except that there
shall be no further right or option to extend the term of the lease. It is
important to Landlord that it know whether or not the options are exercised by
Tenant so that it may seek a replacement tenant to avoid loss of rent, and,
therefore, the time within which the option and acceptance of the rent must be
exercised is hereby made of the essence. The right and option to extend the term
of the lease shall be subject to and contingent upon each and every one of the
following conditions:
(i) The lease is in full force and effect;
(ii) Tenant shall not be in default under any of the terms,
provisions, covenants and conditions of the lease; and
(iii) In lieu of the net annual Basic Rent set forth in
Paragraph 5 above, the monthly installments of net annual Basic Rent to
be paid by Tenant monthly during the option period shall be the greater
of fair market rent or $46,250.00, but in no event shall the monthly
installments of net annual Basic Rent be less than $46,250.00,
notwithstanding that fair market rent shall be lower. Net annual Basic
Rent shall be determined as follows:
Within twenty (20) days after Landlord receives Tenant's notice,
Landlord shall submit to Tenant, in writing, its determination of fair
market rent. Within ten (10) days after Tenant receives the fair market
rental figure, Tenant shall have the right to dispute the rent by
written notice received by Landlord within the ten (10) day time period.
Failure by Tenant to dispute the rent in this manner shall be deemed,
automatically and conclusively, an acceptance by Tenant of the rent
submitted. Within ten (10) days after Landlord receives Tenant's notice
disputing the rent, Landlord and Tenant shall each designate an
independent, qualified commercial real estate appraiser or expert, who
regularly conducts business in Bergen County and who is familiar with
Bergen County commercial rentals, for the purpose of having them agree
on
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the then fair market rent for the Premises which shall be the rental
then being collected by owners of other properties for new leases of
space reasonably comparable in type, size, location and usage to the
Premises within Bergen County, New Jersey, for a term of approximately
five years with similar tenant expense assumptions and contributions. In
the event that the two designees cannot agree upon one figure, then the
designees shall select a third person with comparable qualifications,
and the agreement of two of the three designees shall prevail, or if two
cannot agree, the average of their three rents shall prevail. Landlord
and Tenant shall each pay the fees and expenses of their own designee,
and they shall share, equally, the fees and expenses of the third; and
the greater of $46,250.00 or the fair market rent so determined shall be
the net annual Basic Rent payable monthly for the entire five year
option term. If Tenant gives notice of the exercise of its option more
than ten (10) months prior to the expiration of the original term, then
Landlord shall have until eight (8) months prior to the expiration of
the original term to submit its determination of fair market rent.
(iv) Within seven (7) days after Tenant has received written
notice of the fair market rent as determined pursuant to the preceding
paragraph (iii), Tenant shall notify Landlord, in writing, whether or
not Tenant accepts the determination that the monthly installments of
net annual Basic Rent will be the greater of the fair market rent so
determined or $46,250.00. If Tenant so accepts, then the term shall be
extended for five (5) years at a monthly net annual Basic Rent equal to
the greater of the fair market rent so determined or $46,250.00. If
Tenant declines to accept or gives no notice at all, then the option to
extend will become null and void, automatically, and the lease will
terminate at the end of the Extended Term as set forth in Paragraph 4
above.
(v) The Landlord and Tenant shall execute and deliver to each
other a written statement of the rent for the extended option term when
determined as herein provided.
7. (i) Tenant shall have the option to lease the spaces at the
Property adjoining the Premises which are currently occupied by United
Publishers Library Service, Inc. and Shelving Direct, LLC (hereinafter
collectively referred to as the "Additional Space") during the term of this
lease, (including the option period that may be exercised by Tenant as provided
in Paragraph 6 above), for a term of not less than five (5) years. Landlord
shall submit to Tenant a written notice and proposal (the "Proposal") not less
than nine (9) months prior to the termination date of each of the current leases
for the Additional Space, to amend this lease to extend all the provisions of
this lease to the Additional Space. The Additional Space shall be delivered to
Tenant in its "as is" condition, except that the Additional Space shall be broom
clean. The monthly installments of net annual Basic Rent for the Additional
Space shall be determined by applying the net annual Basic Rent then presently
being paid by Tenant for the Premises to the Additional Space on a pro rata
basis based upon the amount of square feet of space for the Additional Space.
(ii) Tenant's "proportionate share" of the additional charges
contained in Paragraph D. of Schedule "B" of the Lease shall be
increased to reflect the Additional Space and shall be additional rent,
in addition to the various other obligations of Tenant.
(iii) Provided this lease is then in full force and effect and
Tenant is not in default under any of the terms, provisions, covenants,
and conditions of this lease, Tenant shall have thirty (30) days from
its receipt of the Proposal to accept the Proposal by delivering to
Landlord written notice of its acceptance within said thirty (30) day
period. The failure or neglect of Tenant to accept the Proposal in the
manner and within the time provided shall be deemed, automatically and
irrevocably, an election by Tenant to reject the Proposal and to
terminate its right and option to lease the Additional Space. In the
event Tenant accepts the Proposal, Landlord and Tenant shall execute an
amendment to this lease within ten (10) days after Tenant has received
the amendment from Landlord. In the event Tenant does not accept the
Proposal, Tenant shall not have the right or option to lease the
Additional Space thereafter. It is important to Landlord that it know
whether or not Tenant accepts the Proposal so that it may seek another
tenant to avoid loss of rent, and,
3
therefore, the time within which the Proposal must be accepted hereby
made of the essence. In the event that the Proposal is not accepted and
the amendment to this lease is not signed by Tenant as herein provided,
Landlord shall have the right to lease the Additional Space to any other
person or entity for any rent and terms and it desires and the Tenant's
right and option to lease the Additional Space shall be terminated.
8. a. Tenant shall, at Tenant's own expense, comply with all
federal, state and local laws, rules and regulations applicable to Tenant and
relating to environmental matters affecting the Premises and the Industrial Site
Recovery Act, N.J.S.A. 13:1K-6 et seq. and the regulations promulgated
thereunder ("ISRA") for which Tenant is obligated pursuant to this lease. Tenant
shall, at Tenant's own expense, make all submissions to, provide all information
to, and comply with all requirements of, the New Jersey Department of
Environmental Protection or its replacement or similar department, agency,
bureau or division ("NJDEP") with regard to Tenant's use and occupancy of the
Premises and with regard to any spills or discharges of hazardous waste or
substance caused by Tenant or by Tenant's employees, agents, contractors or
invitees (together the "Tenant's Responsibility"). Should any division of NJDEP
determine that a remediation action work plan be prepared and that a remediation
be undertaken because of any spills or discharges of hazardous substances or
wastes at the Property which occur during the term of this lease which are
Tenant's Responsibility, then Tenant shall, at Tenant's own expense, prepare and
submit the required plans and financial assurances, and carry out the approved
plans. Tenant's obligations under this paragraph shall arise if there is any
closing, terminating or transferring of operations of an industrial
establishment at the Property or a sale or transfer of title of the Property by
Landlord, all pursuant to ISRA, provided, however, that if the Tenant's
obligations hereunder arise due to any event or transaction of Landlord or
another tenant at the Property, then Tenant shall not bear the expense and
obligations of the applications and submissions to the NJDEP, but Tenant shall
cooperate and comply with the provisions of this section. If the Property is
being sold or transferred by Landlord, Landlord shall bear the expense of such
applications and submissions, but if Tenant is responsible for any spills or
discharges, then Tenant shall prepare and file, at Tenant's expense, all
applications, tests, reports and remediation required by the NJDEP. At no
expense to Landlord, Tenant shall promptly provide all information reasonably
requested by Landlord for preparation of documents supporting an application for
a determination by the NJDEP of non-applicability of ISRA to Tenant or
submission of an application for a de minimis exception or a negative
declaration or a no-further-action letter to the NJDEP and shall promptly sign
and submit such documents when requested by Landlord, provided that such
documents are reasonably satisfactory to Tenant. Tenant shall indemnify, defend
and save harmless Landlord from all fines, suits, procedures, claims and actions
of any kind incurred by or imposed upon Landlord arising out of or in
connection with any spills or discharges of hazardous substances or wastes at
the Property which are Tenant's Responsibility, and from all reasonable expenses
incurred by Landlord for legal, engineering and expert fees, and from all
fines, suits, procedures, claims and actions of any kind arising out of Tenant's
failure to provide information, make submissions and take any action required
of Tenant by the ISRA or any division of NJDEP concerning ISRA or any other
environmental law applicable to Tenant. Tenant shall furnish a surety bond or
other financial security which will guarantee the implementation of the
remediation action work plan for Tenant's Responsibility only if and to the
extent that Tenant is required to do so under ISRA. Tenant's obligations and
liabilities under this paragraph shall continue so long as Landlord remains
obligated for compliance with ISRA regarding any spills or discharges of
hazardous substances or wastes at the Property which are Tenant's
Responsibility. Tenant's failure to abide by the terms of this paragraph shall
be restrainable by injunction.
b. Notwithstanding anything to the contrary contained above,
in no event shall Tenant have any obligation pursuant to this Section or
any other provisions of this lease with regard to environmental matters
resulting from any environmental condition which occurs or has occurred
at the Property at anytime which is not Tenant's Responsibility.
c. Tenant shall promptly supply to Landlord copies of all
reports and notices made by Tenant pursuant to the Hazardous Substance
Discharge-Reports and Notices Act, N.J.S.A. 13:1K-15 et seq. and the
regulations promulgated thereunder ("Reports and Notices Act").
4
d. Tenant shall promptly supply Landlord with copies of any
notices, correspondence and submissions made by Tenant to NJDEP, the
United States Environmental Protection Agency (EPA), the United States
Occupational Safety and Health Administration (OSHA), or any other
local, state or federal authority which requires submission of any
information concerning environmental matters or hazardous wastes or
substances at the Premises.
e. Tenant shall promptly comply with all applicable
requirements of the Spill Compensation and Control Act (N.J.S.A.
58:10-23.11 as amended) and supply Landlord with copies of all notices,
reports, tests or filings in relation thereto whether received from any
governmental agency or promulgated by Tenant.
f. Tenant shall not install or remove any underground or
above-ground storage tanks for storage of hazardous substances or wastes
without first obtaining the express written consent of Landlord. If
Tenant shall install or remove any underground or above-ground storage
tanks, Tenant shall promptly comply with all applicable requirements of
the Hazardous and Solid Waste Amendment of 1984 Pub. L98-616 (42 U.S.C.
699) and adopted by New Jersey for registration of underground storage
tanks pursuant to N.J.S.A. 58:10A-21, et seq., and shall supply to
Landlord copies of all notices, reports, questionnaires, registration
statements, tests, or filings in relation thereto whether received from
any governmental agency or promulgated by Tenant.
g. Tenant shall promptly furnish to Landlord true and
complete copies of all documents, submissions and correspondence
provided by Tenant to the NJDEP and all documents, reports, directives
and correspondence provided by the NJDEP to Tenant. Tenant shall also
promptly furnish to Landlord true and complete copies of all sampling
and test results obtained from samples and tests taken at and around the
Property.
h. Within thirty (30) days prior to the termination of this
lease, Tenant will furnish Landlord with (i) evidence that Tenant has
satisfactorily complied or commenced compliance with ISRA for the
cessation of its operations if such compliance is required by ISRA, or
(ii) a letter of non-applicability to ISRA issued by the NJDEP. Tenant
shall also furnish Landlord, without expense to Landlord, copies of all
applications, tests, submissions and correspondence to and from NJDEP
and others relating to these matters.
i. Tenant further agrees to implement and execute all of the
provisions of this paragraph in a timely manner so as to comply with
ISRA to the extent that ISRA is applicable to Tenant, and to the extent
reasonably possible, to coincide with the termination of this lease to
coincide with the vacating of the Premises by the Tenant at any time
during the term of this lease.
j. As an additional condition precedent to Tenant's
intention to sublease the leased premises or to assign the lease, Tenant
shall have received from the NJDEP either (i) a no-further-action
letter, (ii) a de minimis exception, (iii) a negative declaration, (iv)
a non-applicability letter or (v) a functionally equivalent document
then being issued by the NJDEP, for which Tenant shall promptly apply
pursuant to ISRA. If this condition shall not be satisfied, then
Landlord shall have the right to withhold consent to sublease or
assignment.
k. Simultaneously with execution of this Agreement, Tenant
shall supply to Landlord an affidavit of an officer of Tenant
("Environmental Affidavit"), setting forth Tenant's federal Standard
Industrial Classification number and a detailed description of the
operation and processes Tenant will undertake at the Premises, organized
in the form of a narrative report, including a description and
quantification of hazardous substances and wastes generated,
manufactured, refined, transported, treated, stored, handled or disposed
of at the Premises. During the lease term, Tenant shall notify Landlord
by way of Environmental Affidavit as to any changes in Tenant's
operation, federal Standard Industrial Classification number of use and
generation of hazardous substances and wastes, by way of a supplemental
Environmental Affidavit. Tenant shall also supplement and update
Environmental Affidavit upon each January 1st of the lease term, if
requested to do so by Landlord. Nothing herein shall be construed as
permitting Tenant to use the leased premises for any purpose other than
as originally intended and set forth in the Lease.
l. If Landlord has reasonable cause to believe that a spill or
5
discharge of a hazardous substance or waste has occurred which is Tenant's
Responsibility and Landlord makes written demand to Tenant sitting forth the
basis of its cause, Tenant will obtain, at its own expense, and furnish to
Landlord, without charge, within thirty (30) days after receipt of Landlord's
demand a Phase I environmental report prepared by a recognized environmental
engineer which will show the status of the Premises with regard to all
environmental conditions. In the event that the report shows or indicates the
presence or possibility of the presence of any environmental condition which
violates the laws, rules, regulations or ordinances of the State of New Jersey
and which condition is Tenant's Responsibility, then Tenant will obtain such
additional inspections, reports and tests as may be required to determine the
nature and scope of the environmental condition and what will be required to
remedy the condition and the cost thereof. Tenant, at its expense, will
remediate such environmental condition to the satisfaction of all applicable
governmental agencies. In the event that the report shows or indicates that
there is no environmental condition present which violates the laws, rules
regulations or ordinances of the State of New Jersey which condition is Tenant's
Responsibility, then the cost of the Phase I inspection incurred by Tenant in
connection with Landlord's demand shall be reimbursed to Tenant by Landlord.
9. a. Tenant, at Tenant's expense but subject to reimbursement
by Landlord as provided in this Agreement, will cause to be performed by
reputable contractors, improvements and alterations to the Premises, including
an office area of approximately 27,000 square feet (hereinafter referred to as
the "Tenant's Work"). It is anticipated that Tenant's Work may be performed in
multiple phases, provided that all of Tenant's Work shall be completed by no
later than thirty (30) months from the date of this Agreement.
b. At lease twenty (20) days prior to the commencement of
any Tenant's work, Tenant, at Tenant's expense, will cause plans and
specifications for Tenant's work to be prepared and submitted to Landlord for
its approval, which approval shall not be unreasonably withheld. Landlord will
review Tenant's plans within ten (10) days of its receipt and give written
notice to Tenant of its approval or rejection (stating the reasons for
rejection) within said ten (10) day period. When the plans and approvals have
been approved by both parties, the plans and approvals will be deemed to have
been incorporated into this lease, automatically, as an exhibit without the
necessity of physically attaching them to this lease.
c. As Tenant's Work progresses, but not more frequently than
every three (3) weeks, Landlord will pay directly to Tenant's contractors and/or
materialmen, an amount equal to ninety (90%) percent of their charges for work
and/or materials actually performed and/or installed in the Premises upon
presentation of reasonably detailed invoices, up to a maximum obligation of
$450,000.00. Upon completion of the final phase of Tenant's Work and delivery
to Landlord of (i) an architect's certificate that the construction has been
completed in accordance with the approved plans, (ii) a set of "as built" plans
or final plans which accurately show Tenant's Work as actually constructed,
(iii) a final unconditional Certificate of Occupancy (if required), (iv)
verification that all contractors and subcontractors have been fully paid except
for Landlord's final payment under this paragraph and there are no liens or
possible lien claims against the Premises or the Property, and (v) a survey of
the Property if any of the improvements have changed the footprint of the
building or have been made to the outside of the Property, Landlord will pay to
Tenant's Contractors and/or materialmen up to an additional $50,000.00 (for a
total of $500,000.00) as Landlord's full share of the cost of Tenant's Work.
Notwithstanding the foregoing, Tenant shall only be required to deliver to
Landlord item (i) and item (iv) of the foregoing documents and a valid
Certificate of Occupancy for such present tenancy, for any non-structural
alteration or any preliminary or interim phase of construction in order for
Landlord to make final payment for such alteration or phase of construction.
Landlord's total obligation for Tenant's Work shall be $500,000.00 in the
aggregate. In the event that Tenant's Work exceeds such $500,000.00 amount, then
Tenant shall be solely responsible for the payment of such excess. Tenant shall
utilize a minimum amount of $300,000.00 for Tenant's Work.
d. All work done by Tenant upon the Premises shall be done
subject to, and in compliance with, all laws, ordinances and regulations of all
public authorities having jurisdiction. Tenant will obtain all permits in
connection with any work performed by Tenant at the Premises and furnish copies
to Landlord.
6
Tenant will pay or will cause to be paid all charges for all work done (labor or
materials) upon the Premises during the term of this lease and will not suffer
or permit any mechanics' or similar liens for labor or materials furnished to
the Premises during the term of this lease to be filed against the Premises, the
Property or any part thereof; and if any such lien shall be filed, Tenant will
either pay the same or procure the discharge thereof by giving security or in
such other manner as may be required or permitted by law. Landlord and Tenant
shall indemnify the other against, and save the other harmless from any and all
loss, damage, claims, liabilities, judgments, costs and expenses arising out of
the filing of any lien resulting from work which is performed by contractors
engaged by the other party. Notice is hereby given that Landlord shall not,
under any circumstances, be liable to pay for any work, labor or services
rendered or materials furnished to Tenant or any of its subtenants upon credit.
e. Tenant shall notify Landlord in writing upon Tenant's
determination that Tenant has completed the Tenant's Work. If any portion of
the $500,000 contribution to be made by Landlord pursuant to subsection c. above
has not been expended by on Tenant's Work, then Tenant shall be entitled to a
rent abatement in an amount equal to forty percent (40%) of the unexpended
portion of Landlord's contribution, which rent abatement shall be prorated
over the remaining term of this Lease by dividing the forty (40%) percent rent
abatement by the remaining months of the term of the Lease.
10. Paragraph 14 of the Lease, ASSIGNMENT AND SUBLETTING, is hereby
deleted in its entirety and replaced with the following:
A. Tenant shall have the right on thirty (30) days advance
written notice to Landlord, to sublet either (i) all of the Premises or (ii) in
two (2) portions of the Premises or to assign this Lease without the prior
written consent of Landlord, provided that: (i) the proposed subtenant or
assignee has the financial strength to fulfill Tenant's obligations hereunder as
demonstrated by appropriate financial information, (ii) such subtenant or
assignee shall not be engaged in any business which involves the generation,
storage or disposal of regulated hazardous substances or wastes, (iii) such
subtenant or assignee will use and occupy its portions of the Premises with
businesses that are generally compatible with the other tenants and occupants of
the remaining part of the building in which the Premises forms a part,
including, but not limited to office, warehouse and light assembly and
distribution uses, and (iv) Tenant shall nevertheless continue to remain liable
hereunder. In the event of an assignment, the assignee shall expressly assume
all of the obligations of Tenant hereunder in a written instrument reasonably
satisfactory to Landlord at the time of such assignment. In the event of a
sublease, the sublessee shall agree in a written instrument reasonably
satisfactory to Landlord to be bound by all of the applicable terms of this
Lease. No assignment or sublease shall impose any obligations on Landlord or
otherwise affect any of the rights of Landlord under this Lease nor shall it
affect or reduce any of the obligations of Tenant hereunder, and all such
obligations shall continue in full force and effect as obligations of Tenant as
a principal and not as obligations of guarantor or surety to the same extent as
though no assignment or subletting had been made.
B. In the event of a sublease which results in an increased
rental over the Base Rent, the amount of such increase shall be shared between
Landlord and Tenant with [75%] to Landlord and [25%] to Tenant.
C. Tenant shall also have the right, without Landlord's
consent, to assign this Lease or sublet all or a part of the Premises to, or
allow the Premises to be otherwise occupied by, any parent, subsidiary,
affiliate, group, division or successor resulting from a merger of Tenant;
provided, however that no such assignment or subletting shall be deemed to
relieve Tenant of liability for the full and faithful performance of all of the
terms and conditions on its part to be performed under this Lease.
11. Tenant represents that it is not in default under any of the
terms and provisions of the Lease or the Sublease as of the effective date
hereof.
12. The parties acknowledge that Lear Siegler, Inc. no longer has
any interest whatsoever in the Lease, the Interim Sublease, the Sublease and any
other agreement relating to the Premises or the Property (hereinafter referred
to as the "Lease Documents") and further that Lear Siegler, Inc. is no longer a
viable entity. In addition, Bogen Corporation no longer has any interest
7
whatsoever in the Lease Documents. Ramsey 96, L.L.C. shall have a direct
landlord/tenant relationship with Bogen Communications, Inc. notwithstanding any
prior agreement in the Lease Documents to the contrary relating to subleasing or
otherwise.
13. This Agreement shall inure to the benefit of the parties hereto
and their respective successors and proper assigns.
14. This Agreement may be executed in any number of counterparts,
all of which when taken together shall constitute one document.
15. The facsimile signatures of any or all of the parties to this
Agreement shall be binding upon the parties and shall have the same force and
effect as if original signatures were affixed to such documents.
The parties have executed this Agreement as of the date first written
above.
Landlord:
Ramsey 96, L.L.C.
By: Hampshire Management Company,
Authorized Member
By: /s/ Mark S. Rosen
----------------------------
Name: Mark S. Rosen
Title: Vice President
Tenant:
Bogen Communications, Inc.
By: /s/ Michael P. Fleischer
----------------------------
Name: Michael P. Fleischer
Title: President
8