** **

**SECURITIES AND EXCHANGE COMMISSION**

 

**WASHINGTON,D.C. 20549**

 

### **FORM 10-K**

 

**(MARKONE)**

 
| **ý** | **ANNUAL REPORT PURSUANT TO SECTION  13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|------------|-------------------------------------------------------------------------------------------|

 

**FORTHE FISCAL YEAR ENDED DECEMBER 31, 2001**

 

**OR**

 
| **o** | **TRANSITION REPORT PURSUANT TO SECTION  13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]** |
|-------|-----------------------------------------------------------------------------------------------------------------|

** **

**FOR THETRANSITION PERIOD FROM           TO           **

 

# **COMMISSION FILE NUMBER 0-22046**

 

**BOGEN COMMUNICATIONS INTERNATIONAL, INC.**

(EXACT NAME OF REGISTRANT ASSPECIFIED IN ITS CHARTER)

 

| **DELAWARE**                                                                |   | **38-3114641**                        |
|-----------------------------------------------------------------------------|--------|---------------------------------------|
| (STATE OF INCORPORATION)                                                    |   | (I.R.S. EMPLOYER IDENTIFICATION  NO.) |
|                                                                        |   |                                  |
| **50 SPRING STREET, RAMSEY, NEW JERSEY**                                    |   | **07446**                             |
| (ADDRESS OF PRINCIPAL EXECUTIVE  OFFICES)                                   |   | (ZIP CODE)                            |
|                                                                        |
| **REGISTRANT’S TELEPHONE NUMBER, INCLUDING AREA CODE: (201) 934-8500** |
|                                                                        |
| **SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: None**        |
|                                                                        |
| **SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:**             |

 

**COMMON STOCK, $0.001 PAR VALUE**

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**(Title of class)**

 

Indicate by check mark whetherthe Registrant (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the Registrant was required to file such reports),and (2) has been subject to such filing requirements for the past 90 days.   YES ý  NO o

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Registration S-K is notcontained herein, and will not be contained, to the best of Registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or amendment to this Form 10-K. o

 

The aggregate market value ofthe voting stock, based on the closing price of the Registrant’s common stockon March 8, 2002, as reported onthe Nasdaq National Market System (“NASDAQ”), held by non-affiliates of theRegistrant was approximately $14,930,409.

 

As of March 8, 2002, 9,100,745****shares of the Registrant’s Common Stock,par value $.001 per share, were outstanding.

### ** **

### **DOCUMENTSINCORPORATED BY REFERENCE**

 

The information called for byPart III of this Form 10-K is incorporated by reference to the definitive proxystatement for the 2002 annual meeting of stockholders of Bogen CommunicationsInternational, Inc., which definitive proxy statement will be filed no laterthan 120 days after December 31, 2001.

 

 

# **PART I**

Allstatements contained herein that are not historical facts, including, but notlimited to, statements regarding Bogen Communications International, Inc. andits subsidiaries (collectively, the “Company”) and its current businessstrategy, projected sources and uses of cash, and plans for future developmentand operations, are based upon current expectations. These statements areforward-looking in nature and involve a number of risks and uncertainties.Actual results may differ materially. Among the factors that could cause actualresults to differ materially are the following: competitive factors, includingthe fact that the Company’s competitors are highly focused and may have greaterresources and/or name recognition than the Company; changes in technology andthe Company’s ability to develop or acquire new or improved products and/ormodify and upgrade its existing products, including, but not limited to, theintroduction and development of the Company’s products; changes in labor,equipment and capital costs; changes in access to suppliers andsub-contractors; currency fluctuations; changes in United States and foreignregulations affecting the Company’s business; future acquisitions or strategicpartnerships; implementation or termination of strategic initiatives ortransactions; availability of sufficient capital to finance potentialacquisitions on terms satisfactory to the Company; general business andeconomic conditions; political instability in certain regions; employeeturnover; issues relating to the Company’s internal systems; and other factorsdescribed from time to time in the Company’s reports filed with the Securitiesand Exchange Commission. The Company wishes to caution readers not to placeundue reliance on any such forward-looking statements, which are made pursuantto the Private Litigation Reform Act of 1995 and, as such, speak only as of thedate made.

 

**ITEM 1.  BUSINESS**

 

Bogen CommunicationsInternational, 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 Statesbusiness develops, manufactures, and/or distributes commercialtelecommunications and audio products through Bogen Corporation (“Bogen”) andthrough its subsidiaries, Bogen Communications, Inc. (“BCI”) and Apogee SoundInternational, LLC (“Apogee”).

 

The Company’s European businessdevelops, manufactures, and markets voicemail systems and Unified Messagingproducts and services through Speech Design International, Inc. (“SDI”) andthrough SDI’S subsidiaries, Speech Design GmbH (“Speech Design”) and SpeechDesign Carrier Systems GmbH (Carrier Systems), formerly DigitronicComputersysteme GmbH, both based in Germany, Satelco AG (“Satelco”), based inSwitzerland, and Speech Design (Israel) Ltd., based in Israel.

 

As used herein, “Bogen” shallmean the business of Bogen Corporation and its subsidiaries, and “SDI” or“Speech Design” shall mean Speech Design International Inc. and itssubsidiaries.  Certain financialinformation about the Company’s two business segments is included in Note 19 tothe Company’s Consolidated Financial Statements, included herein.

 

Bogen focuses on commercial,engineered sound, and pro audio equipment and telecommunications (Telco)peripherals for the voice and sound processing market.  For about 70 years, Bogen has been a leaderin commercial amplifiers, speakers and intercom systems for background andforeground music applications, as well as for security and educationalapplications, and, more recently, message/music-on-hold systems (“MOH”) and hasexpanded into the pro audio market. Bogen’s products are sold primarily througha network of distributors, dealers and contractors.

 

Speech Design focuses ondigital voice processing systems for the mid-sized Private Branch Exchange(“PABX”) market, targeting the underdeveloped European voice processing market.With the launch in late 1995 of its product family called “Memo”, Speech Designadded innovative non-PC based voice mail systems to its existing line oftelecommunication peripheral products, which includes voice-mail, automatedattendants, digital announcers and message/music-on-hold systems.  In late 1998, Speech Design introduced theTeleserver Pro range of modular, higher-end (2-8 ports) voice and callprocessing peripherals.  In addition toa higher capacity voice mail than possible with Memo, Teleserver also offersLAN connectivity to PC networks and ACD (automatic call distribution)functionality.  In 1999, Speech Designadded Unified Messaging products and services, through its flagship product,Thor(TM).  Thor improves communicationswithin any enterprise and delivers value-added services to Internet serviceproviders (“ISPs”), as well as mobile and fixed-line network operators(“carriers”).  Thor integrates fax andvoice-mail into an existing e-mail environment, and e-mail and fax into themobile-phone environment.  In 2000 and2001, Thor was further developed to become a multifunctional added-valueservices platform for carriers, delivering innovative new applications such asSMS (Short Message Service) to fixed-line telephones.

 

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Speech Design sells itsvoicemail products through leading European telephone switch manufacturers inGermany, and through major independent dealers outside Germany. Speech Design’sThor Unified Messaging system in its enterprise version is sold through switchmanufacturers and IT system integrators. In addition, Thor unified messagingservices and platforms are sold directly to mobile and fixed-line carriers andInternet Service Providers (“ISPs”), primarily in Europe but also in emergingmarkets.

 

The Registrant is a Delawarecorporation 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 knownas European Gateway Acquisition Corp., was formed on May 6, 1993.  On October 13, 1993, the Registrantconsummated an initial public offering (the “IPO”) of units consisting of oneshare of the Registrant’s common stock, $.001 par value per share (“CommonStock”), and two warrants (the “Warrants”), each entitling the holder thereofto 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 notexercised prior to such date and were cancelled and redeemed for $.01 perWarrant.

 

In 1995, the Registrantacquired from Geotek Communications Inc. (“Geotek”) approximately 67% of theoutstanding capital stock of Speech Design and approximately 99% of theoutstanding capital stock of Bogen.

 

On May 20, 1998, the Companyconsummated the acquisition of the remaining 33% equity interest in SpeechDesign, held by the founders and managing directors of Speech Design. Theaggregate consideration paid by the Company for the 33% equity interestapproximated U.S. $8.8 million before acquisition costs, consisting of DM7,570,000 (approximately U.S. $4.8 million) in cash and 458,000 restrictedshares of the Common Stock.

 

On December 31, 1998, SpeechDesign acquired 100% of Carrier Systems, located in northern Germany.  Carrier Systems is a developer andmanufacturer of LAN and Internet based unified messaging products. Theaggregate purchase price, including direct costs of $145,000, amounted toapproximately $1.2 million in cash and assumption of certain liabilities. Theterms of the acquisition agreement also provide for additional cashconsideration up to DM 2.8 million (or approximately $1.7 million) to be paidbased on achievement of targeted sales levels. Such targeted levels have notbeen met in the past and may be modified for future periods.

 

On August 26, 1999, BogenCommunications Inc., through Apogee Sound International, LLC (“Apogee”), anewly formed Bogen subsidiary, acquired substantially all of the assets ofApogee Sound Inc., a privately held company headquartered in Petaluma,California.  Consideration for theacquisition was the assumption or payment of approximately $2.6 million ofApogee Sound Inc.’s liabilities.

 

On September 27, 2001, an agreementwas signed with 2.T-Telematik Venture Beteiligungsgesellschaft mgH(“T-Venture”), a venture capital subsidiary of Deutsche Telekom AG, a worldleader in telecommunications, to sell 2% of SDI, a newly-formed Companysubsidiary which now holds all equity in Speech Design, the company’s Europeanoperation, to T-Venture. Sale of the SDI common stock minority holding was forapproximately 842,000 Euros, about $765,000. T-Venture also received a warrant to purchase another 2% of SDI sharesat prices that, if SDI becomes separately traded, would be established at adiscount to initial public market prices. Separately, T-Venture signed a marketing agreement entitling it toreceive 1% of SDI stock if T-Venture assisted Speech Design in attainingcertain Unified Messaging sales objectives by December 31, 2001.  The marketing agreement expired withoutbeing exercised at December 31, 2001.

 

See below under the headings“Bogen” and “Speech Design” for a discussion of other acquisitions consummatedby the Company.  To further its growthobjectives, the Company continually seeks out, and evaluates, otheracquisitions of companies or product lines that are complementary to itscurrent businesses and products, and considers itself adequately capitalized toconsummate acquisitions that may be desirable.

 

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**BOGEN (DOMESTICOPERATIONS)**

 

Since its founding in 1932,Bogen has been involved in the commercial audio industry and currentlydevelops, sources, assembles and distributes sound processing equipment andtelecommunications peripherals through its wholly-owned subsidiary, BCI.

 

Bogen’s audio products include:commercial audio amplifiers and speakers; related sound and intercom systemsequipment for professional, industrial and commercial system applications;equipment for background and foreground music applications; and intercom andcommunications systems for the security and educational markets, and telephonepaging systems.

acquired through its newly formed subsidiary,Apogee, substantially all of the assets of Apogee Sound, Inc., a privately heldcompany headquartered in California. Through Apogee, Bogen manufactures and distributes amplifiers, speakers,and related products to the professional audio market.

 

**BOGEN’S PRODUCT LINES**

 

**TELCO**

 

Bogen’s Telco products consistof telephone-based overhead paging systems and equipment and digitalmessage/music-on-hold players.  Theseproducts allow installers to increase the value of their telephone system offeringsby providing users with enhanced efficiency and convenience.  During 1999, Bogen’s Easy Install(TM)Speakers (2 models) and Easy Design(TM) Speakers (5 models) were introduced tothe market.  These products and theircorresponding design support tools are targeted at market segments that requirefaster install time and have little experience in designing sound systems.  Although the speakers were initiallydesigned for Telco products, they are adaptable to all of Bogen’s product lines.

 

Bogen’s Telco net sales for theyears ended December 31, 2001, 2000, and 1999 were $14,313,000, $16,773,000 and$13,335,000, respectively.  Telco netsales provided 25.1%, 25.6%, and 22.6% of the Company’s net sales for theserespective years.  Speech Design alsohas a Telco line of products, the sales of which are included below under theheading “Speech Design - Product Line”.

 

**COMMERCIAL AUDIO**

 

Bogen’s Commercial Audioproduct line consists of amplifiers, speakers, microphones, intercom systemsand other sound equipment used in non-consumer applications, such as industrialpublic address systems, and background music in offices, restaurants, hotels,and stores.  During 1997, NEAR’s AllEnvironment Speakers were added to Commercial Audio’s product line.

 

Commercial Audio net sales forthe years ended December 31, 2001, 2000, and 1999 were $9,251,000, $9,648,000and $11,060,000, respectively. Commercial Audio provided 16.2%, 14.7%, and 18.8% of the Company’s netsales for the years ended December 31, 2001, 2000 and 1999, respectively.

 

**PRO-AUDIO**

 

In August 1999, Bogen acquiredthe Apogee product line, which includes speakers and speaker systems,amplifiers, processors, and system-balancing and design equipment forentertainment sound systems.  Pro-Audiosales for the years ended December 31, 2001 and 2000, and the four months endedDecember 31, 1999, were $5,013,000, $5,906,000, and $2,185,000,respectively.  Pro-Audio sales accountedfor 8.8%, 9.0% and 3.7% of the Company’s consolidated net sales for thoseyears.

 

**ENGINEERED SYSTEMS**

 

Bogen’s Engineered Systemsproduct line features custom designed intercom/paging systems that are sold tocontractors for installation primarily in schools.

 

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During the second quarter of1999, Bogen added a new line of Multi-Media Controllers, marketed under thetrade name “iQuest (TM)”.  Its InternetProtocol (“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 mediacenter. In 2001 Engineered Systems expanded its market with the addition andintroduction of the institutional clock product line.

 

Engineered Systems net salesfor the years ended December 31, 2001, 2000, and 1999 were $11,631,000,$12,647,000, and $10,741,000, respectively. Engineered Systems net sales accounted for 20.3%, 19.3% and 18.2% of theCompany’s net sales for the years ended December 31, 2001, 2000, and 1999,respectively.

 

**BOGEN’S SALES ANDMARKETING**

 

**TELCO PRODUCT LINES**

 

Bogen distributes its Telcoproducts to approximately 100 distributors who operate 200 telecommunicationsdistribution centers.  Thesedistributors sell to thousands of telecommunications installers, interconnectsdealers, and VAR’s across North America. In addition to its distribution network, Bogen has a relationship withabout 50 message/music-on-hold studios that specialize in creating custommessages. These studios sell their services along with Bogen’s Telcoproducts.  Bogen also has an originalequipment manufacturer (OEM) agreement to supply private label overhead pagingsystems to Avaya Communications, a spin-off from Lucent Technologies(“Lucent”), and Exp@nets, also a Lucent spin-off.

 

Bogen markets its Telcoproducts through a team of regional sales representatives, who sell Bogen’sTelco and other complementary products to distributors in their assignedterritories.

 

**COMMERCIAL AUDIO, PRO-AUDIO, AND ENGINEEREDSYSTEMS PRODUCT LINES**

 

Bogen’s Commercial Audioproducts are marketed through several independent manufacturers’representatives under the direction of Bogen’s internal sales managementteam.  Bogen’s Engineered Systemsproducts are sold to a network of contractors covering North America by a staffof Bogen-employed Regional Managers. The field sales personnel receive a salary and bonus based onperformance and the representatives are compensated on a commission basis.Sales agreements are maintained with all of Bogen’s independent sales representativesand Engineered Systems contractors. The sales representative agreementstypically permit the sale of Bogen products by the representative in a specificterritory assigned to one sales representative firm.  Similarly, the Engineered Systems contractor agreements typicallyallow the contractor to purchase and install specific product lines in adesignated territory.

 

Bogen distributes itsCommercial Audio products through about 1,000 active sound contractors, soundequipment and electronic distributors, and audio dealers, and is often sold asa complete system solution designed to satisfy an end-user’s specific needs.Virtually every major master sound products distributor, industrial equipmentdistributor, and commercial security products distributor in North Americastocks Bogen’s Commercial Audio products. In addition, approximately 200 major contractors and dealers marketBogen’s Engineered Systems.  Theprincipal users of these products are industrial, professional, commercial andcivic concerns and institutions such as schools, nursing homes, correctionalfacilities, retail stores, restaurants and churches. Bogen’s managementbelieves that these user markets are relatively stable and that Bogen hasdeveloped significant name recognition in these markets.

 

The Apogee product line wasacquired by Bogen in August 1999 and consists of a worldwide network of almost250 distributors, touring companies, and contractors who specialize in the areaof entertainment sound systems.  Thewide Apogee line includes speakers and speaker systems, amplifiers, processorsand system balancing and design equipment. Apogee speaker products range from compact cabinets for foreground musicapplications to large arrays that can accommodate applications in theaters, arenas,stadiums, and other larger facilities where high-quality entertainment sound isrequired.  In addition to a base ofcustomers in the United States, approximately 45% of Apogee’s business in 2001was derived from export sales.

 

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** **

**NEWPRODUCTS INTRODUCTION**

 

In 2001, Bogen introduced anumber of new products through its various channels.  Leveraging its strong distribution into the telecommunicationschannel, Bogen introduced its telephone headset line and a companion amplifierin late 2001, with a positive sales impact anticipated in 2002.  Following Bogen’s philosophy of expandingits line into product categories with large market size and capitalizing on itssizable channels of distribution, Bogen enters a headset market in excess of$400 million, far greater than the market size/potential of its coretelecommunications paging products. This product offering consists of both monaural and binaural headsetsand a unique headset amplifier that automatically optimizes its electricalparameters for operation with the host telephone.

 

Also in 2001, Bogen expandedits product offering of high power dual-channel amplifiers with theintroduction of the Black Max series of dual-channel, 70-volt amplifiers.Although the primary focus is in the Commercial Audio market, it will sellacross all channels.  A fast follow-upto last year’s introduction of the M-Class series of high powered dualamplifiers, the Black Max amplifiers address a growing need for two-channel audioin distributed commercial systems and further positions Bogen as a manufacturerof high-quality, high-powered amplifiers. This line of three products uses the same 600W/450W/300W per channelpower levels as the M-Class amplifiers and a low power sleep mode that savespower in applications where paging is infrequent.  The Black Max line is designed to be more economical for generalpurpose paging applications where budgets are constrained.

 

Bogen also introduced the CDC 3multi-disc CD changer in 2001.The CDC 3 is an industrial-grade, three-disc CDchanger with specific mechanical and electrical features that are unavailablein products designed for the consumer market. These features include, integralrack mounting brackets, all metal enclosure construction with heavy aluminumface plate, auxiliary music source feed through (the aux source plays throughhe CDC 3 when ever it is in stop mode), both stereo and mono outputs and anoutput level control. Bogen’s product offering in the area of music sources hadpreviously been limited to AM/FM turners and receivers and cassette players.The CDC 3 allows expansion into the more popular CD market.

 

In 2001 Bogen introduced theCAM2 microphone mixer as a follow up to last years introduction of the CAM8series of microphone mixers. The CAM2 is a significant up grade of Bogen’svenerable CAM microphone mixer. Improvements include output level meter, clipindicators for each input channel, phantom microphone power per input and adual level signal output to mention a few. The CAM 2 is a popular distributoritem because of its economical price and simple operation. The CAM 2 isintended to improve the unit’s popularity through a much-enhanced feature setwhile selling at a price similar to the CAM.

 

Capitalizing on the well-knownApogee name, Bogen’s Engineered Systems division introduced a selected group ofApogee products that address the school auditorium and gymnasium markets.  The addition of these products to thechannel product mix allows Engineered Systems contractors to use Bogen productsfor the full scope of school audio needs. Engineered Systems also introduced a digital video server enhancement tothe highly successful iQuest product line. The DVS provides Video On Demand to the classroom and/or the desktop.  Video material may be scheduled, reserved,and delivered via network streaming or broadband or baseband distributionthroughout the school.

 

In 2001, Apogee introduced itslarge-scale concert Line Array series, ALA9, to round out its existing ALAseries products and address the largest of performing sound needs.  More importantly, Apogee introduced the APLfamily of self-amplified loudspeakers consisting of 7 products, the APL-220,APL-500, APL-800 full-range loudspeakers and APL10, APL-12 and APL-SB subwoofers. Self-amplifier loudspeakers are an emerging class of loudspeakerproduct where the high-powered amplifiers (1000 watts and greater) are packagedinto the loudspeaker enclosure providing an extremely compact audio system andensuring that the amplifiers are perfectly matched to their speaker load. TheAPL products use innovative amplifier designs that produce professional gradesound quality while occupying a small amount of space and producing a minimumof waste heat. The subwoofer products use amplifiers capable of producing totalpowers of 1000 and 2000 watts (depending on model). The APL full-rang productsuse two amplifiers (one dedicated to the high frequencies and one dedicated tolow frequencies) with total output powers of up to 800 watts.  The new APL series is expected to be a factordriving Apogee’s revenue growth in 2002.

 

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**BOGEN’S SALES OUTSIDE THE U.S.**

 

Although Bogen’s sales areprimarily in the United States, Bogen also sells its products in Canada througha stocking representative with offices throughout Canada.  Telco export sales to Europe are handledthrough the Company’s subsidiaries in Europe. Export sales to other foreigncountries are handled in the same manner as sales within the United States(i.e., through distributors, dealers and contractors that purchase the productsand sell them to an established account base overseas).  Sales outside the U.S. accounted for lessthan 10% of Bogen’s revenues in each of the last three fiscal years. Bogenrecognizes sales as foreign based upon shipping destination.

 

**BOGEN’S SOURCING ANDMATERIALS**

 

All components and rawmaterials used in the construction of Bogen’s products are of standardcommercial quality or better, and are readily available from overseas andUnited States suppliers.  Bogen reliesprincipally upon established suppliers and subcontractors primarily located inthe Republic of South Korea, and to a lesser extent elsewhere in East Asia, andthe United States.  These suppliers andsub-contractors either produce sub-assemblies for use in the finished productor produce and assemble the finished products themselves.  Products are based on Bogen designs and arebuilt in accordance with Bogen drawings and specifications.  The majority of Apogee’s finished productsare manufactured in its Petaluma, California, facility.  Efforts to optimize all aspects of Apogee’ssupply chain began in 2000 and continued into 2001.  Cost savings and quality improvements were realized during 2001and are reflected in Apogee’s current cost structure.

 

In view of periodic economicinstability in Asia, the Company takes precautions to ensure that productionwill 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, thatevents beyond the Company’s control, including, without limitation, thefinancial requirements of any of the Company’s suppliers and subcontractors,will not disrupt the production schedule or the Company’s source ofsupplies.  Any such disruption may havea material adverse effect on the Company’s results of operations.

 

**BOGEN’S PATENTS ANDTRADEMARKS**

 

“Bogen(R)” is a trademark ofthe Company, which is registered in the United States and in certain foreigncountries throughout the world.  Thetrademark expires in the United States and in these countries between 2009 and2010.  Trademark applications andrenewals for the Bogen mark have been filed in other countries.  Bogen has also obtained U.S. trademarkregistration for the trade name “Multicom2000(R)”.  This trademark is utilized in connection with Engineered Systemsand expires in June 2011.  Bogen hasobtained U.S. trademark registration for the trademark “NEAR”.  This trademark expires in November2011.  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.  Other trademarks currently in theapplication process include “NEAR Armadillo Speakers”, “Easy Install Speakers”,and “iQuest”.  The Company believes thatcertain of these trademarks provide substantial value to the Company.

 

In June 1998, Bogen was awardeda patent for the technology of its Pro Matrix(TM) amplifier product.  In June 1999, Bogen was awarded a US patentfor its Pro DRDX product (an MOH system) technology.  NEAR(TM) has two patents related to its speaker products, one forits MLS (Magnetic Liquid Suspension) Spider less cone speaker expiring in 2011and the other for an in-ground sub-woofer, which was granted in 1998, expiringin 2015.  In 2000, the Company receiveda design patent on its NEAR A-SeriesTM speakers.

 

In 2000, the Company appliedfor a patent for its highly innovative Easy InstallÔspeakers and in 2001, it applied for a patent for the technology used in itsM-Class and Black Max amplifier products. There is no assurance that the Company’s patent applications will begranted, or, if granted, that they will provide the Company with exclusiverights to sell or market a particular line of such product.

 

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**BOGEN’S RESEARCH ANDDEVELOPMENT**

 

Bogen’s in-house engineeringdepartment (“R&D”) is responsible for all phases of new productdevelopment, continuing support of existing product, specification and projectmanagement of products developed by its offshore development group and OEMproduct evaluations.

 

During the first half of 2001much of Bogen’s engineering resources were consumed in the development of theBlack Max amplifier family. This product family was conceived, developed anddelivered within a 7-month period. In certain circumstances, Bogen’s R&Dcreates derivative products, which typically address a set of featurescomplementary to the original product thereby accessing adjacent markets.Derivative products not only provide the advantage of fast time to market, theyalso provide a means for second generation improvements in the original productand greatly improve amortization of tooling which is also used, in large part,by the derivative products.

 

Also during 2001 Bogenundertook development of a new line of modular input amplifiers to replace itsaging existing line of product. Expected to be available during the firstquarter of 2002, the new line of products will have added features and isintended to compete well against alternative products.

 

As a complement to this line ofmodular amplifier, Bogen’s product development group worked on creating 5 newmodules to expand the existing line of 6 modules that were developed in 2000for the M-Class introduction. These modules provide functions that wouldnormally be available only by using external equipment, and they provide thisfunctionality at comparatively low costs. Surface mount technology was usedheavily in these designs because of the space saving the technology provides.

 

Bogen’s product developmentgroup also continued work with overseas vendors to produce high-quality audiodrivers used in Apogee speaker products. This effort resulted in the redesign of a majority of Apogee’s drivers,which provided 3 benefits; 1) Significant cost savings, 2) relief from singlesource vendors, 3) process improvement whereby the vendors now performmanufacturing steps previously performed as a secondary operation in Apogee’sfactory. All drivers were critically matched to the existing drivers to ensurethat customers would not be affected by the change in driver manufacturers.

 

Bogen’s product developmentgroup partnered with a large manufacturer of headsets to create the currentline of Bogen headsets. Bogen performed critical product evaluations on productiterations, electrical evaluations on the amplifiers and assistance inobtaining the required safety and FCC approvals for the products.

 

During 2001 the productdevelopment group partnered with a Korean development group to produce ahigh-quality, full-duplex speakerphone. This product is now undergoing thenecessary regulatory approval testing.

 

During 2001, Apogee’s in-houseengineering department completed development of the APL series of self-poweredloudspeakers. This new product line of 7 products is based on and revitalizeswell-established and accepted loudspeaker products.  The line provides an extremely compact means of creating an audiosystem by building the high-powered amplifiers into the speaker enclosure. Thespeakers in this product line were derived from Apogee’s best selling passivespeakers and maintained the same form factors. This allows customers who havealready made an investment in mounting hardware to use the APL products withoutthe need to purchase new hardware. Special high-efficiency amplifiers wereneeded for these products. These loudspeakers have been joined with the mostup-to-date amplifier technology to produce products that have the greatest easeof use and overall performance of any product currently on the market.  Apogee partnered with two companiesproducing innovative high-powered (up to 1000 watts) and high-performance amplifiersin order to obtain amplifiers small enough in size and low enough in heatdissipation to meet the strict requirement of the APL products. Apogee’sin-house engineering then designed the critical front-end processingelectronics that protect and enhance the performance of the speakers.

 

Research has also begun on aDSP card as an option in the new APL series. First phase prototypes have already been produced.  This card would allow the speaker to have,internally, several previously external processing devices like equalizers anddigital delays.  The devices would becontrolled via network connection to each loudspeaker.  Also, the new card would allow digital audiodistribution directly to the loudspeaker. The above feature set currently does not exist in the marketplace in asingle unified package.

 

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Additionally, research wasstarted on improvements to Apogee’s ACS line speaker products. The improvementsbeing considered address product industrial design, performance, and cost

 

There can be no assurances thatany new products will be able to compete with similar products offered by othermanufacturers.

 

Research and developmentexpenditures for the years ended December 31, 2001, 2000, and 1999 were$1,774,000, $1,703,000 and $1,971,000, respectively.

 

**BOGEN’SCOMPETITION AND MAJOR CUSTOMERS**

 

Bogen’s competition varies bymarket and product line.  Bogen competeson name recognition, price, delivery, availability, innovation and productfeatures and quality.  However, suchfactors vary in relative importance depending on the markets and productsinvolved.  Bogen has concentrated onmarkets in which it believes that it can obtain a significant market share, beone of the top two or three suppliers, or which have substantial growthpotential.  Bogen’s key strengthcontinues to be its distribution channels and name recognition, especially inthe school market, background/foreground music market, overhead paging, and thesecurity markets.

 

Bogen’s Telco products competein the overhead paging and Music-On-Hold (`MOH”) niches of the Telcomarket.    In the over-head pagingmarket, Bogen’s main competitor is Valcom, Inc., a company that has beenestablished in this market for several decades.  Several other U.S. companies, which have been losing market shareover the past few years, and several companies attempting to enter the marketalso compete with Bogen’s overhead paging products.  Bogen believes it has increased its share in recent years.  In the MOH market, Bogen’s competitors arerelatively small companies that offer basic systems.

 

The Commercial Audio customermarket is characterized by intense competition, particularly from severaloverseas companies, with no one company accounting for more than 10% of theU.S. market.  At the contractor level,Bogen faces competition from many sources, including a number of overseascompanies.  There are a number ofcomparatively small manufacturers with whom Bogen competes, whose sales andmarket share depend upon established reputation for quality and support andsolid relationships with their account base. Bogen concentrates on customer needs to design, manufacture, and markettailored packaged solutions for each particular vertical market.

 

The Engineered System customermarket is a highly specialized market characterized by low unit volume and highdollar sales.  Bogen’s principalcompetition comes from Rauland Borg Corp., the market leader in this area, andDukane Corporation, each of which, like Bogen, has been in the market forseveral decades and has well established name recognition and distributionchannels.

 

**BACKLOGOF ORDERS**

 

As of December 31, 2001, Bogenhad a backlog of firm orders of about $1,138,000, all of which it expects tofill within 2002.  As of December 31,2000, Bogen had a backlog of firm orders of approximately $1,320,000, all ofwhich were filled in 2001.

 

**SPEECHDESIGN (FOREIGN OPERATIONS)**

 

Speech Design, located inGermering, Germany, outside Munich, and Hamburg, Germany, develops, manufacturesand markets telephone peripheral hardware utilizing digital voice processingtechnologies.

 

Speech Design product linesinclude 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 Designlaunched its “Memo(TM)” product line of stand-alone non-PC based voice mailperipherals for small-to-medium PABX’s. The high-end Memo-CDA model includes a CD based music and information onhold system.  Memo offers fullintegration with most of the popular PABX models on the European market and hasrapidly become one of the fastest selling voice mail systems in the 2 - 4 port(channel) category. In late 1998, Speech Design introduced the “TeleserverPro(TM)” range of modular, higher-end (2 - 8 port) voice and call processingperipherals.  In addition to highercapacity voice mail than possible with Memo, Teleserver also offers ACD(automatic call distribution) functionality.

 

8

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On December 31, 1998, SpeechDesign acquired 100% of Carrier Systems, located in northern Germany. CarrierSystems is a developer and manufacturer of LAN and Internet-based Unified Messagingproducts. It’s flagship product, ThorTM, improves communications within anyenterprise 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-mailenvironment.  The user can retrieve andmanipulate all messages either locally, using the familiar PC-desktop, orremotely, via an Internet computer, telephone or fax machine from anywhere inthe world.  Services such as listeningto e-mails on the telephone, forwarding e-mails or faxes to a fax machinenearby, or message notification to a mobile phone are available.  Thor has been sold to several major ISPsoperating in Europe, including America On Line, 1&1, GMX, and Easynet.  Deutsche Telekom (“DT”), Europe’s largesttelecommunications company, selected Thor as the strategic platform for itsadded value messaging services in the fixed-line network.  In 2001, three Thor-based services werelaunched by DT.  Based on the DTexperience, further carrier projects were implemented with e-plus in Germany(e-mail reading on the mobile telephone), TDC in Denmark, and Vodacom in SouthAfrica (both SMS-to-Voice: delivery of SMS messages to fixed-line telephones).The enterprise version of Thor, compatible with MS Exchange, Lotus Notes andother corporate e-mail servers, was launched in mid-1999.

 

**SPEECH DESIGN’SPRODUCT LINE**

 

Speech Design’s products are inthe Telco line.  Telco net salesprovided by Speech Design were $16,935,000, $20,546,000 and $21,556,000 for theyears ended December 31, 2001, 2000, and 1999, respectively.  Speech Design Telco sales amounted to 29.6%,31.4% and 36.7% of the Company’s consolidated net sales for these years.

 

**SPEECH DESIGN’S SALESAND MARKETING**

 

The general market for SpeechDesign’s products is the underdeveloped European voice processing market forcommercial and industrial end-users. According to the Company’s estimates, the current penetration in Europeof applications such as voice mail is very low compared to the levels in theU.S.  In 1999, Speech Design entered theinnovative and rapidly growing Unified Messaging market.

 

In 1994, Speech Design acquireda 67% interest in Satelco, a Swiss company that is a marketer of telephoneperipherals and a distributor of Speech Design’s and Bogen’s products.  In order to further support its efforts toenter the UK market, Speech Design founded a sales subsidiary, Speech Design(UK) Ltd., in early 1996.  Due to aslower-than-expected UK market development, Speech Design (UK) Ltd. was closedeffective December 31, 2000 (Speech Design continues to sell to UK customersdirectly from Germany).  Sales outsideof Germany constituted 19% of total sales in 2001; up from 16% in 2000.

 

In mid-1996, a manufacturingsubsidiary, Speech Design (Israel) Ltd., was founded in Israel and has assumedproduction of certain product lines from Speech Design, resulting in reducedmanufacturing cost and tax levels.  TheIsraeli facility was granted a 10-year income-tax exemption effective January1, 1997.  In 2001, approximately 30% ofall units manufactured by Speech Design came from the Israel facility.

 

Speech Design markets its PABXperipherals to major manufacturers and distributors of PABX systems throughoutEurope for use by mid-size companies consisting of approximately 50-200employees.  PABX’s are multiple-linebusiness telephone systems, which are installed at end users’ businesses tofacilitate internal and external communications.  The PABX is an alternative to providing each employee in a companywith his or her own direct line.  Themajor manufacturers integrate Speech Design’s products with their PABX’s forsale to the end-user as part of a new system. The increased visibility of Speech Design’s products has led to moreSpeech Design peripherals being sold to owners of previously installed PABX’s.

 

Speech Design attempts todifferentiate itself both from high-end suppliers of large customized systemsand suppliers of semi-professional, price-sensitive solutions for the smallcompany sector by providing standard, high-quality, affordable and easy-to-useproducts for the small to mid-size PABX.

 

Speech Design sells itsvoicemail products through resellers. In Germany, Speech Design’s main customers are sales organizations ofleading PABX manufacturers and major independent dealers.  In other European countries, Speech Designhas exclusive agreements with national distributors, which in Switzerland is aSpeech Design subsidiary, which market to the reseller base in their respectiveterritories.  Sales to three customersof Speech Design totaled approximately $10,305,000, accounting for 60% ofSpeech Design’s net sales in 2001.

 

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Thor unified messaging systemsare sold directly to service providers (ISP’s and telecommunications carriers)as well as indirectly (through PABX manufacturers and IT system integrators) tocorporate customers.  In 2001, SpeechDesign has focused on developing sales of Thor platforms to mobile and fixedline network operators (“carriers”).  Amajor contract was signed with Deutsche Telekom (“DT”) in late 2000, with threedifferent services launched in 2001. Revenues consist of per-mailbox pricing, maintenance fees, and certaindevelopment/customization fees.  Inaddition, some contracts with ISP’s/carriers are based on revenue-sharing:  the ISP or carrier provides access to theircustomer base and marketing support, while the end-user pays a per-minute tollto access Thor services (for example e-mail reading on the mobile telephone)and a portion of this revenue is passed back to Speech Design.   In late 2001, several major internationalcarriers started Thor-based services: e-plus in Germany, TDC (formerlyTeleDanmark) in Denmark, and Vodacom in South Africa.

 

**GERMANY**

 

In Germany, Speech Design hasdeveloped an effective approach for local distribution of voice processingproducts. Speech Design sells directly to the regional sales offices of theleading manufacturers of PABX equipment including Siemens, Tenovis (formerly BoschTelecom), DeTeWe and DT.  Approximately63% of Speech Design’s sales are to these customers (which percentagecorresponds to these manufacturers’ approximate joint share of the PABXmarket).  Speech Design has achievedcentral pricing agreements and technical as well as commercial endorsementsfrom the headquarters of each of these companies.  The regional offices of these companies consist of approximately200 locations and a combined sales force of approximately 3,000 people.  Speech Design’s sales and technical teamsupports and motivates the regional sales forces of the large PABX companies toactively market Speech Design’s products. Speech Design routinely updates its data bank of all PABX salesrepresentatives in Germany to help the sales team optimize communications andefficiency.  In late 1999, Speech Designentered into an OEM agreement with DT, under which DT resells the full range ofSpeech Design’s voicemail products. DT offers the systems under its own“Octopus Mail” trademark to its installed base of customers, as well as to newswitch customers.

 

In 2001, Speech Designcontinued to intensify its efforts to sell voice mail systems to the installedswitch base (“the aftermarket”).  Sincethe Company’s distributors mainly focus on sales to new switch customers, theaftermarket is largely under-penetrated and offers significant salespotential.  The aftermarket effortcenters on the high-end Teleserver product.

 

Speech Design considers itssales network in Germany, Europe’s largest telecommunications market, to be oneof its most valuable assets and a market entry barrier to potentialcompetitors.

 

For the enterprise version ofThor, Speech Design uses the existing PABX sales channel and builds anadditional IT system integrator reseller network.  For Thor sales to ISP’s and carriers, potential German customersin this field are being approached directly by Speech Design’s senior keyaccount executives.

 

**OUTSIDE OF GERMANY**

 

Speech Design utilizesexclusive national distributors in selected European markets (Austria, Belgium,Denmark, Finland, France, Italy, The Netherlands, Sweden, andSwitzerland).  These distributors -other than Satelco - are independent resellers of telecommunications equipment,who market Speech Design’s products to local manufacturers and distributors ofPABX’s. Speech Design’s key account managers based in Germany are offering Thorplatforms and services to selected European ISP’s and carriers.

##### ** **

##### **SPEECH DESIGN’S SOURCING AND MATERIAL**

 

Speech Design manufactures itsproducts in cooperation with a network of German subcontractors and its Israelisubsidiary.  Speech Design purchases allmechanical and electronic components for its products and ships them forboard-level assembly work by its subcontractors.  Speech Design’s own manufacturing group assembles finishedproducts from pre-tested modules and performs final quality tests.

 

Thor Unified Messaging systemsare assembled from standard PC-server components (mainly sourced from Compaq)and standard communications boards from several suppliers.

 

10

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Speech Design maintains acomputerized order processing and warehouse system and a level of productavailability that generally enables it to deliver products in Germany on anaverage of three days after receipt of an order and within two weeks afterreceipt of an order from other countries.

 

**SPEECHDESIGN’S PATENTS AND TRADEMARKS**

 

“Speech DesignÔ”is a registered trademark in Germany and the U.S. Several of Speech Design’sproducts also have registered trademarks including: Thor TM, MozartÔ,GeniusÔ, and SissyÔ.

 

**SPEECHDESIGN’S RESEARCH AND DEVELOPMENT**

 

Speech Design’s in-houseengineering department is responsible for research and development andproduction engineering of all Speech Design products.  In 2001, the R&D department maintained its focus on thedevelopment of Speech Design’s next generation call processing platform,suitable both for integration into PABX’s (switches) and for stand-aloneoperation.  The platform offers higherscalability (up to 30 ports), digital (ISDN) interfaces and a standard,open-platform operating system (Linux). In comparison, the currently marketed Memo and Teleserver product linescannot be switch-integrated, scale to a maximum of 8 ports, have analog-onlyinterfaces and are based on a proprietary operating system.  Under an OEM and Licensing Agreement, thefirst implementation of the new platform is an integrated voicemail system fora leading European switch manufacturer, to be launched in early 2002.

 

The R&D team responsiblefor the development of the Thor unified messaging platform and services isbased at Carrier Systems.  In 2001, themain effort was to complete the development of a turnkey system aimed at ISPsand mobile telcos, offering customers a rapid service rollout with a minimuminvestment of their own in-house resources. The package includes web-based registration infrastructure, databasemanagement and customized front-end design. Customization of Thor for several added-value services at DT and threeother carrier customers, along with the introduction of new applications suchas SMS-to-voice, accounted for a significant portion of the engineering effortin 2001.  In addition, the core technologyteam continued to expand Thor capabilities by including voice recognition,telephone access to PIM (Personal Information Manager) functions, voice-XMLstandards, and other areas.

 

Research and developmentexpenditures for the years ended December 31, 2001, 2000, and 1999, were$1,982,000, $1,048,000, and $2,448,000. The lower level of expenditure in 2000 was due to the accountingtreatment of an OEM development project (development costs charged to COGS) andfrom the capitalization of third-party costs to subcontractors for thedevelopment of TeamPro (the Teleserver call distribution subsystem).

 

**SPEECHDESIGN’S COMPETITION**

 

In Germany, Speech Design isthe acknowledged market leader in the small to mid-size PABX peripheralsmarket.  Speech Design’s main competitorin Germany is a provider of telephone peripherals primarily at the low-end ofthe Speech Design product range (simple music-on-hold units and announcers).

 

There is no single dominatingcompany in the European market for small to mid-size PABX peripherals.  With the exception of 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 largenumber of smaller companies offering PC-based voice mail systems.  These companies tend to be highly focused intheir national markets and generally cannot afford to be global players due tothe cost of establishing distribution channels and gaining regulatory approvalfor selling telecommunications products in each country.

 

In the emerging market ofUnified Messaging, Speech Design’s main competitor in the corporate area inGermany is Cycos, while the competition in the carrier market mainly consistsof companies that have supplied mobile and fixed-line operators with theirvoice mail infrastructure.  Such vendors(Comverse, Lucent, Unisys and others) see Unified Messaging as an opportunityto up-sell to the existing voice mail-only customer base.

 

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Management believes that thecombination of Speech Design’s mid-size PABX focus, broad and unique productrange and Europe-wide distribution presence may enable Speech Design to becomea leading provider of telephone peripherals in many European countries.  There can be no assurance, however, thatsuch results will occur or that the Teleserver family of voice mail and relatedproducts and Thor Unified Messaging System will increase Speech Design’scompetitive advantage in Europe, because this industry is highly sensitive togeneral economic conditions and is characterized by rapid technologicalchange.  Speech Design’s ability tocompete successfully may depend in substantial measure on its ability todevelop or acquire new or improved equipment, techniques and products and/or tomodify and upgrade its existing equipment, techniques and products.

 

**SPEECHDESIGN’S BACKLOG OF ORDERS**

 

As of December 31, 2001, SpeechDesign had a backlog of firm orders of approximately $420,000, all of which itexpects to fill in 2002.  As of December31, 2000, Speech Design had a backlog of firm orders of approximately $552,000,all of which were filled in 2001.

 

**GOVERNMENTREGULATIONS AND INDUSTRY CERTIFICATIONS**

 

The U.S. Federal governmentregulates domestic telecommunications equipment and related industries.  The Federal agency vested with primaryjurisdiction over the telecommunication industry is the Federal CommunicationsCommission (the “FCC”).  Many telephoneperipheral producers and distributors, while not directly regulated by the FCC,are nevertheless substantially affected by the enforcement of its regulationsand changes in its regulatory policy.

 

The FCC has adopted regulationsregarding attachments to the telephone networks as well as regulations imposingradio frequency emanation standards for computing and radio equipment and manyof Bogen’s products require authorization by the FCC.  In addition, many of Bogen’s products also require theauthorization of the Underwriter’s Laboratory (“UL”).  All such required authorizations have been obtained.  As a result of modifications andimprovements to Bogen’s products, Bogen will be obligated to seek newauthorizations where there is degradation in the radio frequencyemissions.  Failure to obtain suchauthorizations may preclude Bogen from selling its products in the U.S. Bogenmakes all reasonable efforts to ensure that its products comply with suchrequirements.

 

To successfully access theCanadian market, Bogen must obtain Underwriters Laboratory Canada and CanadianStandards Association authorizations for all AC powered products, which it hasdone for all of its current products.

 

All Speech Design products havebeen adapted to the technical (PTT-approvals) and commercial audio requirementsof Western European markets.  All SpeechDesign products carry the Community European (“CE”) marking, which is theequivalent of a UL certification in the United States.

 

In 1995, Speech Design receivedthe ISO 9001 Quality Certificate for its research and development, productionand customer support operations in Germany. In 1996, the Quality Mark was extended to include Speech Design’s Israelsubsidiary.  In 1999, Carrier Systemswas certified.  ISO 9001 is aninternationally recognized Quality Assurance certification.

 

**EMPLOYEES**

 

As of December 31, 2001, theCompany had approximately 250 full-time employees engaged in itsbusinesses.  The Company also usestemporary and/or part-time employees, as required.  About 15 of Bogen’s U.S. employees are subject to collectivebargaining agreements, which expire in June and September of 2003.  The Company considers its relationship withits employees to be satisfactory.

 

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**ITEM 2.  PROPERTIES**

 

The Registrant’s principalplace 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 executiveoffices at that location.  The lease,which covers approximately 70,000 square feet, commenced on January 1, 1987 andwas extended for 10 years on November 28, 2000.  Annual base rental payments over the remainder of the lease areapproximately $532,000, plus taxes and other expenses.  Apogee leases approximately 30,000 squarefeet for its facility in Petaluma, California, under a lease, which commencedin April 2000, and expires on March 31, 2005.  Annual rental payments over the remainder of the lease are approximately$268,000.

 

Speech Design leases itsfacilities in Munich, Germany, under a lease expiring in September 2005.  It is comprised of a warehouse and executiveoffices, covering a total of 21,000 square feet.  Speech Design’s subsidiaries have leases in Wedel, Germany; KfarSaba, Israel; and Richterswil, Switzerland, which expire over the next fiveyears.  Speech Design and subsidiaries’aggregate annual rental payments are approximately $440,000.

 

Management of the Companybelieves that the facilities occupied by the Company and its subsidiaries areadequate to meet current needs.

 

**ITEM3.  LEGAL PROCEEDINGS**

 

The Company is party, in theordinary course of business, to various legal actions and claims which relateto its products, intellectual property, employee matters, or other aspects ofits operations.  In the opinion ofmanagement, the ultimate disposition of these matters will not have a materialadverse effect on the Company’s consolidated financial position, results ofoperations, or liquidity.

 

**ITEM4.  SUBMISSION OF MATTERS TO A VOTE OFSECURITY HOLDERS**

 

Not Applicable

 

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**PART II**

 

**ITEM5.  MARKET PRICE FOR REGISTRANT’S COMMONEQUITY AND RELATED STOCKHOLDER MATTERS**

 

TheRegistrant’s Common Stock currently trades on the NASDAQ National Market System(“NASDAQ”) under the symbol “BOGN.

 

The followingtable sets forth the range of high and low closing prices for (i) the CommonStock on NASDAQ, and (ii) for Warrants (see Note 12 regarding redemption andcancellation of Warrants) as reported by the OTC Bulletin Board, for each ofthe fiscal quarters during the period from January 1, 2000, through December31, 2001.  The quoted prices represent“inter-dealer” prices without retail markups, markdowns or commissions and maynot necessarily represent actual transactions.

 
| **JANUARY 1  TO MARCH 31, 2000**   |
|------------------------------------|
| **SECURITY**                       |   | **HIGH ($)** |   | **LOW ($)** |   |   |
| Common Stock                       |   | 16 |   | 6 5/8 |   |   |
| Warrants                           |   | 9 3/8 |   | 1 11/16 |   |   |
|                               |   |   |   |   |   |   |
| **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 |   |
|                               |   |   |   |   |   |
| **JANUARY 1 TO MARCH 31, 2001**    |
| **SECURITY**                       |   | **HIGH ($)** |   | **LOW ($)** |   |
| Common Stock                       |   | 6.1875 |   | 3.1 |   |
|                               |   |   |   |   |   |
| **APRIL 1 TO JUNE 30, 2001**       |
| **SECURITY**                       |   | **HIGH ($)** |   | **LOW ($)** |   |
| Common Stock                       |   | 4 |   | 2.6 |   |
|                               |   |   |   |   |   |
| **JULY 1 TO SEPTEMBER 30, 2001**   |
| **SECURITY**                       |   | **HIGH ($)** |   | **LOW ($)** |   |
| Common Stock                       |   | 3.33 |   | 1.75 |   |
|                               |   |   |   |   |   |
| **OCTOBER 1 TO DECEMBER 31, 2001** |
| **SECURITY**                       |   | **HIGH ($)** |   | **LOW ($)** |   |
| Common Stock                       |   | 3.5 |   | 2.25 |   |

 

The Registranthas not declared or paid any cash dividends on its Common Stock sincecommencing operations and currently does not anticipate paying any dividends onthe Common Stock in the foreseeable future. As of March 8, 2002, there were approximately 125 record holders of theCommon Stock.

 

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**ITEM6.  SELECTED FINANCIAL DATA**

 

                The following table summarizes certainselected consolidated financial information for the Company and should be readin conjunction with the more detailed consolidated financial statements and thenotes thereto.   See “Item 8.  Financial Statements and SupplementaryData.”

 

**(IN THOUSANDS, EXCEPT PER SHARE DATA)**

**STATEMENTS OF OPERATIONS FOR THE YEARS ENDEDDECEMBER 31,**

 
|                                                |   | **2001** |   | **2000** |   | **1999** |   | **1998** |   | **1997** |   |
|-----------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|----------|--------|
| Net sales (1)                                       |   | $        | 57,143 |     | $      | 65,520   |   | $        | 58,877 |     | $      | 52,482 |   | $ | 50,259 |   |
|                                                |   |     |   |     |   |     |   |     |   |     |   |
| Gross profit (1)                                    |   | $        | 26,965 |     | $      | 30,359   |   | $        | 28,559 |     | $      | 24,381 |   | $ | 21,852 |   |
|                                                |   |     |   |     |   |     |   |     |   |     |   |
| Purchased In-Process Research and  Development      |   | $        | — |     | — |     | — |     | $      | 3,885    |   | — |   |
|                                                |   |     |   |     |   |     |   |     |   |     |   |
| Income (loss) from operations                       |   | $        | (1,421 | )        | 4,135  |     | $      | 5,206    |   | $        | 2,730  |   | $ | 5,093 |   |
|                                                |   |     |   |     |   |     |   |     |   |     |   |
| Net income (loss)                                   |   | $        | (728   | )        | 3,066  |     | $      | 3,500    |   | $        | 342    |   | $ | 2,665 |   |
|                                                |   |     |   |     |   |     |   |     |   |     |   |
| Preferred dividends                                 |   | $        | — |     | — |     | $      | —   |   | $        | 900    |   | $ | 178 |   |
|                                                |   |     |   |     |   |     |   |     |   |     |   |
| Net income (loss) available to common  shareholders |   | $        | (728   | )        | $      | 3,066    |   | $        | 3,500  |     | $      | (558 | ) | $ | 2,487 |   |
|                                                |   |     |   |     |   |     |   |     |   |     |   |
| Net income (loss) per Common share - Basic          |   | $        | (0.07  | )        | $      | 0.33     |   | $        | 0.52   |     | $      | (0.12 | ) | $ | 0.46 |   |
|                                                |   |     |   |     |   |     |   |     |   |     |   |
| Net income (loss) per Common share -  Diluted       |   | $        | (0.07  | )        | $      | 0.31     |   | $        | 0.45   |     | $      | (0.12 | ) | $ | 0.46 |   |

 

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(1)     In2000, the Company adopted the provisions of the FASB’s Emerging Issues TaskForce (EITF), Issue No. 00-10, “Accounting for Shipping and Handling Fees andCosts,” which requires the Company to report all amounts billed to a customerrelated to shipping and handling costs as revenue and report all costs incurredby the seller for shipping and handling as cost of goods sold.  Consequently, the Company has reclassifiedsuch 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 wereincreased by $1,009, $879, $654, and $743 and cost of sales were increased by$2,261,  $1,924, and $1,443, and $1,723for the years ended December 31, 2000, 1999, 1998, and 1997, respectively.  There is no effect on operating income.  In 2001, the Company adopted the provisionsof EITF Issue No. 00-22, “Accounting for “Point” and Other Loyalty Programs”,which classifies customer rebates as a reduction of sales, and Issue No. 00-25,“Accounting for Consideration from a Vendor to a Retailer in Connection withthe Purchase or Promotion of the Vendor’s Products”, which classifies suchconsideration as a reduction of sales. Consequently, the Company has reclassified such expenses that werepreviously a component of selling, general, and administrative expenses againstsales.  As a result of thesereclassifications, sales were decreased by $673, $743, $489, $275, and $263 forthe years ended December 31, 2001, 2000, 1999, 1998 and 1997,respectively.  There is no effect onoperating income.

 

**BALANCESHEETS AS OF DECEMBER 31,**

 
|                                       |   | **2001** |   | **2000** |   | **1999** |   | **1998** |   | **1997** |   |
|--------------------------------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|----------|--------|
| Total assets                               |   | $        | 55,807 |     | $      | 61,112   |   | $        | 43,478 |     | $      | 37,747 |   | $ | 31,970 |   |
|                                       |   |     |   |     |   |     |   |     |   |     |   |
| Long-term debt (net of current maturities) |   | $        | 131    |     | $      | 288      |   | $        | 699    |     | $      | 227 |   | $ | 212 |   |

 

The Companydid not pay a cash dividend on the Common Stock during any period indicated.

 

**ITEM 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTSOF OPERATIONS**

 

Theconsolidated financial statements and the following discussion include theRegistrant’s 99% owned subsidiary Bogen; Bogen’s wholly-owned subsidiary, BCI;BCI’s wholly-owned subsidiaries, NEAR (until December 31, 1999) and, as ofAugust 27, 1999, Apogee; SDI, the Registrant’s 98% owned

 

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subsidiary; SDI’s wholly-ownedsubsidiary Speech Design; Satelco, a 67% owned subsidiary of Speech Design; andSpeech Design’s wholly-owned subsidiaries, Speech Design (Israel) Ltd., SpeechDesign (UK) Ltd. (closed effective December 31, 2000), and CarrierSystems.  All significant inter-companybalances and transactions have been eliminated in consolidation.  Certain prior years balances have beenreclassified to conform to the current year presentation.

 

The ownershipinterest of minority owners in the equity and earnings of the Company’s lessthan 100 percent-owned consolidated subsidiaries is recorded as minorityinterest.  The Company records alllosses after the minority interest liability is reduced to zero.

 

**RESULTSOF OPERATIONS 2001 COMPARED TO 2000**

 

**NETSALES**

 

Net sales of$57,143,000 for 2001 decreased 12.8% from 2000 net sales of $65,520,000.  General weakness in both domestic andforeign markets, primarily due to the underlying economy, caused revenues inall major lines of business to decline.

 

**Bogen(domestic)**

 

Telco netsales in 2001 amounted to $14,313,000 compared to $16,773,000 in 2000, adecrease of $2,460,000 or 14.7%.

 

Net sales ofCommercial Audio products amounted to $9,251,000 in 2001, a decrease of 4.1%from net sales of $9,648,000 of such products in 2000.

 

Net sales ofPro Audio products, through Apogee, amounted to $5,013,000 in 2001, down$893,000, or 15.1%, from $5,906,000 in 2000.

 

Net sales ofthe Engineered System line decreased $1,016,000, or 8.0%, to $11,631,000 in2001 from $12,647,000 in 2000.

 

**SpeechDesign (foreign)**

 

SpeechDesign’s products are in the Telco line. Net sales in 2001 were to $16,935,000 compared to $20,546,000 in 2000, adecrease of $3,611,000, or 17.6%.  InDeutsche Marks (“DM”), net sales in 2001 decreased 14.7%, to 36,987,000 from43,359,000 DM in 2000.  The decline atSpeech Design reflected deep cutbacks on telecommunications spending by endusers and telecom carriers and resulting lower sales of Speech Design’stelephone peripheral hardware, music on hold systems, and most other digitalvoice processing technologies.  Thisoverall decline was offset somewhat by the second consecutive year of 100%annual growth in Unified Messaging revenues.

 

**GROSSPROFIT**

 

The Company’sgross profit in 2001 was $26,965,000, a decrease of $3,394,000 from $30,359,000in 2000.  As a percentage of sales, 2001showed an increase to approximately 47.2% from 46.3% in 2000.  This improvement in gross margin percentageprimarily reflects changes in sales mix within each of the Company’s segmentsand lines of business.

 

Bogen’s grossprofit decreased from $19,038,000 in 2000, to $17,530,000 in 2001.  Gross profit as a percentage of salesincreased from 42.3% in 2000 to 43.6% in 2001.

 

SpeechDesign’s gross profit decreased from $11,321,000 in 2000 to $9,435,000 in2001.  Gross profit as a percentage ofsales increased slightly from 55.1% to 55.7% from 2000 to 2001.  The increase in gross profit as a percentageof sales in 2001 versus 2000 is primarily a result of the recognition in 2000,as cost of goods sold, of certain research and development expenses incurredfor developing a software enhancement to a standard Speech Design product foran OEM development project.  The projectgenerated increased cost of goods sold, offset by the reduction of research anddevelopment expenses.

 

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**RESEARCHAND DEVELOPMENT**

 

Research andDevelopment expense (R&D) was $3,756,000, or 6.6% of sales in 2001,compared to $2,751,000, or 4.2% of sales in 2000.  This increase reflects the Company’s continuing effort tointroduce innovative products to the market and to update existingproducts.  The increase also reflectsthe effect of the prior year recognition as a cost of sales of certain SpeechDesign research and development costs relating to fees for an OEM project.

 

**SELLING,GENERAL AND ADMINISTRATIVE EXPENSES**

 

Selling,general and administrative expenses (“SG&A”) decreased $1,094,000, or 5.0%,from 2000 to 2001.  SG&A expense was$21,052,000, or 36.8% of sales, in 2001 compared to $22,146,000, or 33.8% ofsales, in 2000.  The decrease inSG&A is generally a result of overhead cost control initiatives taken bythe Company throughout 2001, reduction of expenses related to decreased salesvolume, and declines in travel-related costs due to temporary restrictions inthe third and fourth quarters of 2001.

 

**ASSETIMPAIRMENT**

 

The Company’sdomestic operations recorded a non-cash charge of approximately $1,409,000,reflecting the elimination of all goodwill associated with pro audio acquiredassets, in compliance with existing generally accepted accountingprinciples.  The amount of theimpairment was determined by comparing the carrying value of the goodwill tothe discounted cash flows of the underlying operations.

 

**RESTRUCTURINGAND OTHER CHARGES**

 

In 2001, the Companywrote off all remaining costs, approximately $581,000 of legal fees, incurredto date in connection with its exploration of alternatives for enhancingshareholder value, which had included a possible separation of the domestic andforeign businesses.  In addition, SpeechDesign recorded approximately $305,000 in restructuring charges associated withits voicemail business and $176,000 of restructuring charges for the UnifiedMessaging business.

 

In 2000,expenses of approximately $310,000 were incurred in connection with theCompany’s ongoing exploration of alternatives for enhancing value, includingbut not limited to, a possible separation of the U.S. and European businesses,entirely or in stages.

 

**INTERESTINCOME and EXPENSE**

 

Interestincome was $472,000 in 2001, a slight increase from $465,000 in 2000.  The increase in interest income primarilyreflects the Company’s increase in cash and marketable securities from December31, 2000, offset by declining interest rates throughout the year.

 

Interestexpense, was $122,000 in 2001, a decrease of $51,000, or 29.5%, from $173,000in 2000.  The decrease is primarily aresult of the Company’s overall reduced borrowing requirements on short-termcredit lines and declining interest rates from 2000.

 

**INCOMETAXES**

 

The Companyrecorded a tax benefit of approximately $315,000 in 2001.  The tax provision for 2000 resulted in taxexpense of $1,381,000.  Foreign taxesdecreased by $799,000, a result of reduced profitability and the establishmentof a benefit for certain foreign loss carryforwards.  Domestic taxes decreased by $897,000 from 2000, primarily due tolower profits.

 

**RESULTSOF OPERATIONS 2000 COMPARED TO 1999**

 

**NETSALES**

 

Net sales of$65,520,000 for 2000 increased 11.3% from 1999 net sales of $58,877,000.  Bogen’s revenues excluding Apogee grew by11.2%, primarily due to growth in Telco and Engineered Systems,

 

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which increased  $3,438,000 and $1,906,000, respectively,over 1999.  Speech Design revenues declined4.7% in U.S. dollars from 1999 although in local currency Speech Designrevenues grew 8.7%; currency exchange fluctuation negatively impacted reportedrevenues.

 

**Bogen(domestic)**

 

Telco (U.S.)net sales in 2000 amounted to $16,773,000 compared to $13,335,000 in 1999, anincrease of 25.8%.  The increase ofTelco sales is attributable to sales achieved under the Lucent OEM agreemententered into in November 1999, partly offset by a decrease in sales of non-OEMproduct.

 

Net sales ofCommercial Audio products amounted to $9,648,000 in 2000, a decrease of 12.8%from net sales of $11,060,000 of such products in 1999.  The decrease reflects the continued weaknessof overall demand and the withdrawal from the NEAR Home Theater market.

 

Net sales ofPro Audio products, through Apogee, amounted to $5,906,000 in 2000, upsignificantly from $2,185,000 in 1999. The increase results from the full year inclusion of Apogee, which wasacquired in August 1999.

 

Net sales ofthe Engineered System line increased 17.7% from $10,741,000 in 1999 to$12,647,000 in 2000.  This increase isprimarily attributed to the introduction of new products, the expansion of theBogen sales force and continuing availability of funding for school technologyand communications installations.

 

**SpeechDesign (foreign)**

 

SpeechDesign’s products are in the Telco line. Net sales in 2000 amounted to$20,546,000 compared to $21,556,000 in 1999, a decrease of 4.7%.  In Deutsche Marks (“DM”), net sales in 2000increased to 43,359,000 DM, 8.7% over 39,886,000 DM for 1999.

 

**GROSSPROFIT**

 

The Company’sgross profit in 2000 was $30,359,000, or approximately 46.3% of sales, anincrease of  $1,800,000, or 6.3%,compared to $28,559,000, or 48.5% of sales, in 1999.

 

Bogen’s grossprofit increased from $16,016,000 in 1999, to $19,038,000 in 2000.  Gross profit as a percentage of salesdecreased slightly from 42.9% in 1999 to 42.3% in 2000.  This decrease reflects the full year inclusionof Apogee product sales, which traditionally obtain lower gross margins thancore Bogen products, offset by improvements achieved by reducing overhead costthrough the outsourcing of the NEAR manufacturing operations in July 1999 andthe better absorption of fixed costs relative to sales volume.

 

SpeechDesign’s gross profit decreased from $12,543,000 in 1999 to $11,321,000 in2000.  Gross profit as a percentage ofsales decreased from 58.2% to 55.1% from 1999 to 2000.  The decrease in gross profit as a percentageof sales is primarily a result of the recognition, as cost of goods sold, ofcertain research and development expenses incurred for developing a softwareenhancement to a standard Speech Design product for an OEM development projectin 2000.  The project generatedincreased cost of goods sold, offset by the reduction of research anddevelopment expenses.

 

**RESEARCHAND DEVELOPMENT**

 

Research andDevelopment expense (R&D) was $2,751,000, or 4.2 % of sales in 2000,compared to $4,419,000, or 7.5% of sales in 1999.  This decrease primarily reflects Speech Design’s reduction ofresearch and development expenses, relating to fees for an OEM project whichwere recognized as cost of sales, and Bogen’s reduction of certain outsidedevelopment fees offset by the full year inclusion of research and developmentexpenses at Apogee.

 

**SELLING,GENERAL AND ADMINISTRATIVE EXPENSES**

 

Selling,general and administrative expenses (“SG&A”) increased by $4,078,000, or22.6%, from 1999 to 2000.  SG&Aexpense was $22,146,000, or 33.8% of sales, in 2000 compared to $18,068,000, or30.7% of sales, in 1999.  SG&Aexpenses include approximately $1,400,000 of additional costs due to the fullyear inclusion of Apogee.  The remainingincrease is generally a result of expenses incurred to 

 

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support sales and marketingprograms for existing and new product lines at Bogen, in particular the LucentOEM business, the marketing of Speech Design’s new Teleserver Pro and Thorplatforms in Europe, and the expansion of the sales force at Speech Design toaddress the PABX after-market.

 

**RESTRUCTURINGAND OTHER CHARGES**

 

Expenses ofapproximately $310,000 were incurred in connection with the Company’s ongoingexploration of alternatives for enhancing value, including but not limited to,a possible separation of the U.S. and European businesses, entirely or instages.

 

**INTERESTINCOME and EXPENSE**

 

Interestincome was $465,000 in 2000, an increase of $408,000 from $57,000 in 1999.  The increase in interest income primarilyreflects the Company’s investment of net cash proceeds from the warrantsexercised in the first half of 2000.

 

Interestexpense, was $173,000 in 2000, a decrease of $92,000, or 34.7%, from $265,000in 1999.  The decrease is primarily aresult of the Company’s overall reduced borrowing requirements on short-termcredit lines.

 

**INCOMETAXES**

 

The Companyincurred approximately $1,381,000 in taxes in 2000, a decrease of $56,000 from$1,437,000 in 1999.  Foreign taxesdecreased by $748,000, mainly as a result of the Company’s ability to utilizecertain foreign loss carry forwards, the reduction of a portion of the foreignoperations’ valuation allowances and reduced profits.  Domestic taxes increased by $692,000 from 1999 primarilyresulting from the reduction of a portion of the U.S. operation’s valuationallowance in 1999, which did not recur in 2000.

 

**LIQUIDITY,CAPITAL RESOURCES AND FINANCIAL CONDITION**

 

In theeconomic climate of 2001, the Company increased its focus on cost control andcash and asset management, while supporting its product lines and distributionchannels.  Cash utilization focused ondebt reduction, facilities improvements, and adding shareholder value.

 

The Company’soperations generated $6,858,000 of net cash through effective working capitaland cash management.  Although theCompany reported a net loss of $728,000, receivables and inventory decreased by$1,322,000 and $1,807,000, respectively. Net non-cash charges totaled $3,325,000.  These charges were depreciation and amortization expenses of$2,813,000; $1,409,000 to eliminate all goodwill associated with pro audioacquired assets; increased accounts receivable and inventory obsolescencereserves of $606,000; and acquired tax benefits of $107,000 charged togoodwill.  The non-cash expenses werepartly offset by adjustments to deferred income taxes of $1,515,000 andminority interest credits of $96,000. In addition, prepaid expenses and other current assets decreased by$509,000, accounts payable increased by $515,000, and net changes in other operatingassets and liabilities amounted to $109,000.

 

Net cashexpended for investing activities of $5,163,000 included $1,193,000 forequipment, computer hardware and software, and other fixed assets and$3,970,000 to purchase certain trading marketable securities.

 

Net cash usedfor financing activities was $2,868,000. In an effort to improve shareholder value, the Company paid $3,133,000to repurchase 1,012,211 common shares through a self-tender offer.  The Company continued to reduce its overalldebt by paying down $145,000 of its existing lines of credit and $251,000 ofcapitalized lease obligations.  TheCompany received $661,000, net, when it sold 2% of a newly formed subsidiaryholding the Company’s European operations to a venture capital subsidiary ofDeutsche Telekom.

 

As of December31, 2001, the Company’s total liabilities were $8,061,000, of which $7,630,000is due and payable within one year.

 

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On April 21,1998, the Company and BCI entered into a $27 million credit facility (the “Facility”)with KeyBank National Association (“Key”), which matured on April 30,2001.  The Facility provided, subject tocertain criteria, for a $20 million revolving line of credit for acquisitionfinancing and a $7 million working capital line.  Effective June 30, 2001, the Company and Key entered into aModification Agreement (“The Agreement”), under which the working capital linewas reduced to $5 million and the parties agreed to an unsecured $20 millionline of credit for acquisition financing. The Agreement extends the provisions, warranties, certifications, andother criteria of the expired Facility to June 30, 2002, and reduces the numberof financial covenants required to be met. The Company was not in compliance with one covenant for the period endedDecember 31, 2001, for which it received a waiver from Key.  As of December 31, 2001 and 2000, Bogen hadno short-term domestic borrowings outstanding under either the Agreement or theFacility.

 

The Agreementbears interest at either Key’s prime rate or, at the borrower’s option, LIBORplus 125 to 200 basis points.  Theinterest rate at December 31, 2001, was 4.75%.

 

Speech Designhas credit lines and overdraft facilities of approximately 8.7 million DeutscheMarks (“DM”) (approximately U.S. $3.9 million) from six banks.  Speech Design’s short-term lines of creditare collateralized by all of Speech Design’s accounts receivable andinventory.  Speech Design has a 15 millionDM (U.S. $6.8 million) credit facility for acquisition financing from D.G. Bankof Frankfurt.  The interest rate underthe new credit facility is up to 200 basis points above the Euribor rate, whichwas 3.330% at December 31, 2001.

 

At December31, 2001 and 2000, Speech Design had short-term borrowings amounting to$973,000 and $1,201,000, respectively. The amounts available under Speech Design’s credit lines wereapproximately $3.0 million at December 31, 2001, with rates tied to short-termbank notes and Euromarket loans.  AtDecember 31, 2001 and 2000, these rates ranged from 6.5% to 15.25%.

 

There were noborrowings under either the Bogen or Speech Design acquisition creditfacilities.   The Company believes thatit has adequate liquidity to finance its ongoing activities and capitalexpenditures for the near term.

 

**INFLATION**

 

Inflation didnot have a material effect on the Company’s results during the periodsdiscussed herein.

 

**CURRENCYFLUCTUATIONS**

 

Approximately30% of the Company’s 2001 revenues were derived outside of the United States,primarily in Germany.  Accordingly, currencyfluctuations may impact the Company’s earnings.  Over the course of 2001, the Deutsche Mark exchange rate averagedDM 2.1844 to the U.S. dollar, with a low of 2.0377 and a high of 2.3440.  This represents a 15.0% movement of the DMvs. the U.S. dollar throughout the year.

 

Localcurrencies are considered to be the functional currencies of the Company andits subsidiaries. Translation adjustments that arise from translation of theCompany and its subsidiaries’ financial statements are accumulated in aseparate component of stockholders’ equity. Transaction gains and losses that arise from exchange rate changes ontransactions denominated in a currency other than local currencies are includedin income as incurred.

 

**ECONOMICENVIRONMENT-ASIA**

 

Bogen reliesprincipally upon an established network of suppliers and subcontractorsprimarily located in the Republic of South Korea, and to a lesser extent in theAsia Pacific Region, and in the United States. Over the past few years, since the economic crisis of 1997 and 1998 inthe Asia Pacific Region, financial conditions have improved and stabilized inthe Republic of South Korea.  TheCompany’s manufacturing partners are believed to be financially stable.

 

The Companycontinues to enjoy the long-established relationships it has built with thesemanufacturing partners.  The Companyapproved additional manufacturing partners in 1999 in the United States,Mexico, and Switzerland as part of an effort to diversify and expand itsmanufacturing sources. However, there can be no assurances that events beyondthe Company’s control will not disrupt 

 

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production or that suitablealternative sources of production can be identified on a timely basis, therebyresulting in material adverse effects on the Company’s results of operations.

** **

**CRITICALACCOUNTING POLICIES**

 

The Company’scritical accounting policies are as follows: 

 

•    revenue recognition; 

•    estimating valuation allowances and accruedliabilities, specifically sales returns and the allowance for doubtfulaccounts;

•    accounting for income taxes; 

•    valuation of long-lived and intangible assetsand goodwill; and

•    determining functional currencies for thepurposes of consolidating our international operations. 

 

**REVENUERECOGNITION**

 

The Companyderives its revenue from primarily two sources (i) sale of soundprocessing and telecommunications peripheral equipment and (ii) servicesand support revenue for telecommunications equipment and Unified Messagingproducts.  The Company recognizesrevenue from the sale of equipment upon shipment.  Services and support revenue are recognized upon customeracceptance where a product deliverable or repair is called for, or ratably overthe contract term in the case of support or maintenance contracts.  In the case of services subject to customeracceptance, recognition occurs upon the earlier of receipt of a writtencustomer acceptance or expiration of the acceptance period.

 

**SALESRETURNS AND ALLOWANCE FOR DOUBTFUL ACCOUNTS**

 

Thepreparation of financial statements requires management to make estimates andassumptions that affect the reported amount of assets and disclosure ofcontingent assets and liabilities at the date of the financial statements andthe reported amounts of revenues and expenses during the reported period.  Specifically, management must make estimatesof potential future product returns related to current period productrevenue.  Management analyzes historicalreturns, current economic trends, and changes in customer demand and acceptanceof our products when evaluating the adequacy of the sales returns and otherallowances. Significant management judgments and estimates must be made andused in connection with establishing the sales returns and other allowances inany accounting period.  Differences mayresult in the amount and timing of our revenue for any period if managementmade different judgments or utilized different estimates.  The provision for sales returns and otherallowances amounted to $234,000 in 2001. Similarly, management must make estimates of the uncollectability ofaccounts receivables.  Managementspecifically analyzes accounts receivable and analyzes historical bad debts,customer concentrations, customer credit-worthiness, current economic trendsand changes in customer payment terms when evaluating the adequacy of theallowance for doubtful accounts. Accounts receivable balance was $5,819,000, net of allowance fordoubtful accounts of $471,000 as of December 31, 2001.

 

**ACCOUNTINGFOR INCOME TAXES**

 

As part of theprocess of preparing consolidated financial statements, the Company is requiredto estimate its income taxes in each of the jurisdictions in which itoperates.  This process involvesestimating actual current tax exposure together with assessing temporarydifferences resulting from differing treatment of items, such as deferredrevenue, for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which areincluded within the consolidated balance sheet.  The Company then assesses the likelihood that its deferred taxassets will be recovered from future taxable income and to the extent that theCompany believes that recovery is not likely, it must establish a valuationallowance.  To the extent it establishesa valuation allowance or increases this allowance in a period, the Companyincludes an expense within the tax provision in the statement of operations.

 

Significantmanagement judgment is required in determining the provision for income taxes,

 

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deferred tax assets andliabilities and any valuation allowance recorded against net deferred taxassets.  The Company has recorded avaluation allowance of $948,000 as of December 31, 2001, due to uncertaintiesrelated to its ability to utilize certain deferred tax assets, primarilydomestic and foreign net operating losses carried forward.  The valuation allowance is based onestimates of taxable income by jurisdiction in which the Company operates andthe period over which the deferred tax assets will be recoverable.  In the event that actual results differ fromthese estimates or these estimates are adjusted in future periods the Companymay need to establish an additional valuation allowance which could materiallyimpact its financial position and results of operations.

 

The netcurrent deferred tax asset as of December 31, 2001 was $1,454,000.  The net long term deferred tax asset asDecember 31, 2001 was $590,000, net of a valuation allowance of $948,000.

 

**VALUATIONOF LONG-LIVED AND INTANGIBLE ASSETS AND GOODWILL**

 

The Companyassesses the impairment of identifiable intangibles, long-lived assets andrelated goodwill whenever events or changes in circumstances indicate that thecarrying value may not be recoverable. Factors considered important which couldtrigger an impairment review include the following:

 

•    significantunderperformance relative to expected historical or projected future operatingresults; 

•    significantchanges in the manner of the Company’s use of the acquired assets or thestrategy for the overall business and

•    significantnegative industry or economic trends.

 

When theCompany determines that the carrying value of intangibles, long-lived assetsand related goodwill may not be recoverable based upon the existence of one ormore of the above indicators of impairment, the Company measures any impairmentbased on the projected discounted cash flow method using a discount ratereflecting the Company’s average cost of funds.  Net intangible assets, long-lived assets, and goodwill amountedto $19,831,000 as of December 31, 2001.

 

In 2002,Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill andOther Intangible Assets” became effective and as a result, the Company willcease to amortize goodwill.  The Companyhas recorded approximately $935,000 of amortization on these amounts during2001 and would have recorded approximately $935,000 of amortization during2002.  In lieu of amortization, theCompany is required to perform an initial impairment review of goodwill in 2002and an annual impairment review thereafter. The Company expects to complete the initial review during the first halfof 2002.

 

The Companycurrently does not expect to record an impairment charge upon completion of theinitial impairment review.  However,there can be no assurance that at the time the review is completed a materialimpairment charge will not be recorded.

 

**DETERMININGFUNCTIONAL CURRENCIES FOR THE PURPOSE OF CONSOLIDATION**

 

The Company hasseveral foreign subsidiaries which together account for approximately 30% ofour net revenues, 20% of assets and 42% of total liabilities as ofDecember 31, 2001.

 

In preparingthe consolidated financial statements, the Company is required to translate thefinancial statements of the foreign subsidiaries from the currency in whichthey keep their accounting records, generally the local currency, into UnitedStates dollars.  This process results inexchange gains and losses that, under the relevant accounting guidance, areeither included within the statement of operations or as a separate part of netequity under the caption “accumulated other comprehensive loss.”

 

Under therelevant accounting guidance the treatment of these translation gains or lossesis dependent upon management’s determination of the functional currency of eachsubsidiary. The functional currency is determined based on management judgmentand involves consideration of all relevant economic facts and circumstancesaffecting the subsidiary.  Generally,the currency in which the subsidiary transacts a majority of its transactions,including billings, financing, payroll and other 

 

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expenditures would beconsidered the functional currency but any dependency upon the parent and thenature of the subsidiary’s operations must also be considered.

 

If asubsidiary’s functional currency is deemed to be the local currency, then anygain or loss associated with the translation of that subsidiary’s financialstatements is included in accumulated other comprehensive loss.  If the Company disposes of a subsidiary, anycumulative translation gains or losses would be realized into the statement ofoperations.

 

Based on theassessment of the factors discussed above, the Company considers the relevantsubsidiary’s local currency to be the functional currency for each of itsinternational subsidiaries.  Accordinglythe Company had cumulative translation losses of approximately $1,386,000 and$1,032,000, which were included as part of accumulated other comprehensive losswithin its balance sheet at December 31, 2001 and 2000, respectively.  During 2001, 2000 and 1999, translationadjustments of $354,000, $475,000, and $420,000, respectively, were includedunder accumulated other comprehensive loss.

 

The magnitudeof these gains or losses is dependent upon movements in the exchange rates ofthe foreign currencies in which it transacts business against the United Statesdollar.  Any future translation gains orlosses could be significantly higher than those noted in each of theseyears.  In addition, if determined thata change in the functional currency of one of its subsidiaries has occurred atany point in time the Company would be required to include any translationgains or losses from the date of change in our statement of operations.

 

**OTHER**

 

**Recent Accounting Pronouncements**

 

In 2000, theCompany adopted the provisions of the Financial Accounting Standards Board’s(“FASB”) Emerging Issues Task Force (EITF), Issue No. 00-10, “Accounting forShipping and Handling Fees and Costs,” which requires the Company to report allamounts billed to a customer related to shipping and handling costs as revenueand report all costs incurred by the seller for shipping and handling as costof goods sold.  Consequently, theCompany has reclassified such revenues and expense amounts, which werepreviously netted in selling, general, and administrative, to sales and cost ofgoods sold.  As a result of thisreclassification, sales were increased by $1,009,000 and $879,000 and cost ofsales were increased by $2,261,000 and $1,924,000 for the years ended December31, 2000 and 1999, respectively.  Thereis no effect on operating income.

 

In 2001, theCompany adopted the provisions of EITF Issue No. 00-22, “Accounting for “Point”and Other Loyalty Programs”, which classified customer rebates as a reductionof sales, and Issue No. 00-25, “Accounting for Consideration from a Vendor to aRetailer in Connection with the Purchase or Promotion of the Vendor’sProducts”, which classifies such consideration as a reduction of sales.  Consequently, the Company has reclassifiedsuch expenses that which were previously a component of selling, general, andadministrative expenses against sales. As a result of these reclassifications, sales were decreased by$673,000, $743,000, and $489,000 for the years ended December 31, 2001, 2000,and 1999, respectively.  There is noeffect on operating income.

 

In Septemberof 2001, the EITF issued EITF Issue No. 01-09, “Accounting forConsideration Given by Vendor to a Customer or a Reseller of the Vendor’sProducts”, which is a codification of EITF Issues No. 00-14, No. 00-25 andNo. 00-22 “Accounting for ‘Points’ and Certain Other Time- or Volume-BasedSales Incentive Offers and Offers for Free Products or Services to be Deliveredin the Future.”

 

In July 2001,the FASB issued SFAS No. 141, “Business Combinations.” SFAS No. 141requires the purchase method of accounting for business combinations initiatedafter June 30, 2001 and eliminates the pooling-of-interests method.  We do not believe that the adoption of SFASNo. 141 will have a significant impact on our financial statements.

 

In July 2001,Statement No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”), whichis effective for fiscal years beginning after December 15, 2001.  SFAS 142 requires that goodwill no longer beamortized.  In addition, SFAS 142includes provisions upon adoption for the reclassification of certain existingrecognized intangibles as goodwill, reassessment of the useful lives ofexisting recognized 

 

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intangibles, reclassificationof certain intangibles out of previously reported goodwill, and the testing forimpairment of existing goodwill and other intangibles. Upon adoption of SFAS142, the Company will cease to amortize approximately $15,189,000 of netgoodwill.

 

In addition,the Company will be required to perform an impairment review of its goodwillbalance upon the initial adoption of SFAS No. 142.  The impairment review will involve a two-step process as follows:

 

                             •   Step 1 — We will compare thefair value of our reporting units to the carrying value, including goodwill ofeach of those units.  For each reportingunit where the carrying value, including goodwill, exceeds the unit’s fairvalue, we will move on to step 2. If a unit’s fair value exceeds the carrying value, no further work isperformed and no impairment charge is necessary. 

 

                             •   Step 2 — We will perform an allocationof the fair value of the reporting unit to its identifiable tangible andnon-goodwill intangible assets and liabilities.  This will derive an implied fair value for the reporting unit’sgoodwill.  We will then compare theimplied fair value of the reporting unit’s goodwill with the carrying amount ofreporting unit’s goodwill.  If thecarrying amount of the reporting unit’s goodwill is greater than the impliedfair value of its goodwill, an impairment loss must be recognized for theexcess. 

 

We expect tocomplete this review during the first half of 2002.  We do not expect to record an impairment charge upon completionof the initial review.  However, therecan be no assurance that at the time the review is completed a materialimpairment charge may not be recorded.

 

In October2001, the FASB issued SFAS No. 144, “Accounting for the Impairment orDisposal of Long-Lived Assets.” SFAS No. 144 addresses significant issuesrelating to the implementation of SFAS No. 121, “Accounting for theImpairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,”and develops a single accounting method under which long-lived assets that areto be disposed of by sale are measured at the lower of book value or fair valueless cost to sell.  Additionally, SFASNo. 144 expands the scope of discontinued operations to include allcomponents of an entity with operations that (1) can be distinguished fromthe rest of the entity and (2) will be eliminated from the ongoing operationsof the entity in a disposal transaction. SFAS No. 144 is effective for financial statements issued forfiscal years beginning after December 15, 2001 and its provisions are tobe applied prospectively.  We arecurrently assessing the impact of SFAS No. 144 on our financial position andresults of operations.

 

**Euro Conversion**

 

On January 1,1999, eleven of the fifteen member countries of the European Union (the“participating countries”) established fixed conversion rates between theirexisting sovereign currencies (the “legacy currencies”) and the Euro.  The participating countries adopted the Euroas their common legal currency on that date. As of January 1, 1999, a newly created European Central Bank wasestablished to control monetary policy, including money supply and interest ratesfor the participating countries.  Thelegacy currencies are scheduled to remain legal tender in the participatingcountries as denominations of the euro between January 1, 1999, and January 1,2002 (the “transition period”).

 

During thetransition period, public and private parties may pay for goods and servicesusing either the Euro or the participating country’s legacy currency on a “nocompulsion, no prohibition” basis.

 

The Companyhas evaluated and continues to evaluate on an on-going basis the effects, ifany, of the Euro conversion upon its business. Factors being considered include, but are not limited to: the possibleimpact of the Euro conversion on revenues, expenses, and income fromoperations, the ability to adapt information technology to accommodateEuro-denominated transactions, the market risks with respect to financialinstruments, the continuity of material contracts, and the potential taxconsequences.

 

The Companydoes not believe that the Euro-conversion has had or will have a materialoperational or financial impact.

 

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**ITEM7A.  QUANTITATIVE AND QUALITATIVEDISCLOSURES ABOUT MARKET RISK**

 

In the normalcourse of business, the Company is exposed to fluctuations in interest rates onthe Company’s debt and credit facilities. The Company is also exposed to fluctuations in foreign currency exchangerates as the financial results of its foreign subsidiaries are translated intoU.S. dollars in consolidation.  Ingeneral, the Company does not use derivative instruments or hedging to manageits exposures and does not currently hold any material market risk sensitiveinstruments for trading purposes at December 31, 2001.

 

Theinformation below summarizes the Company’s market risk associated with its debtobligations as of December 31, 2001. Fair value included herein has been estimated taking into considerationthe nature and term of the debt instrument and the prevailing economic andmarket conditions at the balance sheet date.

 

The table belowpresents principal cash flows by year of maturity based on the terms of thedebt.  The variable interest ratedisclosed represents the rate at December 31, 2001.  Changes in the LIBOR and Prime interest rates during fiscal 2001will have a positive or negative effect on the Company’s interest expense.  Each 1% fluctuation in the LIBOR and Primeinterest rates will increase or decrease annual interest expense for theCompany by approximately $11, based on the debt outstanding as of December 31,2001.  Further information specific tothe Company’s debt is presented in Notes 7 and 8 to the consolidated financialstatements.

 
| **DESCRIPTION**                                            |   | **ESTIMATED  FAIR VALUE** |    | **CARRYING   AMOUNT** |   | **YEAR OF   MATURITY 2002** |   |
|------------------------------------------------------------|--------|---------------------------|---------|-----------------------|--------|-----------------------------|--------|
| Revolving credit facilities                                |   | $                         | 973,000 |                  | $      | 973,000                     |   | $ | 973,000 |   |
| Variable Interest Rate                                     |   |                      |    |                  |   |                        |   |
| •    Prime                        |   |                      |    |                  |   | 4.750                       | %      |
| •    LIBOR                        |   |                      |    |                  |   | 1.876                       | %      |
| •    Euribor                      |   |                      |    |                  |   | 3.330                       | %      |
| Advances and notes payable to third party                  |   | $                         | 120,000 |                  | $      | 120,000                     |   | $ | 0 |   |
| •    Swiss variable interest rate |   |                      |    |                  |   | 6.500                       | %      |

 

**ITEM8.  FINANCIAL STATEMENTS ANDSUPPLEMENTARY DATA**

 

**FINANCIAL INFORMATION**

 

(a) TheCompany operates in two reportable business segments, Bogen (domestic) andSpeech Design (foreign).  The domesticoperations are engaged in the development and manufacturing of sound processingand telecommunication products in the United States (Bogen).  The foreign operations, through SpeechDesign, are engaged in the development, manufacturing and marketing oftelephone peripheral hardware and Unified Messaging products and services.

 

Financialinformation regarding the breakdown of the Company’s foreign and domesticoperations is disclosed in note 19 to the Company’s Consolidated FinancialStatements.

 

25

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**BOGENCOMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES**

**INDEX TO CONSOLIDATED FINANCIAL STATEMENTSAND**

**FINANCIALSTATEMENT****SCHEDULES**

 
| Financial  Statements: |
|------------------------|
|                   |   |
|                   | Report of Independent Auditors |
|                   |   |
|                   | Consolidated Balance Sheets as of December  31, 2001 and 2000 |
|                   |   |
|                   | Consolidated Statements of Operations for  the years ended December 31, 2001, 2000, and 1999 |
|                   |   |
|                   | Consolidated Statements of Changes in  Stockholders’ Equity for the years ended December 31, 2001, 2000, and 1999 |
|                   |   |
|                   | Consolidated Statements of Cash Flows for  the years ended December 31, 2001, 2000, and 1999 |
|                   |   |
|                   | Notes to Consolidated Financial Statements |

 

The following consolidatedfinancial statement schedule of Bogen Communications International, Inc. isincluded in Item 14(a) 2:

 

**II.VALUATION AND QUALIFYING ACCOUNTS**

 

All other schedules are omittedas the required information is inapplicable or the information is presented inthe consolidated financial statements or related notes.

 

26

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**INDEPENDENTAUDITOR’S REPORT**

 

The Stockholders and Board ofDirectors

Bogen Communications International, Inc:

 

We have audited theconsolidated financial statements of Bogen Communications International, Inc.and subsidiaries as listed in the accompanying index as of December 31, 2001and 2000, and for each of the years in the three-year period ended December 31,2001.  In connection with our audits ofthe consolidated financial statements, we also have audited the financialstatement schedule as listed in the accompanying index.  These consolidated financial statements andfinancial statement schedule are the responsibility of the Company’smanagement.  Our responsibility is toexpress an opinion on these consolidated financial statements and financialstatement schedule based on our audits.

 

We conducted our audits inaccordance with auditing standards generally accepted in the United States ofAmerica.  Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether theconsolidated financial statements are free of material misstatement.  An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in the consolidatedfinancial statements.  An audit alsoincludes assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statementpresentation.  We believe that ouraudits provide a reasonable basis for our opinion.

 

In our opinion the consolidatedfinancial statements referred to above present fairly, in all materialrespects, the financial position of Bogen Communications International, Inc.and subsidiaries as of December 31, 2001 and 2000, and the results of theiroperations and their cash flows for each of the years in the three-year periodended December 31, 2001, in conformity with accounting principles generallyaccepted in the United States of America. Also in our opinion the related financial statement schedule, whenconsidered in relation to the basic consolidated financial statements taken asa whole, presents fairly, in all material respects, the information set forththerein.

 

 

**KPMGLLP**

 

Short Hills, New Jersey

February 27, 2002

 

F-1

----

 

**BOGEN COMMUNICATIONSINTERNATIONAL, INC. AND SUBSIDIARIES**

**CONSOLIDATED BALANCE SHEETS**

**DECEMBER 31, 2001 AND 2000**

**(In Thousands of Dollars, Except Share and Per ShareAmounts)**

** **
|                                                                                                                                                                                           |   | **2001** |   | **2000** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|--------|----------|--------|
| **ASSETS**                                                                                                                                                                                     |   |     |   |     |   |
| CURRENT ASSETS:                                                                                                                                                                                |   |     |   |     |   |
| Cash and cash equivalents                                                                                                                                                                      |   | $        | 11,001 |     | $      | 12,158 |   |
| Marketable securities                                                                                                                                                                          |   | 3,970    |   | —   |   |
| Trade receivables (net of allowance for doubtful accounts of $471 and  $557 at December 31, 2001 and 2000, respectively)                                                                       |   | 5,819    |   | 7,433    |   |
| Other receivables                                                                                                                                                                              |   | 172      |   | 847      |   |
| Inventories, net                                                                                                                                                                               |   | 12,306   |   | 14,608   |   |
| Prepaid expenses and other current assets                                                                                                                                                      |   | 519      |   | 1,063    |   |
| Current deferred income taxes                                                                                                                                                                  |   | 1,454    |   | 1,591    |   |
| TOTAL CURRENT ASSETS                                                                                                                                                                           |   | 35,241   |   | 37,700   |   |
|                                                                                                                                                                                           |   |     |   |     |   |
| Equipment and leasehold improvements, net                                                                                                                                                      |   | 3,746    |   | 4,299    |   |
| Goodwill, net                                                                                                                                                                                  |   | 15,189   |   | 17,768   |   |
| Other intangible assets, net                                                                                                                                                                   |   | 896      |   | 1,072    |   |
| Deferred income taxes                                                                                                                                                                          |   | 590      |   | —   |   |
| Other assets                                                                                                                                                                                   |   | 145      |   | 273      |   |
|                                                                                                                                                                                           |   |     |   |     |   |
| TOTAL ASSETS                                                                                                                                                                                   |   | $        | 55,807 |     | $      | 61,112 |   |
|                                                                                                                                                                                           |   |     |   |     |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                                  |   |     |   |     |   |
| CURRENT LIABILITIES:                                                                                                                                                                           |   |     |   |     |   |
| Amounts outstanding under revolving credit agreements                                                                                                                                          |   | $        | 973    |     | $      | 1,201 |   |
| Advances and notes payable to related parties                                                                                                                                                  |   | —   |   | 124      |   |
| Current maturities of capital lease obligations                                                                                                                                                |   | 267      |   | 245      |   |
| Accounts payable                                                                                                                                                                               |   | 1,910    |   | 2,684    |   |
| Accrued expenses                                                                                                                                                                               |   | 4,376    |   | 3,428    |   |
| Income taxes payable                                                                                                                                                                           |   | 104      |   | 392      |   |
| TOTAL CURRENT LIABILITIES                                                                                                                                                                      |   | 7,630    |   | 8,074    |   |
|                                                                                                                                                                                           |   |     |   |     |   |
| Advances and notes payable to related parties                                                                                                                                                  |   | 120      |   | —   |   |
| Deferred income taxes                                                                                                                                                                          |   | —   |   | 1,123    |   |
| Capital lease obligations, less current maturities                                                                                                                                             |   | 11       |   | 288      |   |
| Minority interest                                                                                                                                                                              |   | 219      |   | 80       |   |
| Other long-term liabilities                                                                                                                                                                    |   | 81       |   | —   |   |
| TOTAL LIABILITIES                                                                                                                                                                              |   | 8,061    |   | 9,565    |   |
|                                                                                                                                                                                           |   |     |   |     |   |
| **STOCKHOLDERS’ EQUITY**                                                                                                                                                                  |   |     |   |     |   |
| Preferred stock - $.001 par value; 1,000,000 shares authorized; none  issued and outstanding at December 31, 2001 and 2000                                                                     |   | —   |   | —   |   |
| Common stock - $.001par value; 50,000,000 shares authorized; 9,100,745  shares issued and outstanding at December 31, 2001, and 10,112,956 shares  issued and outstanding at December 31, 2000 |   | 9        |   | 10       |   |
| Additional paid-in-capital                                                                                                                                                                     |   | 45,565   |   | 48,283   |   |
| Retained earnings                                                                                                                                                                              |   | 3,590    |   | 4,318    |   |
| Accumulated other comprehensive loss                                                                                                                                                           |   | (1,386   | )      | (1,032   | )      |
| Treasury stock at cost - 3,572 shares at December 31, 2001 and 2000                                                                                                                            |   | (32      | )      | (32      | )      |
| TOTAL STOCKHOLDERS’ EQUITY                                                                                                                                                                |   | 47,746   |   | 51,547   |   |
|                                                                                                                                                                                           |   |     |   |     |   |
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                                                |   | $        | 55,807 |     | $      | 61,112 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

F-2

----

 

**BOGENCOMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**FOR THE YEARS ENDEDDECEMBER 31, 2001, 2000, and 1999**

**(In Thousands of Dollars, Except Share and Per Share Amounts)**

 
|                                                         |   | **2001**   |   | **2000**  |   | **1999**  |   |
|--------------------------------------------------------------|--------|------------|--------|-----------|--------|-----------|--------|
| Net sales                                                    |   | $          | 57,143 |      | $      | 65,520    |   | $ | 58,877 |   |
| Cost of goods sold                                           |   | 30,178     |   | 35,161    |   | 30,318    |   |
| Gross profit                                                 |   | 26,965     |   | 30,359    |   | 28,559    |   |
|                                                         |   |       |   |      |   |      |   |
| Operating expenses:                                          |   |       |   |      |   |      |   |
| Research and development                                     |   | 3,756      |   | 2,751     |   | 4,419     |   |
| Selling, general and administrative                          |   | 21,052     |   | 22,146    |   | 18,068    |   |
| Amortization of intangibles, primarily goodwill              |   | 1,107      |   | 1,017     |   | 866       |   |
| Asset impairment                                             |   | 1,409      |   | —    |   | —    |   |
| Restructuring and other charges                              |   | 1,062      |   | 310       |   | —    |   |
| Income (loss) from operations                                |   | (1,421     | )      | 4,135     |   | 5,206     |   |
|                                                         |   |       |   |      |   |      |   |
| Other (income) expenses:                                     |   |       |   |      |   |      |   |
| Interest income                                              |   | (472       | )      | (465      | )      | (57       | )      |
| Interest expense                                             |   | 122        |   | 173       |   | 265       |   |
| Minority interest of consolidated subsidiaries               |   | (96        | )      | 80        |   | —    |   |
| Other (income) expense, net                                  |   | 68         |   | (100      | )      | 61        |   |
| Income (loss) before income taxes                            |   | (1,043     | )      | 4,447     |   | 4,937     |   |
|                                                         |   |       |   |      |   |      |   |
| Income tax expense (benefit)                                 |   | (315       | )      | 1,381     |   | 1,437     |   |
|                                                         |   |       |   |      |   |      |   |
| Net income (loss)                                            |   | $          | (728   | )         | $      | 3,066     |   | $ | 3,500 |   |
|                                                         |   |       |   |      |   |      |   |
| Basic net income (loss) per common share                     |   | $          | (0.07  | )         | $      | 0.33      |   | $ | 0.52 |   |
|                                                         |   |       |   |      |   |      |   |
| Diluted net income (loss) per common share                   |   | $          | (0.07  | )         | $      | 0.31      |   | $ | 0.45 |   |
|                                                         |   |       |   |      |   |      |   |
| Weighted average number of common shares outstanding-Basic   |   | 10,054,719 |   | 9,178,790 |   | 6,697,530 |   |
|                                                         |   |       |   |      |   |      |   |
| Weighted average number of common shares outstanding-Diluted |   | 10,054,719 |   | 9,780,582 |   | 7,737,921 |   |

 

See accompanying notes to consolidated financial statements.

 

F-3

----

 

**BOGENCOMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENT OF CHANGES INSTOCKHOLDERS' EQUITY**

**FOR THE YEARS ENDED DECEMBER 31, 2001,2000, and 1999**

**(In Thousands of Dollars, Except Share and Per Share Amounts)**

** **
|                                              |   |                  |   |                           |   |   |   | **Retained  Earnings /  (Accumulated   Deficit)** |                 | **Accumulated  Other  Comprehensive  Loss** |       |   |      |   |   |   |   |
|---------------------------------------------------|--------|-----------------------|--------|--------------------------------|--------|--------|--------|---------------------------------------------------|----------------------|---------------------------------------------|------------|--------|-----------|--------|--------|--------|--------|
|                                              |   | **Common Stock**      |   | **Additional Paid-In Capital** |   |   |   | **Treasury Stock**                                |                 |                                        |       |
|                                              |   | **Number of  Shares** |   | **Amount**                     |   |   |   |                                              | **Number of Shares** |                                        | **Amount** |   | **Total** |   |
| Balance at January 1, 1999                        |   | 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 |   |
|                                              |   |                  |   |                           |   |   |   |                                              |                 |                                        |       |   |      |   |   |   |   |
| Sale of subsidiary common stock                   |   | —                |   | —                         |   | 414    |   | —                                            |                 | —                                      |       | — |      | — |   | 414    |   |
| Common stock repurchase                           |   | (1,012,211            | )      | (1                             | )      | (3,132 | )      | —                                            |                 | —                                      |       | — |      | — |   | (3,133 | )      |
| Comprehensive income:                             |   |                  |   |                           |   |   |   |                                              |                 |                                        |       |   |      |   |   |   |   |
| Net loss                                          |   | —                |   | —                         |   | — |   | (728                                              | )                    | —                                      |       | — |      | — |   |   |   |
| Translation adjustments                           |   | —                |   | —                         |   | — |   | —                                            |                 | (354                                        | )          | — |      | — |   |   |   |
| Comprehensive income                              |   | —                |   | —                         |   | — |   | —                                            |                 | —                                      |       | — |      | — |   | (1,082 | )      |
|                                              |   |                  |   |                           |   |   |   |                                              |                 |                                        |       |   |      |   |   |   |   |
| Balance at December 31, 2001                      |   | 9,100,745             |   | $                              | 9      |   | $      | 45,565                                            |                 | $                                           | 3,590      |   | $         | (1,386 | )      | 3,572  |   | $ | (32 | ) | $ | 47,746 |   |

 

Seeaccompanying notes to consolidated financial statements.

 

F-4

----

 

**BOGENCOMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**FOR THE YEARS ENDED DECEMBER 31, 2001,2000, and 1999**

**(In Thousands of Dollars, Except Share and Per Share Amounts)**

 
|                                                                                          |   | **2001** |   | **2000** |   | **1999** |   |
|-----------------------------------------------------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
| **CASH FLOWS  FROM OPERATING ACTIVITIES:**                                                    |   |     |   |     |   |     |   |
| Net income                                                                                    |   | $        | (728   | )        | $      | 3,066    |   | $ | 3,500 |   |
| Adjustments to reconcile net income to net   cash provided by (used in) operating activities: |   |     |   |     |   |     |   |
| Depreciation and amortization                                                                 |   | 1,706    |   | 1,549    |   | 1,033    |   |
| Goodwill impairment                                                                           |   | 1,409    |   | —   |   | —   |   |
| Amortization of goodwill and intangible assets                                                |   | 1,107    |   | 1,017    |   | 866      |   |
| Provisions for doubtful accounts and inventory obsolescence                                   |   | 606      |   | 483      |   | 484      |   |
| Utilization of pre-acquisition NOL charged to goodwill                                        |   | 107      |   | 107      |   | 107      |   |
| Deferred income taxes                                                                         |   | (1,515   | )      | (533     | )      | (478     | )      |
| Minority interest                                                                             |   | (96      | )      | 80       |   | —   |   |
| Change in operating assets and liabilities (net of effects from  acquisitions):               |   |     |   |     |   |     |   |
| Receivables                                                                                   |   | 1,322    |   | (260     | )      | (2,806   | )      |
| Inventories                                                                                   |   | 1,807    |   | (5,637   | )      | (1,484   | )      |
| Prepaid expenses and other current assets                                                     |   | 509      |   | (352     | )      | 33       |   |
| Accounts payable and accrued expenses                                                         |   | 515      |   | (2,036   | )      | 71       |   |
| Other                                                                                         |   | 109      |   | (451     | )      | (134     | )      |
| Net cash provided by (used in) operating activities                                           |   | 6,858    |   | (2,967   | )      | 1,192    |   |
|                                                                                          |   |     |   |     |   |     |   |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                                         |   |     |   |     |   |     |   |
| Purchase of equipment and leasehold improvements                                              |   | (1,193   | )      | (2,061   | )      | (1,825   | )      |
| Purchase of marketable securities                                                             |   | (3,970   | )      | —   |   | —   |   |
| Acquisition of intangibles                                                                    |   | —   |   | (312     | )      | (36      | )      |
| Net cash used in investing activities                                                         |   | (5,163   | )      | (2,373   | )      | (1,861   | )      |
|                                                                                          |   |     |   |     |   |     |   |
| CASH FLOW FROM FINANCING ACTIVITIES:                                                          |   |     |   |     |   |     |   |
| Proceeds from sale of common stock and warrants                                               |   | —   |   | 18,140   |   | 757      |   |
| Cost of common shares repurchased                                                             |   | (3,133   | )      | —   |   | —   |   |
| Net proceeds from sale of subsidiary common stock                                             |   | 661      |   | —   |   | —   |   |
| Costs of secondary offering                                                                   |   | —   |   | —   |   | (97      | )      |
| Payments under Apogee pre-acquisition debt                                                    |   | —   |   | —   |   | (422     | )      |
| Principal payments under capital lease obligations                                            |   | (251     | )      | (240     | )      | (180     | )      |
| (Decrease) increase in borrowings under revolving credit agreements                           |   | (145     | )      | (1,150   | )      | 323      |   |
| Net cash (used in) provided by financing activities                                           |   | (2,868   | )      | 16,750   |   | 381      |   |
|                                                                                          |   |     |   |     |   |     |   |
| Effects of foreign exchange rate on cash                                                      |   | 16       |   | (44      | )      | 32       |   |
|                                                                                          |   |     |   |     |   |     |   |
| (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                              |   | (1,157   | )      | 11,366   |   | (256     | )      |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                              |   | 12,158   |   | 792      |   | 1,048    |   |
|                                                                                          |   |     |   |     |   |     |   |
| CASH AND CASH EQUIVALENTS AT END OF PERIOD                                                    |   | $        | 11,001 |     | $      | 12,158   |   | $ | 792 |   |
|                                                                                          |   |     |   |     |   |     |   |
| SUPPLEMENTAL CASH FLOW INFORMATION:                                                           |   |     |   |     |   |     |   |
| Cash paid for interest                                                                        |   | $        | 112    |     | $      | 197      |   | $ | 212 |   |
| Cash paid for income taxes                                                                    |   | 1,168    |   | 3,493    |   | 1,136    |   |
|                                                                                          |   |     |   |     |   |     |   |
| NON-CASH FINANCING ACTIVITIES:                                                                |   |     |   |     |   |     |   |
| Capital lease obligations related to new office equipment                                     |   | —   |   | 58       |   | 867      |   |

 

Seeaccompanying notes to consolidated financial statements.

 

F-5

----

 

**BOGENCOMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES**

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

**(IN THOUSANDS OF DOLLARS, EXCEPT SHARE ANDPER SHARE AMOUNTS)**

 

**1.  ORGANIZATION**

 

BogenCommunications International, Inc., together with its subsidiaries, (the“Company”) is engaged in the development, manufacturing and marketing of audioand communication products.  Productlines sold by the Company include Telephone Paging Products, voicemail, andUnified Messaging products and services (“Telco”), Commercial Audio Products(“Commercial Audio”) and Intercom/Paging Equipment (“Engineered Systems”).  The Company’s operations are located in theUnited States, Germany, Switzerland and Israel.

 

**2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

**PRINCIPLESOF CONSOLIDATION**

 

Theconsolidated financial statements of the Company include the accounts of theCompany’s 99% owned subsidiary, Bogen Corporation (“Bogen”); Bogen’swholly-owned subsidiary, Bogen Communications, Inc. (“BCI”); BCI’s wholly-ownedsubsidiaries: New England Audio Resource Corp. (“NEAR”), which combined withBCI in 1999, and Apogee Sound International, LLC (“Apogee”); the Company’s 98%owned subsidiary, Speech Design International Inc. (“SDI”), SDI’s wholly-ownedsubsidiary, Speech Design GmbH (“Speech Design”); Speech Design’s 67% ownedsubsidiary Satelco AG (“Satelco”); and Speech Design’s wholly-ownedsubsidiaries: Speech Design (Israel), Ltd., and Speech Design Carrier SystemsGmbH (“Carrier Systems”), formerly Digitronic Computersysteme GmbH.  All significant inter-company balances andtransactions have been eliminated in consolidation.

 

The ownershipinterest of minority owners in the equity and earnings of the Company’s lessthan 100 percent-owned consolidated subsidiaries are recorded as minorityinterest.  The Company records alllosses after the minority interest liability is reduced to zero.

 

**REVENUERECOGNITION**

 

The Companyderives its revenue from primarily two sources: (i) sale of soundprocessing and telecommunications peripheral equipment and (ii) servicesand support revenue for telecommunications equipment and Unified Messagingproducts.  The Company recognizesrevenue from the sale of equipment upon shipment.  Services and support revenue are recognized upon customeracceptance where a product deliverable or repair is called for, or ratably overthe contract term in the case of support or maintenance contracts.  In the case of services subject to customeracceptance, recognition occurs upon the earlier of receipt of a writtencustomer acceptance or expiration of the acceptance period.

 

In 2000, theCompany adopted the provisions of the Financial Accounting Standards Board’s(“FASB”) Emerging Issues Task Force (EITF), Issue No. 00-10, “Accounting forShipping and Handling Fees and Costs,” which requires the Company to report allamounts billed to a customer related to shipping and handling costs as revenueand report all costs incurred by the seller for shipping and handling as costof goods sold.  Consequently, theCompany has reclassified such revenues and expense amounts, which werepreviously netted in selling, general, and administrative, to sales and cost ofgoods sold.  As a result of thisreclassification, sales were increased by $1,009 and $879 and cost of saleswere increased by $2,261 and $1,924 for the years ended December 31, 2000 and1999, respectively.  There is no effecton operating income.

 

In 2001, theCompany adopted the provisions of EITF Issue No. 00-22, “Accounting for “Point”and Other Loyalty Programs”, which classified customer rebates as a reductionof sales, and Issue No. 00-25, “Accounting for Consideration from a Vendor to aRetailer in Connection with the Purchase or Promotion of the Vendor’sProducts”, which classifies such consideration as a reduction of sales.  Consequently, the Company has reclassified suchexpenses that were previously a component of selling, general, andadministrative expenses against sales. As a result of these reclassifications, sales were decreased by $673,$743, and $489 for the years ended December 31, 2001, 2000, and 1999, respectively.  There is no effect on operating income.

 

F-6

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**GOODWILL**

 

Goodwillrepresents the excess of cost over the fair value of net assets acquired inpurchase transactions. Goodwill is being amortized using the straight-linemethod over periods of between 7 to 40 years. The Company assesses the recoverability of this intangible asset bydetermining whether the amortization of the goodwill balance over its remaininglife can be recovered through undiscounted future operating cash flows of theacquired operation.  The amount ofgoodwill impairment, if any, is measured based on projected discounted futureoperating cash flows using a discount rate reflecting the Company’s averagecost of funds.  The assessment of therecoverability of goodwill will be impacted if estimated future operating cashflows are not achieved.

 

In July 2001,the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 141,“Business Combinations”, (“SFAS 141”) and No. 142, “Goodwill and OtherIntangible Assets” (“SFAS 142”). SFAS 141 requires that the purchase method ofaccounting be used for all business combinations initiated after June 30, 2001.SFAS 141 also specifies that intangible assets acquired in a purchase method businesscombination must meet certain criteria to be recognized and reported apart fromgoodwill. SFAS 142 will require that goodwill and intangible assets withindefinite useful lives no longer be amortized, but instead they will be testedfor impairment at least annually in accordance with the provisions of SFAS 142.SFAS 142 will also require that intangible assets with definite useful lives beamortized over their respective estimated useful lives to their estimatedresidual values and reviewed for impairment in accordance with SFAS No. 144,“Accounting for the Impairment or Disposal of Long-Lived Assets”.  The Company is required to adopt theprovisions of SFAS 141, for acquisitions initiated after June 30, 2001, andSFAS 142 effective January 1, 2002.  Goodwill and intangible assets acquired in business combinationscompleted before July 1, 2001, will continue to be amortized until theCompany’s adoption of SFAS No. 142 on January 1, 2002.  In connection with the transitional goodwillimpairment evaluation, SFAS 142 will require the Company to perform anassessment of whether there is an indication that goodwill is impaired as ofthe date of adoption.  To the extent anindication exists that the goodwill may be impaired, the Company must measurethe impairment loss, if any.  Anytransitional impairment loss will be recognized as the cumulative effect of achange in accounting principle in the Company’s statement of earnings.  The Company has approximately $15,189 ofunamortized goodwill as of January 1, 2002, which will be subject to thetransition provisions of SFAS 142.

 

Amortizationexpense related to goodwill was approximately $935, $899, and $792 for theyears ended December 31, 2001, 2000, and 1999, respectively.  In addition, accumulated amortization as ofDecember 31, 2001 includes the effect of the $1,409 writedown of all goodwillassociated with pro audio acquired assets. Other than prospective non-amortization of goodwill, the Company doesnot expect the adoption of SFAS 142 to have a material effect on its revenue,operating results or liquidity.

 

**CASHAND CASH EQUIVALENTS**

 

Cash includescash on-hand and all highly liquid debt instruments purchased with originalmaturities of three months or less.

 

**MARKETABLESECURITIES**

 

The Company’sinvestments consist primarily of taxable adjustable rate bonds (7-day putbonds).  There is no unrealized gain orloss on these bonds.

 

**INVENTORIES**

 

Inventoriesare stated at the lower of cost or market and are valued using the first-in,first-out method.

 

F-7

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**EQUIPMENTAND LEASEHOLD IMPROVEMENTS**

 

Equipment andleasehold improvements are recorded at cost, less accumulated depreciation andamortization.  Depreciation of equipmentis provided using the straight-line method over the estimated useful lives ofthe related assets.  Leaseholdimprovements are amortized on a straight-line basis over the shorter of theterm of the lease or the estimated useful life of the improvement.  The estimated useful lives used in computingdepreciation of equipment and leasehold improvements are:

 

•        Machinery,equipment and tooling                        3-17years

•        Furnitureand office equipment                               4-7years

•        Leaseholdimprovements                                         lesserof 10 years or remaining lease term

 

Expendituresfor maintenance, repairs and renewals of minor items are charged to operationsas incurred. Major renewals and improvements are capitalized.  Upon disposition, the cost and relatedaccumulated depreciation is removed from the accounts and the resulting gain orloss is reflected in operations for the period.

 

**RESEARCHAND DEVELOPMENT**

 

Internalresearch and development costs are expensed as incurred.

 

**INCOMETAXES**

 

Income taxesare accounted for under the asset and liability method.  Deferred tax assets and liabilities arerecognized for the future tax consequences attributable to differences betweenthe financial statement carrying amounts of existing assets and liabilities andtheir respective tax bases and operating loss and tax credit carryforwards.  Deferred tax assets and liabilities aremeasured using enacted tax rates expected to apply to taxable income in theyears in which those temporary differences are expected to be recovered orsettled.  The effect on tax deferredassets and liabilities of a change in tax rates is recognized in income in theperiod that includes the enactment date.

 

No provisionhas been made for Federal income or withholding taxes which may be payable onthe remittance of undistributed retained earnings of foreign subsidiaries.  These earnings have been reinvested to meetfuture operating requirements and the Company intends to continue such policyfor the foreseeable future.  Suchundistributed earnings were $1,554 and $3,842 at December 31, 2001 and 2000,respectively.

 

**INCOME(LOSS) PER COMMON SHARE**

 

Basic EPS iscalculated by dividing net income available to common shareholders by theweighted-average number of common shares outstanding for the periodspresented.  Diluted EPS is calculated bydividing net income available to common shareholders by the weighted-averagenumber of common shares outstanding, adjusted for the dilutive effect ofoptions and warrants (anti-dilutive in 2001, 601,792 in 2000, and 1,040,391 in1999).

 

**STOCK-BASEDCOMPENSATION**

 

The Companyapplies the intrinsic value-based method of accounting prescribed by AccountingPrinciples Board (“APB”) Opinion No. 25, “Accounting for Stock Issued toEmployees,” and related interpretations including FASB Interpretation No. 44,“Accounting for Certain Transactions involving Stock Compensation aninterpretation of APB Opinion No. 25” issued in March 2000, to account for itsfixed plan stock options.  Under thismethod, compensation expense is recorded on the date of the grant only if thecurrent market price of the underlying stock exceeded the exercise price.  SFAS No. 123, “Accounting for Stock-BasedCompensation”, established accounting and disclosure requirements using a fairvalue-basis method of accounting for stock-based employee compensation plans.  As allowed by SFAS No. 123, the Company haselected to continue to apply the intrinsic value-based method of accountingdescribed above, and has adopted the disclosure requirements of SFAS No. 123.

 

F-8

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**USEOF ESTIMATES**

 

Thepreparation of consolidated financial statements in conformity with accountingprinciples generally accepted in the United States of America requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities and disclosure of contingent assets and liabilitiesat the date of the financial statements and reported amounts of revenues andexpenses during the reporting period. Some of the more significant estimates made by management involve thereserve for doubtful accounts, provision for slow moving and obsolete inventoryand evaluation of the recoverability of assets.  Actual results could differ from those estimates.

 

**CREDITRISK**

 

The Companydevelops, manufacturers, markets and sells commercial audio, paging,communications and other equipment and telecommunications peripherals. TheCompany performs on-going credit evaluations of its customers.  The Company provides reserves for potentiallosses from these receivables.

 

**TRANSLATIONOF FOREIGN CURRENCIES**

 

Foreigndenominated assets and liabilities of the Company are translated from localcurrencies into U.S. dollars at the exchange rates in effect at the end of theperiod.  Revenues and expenses aretranslated at average exchange rates prevailing during the period.  Translation adjustments that arise fromtranslation of subsidiary financial statements denominated in foreign currencyare accumulated in a separate component of other comprehensive income(loss).  Transaction gains and lossesthat arise from exchange rate changes on transactions denominated in a currencyother than local currencies are included in operations as incurred.

 

**FAIRVALUE OF FINANCIAL INSTRUMENTS**

 

The recordedamount of cash, cash equivalents, marketable securities, accounts receivable,accounts payable, accrued expenses, and revolving credit agreementsapproximates fair value due to the short-term maturities of these assets andliabilities and the variable interest rate of others.

 

**DERIVATIVEINSTRUMENTS AND HEDGING ACTIVITIES**

 

In June 1998,the FASB issued SFAS No. 133, “Accounting for Derivative Instruments andCertain Hedging Activities.”  In June2000, the FASB issued SFAS No. 138, “Accounting for Certain DerivativeInstruments and Certain Hedging Activity, an Amendment of SFAS 133.”  These statements establish accounting andreporting standards for derivative instruments, including those embedded onother contracts, and for hedging activities. They require that all derivative instruments be recorded on the balancesheet at their respective fair values. The Company adopted SFAS No. 133 and SFAS No. 138 on January 1,2001.  The Company does not purchase orhold derivative instruments for trading or speculative purposes.  There were no contracts outstanding atDecember 31, 2001 and 2000, or for the year ending December 31, 2001.

 

**COMPREHENSIVEINCOME**

 

SFAS 130,“Reporting Comprehensive Income” establishes standards for reporting andpresentation of comprehensive income and its components in a full set offinancial statements.  The Company’scomprehensive income consists of net income and translation adjustments and ispresented in the consolidated statement of stockholder’s equity.  The Statement requires only additionaldisclosures in the consolidated financial statements; it does not affect theCompany’s financial position or results of operations.

 

**SEGMENTINFORMATION**

 

The Companyoperates in two reportable business segments, Bogen (domestic) and SpeechDesign (foreign) and follows the requirements of SFAS No. 131, “Disclosuresabout Segments of an Enterprise and Related Information.”  (See Note 19).

 

F-9

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The domesticsegment is primarily engaged in commercial and engineered sound equipment andtelecommunication peripherals.  Theforeign segment focuses on digital voice processing systems for the mid-sizedPABX market and in Unified Messaging products and services, targeting thegrowing European voice processing and Unified Messaging markets.

 

The Company’sreportable segments are strategic business units that offer different productsand services. They are managed separately because each business requiresdifferent technology, marketing and distribution strategies.

 

The accountingpolicies of the segments are the same as those described in the summary ofsignificant accounting policies.  TheCompany evaluates performance based on profit or loss from operations beforeincome taxes not including other income (expense), nonrecurring gains andlosses, and foreign exchange gains and losses.

 

**ISSUANCEOF SHARES BY SUBSIDIARIES**

 

Gains orlosses arising from the issuances of shares by subsidiaries, due to changes inthe Company’s proportionate share of the value of the issuer’s equity, arerecorded as a component of Stockholders’ Equity, pursuant to U.S. Securitiesand Exchange Commission Staff Accounting Bulletin topic 5H, “Accounting forSales of Stock by a Subsidiary”.

 

**RECLASSIFICATIONS**

 

Certain prioryear balances have been reclassified to conform to the current yearpresentation.

 

**3.  ACQUISITIONS**

 

On August 26,1999, Bogen Communications, Inc., through Apogee, a newly formed Bogensubsidiary, acquired substantially all of the assets of Apogee Sound, Inc., aprivately owned company headquartered in Petaluma, California. Considerationfor the acquisition was the assumption or payment of approximately $2,600 ofApogee Sound Inc.’s liabilities.  Theacquisition has been accounted for by the purchase method of accounting andaccordingly, the purchase price has been allocated to the assets acquired andliabilities assumed based on estimate of fair market values at the date ofacquisition.  In connection with theacquisition, the Company recorded goodwill of $1,836.  (See note 6).

 

**4.  INVENTORIES**

 

Inventories, net of reservesare, as follows:

 
|                       |   | **December  31,** |   |
|----------------------------|--------|-------------------|--------|
|                       |   | **2001**          |   | **2000** |   |
| Raw materials and supplies |   | $                 | 3,367  |   | $ | 4,199 |   |
| Work in progress           |   | 627               |   | 771 |   |
| Finished goods             |   | 8,312             |   | 9,638 |   |
|                       |   | $                 | 12,306 |   | $ | 14,608 |   |

 

**5.  EQUIPMENT AND LEASEHOLD IMPROVEMENTS**

 

Equipment and leaseholdimprovements is comprised of the following items:

 
|                                             |   | **December  31,** |   |
|--------------------------------------------------|--------|-------------------|--------|
|                                             |   | **2001**          |   | **2000** |   |
| Machinery, equipment, vehicles, and tooling      |   | $                 | 4,846  |   | $ | 4,623 |   |
| Furniture and office equipment                   |   | 6,670             |   | 5,969 |   |
| Leasehold improvements                           |   | 909               |   | 906 |   |
|                                             |   | $                 | 12,425 |   | $ | 11,498 |   |
| Less: accumulated depreciation and  Amortization |   | (8,679            | )      | (7,199 | ) |
|                                             |   | $                 | 3,746  |   | $ | 4,299 |   |

 

F-10

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In 2001 and2000, furniture and office equipment includes amounts of $925 under capitallease obligations (see Note 10).

 

Depreciationand amortization expense was $1,706, $1,549 and $1,033 for the years endedDecember 31, 2001, 2000, and 1999, respectively.

 

**6.  GOODWILL AND INTANGIBLE ASSETS**

 

Goodwill and intangible assetsconsists of the following: 

 
|                                  |   | **December  31,** |   |
|---------------------------------------|--------|-------------------|--------|
|                                  |   | **2001**          |   | **2000** |   |
| Goodwill                              |   | $                 | 22,535 |   | $ | 22,711 |   |
| Less:   accumulated amortization |   | (7,346            | )      | (4,943 | ) |
|                                  |   | $                 | 15,189 |   | $ | 17,768 |   |
|                                  |   |              |   |   |   |
| Intangible Assets                     |   | $                 | 1,403  |   | $ | 1,423 |   |
| Less: accumulated amortization        |   | (507              | )      | (351 | ) |
|                                  |   | $                 | 896    |   | $ | 1,072 |   |

 

Goodwill onthe Company’s books is comprised of $14,050 for the acquisition of Bogen, withan amortizable life of 40 years; $241 for the acquisition of NEAR, with a lifeof 20 years; $1,836 for the Apogee acquisition, with a 15 year life; $5,323 forthe purchase of the minority interest in Speech Design, with a life of 20years; $518 relating to the majority acquisition of Satelco, with a 20 yearlife; and $567  recorded for theacquisition of Carrier Systems, with an average life of 6 years.  In December 2001, in accordance with currentFASB requirements, the Company wrote off the remaining Apogee goodwill balanceof $1,409.

 

Intangibleassets on the Company’s books includes $126 for Bogen organization costs,patents and trademarks; $874 for existing technology, trade names, andworkforce, as a result of the acquisition of minority interest of SpeechDesign; and $403 for existing technology, trade names, and workforce as aresult of the acquisition of Carrier Systems. These assets are being amortized over three to ten years.

 

Amortizationof intangibles, primarily goodwill, was $1,107, $1,017 and $866 for the yearsended December 31, 2001, 2000, and 1999, respectively.

 

**7.  REVOLVING CREDIT AGREEMENTS**

 

On April 21,1998, the Company and BCI entered into a $27 million credit facility (the“Facility”) with KeyBank National Association (“Key”), which matured on April30, 2001.  The Facility provided,subject to certain criteria, for a $20 million revolving line of credit foracquisition financing and a $7 million working capital line.  Effective June 30, 2001, the Company and Keyentered into a Modification Agreement (“The Agreement”), under which theworking capital line was reduced to $5 million and the parties agreed to anunsecured $20 million line of credit for acquisition financing.  The Agreement extends the provisions,warranties, certifications, and other criteria of the expired Facility to June30, 2002, and reduces the number of financial covenants required to bemet.  The Company was not in compliancewith one covenant for the period ended December 31, 2001, for which it receiveda waiver from Key.  As of December 31,2001 and 2000, Bogen had no short-term domestic borrowings outstanding undereither the Agreement or the Facility.

 

The Agreementbears interest at either Key’s prime rate or, at the borrower’s option, LIBORplus 125 to 200 basis points.  Theinterest rate at December 31, 2001, was 4.75%.

 

Speech Designhas credit lines and overdraft facilities of approximately 8.7 million DeutscheMarks (“DM”) (approximately U.S. $3.9 million) from six banks.  Speech Design’s short-term lines of creditare collateralized by all of Speech Design’s accounts receivable andinventory.  Speech Design has a 15million DM (U.S. $6.8 million) credit facility for acquisition financing fromD.G. Bank of Frankfurt.  The interestrate under the new credit facility is up to 200 basis points above the Euriborrate, which was 3.330% at December 31, 2001.

 

F-11

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At December31, 2001 and 2000, Speech Design had short-term borrowings amounting to $973and $1,201, respectively.  The amountsavailable under Speech Design’s credit lines were approximately $3.0 million atDecember 31, 2001, with rates tied to short-term bank notes and Euromarket loans.  At December 31, 2001 and 2000, these ratesranged from 6.5% to 15.25%.  There wereno borrowings under either the Bogen or Speech Design acquisition creditfacilities.

 

Total outstanding revolvinglines of credit are summarized as follows:

 
|                                           |   | **December  31,** |   |
|------------------------------------------------|--------|-------------------|--------|
|                                           |   | **2001**          |   | **2000** |   |
| Domestic Lines of Credit Utilized              |   | —            |   | — |   |
| Foreign Lines of Credit Utilized:              |   |              |   |   |   |
| •    Speech  Design GmbH   |   | $                 | 785    |   | $ | 958 |   |
| •    Speech  Design Israel |   | 3                 |   | 24 |   |
| •    Carrier  Systems      |   | 125               |   | 200 |   |
| •    Satelco               |   | 60                |   | 19 |   |
|                                           |   | $                 | 973    |   | $ | 1,201 |   |

 

**8.  NOTES PAYABLE TO RELATED PARTIES**

 

There is a$315 original note to the minority shareholders of Satelco, payable inquarterly installments of $31 plus interest at the Zurich Kantonal Bank rate,with the initial payment in February 1995. The payments of this note were suspended (with the approval of the noteholders) until such time as the Satelco subsidiary became profitable.  Payments resumed in 2000 and the note wasclassified as short-term at December 31, 2000. In 2001, payments were again suspended and the note was reclassified aslong term.  The amounts outstanding were$120 and $124 at December 31, 2001 and 2000, respectively.

 

**9.  INCOME TAXES**

 

The Company’s pre-tax bookincome (loss) is as follows:

 
|                     |   | **Years  Ended December 31,** |   |
|--------------------------|--------|-------------------------------|--------|
|                     |   | **2001**                      |   | **2000** |   | **1999** |   |
| Domestic U.S. operations |   | $                             | 524    |   | $ | 2,508 |   | $ | 2,875 |   |
| Foreign operations       |   | (1,567                        | )      | 1,939 |   | 2,062 |   |
|                     |   |                          |   |   |   |   |   |
| Total                    |   | $                             | (1,043 | ) | $ | 4,447 |   | $ | 4,937 |   |

 

The components of income taxexpense (benefit) are as follows:

 
|                                                       |   | **Year Ended  December 31,** |   |
|------------------------------------------------------------|--------|------------------------------|--------|
|                                                       |   | **2001**                     |   | **2000** |   | **1999** |   |
| Current income tax                                         |   | $                            | 1,076  |   | $ | 1,872 |   | $ | 1,701 |   |
| Utilization of acquired tax benefits  credited to goodwill |   | 107                          |   | 107 |   | 107 |   |
| Deferred income tax benefit                                |   | (1,498                       | )      | (598 | ) | (371 | ) |
|                                                       |   |                         |   |   |   |   |   |
| Total income tax expense (benefit)                         |   | $                            | (315   | ) | $ | 1,381 |   | $ | 1,437 |   |

 

F-12

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The difference between theprovision for income taxes computed at the U.S. Federal income tax rate of 34%and the provision as reported are as follows:

 
|                                                       |   | **Year Ended December 31,** |   |
|------------------------------------------------------------|--------|-----------------------------|--------|
|                                                       |   | **2001**                    |   | **2000** |   | **1999** |   |
| Computed “expected” tax expense                  |   | $                           | (355   | ) | $ | 1,512 |   | $ | 1,679 |   |
| State tax expense                                          |   | 115                         |   | 301 |   | 134 |   |
| Non-deductible  expenses                                   |   | 122                         |   | 401 |   | 159 |   |
| Change in valuation allowance                              |   | 11                          |   | (514 | ) | (959 | ) |
| Foreign taxes greater (less) than U.S.  taxes              |   | (261                        | )      | (426 | ) | 280 |   |
| Utilization of acquired tax benefits  credited to goodwill |   | 107                         |   | 107 |   | 107 |   |
| Other                                                      |   | (54                         | )      | — |   | 37 |   |
| Income tax expense (benefit) as reported                   |   | $                           | (315   | ) | $ | 1,381 |   | $ | 1,437 |   |

 

The components of deferred taxassets and liabilities are as follows:

 
|                           |   | **Year Ended  December 31,** |   |
|--------------------------------|--------|------------------------------|--------|
|                           |   | **2001**                     |   | **2000** |   |
| Deferred tax assets:           |   |                         |   |   |   |
| NOL carryforwards              |   | $                            | 657    |   | $ | 764 |   |
| Foreign loss carryforwards     |   | 961                          |   | 290 |   |
| Accounts receivable            |   | 176                          |   | 137 |   |
| Inventory                      |   | 979                          |   | 973 |   |
| Equipment                      |   | 242                          |   | 102 |   |
| Intangibles                    |   | 597                          |   | — |   |
| Accrued liabilities            |   | 264                          |   | 269 |   |
| Deferred revenues              |   | 97                           |   | — |   |
| Deferred rent                  |   | 18                           |   | 2 |   |
| Total deferred tax assets      |   | $                            | 3,991  |   | $ | 2,537 |   |
| Less: valuation allowance      |   | (948                         | )      | (946 | ) |
| Net deferred tax assets        |   | $                            | 3,043  |   | $ | 1,591 |   |
|                           |   |                         |   |   |   |
| Deferred tax liabilities:      |   |                         |   |   |   |
| Intangibles                    |   | $                            | 871    |   | $ | 1,057 |   |
| Marketing costs                |   | 62                           |   | — |   |
| Other, net                     |   | 66                           |   | 66 |   |
| Total deferred tax liabilities |   | $                            | 999    |   | $ | 1,123 |   |
|                           |   |                         |   |   |   |
| Total net deferred tax assets  |   | $                            | 2,044  |   | $ | 468 |   |

 

The Company has net operatingloss (“NOL”) carryforwards of approximately $1,931 for U.S. Federal taxpurposes as of December 31, 2001, which expire between the years 2004 through2010.  Under Section 382 of the InternalRevenue Code of 1986, as amended, these operating loss carryforwards aresubject to certain limitations on their utilization as a result of the changesin control of the Company in 1991 and 1995. Subsequently recognized tax benefits, in the amount of $657, relating tothe reduction of the valuation allowance as these NOL carryforwards arerealized, will be allocated to Goodwill and other intangible assets.

 

The Company has foreign losscarryforwards of approximately $2,600 as of December 31, 2001.  Certain of these loss carryforwards expirebetween the years 2002 through 2005.

 

F-13

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The valuationallowance for all deferred tax assets as of December 31, 2001 and 2000, was$948 and $946, respectively.  The netchange in the total valuation allowance for the year ended December 31, 2001,was an increase of $2.  The net changein the total valuation allowance for the year ended December 31, 2000, was adecrease of $514.  In assessing therealizability of deferred tax assets, management considers whether it is morelikely than not that some portion or all of the deferred tax assets will not berealized.  The ultimate realization ofdeferred tax assets is dependent upon the generation of future taxable incomeduring the periods in which those temporary differences become deductible.  Management considers the scheduled reversalof deferred tax liabilities, projected future taxable income, certainlimitations on the utilization of operating loss carryforwards and tax planningstrategies in making this assessment. Based upon the level of historical taxable income and projections forfuture taxable income, by jurisdiction, over the periods which the deferred taxassets are deductible, management believes it is more likely than not theCompany will realize the benefits of these deductible differences, net of the existingvaluation allowances at December 31, 2001. The amount of the deferred tax asset considered realizable, however,could be reduced in the near term if estimates of future taxable income duringthe carryforward period are reduced.

 

**10.  LEASES**

 

The Company is obligated undervarious capital leases for certain office equipment that expire over the nextfour years.  The gross amount of assetsand related accumulated amortization recorded under capital leases were asfollows:

 
|                           |   | **December  31,** |   |
|--------------------------------|--------|-------------------|--------|
|                           |   | **2001**          |   | **2000** |   |
| Office equipment               |   | $                 | 925    |   | $ | 925 |   |
| Less: accumulated amortization |   | (541              | )      | (356 | ) |
|                           |   | $                 | 384    |   | $ | 569 |   |

 

Amortization of assets heldunder capitalized leases is included with depreciation expense.  The Company occupies its plant and officefacilities and operates certain equipment and vehicles under leases expiring atvarious dates through 2010.  Thefacility leases contain escalation clauses and provide for payments of taxesand expenses over base rent.  Thefacility leases also contain renewal options of varying lengths.

 

Future minimum annual leasepayments under non-cancelable operating leases (with initial or remaining leaseterms in excess of one year) and future minimum capital lease payments as ofDecember 31, 2001, are as follows:

 
| **YEAR  ENDING DECEMBER 31,**                                         |   | **CAPITAL  LEASES** |   | **OPERATING  LEASES** |   |
|-----------------------------------------------------------------------|--------|---------------------|--------|-----------------------|--------|
| 2002                                                                  |   | 299                 |   | 1,537                 |   |
| 2003                                                                  |   | 6                   |   | 1,393                 |   |
| 2004                                                                  |   | 5                   |   | 1,321                 |   |
| 2005                                                                  |   | 1                   |   | 879                   |   |
| 2006                                                                  |   | —              |   | 576                   |   |
| Thereafter                                                            |   | —              |   | 2,275                 |   |
| Total minimum lease payments                                          |   | $                   | 311    |                  | $      | 7,981 |   |
|                                                                  |   |                |   |                  |   |
| Less: sales taxes                                                     |   | 15                  |   |                  |   |
|                                                                  |   |                |   |                  |   |
| Net minimum lease payments                                            |   | 296                 |   |                  |   |
|                                                                  |   |                |   |                  |   |
| Less: amount representing interest (at  rates between 7.6% and 17.9%) |   | 18                  |   |                  |   |
|                                                                  |   |                |   |                  |   |
| Present value of net minimum capital lease  payments                  |   | 278                 |   |                  |   |
|                                                                  |   |                |   |                  |   |
| Less: current installments of obligations  under capital leases       |   | 267                 |   |                  |   |
|                                                                  |   |                |   |                  |   |
| Obligations under capital leases, excluding  Current installments     |   | 11                  |   |                  |   |
|                                                                       |        |                     |        |                       |        |  |  |

 

F-14

----

 

The facilityleases include scheduled rent increases over the lease terms.  Rent expense has been recorded on astraight-line basis and the related deferred rent obligation of $47 and $0 atDecember 31, 2001 and 2000, respectively.

 

Rent expensecharged to operations totaled approximately $1,907, $1,740, and $1,552 for theyears ended December 31, 2001, 2000, and 1999, respectively.

 

**11.  MINORITY INTEREST**

 

On September27, 2001, an agreement was signed with 2.T-Telematik VentureBeteiligungsgesellschaft mgH (“T-Venture”), a venture capital subsidiary ofDeutsche Telekom AG, a world leader in telecommunications, to sell 2% of SDI, anewly-formed Company subsidiary which now holds all equity in Speech Design,the company’s European operation, to T-Venture. Sale of the SDI common stockminority holding was for approximately 842 Euros, about $765, less expenses of$104.  T-Venture also received a warrantto purchase another 2% of SDI shares at prices that, if SDI becomes separatelytraded, would be established at a discount to initial public market prices.  As part of the agreement, within thirty daysafter the second or third anniversaries of the agreement date, T-Venture has anoption to request that the SDI repurchase all of the common shares held byT-Venture for a price, set by mutual determination or by an appraiser, not toexceed 125% of the total  amount paid byT-Venture.

 

Separately,T-Venture signed a marketing agreement entitling it to receive 1% of SDI stockif T-Venture assisted Speech Design in attaining certain Unified Messagingsales objectives by December 31, 2001. The marketing agreement expired without being exercised at December 31,2001.

 

**12.  COMMITMENTS AND CONTINGENCIES**

 

**EMPLOYMENTCONTRACTS**

 

The Companyhas entered into employment contracts with several officers of theCompany.  The employment contracts ofthe Chief Executive Officer and the President of the Company both expired inNovember 2001and are currently being renegotiated.  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 SpeechDesign expire in June 2004.  Themanagement agreements with the two managing directors at Speech Design’ssubsidiary, Carrier Systems, expire in December 2003.  Compensation accrues to the officers over the term of the contractas their respective services are provided.

 

**LITIGATION**

 

The Company isparty, in the ordinary course of business, to various legal actions and claimswhich relate to its products, intellectual property, employee matters, or otheraspects of its operations.  In theopinion of management, the ultimate disposition of these matters will not havea material adverse effect on the Company’s consolidated financial position,results of operations, or liquidity.

 

**13.  STOCKHOLDERS’ EQUITY**

 

**PREFERREDSTOCK**

 

The Company isauthorized 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 timeby the Board of Directors.

 

**COMMONSTOCK AND WARRANTS**

 

On November 5,2001, the Company commenced an offer to repurchase up to 1.5 million shares ofits common stock in a “Dutch Auction” tender offer at a price between $2.50 and$3.00 per share.  Based on the tendersreceived, the Company repurchased 1,012,211 shares, for which it paid $3,037,or $3.00 per share, to the tendering shareholders.

 

F-15

----

 

In June 1993,300,000 Warrants were issued to various individuals in consideration forproviding the Company bridge financing until its initial public offering(“Offering”) on October 15, 1993.  TheCompany issued 3,100,000 Warrants to purchase its common stock in connectionwith the Offering.  Another 60,000Warrants were issued as consideration for providing certain financings andservices 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 becancelled.  Such redemption wasauthorized by the terms of the Warrant Agreement dated as of October 7, 1993following any period of twenty trading days on which the Company’s Common Stockmarket price closes at $10 per share or higher.

 

On November26, 1997, D&S Capital, LLC, a limited liability company whose interests areowned by the Chief Executive Officer and President of the Company, acquired46,295 shares of common stock and warrants to purchase 250,000 shares ofrestricted common stock at an exercise price of $5.00 per share, for anaggregate purchase price of $250.  Thewarrants are exercisable in specified increments through January 1, 2003.  Another 575,885 warrants to purchase commonstock were issued on November 28, 1997, to Helix Capital II, LLC andsubsequently distributed to its former owners and employees.  These warrants have an exercise price of$5.50 and expire in November 2002.

 

TheCompany had the following warrants outstanding:

 
|                                   |   | **DECEMBER 31,  SHARES** |       | **WEIGHTED AVERAGE EXERCISE PRICE** |       | **EXPIRATION** |       |
|----------------------------------------|--------|--------------------------|------------|-------------------------------------|------------|----------------|------------|
|                                   |   | **2001**                 |       | **2000**                            |
| **WARRANTS TO PURCHASE COMMON STOCK:** |   |                     | ** ** |                                | ** ** |           | ** ** |   | ** ** |
| 1997 warrants                          |   | 825,885                  |       | 825,885                             |       | $              | 5.35       |   | November 2002/ |   |
|                                   |   |                     |       |                                |       |           |       | January 2003 |   |
|                                   |   | 825,885                  |       | 825,885                             |       |           |       |   |   |
|                                        |        |                          |            |                                     |            |                |            |  |  |  |

 

**14.  STOCK OPTIONS**

 

The Companyhas a Stock Option Incentive Plan (the “Plan”) under which 1,253,335 shares ofthe Company’s Common Stock are reserved for issuance pursuant to the Plan.  As of March 29, 2000, the stockholders ofthe Company approved an amendment to increase the available shares under theplan to 1,500,000.  The Plan can awardstock options to eligible employees of the Company and its subsidiaries(including employee directors), non-employee directors, and independentcontractors and consultants who perform services for the Company.  The options vest over a period of five yearsand are exercisable at prices determined on a case-by-case basis but not lessthan the fair market value of the stock at the date of grant and none may beexercised more than 10 years from the date of grant.  From time to time, the Company grants additional stock options toindividuals outside of the Plan.  During1997, the Company granted a total of 325,885 options outside the Plan to theCompany’s newly appointed CEO and President. These options were granted at an exercise price of $5.00 per share, werefully vested in 2000, and will expire 10 years from the date of grant.

 

F-16

----

 

Information with respect to theCompany’s stock options under the 1996 Plan and discretionary grants are asfollows:

 
| **STOCK OPTIONS**                |   | **SHARES** |   | **WEIGHTED  AVERAGE EXERCISE  PRICE** |   |
|----------------------------------|--------|------------|--------|---------------------------------------|--------|
| Outstanding at January 1, 1999   |   | 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                                  |   |
| Granted                          |   | 5,000      |   | 5.00                                  |   |
| Forfeited                        |   | (7,330     | )      | 6.06                                  |   |
| Outstanding at December 31, 2001 |   | 1,228,435  |   |                                  |   |

 

The number ofshares and weighted average price of options exercisable at December 31, 2001,was 973,105 shares at $6.24 per share and had a weighted average contractuallife remaining of 6.6 years.  AtDecember 31, 2001, 363,583 options were available for future grants under theterms of the Plan. Outstanding options expire prior to December 31, 2010, andare exercisable at prices ranging from $5.00 to $8.50 per share.

 

The Companyhas adopted the disclosures provisions of SFAS 123, “Accounting for Stock-BasedCompensation”.  This statement defines afair value method of accounting for an employee stock option or similar equityinstrument.  However, it allows anentity to continue to measure compensation cost for those instruments using theintrinsic-value-based method of accounting prescribed by Accounting PrinciplesBoard Opinion No. 25, “Accounting for Stock Issued to Employees” provided itdiscloses the effect of SFAS 123 in footnotes to the financial statements.  The Company has chosen to continue toaccount for stock-based compensation using the intrinsic value method.  Had the Company, however, elected torecognize compensation cost based on fair value of the stock options at thedate of grant under SFAS 123, such costs would have been recognized ratablyover the vesting period of the underlying instruments and the Company’s netincome (loss) and net income per common share would have decreased to the proforma amounts indicated in the table below.

 

Pro forma net income (loss) andnet income (loss) per common share was as follows:

 
|                                |   | **Years  Ended December 31,** |   |
|-------------------------------------|--------|-------------------------------|--------|
|                                |   | **2001**                      |   | **2000** |   | **1999** |   |
| Net income (loss):                  |   |                          |   |   |   |   |   |
| As reported                         |   | $                             | (728   | ) | $ | 3,066 |   | $ | 3,500 |   |
| Pro forma                           |   | (1,216                        | )      | 2,421 |   | 2,849 |   |
| Net income (loss) per common share: |   |                          |   |   |   |   |   |
| Basic:                              |   |                          |   |   |   |   |   |
| As reported                         |   | (.07                          | )      | .33 |   | .52 |   |
| Pro forma                           |   | (.12                          | )      | .26 |   | .44 |   |
| Diluted:                            |   |                          |   |   |   |   |   |
| As reported                         |   | (.07                          | )      | .31 |   | .45 |   |
| Pro forma                           |   | (.12                          | )      | .25 |   | .38 |   |
|                                     |        |                               |        |  |  |  |  |  |  |  |

 

The fair valueof the options granted was estimated using the Black-Scholes option-pricingmodel based on the weighted average exercise price at date of grant of $5.00 infiscal 2001 and the following weighted average assumptions: risk-free interestrate of 6.91%; expected option life of 7.5 years; volatility of 55% and nodividend yield.  The average fair valueof options granted during 2001 was $5.00.

 

F-17

----

 

The fair valueof the options granted was estimated using the Black-Scholes option-pricingmodel based on the weighted average exercise price at date of grant of $6.78 infiscal 2000 and the following weighted average assumptions: risk-free interestrate of 9.24%; expected option life of 7 years; volatility of 78% and nodividend yield.  The average fair valueof options granted during 2000 was $6.78.

 

The fair valueof the options granted was estimated using the Black-Scholes option-pricingmodel based on the weighted average exercise price at date of grant of $6.04 infiscal 1999 and the following weighted average assumptions: risk-free interestrate of 8.00%; expected option life of 7.5 years; volatility of 39% and no dividendyield.  The average fair value ofoptions granted during 2001 was $5.84.

 

**15.  RESTRUCTURING AND OTHER CHARGES**

 

In 2001,Speech Design recorded approximately $481 of restructuring charges,approximately $176 in the third quarter for its Unified Messaging business andapproximately $305 in the fourth quarter for its voicemail business.  In addition, the Company wrote off allremaining costs, approximately $581 of legal fees, incurred to date inconnection with its exploration of alternatives for enhancing shareholdervalue, which had included a possible separation of the domestic and foreignbusinesses.  In 2000, the companyexpensed $310 of costs related to its exploration of strategic alternatives.  All restructuring and other charges arereported on a separate line in the Consolidated Statements of Operations.

 

As of December31, 2001, cash payments of approximately $1,172 had been made for thesecharges.  The remaining liability to bepaid was $200.

 

**16.  INCOME (LOSS) PER COMMON SHARE**

 

Basic earningsper common share is computed by dividing net earnings per common share by theweighted average number of common shares outstanding during the period.  Diluted earnings per common share giveseffect to all diluted potential common shares that were outstanding during theperiod.  Potential common shares are notincluded in the calculation of diluted earnings per share if their inclusionwould be anti-dilutive.  Potentialcommon shares attributable to outstanding options and warrants have not beenincluded in the calculation of diluted earnings per common share for the yearended December 31, 2001, since their inclusion would have been anti-dilutive.

 

**17.  RELATED PARTY TRANSACTIONS**

 

Pursuant to aMergers & Acquisition Engagement Agreement, dated August 1997, as amendedon November 29, 1997, and the Amended and Restated Mergers & AcquisitionEngagement Agreement, effective as of October 1, 1998, between the Company andHelix Capital Services, Inc. (“Helix Services”), the Company paid HelixServices approximately $374 in 1998, including an aggregate of $210 in monthlyretainer fees and $164 for services rendered in connection with the SpeechDesign acquisition.  Pursuant to theAmended and Restated Mergers & Acquisition Agreement, Helix Services actedas the principal financial advisor and, subject to certain exceptions, theexclusive mergers and acquisition advisor for the Company and all of itsdomestic subsidiaries.  In exchange forsuch 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 eventthe Company consummated a financing or other extraordinary corporatetransaction, an additional fee equal to a minimum of 2% of the acquisitionprice, subject to reduction in certain circumstances.

 

Effective asof October 1, 1998, Speech Design entered into a Mergers & AcquisitionEngagement Agreement with Helix Services pursuant to which Helix Services actedas the principal financial advisor and, subject to certain exceptions, the exclusivemergers 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 financingor other extraordinary corporate transaction, an additional fee equal to aminimum 2% of the acquisition price, subject to reduction in certaincircumstances.  During 1998, SpeechDesign paid Helix Services an aggregate of $30 in monthly retainer fees.

 

F-18

----

 

In 1999, theCompany and Speech Design combined paid Helix Services $160 in monthly retainerfees and approximately $20 in expenses associated with the Apogeeacquisition.  The Company and SpeechDesign terminated their agreements with Helix Services on August 31 andSeptember 1, 1999, respectively.  TheCompany subsequently entered into a Limited Engagement Agreement with HelixServices that called for certain payments to be made upon the successfulconsummation of merger and acquisition transactions.  The Limited Engagement Agreement expired on December 31, 1999.

 

**18.  EMPLOYEE BENEFIT PLANS**

 

Bogenparticipates in multi-employer pension plans, which cover all union employees.Contributions for the periods ended December 31, 2001, 2000, and 1999, wereapproximately $15, $16, and $44, respectively.

 

Employees ofthe Company are also eligible to participate in a Company sponsored definedcontribution 401(k) plan.  The Companyprovides a matching contribution to a portion of funds contributed byemployees.  Amounts charged to expensewere $124, $132, and $100 for the years ended December 31, 2001, 2000, and1999, respectively.

 

**19.  SEGMENTS**

 

The Companyoperates in two reportable business segments, Bogen (domestic) and SpeechDesign (foreign).  The domestic segmentis primarily engaged in commercial and engineered sound equipment andtelecommunication peripherals.  Theforeign segment focuses on digital voice processing systems for the mid-sizedPABX market and in Unified Messaging products and services, targeting thegrowing European voice processing and Unified Messaging markets.

 

The following table presentsinformation about the Company by segment/geographic area. Inter segmentrevenues and transfers are not considered material:

 
|                            |   | **BOGEN** |   | **SPEECH  DESIGN** |   |
|---------------------------------|--------|-----------|--------|--------------------|--------|
| **2001:**                       |   |      |   |               |   |
| Revenue from external customers |   | $         | 40,208 |               | $      | 16,935 |   |
| Depreciation and amortization   |   | 1,555     |   | 1,012              |   |
| Operating profit (loss)         |   | 1,141     |   | (1,525             | )      |
| Total assets                    |   | 39,515    |   | 14,047             |   |
| Expenditures for segment assets |   | 458       |   | 735                |   |
|                            |   |      |   |               |   |
| **2000:**                       |   |      |   |               |   |
| Revenue from external customers |   | $         | 44,974 |               | $      | 20,546 |   |
| 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 |   | $         | 37,321 |               | $      | 21,556 |   |
| Depreciation and amortization   |   | 962       |   | 627                |   |
| Operating profit                |   | 3,574     |   | 2,180              |   |
| Total assets                    |   | 28,433    |   | 14,721             |   |
| Expenditures for segment assets |   | 1,821     |   | 803                |   |

 

F-19

----

 

A reconciliation of reportablesegment operating profit and assets to the Company’s consolidated totals are asfollows:

 
|                                                   |   | **2001** |   | **2000** |   | **1999** |   |
|--------------------------------------------------------|--------|----------|--------|----------|--------|----------|--------|
| **Operating profit (loss)**                            |   |     |   |     |   |     |   |
| Total operating profit (loss) for  reportable segments |   | $        | (384   | )        | $      | 5,177    |   | $ | 5,754 |   |
| Other corporate expenses                               |   | (1,037   | )      | (1,042   | )      | (548     | )      |
|                                                   |   |     |   |     |   |     |   |
| Operating profit (loss)                                |   | $        | (1,421 | )        | $      | 4,135    |   | $ | 5,206 |   |
|                                                   |   |     |   |     |   |     |   |
| **Assets**                                             |   |     |   |     |   |     |   |
| Total assets for reportable segments                   |   | $        | 53,562 |     | $      | 59,491   |   | $ | 43,154 |   |
| Elimination of receivables/payables                    |   | —   |   | (157     | )      | (69      | )      |
| Other unallocated amounts                              |   | 2,245    |   | 1,778    |   | 793      |   |
|                                                   |   |     |   |     |   |     |   |
| Consolidated Total                                     |   | $        | 55,807 |     | $      | 61,112   |   | $ | 43,878 |   |

** **

**20.  CREDIT CONCENTRATION**

 

The Companyhad no customers that individually accounted for more than 10% of totalconsolidated net sales in 2001 or 2000. Speech Design had revenues in 1999 from two customers that totaled$13,060.  Bogen had one customer in 1999with sales of $5,885.  Each was greaterthan 10% of the Company’s total revenues.

 

**21.  QUARTERLY FINANCIAL DATA  (UNAUDITED)**

 
|                          |   | **First  Quarter**                            |   | **Second  Quarter** |   | **Third  Quarter** |   | **Fourth  Quarter** |   | **Total  Year** |   |
|-------------------------------|--------|-----------------------------------------------|--------|---------------------|--------|--------------------|--------|---------------------|--------|-----------------|--------|
|                          |   | **(In  thousands, except per share amounts)** |   |
| **2001**                      |   |                                          |   |                |   |               |   |                |   |            |   |
|                          |   |                                          |   |                |   |               |   |                |   |            |   |
| Net Sales                     |   | $                                             | 13,846 |                | $      | 15,792             |   | $                   | 15,213 |            | $      | 12,292 |   | $ | 57,143 |   |
|                          |   |                                          |   |                |   |               |   |                |   |            |   |
| Gross Profit                  |   | 6,805                                         |   | 7,399               |   | 7,233              |   | 5,528               |   | 26,965          |   |
|                          |   |                                          |   |                |   |               |   |                |   |            |   |
| Income (Loss) from Operations |   | (643                                          | )      | 983                 |   | (51                | )      | (1,710              | )      | (1,421          | )      |
|                          |   |                                          |   |                |   |               |   |                |   |            |   |
| Net Income (Loss)             |   | (216                                          | )      | 676                 |   | (232               | )      | (956                | )      | (728            | )      |
|                          |   |                                          |   |                |   |               |   |                |   |            |   |
| Net Income (Loss) per Share:  |   |                                          |   |                |   |               |   |                |   |            |   |
| Basic                         |   | (0.02                                         | )      | 0.07                |   | (0.02              | )      | (0.10               | )      | (0.07           | )      |
| Diluted                       |   | (0.02                                         | )      | 0.07                |   | (0.02              | )      | (0.10               | )      | (0.07           | )      |
|                          |   |                                          |   |                |   |               |   |                |   |            |   |
| **2000**                      |   |                                          |   |                |   |               |   |                |   |            |   |
|                          |   |                                          |   |                |   |               |   |                |   |            |   |
| Net Sales                     |   | $                                             | 16,263 |                | $      | 17,072             |   | $                   | 16,929 |            | $      | 15,256 |   | $ | 65,520 |   |
|                          |   |                                          |   |                |   |               |   |                |   |            |   |
| Gross Profit                  |   | 7,590                                         |   | 7,991               |   | 8,475              |   | 6,303               |   | 30,359          |   |
|                          |   |                                          |   |                |   |               |   |                |   |            |   |
| 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            |   |

 

F-20

----

 
| **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 |

 

27

----

 

**BOGENCOMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES**

**SCHEDULE II - VALUATION AND QUALIFYINGACCOUNTS**

**(IN THOUSANDS OF DOLLARS, EXCEPT SHARES ANDPER SHARE AMOUNTS)**

 
| **COLUMN A**                             |   | **COLUMN B**                         |   | **COLUMN C**                        |   | **COLUMN D** |   | **COLUMN E**  |   | **COLUMN F**                    |   |
|------------------------------------------|--------|--------------------------------------|--------|-------------------------------------|--------|--------------|--------|---------------|--------|---------------------------------|--------|
|                                     |   | **BALANCE AT  BEGINNING  OF PERIOD** |   | **CHARGED TO  COSTS AND  EXPENSES** |   | **OTHER**    |   | **DEDUCTION** |   | **BALANCE AT  END OF   PERIOD** |   |
| **DESCRIPTION**                          |   |                                 |   |                                |   |         |   |          |   |                            |   |   |
|                                     |   |                                 |   |                                |   |         |   |          |   |                            |   |
| **Year ended December 31, 2001:**        |   |                                 |   |                                |   |         |   |          |   |                            |   |
| Allowance for Doubtful accounts          |   | $                                    | 557    |                                | $      | 248          |   | $             | (1     | ) (c)                           | $      | (333 | ) (a) | $ | 471 |   |
| Reserve for sales returns and allowances |   | 282                                  |   | 234                                 |   | —       |   | (70           | ) (e)  | 446                             |   |
| Reserve for inventory obsolescence       |   | 1,358                                |   | 291                                 |   | (21          | ) (c)  | (147          | ) (b)  | 1,481                           |   |
|                                     |   | $                                    | 2,197  |                                | $      | 773          |   | $             | (22    | )                               | $      | (550 | ) | $ | 2,398 |   |
|                                     |   |                                 |   |                                |   |         |   |          |   |                            |   |
| **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          | ) (e)  | 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 |   |
|                                          |        |                                      |        |                                     |        |              |        |               |        |                                 |        |  |  |  |  |  |  |

 

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(a)       Uncollectible accountswritten off, net of recoveries.

(b)      Write-off of obsoleteinventory.

(c)       Currency exchangeeffect.

(d)      Assumption of Apogee allowancesand reserves, net of currency exchange effects.

(e)       Write-off of prior yearreturns

 

(b)           Reports on Form 8-K

 

The Companyfiled a Form 8-K, dated October 5, 2001, reporting the transfer of ownership ofits subsidiary, Speech Design GmbH, to a newly-formed Delaware corporation,Speech Design International Inc. (“SDI”), and the sale by SDI of 2 percent ofits common stock to 2.T-Telematik Venture Beteiligungsgesellschaft mgH(“T-Venture”), a venture capital subsidiary of Deutsche Telekom AG, a worldleader in telecommunications.  The salewas consummated on September 27, 2001, for 842,000 Euros, or approximately$765,000.  A Warrant for an additionalapproximately 2 percent of SDI common stock was also issued to T-Venture.  The purchase agreement, Warrant Agreement,and a separate Marketing Agreement between SDI and T-Venture were filed asexhibits to such Form 8-K.

 

(c)           Exhibits

 

The followingexhibits are filed as part of this report (Exhibit

numberscorrespond to the exhibits required by Item 601 of Regulation

S-K for anAnnual Report on Form 10-K):

 

28

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| **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)                                                                           |
|                 |   |                                                                                                                                                                                             |
| 10.24                |   | Security Agreement, dated April 21, 1998,  by Bogen Corporation in favor of KeyBank National Association. (9)                                                                                    |
|                 |   |                                                                                                                                                                                             |

 

 

29

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|   |   |                                                                                                                                                                                                                                             |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 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, L.L.C. and Bogen Communications, Inc. dated July 31, 2000 (13)                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                             |
| 10.37  |   | Common Stock and Warrant Purchase Agreement  between Bogen Communications International, Inc, Speech Design International  Inc., Speech Design GmbH and 2.T-Telematik Venture Beteiligungsgesellschaft  mbH dated September 27, 2001.  (14) |
|   |   |                                                                                                                                                                                                                                             |
| 10.38  |   | Marketing Agreement between Speech Design  International Inc. and 2.T-Telematik Venture Beteiligungsgesellschaft mbH  dated September 27, 2001. (14)                                                                                             |
|   |   |                                                                                                                                                                                                                                             |
| 10.39  |   | Modification Agreement dated August 17,  2001, between and among Bogen Communications International, Inc., Bogen  Communications Inc., and KeyBank National Association. (15)                                                                    |
|   |   |                                                                                                                                                                                                                                             |
| 10.40  |   | Management Agreement dated June 29, 2001,  between Speech Design GmbH and Kasimir Arciszewski. (15)                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                             |
| 10.41  |   | Management Agreement dated June 29, 2001,  between Speech Design GmbH and Hans Meiler. (15)                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                             |
| 99.1   |   | Minority Interest Agreement press release  between Bogen Communications International, Inc, Speech Design International  Inc., Speech Design GmbH and 2.T-Telematik Venture Beteiligungsgesellschaft  GmbH dated October 1, 2001.  (14)     |
|   |   |                                                                                                                                                                                                                                             |
| *21.1  |   | Subsidiaries of the Company                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                             |
| *23.1  |   | Consent of KPMG LLP                                                                                                                                                                                                                              |

 

30

----

 

----

*Filed Herewith

 

  (1)                            Incorporatedby reference to the Exhibits to the Company’s Registration Statement on FormS-1 (File No. 33-65294) dated October 7, 1993.

 

  (2)                            Incorporatedby reference to the Exhibits to the Company’s Annual Report on Form 10-K forthe fiscal year ended December 31, 1994.

 

  (3)                            Incorporatedby reference to the Exhibits to the Company’s Quarterly Report on Form 10-Q forthe fiscal quarter ended September 30, 1995.

 

  (4)                            Incorporatedby reference to the Exhibits to the Company’s Current Report on Form 8-K datedAugust 21, 1995.

 

  (5)                            Incorporatedby reference to the Exhibits to the Company’s Registration Statement on FormS-8 (File No. 333-21245) dated February 4, 1997.

 

  (6)                            Incorporatedby reference to the Exhibits to the Company’s Annual Report on Form 10-K forthe year ended December 31, 1996.

 

  (7)                            Incorporatedby reference to the Exhibits to the Company’s Current Report on Form 8-K, datedNovember 25, 1997.

 

  (8)                            Incorporatedby reference and the Exhibits to the Company’s Current Report on Form 8-K,dated December 12, 1997.

 

  (9)                            Incorporatedby reference to the Exhibits to the Company’s Current Report on Form 8-K, datedMay 20, 1998.

 

(10)                            Incorporatedby reference to the Exhibits to the Company’s Annual Report on Form 10-K forthe year ended December 31, 1998.

 

(11)                            Incorporatedby reference to the Exhibits to the Company’s Annual Report on Form 10-K forthe year ended December 31, 1999.

 

(12)                            Incorporatedby reference to the Exhibits to the Company’s Quarterly Report on Form 10-Q forthe fiscal quarter ended September 30, 2000.

 

(13)                            Incorporatedby reference to the Exhibits to the Company’s Annual Report on Form 10-K forthe year ended December 31, 2000.

 

(14)                            Incorporatedby reference to Exhibits to the Company’s Current Report on Form 8-K datedOctober 9, 2001.

 

(15)                            Incorporatedby reference to the Exhibits to the Company’s Quarterly Report on Form 10-Q forthe fiscal quarter ended September 30, 2001.

 

31

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**SIGNATURES**

 

Pursuant tothe 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 theundersigned, 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 Secretary |   |
|                  | (Principal Executive Officer) |   |   | (Principal Financial Officer)         |   |
|                  |                          |   |   |                                  |   |
| By:                   | /s/ Michael  P. Fleischer     |   |   |                                  |   |
|                  |                          |   |   |                                  |   |
|                  | Michael P. Fleischer,         |   |   |                                  |   |
|                  | President                     |   |   |                                  |   |
|                  | (Principal Executive Officer) |   |   |                                  |   |
|                  |                          |   |   |                                  |   |
| Date: March  27, 2002 |                          |   |   |                                  |

 

Pursuant tothe requirements of the Securities Exchange Act of 1934, this report has beensigned on March 27, 2002, by the following persons on behalf of the Registrantin 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           |   |   |                                             |   |

 

32

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