UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended December 31, 2001
-----------------
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______________ to _______________
Commission file number: 0-17219
CLEARONE COMMUNICATIONS, INC.
-----------------------------
(Exact name of registrant as specified in its charter)
Utah 87-0398877
---- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1825 Research Way, Salt Lake City, Utah 84119
--------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (801) 975-7200
--------------
GENTNER COMMUNICATIONS CORPORATION
(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
[X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Class of Common Stock February 1, 2002
$0.001 par value 10,156,255 shares
CLEARONE COMMUNICATIONS, INC.
INDEX
Page
Number
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets
December 31, 2001 (unaudited) and June 30, 2001......... 3
Consolidated Statements of Income
Three Months Ended December 31, 2001 and
2000 (unaudited)........................................ 4
Consolidated Statements of Income
Six Months Ended December 31, 2001 and
2000 (unaudited)........................................ 5
Consolidated Statements of Cash Flows
Six Months Ended December 31, 2001 and
2000 (unaudited)........................................ 6
Notes to Consolidated Financial Statements............... 7
Item 2. Management's Discussion and Analysis of Plan
of Operation.............................................14
Item 3. Qualitative and Quantitative Disclosure about
Market Risk..............................................22
PART II - OTHER INFORMATION
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS................24
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......24
Item 6. Exhibits and Reports on Form 8-K.........................24
2
PART I - FINANCIAL INFORMATION
Item 1. CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
CLEARONE COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
December 31, June 30,
2001 2001
---- ----
ASSETS
Current assets:
Cash and cash equivalents ........................... $26,801,367 $ 6,852,243
Accounts receivable, net ............................ 8,349,028 7,212,970
Note receivable - current portion ................... 257,964 71,423
Inventory ........................................... 4,894,930 4,132,034
Deferred tax assets ................................. 247,402 247,402
Prepaid expenses .................................... 805,055 779,648
----------- -----------
Total current assets ............................ 41,355,746 19,295,720
Property and equipment, net ............................. 3,855,540 3,696,615
Goodwill, net ........................................... 2,809,687 2,633,732
Note receivable - long term portion ..................... 1,605,954 1,716,477
Other intangible assets, net ............................ 7,840,646 181,722
Deposits and other assets ............................... 73,301 73,357
----------- -----------
Total assets .................................... $57,540,874 $27,597,623
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable .................................... $ 1,585,340 $ 568,782
Accrued compensation and other benefits ............. 424,706 410,416
Income tax payable .................................. 253,219 421,749
Other accrued expenses .............................. 739,609 719,112
Current portion of capital lease obligations ........ 101,506 181,827
----------- -----------
Total current liabilities ....................... 3,104,380 2,301,886
Capital lease obligations ............................... 17,110 48,227
Deferred consideration - Ivron .......................... 2,129,648 --
Deferred tax liability .................................. 746,000 746,000
----------- -----------
Total liabilities ............................... 5,997,138 3,096,113
Shareholders' equity:
Common stock, 50,000,000 shares authorized, par value
$.001, 10,156,255 and 8,617,978 shares issued and
outstanding at December 31, 2001 and June 30, 2001,
respectively ...................................... 10,156 8,618
Additional paid-in capital .......................... 33,099,800 8,962,699
Retained earnings ................................... 18,433,780 15,530,193
----------- -----------
Total shareholders' equity ...................... 51,543,736 24,501,510
----------- -----------
Total liabilities and shareholders' equity ...... $57,540,874 $27,597,623
=========== ===========
See accompanying notes
3
CLEARONE COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
December 31,
------------------------------------------------
2001 2000
---- ----
Product sales ................................................ $ 8,673,719 68.9% $ 6,880,993 71.1%
1-800 LETS MEET(R)sales ...................................... 3,908,579 31.1% 2,799,390 28.9%
------------ ----- ------------ -----
Total net sales .......................................... 12,582,298 100.0% 9,680,383 00.0%
Cost of goods sold - products ................................ 3,260,119 37.6% 2,594,050 37.7%
Cost of goods sold - 1-800 LETS MEET(R) ...................... 1,796,998 46.0% 1,377,108 49.2%
------------ ----- ------------ -----
Total cost of goods sold ................................. 5,057,117 40.2% 3,971,158 41.0%
------------ ----- ------------ -----
Gross profit ................................................. 7,525,181 59.8% 5,709,225 59.0%
Operating expenses:
Marketing and selling .................................... 2,762,726 21.9% 1,911,485 19.8%
General and administrative ............................... 1,279,119 10.2% 1,405,979 14.5%
Product development ...................................... 1,169,573 9.3% 555,600 5.7%
------------ ----- ------------ -----
Total operating expenses ............................. 5,211,418 41.4% 3,873,064 40.0%
------------ ----- ------------ -----
Operating income ..................................... 2,313,763 18.4% 1,836,161 19.0%
Other income (expense):
Interest income .......................................... 70,295 0.6% 104,340 1.1%
Interest expense ......................................... (4,581) 0.0% (10,761) (0.1)%
Other, net ............................................... 12,649 0.1% 14,598 0.1%
(Loss) gain on foreign currency transactions ............. (12,730) (0.1)% 10,550 0.1%
------------ ----- ------------ -----
Total other income (expense) ......................... 65,633 0.5% 118,727 1.2%
------------ ----- ------------ -----
Income from continuing operations before income taxes ........ 2,379,396 18.9% 1,954,888 20.2%
Provision for income taxes ................................... 887,515 7.1% 752,477 7.8%
------------ ----- ------------ -----
Income from continuing operations ........................ 1,491,881 11.8% 1,202,411 12.4%
Discontinued operations:
Income from discontinued operations, net of applicable taxes
of $200,748 in 2000 ...................................... -- 337,451
------------ ------------
Net income ........................................... $ 1,491,881 $ 1,539,862
============ ============
Basic earnings per common share from continuing operations ... $ 0.17 $ 0.14
Diluted earnings per common share from continuing operations . $ 0.16 $ 0.13
Basic earnings per common share from discontinued operations . $ 0.00 $ 0.04
Diluted earnings per common share from discontinued operations $ 0.00 $ 0.04
Basic earnings per common share .............................. $ 0.17 $ 0.18
Diluted earnings per common share ............................ $ 0.16 $ 0.17
See accompanying notes
4
CLEARONE COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Six Months Ended
December 31,
-------------------------------------------------
2001 2000
---- ----
Product sales ................................................ $ 16,165,036 67.9% $ 14,058,716 73.9%
1-800 LETS MEET(R)sales ...................................... 7,637,645 32.1% 4,954,663 26.1%
------------ ----- ------------ -----
Total net sales .......................................... 23,802,681 100.0% 19,013,379 100.0%
Cost of goods sold - products ................................ 6,086,352 37.7% 5,230,194 37.2%
Cost of goods sold - 1-800 LETS MEET(R) ...................... 3,552,742 46.5% 2,506,517 50.6%
------------ ----- ------------ -----
Total cost of goods sold ................................. 9,639,094 40.5% 7,736,711 40.7%
------------ ----- ------------ -----
Gross profit ................................................. 14,163,587 59.5% 11,276,668 59.3%
Operating expenses:
Marketing and selling .................................... 5,232,153 22.0% 3,823,572 20.1%
General and administrative ............................... 2,558,786 10.7% 2,497,052 13.1%
Product development ...................................... 1,921,523 8.1% 1,040,495 5.5%
------------ ----- ------------ -----
Total operating expenses ............................. 9,712,462 40.8% 7,361,119 38.7%
------------ ----- ------------ -----
Operating income ..................................... 4,451,125 18.7% 3,915,549 20.6%
Other income (expense):
Interest income .......................................... 178,383 0.7% 178,232 0.9%
Interest expense ......................................... (9,615) 0.0% (23,435) (0.1)%
Other, net ............................................... 42,636 0.2% 17,459 0.1%
(Loss) gain on foreign currency transactions ............. (846) 0.0% 10,550 0.1%
------------ ----- ------------ -----
Total other income (expense) ......................... 210,558 0.9% 182,806 1.0%
------------ ----- ------------ -----
Income from continuing operations before income taxes ........ 4,661,683 19.6% 4,098,355 21.6%
Provision for income taxes ................................... 1,758,096 7.4% 1,551,990 8.2%
------------ ----- ------------ -----
Income from continuing operations ........................ 2,903,587 12.2% 2,546,365 13.4%
Discontinued operations:
Income from discontinued operations, net of applicable taxes
of $311,235 in 2000 ...................................... -- 523,175
------------ ------------
Net income ........................................... $ 2,903,587 $ 3,069,540
============ ============
Basic earnings per common share from continuing operations ... $ 0.33 $ 0.30
Diluted earnings per common share from continuing operations . $ 0.31 $ 0.28
Basic earnings per common share from discontinued operations . $ 0.00 $ 0.06
Diluted earnings per common share from discontinued operations $ 0.00 $ 0.06
Basic earnings per common share .............................. $ 0.33 $ 0.36
Diluted earnings per common share ............................ $ 0.31 $ 0.34
See accompanying notes
5
CLEARONE COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
December 31,
------------------------
2001 2000
---- ----
Cash flows from operating activities:
Net income from continuing operations......................... $ 2,903,587 $ 2,546,365
Adjustments to reconcile net income from continuing operations
to net cash provided by continuing operating activities:
Depreciation and amortization of property and equipment.... 607,709 495,790
Amortization of goodwill and other intangible assets....... 439,121 134,062
Provision for bad debts.................................... 3,629 460,724
Changes in operating assets and liabilities:
Accounts receivable..................................... (1,121,730) (1,430,755)
Inventory............................................... (154,896) (1,243,654)
Income taxes............................................ (168,530) 1,343,225
Other current assets.................................... 12,768 (606,545)
Accounts payable and other accrued expenses............. 617,688 254,255
----------- -----------
Net cash provided by continuing operating activities.. 3,139,346 1,953,467
Cash flows from investing activities:
Purchases of property and equipment........................... (744,905) (473,586)
Purchase of business.......................................... (6,464,869) (1,758,085)
----------- -----------
Net cash used in investing activities................. (7,209,774) (2,231,671)
Cash flows from financing activities:
Proceeds from issuance of common stock........................ 23,853,585 10,718
Exercise of employee stock options............................ 338,018 181,967
Repurchase of common stock.................................... (52,964) --
Principal payments on capital lease obligations............... (119,087) (127,863)
----------- -----------
Net cash provided by financing activities............. 24,019,552 64,822
----------- -----------
Net increase (decrease) in cash from continuing operations....... 19,949,124 (213,382)
Net cash flow from discontinued operations....................... -- 565,975
Cash at the beginning of the year................................ 6,852,243 5,374,996
----------- -----------
Cash at the end of the period.................................... $26,801,367 $ 5,727,589
=========== ===========
Supplemental disclosure of cash flow information:
Income taxes paid............................................. $(1,915,000) $(1,280,000)
Interest paid................................................. $ (9,615) $ (23,435)
Consideration paid in stock for purchase of business.......... $ -- $ 2,000,013
See accompanying notes
6
CLEARONE COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001
(Unaudited)
1. Basis of Presentation
Effective January 1, 2002, Gentner Communications Corp. changed its name to
ClearOne Communications Inc. ClearOne will continue to trade under the symbol
GTNR until March 15, 2002. This is intended to help familiarize the financial
community with the new name, after which ClearOne will trade under the symbol
CLRO.
The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
for interim financial information, the instructions to Form 10-Q and Regulation
S-X. Accordingly, certain information and footnote disclosures normally included
in complete financial statements have been condensed or omitted. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements and footnotes thereto included in the
Company's 2001 Annual Report on Form 10-K.
In the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
The results of operations for interim periods are not necessarily indicative of
the results of operations to be expected for the full year.
In July 2001, the FASB issued SFAS No. 141, "Business Combinations." SFAS 141
establishes new standards for accounting and reporting requirements for business
combinations and supersedes APB Opinion No. 16, "Business Combinations" and SFAS
No. 38, "Accounting for Preacquisition Contingencies of Purchased Enterprises."
SFAS No. 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. Use of the
pooling-of-interest method is now prohibited. The statement applies to any
business combinations accounted for using the purchase method for which the date
of acquisition is July 1, 2001 or later, modifies the criteria for recognizing
intangible assets and expands disclosure requirements. The Company has adopted
this statement in accounting for the acquisition of Ivron Systems, Ltd. as of
October 3, 2001.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets" which addresses financial accounting and reporting for acquired goodwill
and other intangible assets and supersedes APB Opinion No. 17, "Intangible
Assets." SFAS No. 142 eliminates amortization of goodwill and intangible assets
with indefinite lives and instead sets forth methods to periodically evaluate
goodwill for impairment. SFAS No. 142 provides guidance for testing goodwill and
intangible assets that will not be amortized for impairment. The amortization
provisions of Statement 142 apply to goodwill and intangible assets acquired
after June 30, 2001. With respect to goodwill and intangible assets acquired
prior to July 1, 2001, companies are required to adopt Statement 142 in their
fiscal year beginning after December 15, 2001 (i.e., January 1, 2002 for
calendar year companies). Early adoption is permitted for companies with fiscal
years beginning after March 15, 2001 provided that their first quarter financial
statements have not been issued. The Company plans to adopt this statement on
July 1, 2002 and, as such, the Company is continuing to evaluate the impact of
this statement on its financial statements. Unamortized goodwill was
approximately $2,810,000 as of December 31, 2001. Amortization of goodwill was
approximately $67,600 and $135,200 for the three and six months ended December
31, 2001.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." This Statement addresses financial accounting
and reporting for the impairment or disposal of long-lived assets. This
Statement supersedes FASB Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and the
accounting and reporting provisions of APB Opinion No. 30, "Reporting the
Results of Operations and Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual, and Infrequently Occurring Events and
Transactions," for the disposal of a segment of a business (as previously
defined in that opinion). This Statement also amends ARB No. 51, "Consolidated
Financial Statements," to eliminate the consolidation for a subsidiary for which
control is likely to be temporary. The Company is required to adopt SFAS No. 144
effective July 1, 2002. The Company is currently evaluating the impact of this
statement on its financial statements.
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
2. Earnings Per Common Share
The following table sets forth the computation of basic and diluted net income per share:
Three months ended
December 31,
-----------------------------
2001 2000
---- ----
Numerator:
Income from continuing operations ........................................... $ 1,491,881 $ 1,202,411
Income from discontinued operations ......................................... -- 337,451
------------- -------------
Net income .................................................................. $ 1,491,881 $ 1,539,862
============= =============
Denominator:
Denominator for basic net income per share - weighted average shares ........ 8,985,255 8,579,626
Dilutive common stock equivalents using treasury stock method ............... 603,305 447,470
------------- -------------
Denominator for diluted net income per share - weighted average shares ...... 9,588,560 9,027,096
============= =============
Basic net income per share:
Continuing operations ....................................................... $ 0.17 $ 0.14
Discontinued operations ..................................................... 0.00 0.04
------------- -------------
Basic net income per share ...................................................... $ 0.17 $ 0.18
============= =============
Diluted net income per share:
Continuing operations ....................................................... $ 0.16 $ 0.13
Discontinued operations ..................................................... 0.00 0.04
------------- -------------
Diluted net income per share .................................................... $ 0.16 $ 0.17
============= =============
Six months ended
December 31,
-----------------------------
2001 2000
---- ----
Numerator:
Income from continuing operations ........................................... $ 2,903,587 $ 2,546,365
Income from discontinued operations ......................................... -- 523,175
------------- -------------
Net income .................................................................. $ 2,903,587 $ 3,069,540
============= =============
Denominator:
Denominator for basic net income per share - weighted average shares ........ 8,800,239 8,567,730
Dilutive common stock equivalents using treasury stock method ............... 568,266 461,887
------------- -------------
Denominator for diluted net income per share - weighted average shares ...... 9,368,505 9,029,617
============= =============
Basic net income per share:
Continuing operations ....................................................... $ 0.33 $ 0.30
Discontinued operations ..................................................... 0.00 0.06
------------- -------------
Basic net income per share ...................................................... $ 0.33 $ 0.36
============= =============
Diluted net income per share:
Continuing operations ....................................................... $ 0.31 $ 0.28
Discontinued operations ..................................................... 0.00 0.06
------------- -------------
Diluted net income per share .................................................... $ 0.31 $ 0.34
============= =============
3. Comprehensive Income
Comprehensive income for the three-month and six-month periods ended December
31, 2001 and 2000 was equal to net income.
4. Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts in the financial statements and these accompanying
notes. Actual results could differ from those estimates.
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
5. Inventory
Inventory is summarized as follows:
(Unaudited)
December 31, June 30,
2001 2001
---- ----
Raw Materials $ 2,842,694 $ 2,500,098
Work in progress 17,808 195,149
Finished Goods 2,034,428 1,436,787
----------- -----------
Total inventory $ 4,894,930 $ 4,132,034
========== ==========
Total inventory is net of a reserve for obsolete and slow-moving inventory of
$337,000 at December 31, 2001 and $226,000 at June 30, 2001.
6. Stock Options
The following table shows the changes in stock options outstanding.
Weighted
Number Average
of Shares Exercise Price
--------- --------------
Options outstanding as of June 30, 2001............ 1,750,798 $ 8.37
Options granted.................................... 250,000 $ 11.47
Options exercised.................................. (18,000) $ 11.15
Options expired & canceled......................... (25,000) $ 14.00
--------- -------
Options outstanding as of September 30, 2001....... 1,957,798 $ 8.67
Options granted.................................... 52,000 $ 28.20
Options exercised.................................. (25,069) $ 7.56
Options expired & canceled......................... (223,750) $ 14.18
--------- -------
Options outstanding as of December 31, 2001........ 1,760,979 $ 8.43
========= =======
7. Segment Reporting
As a result of the Company's April 2001 sale of its remote control product line,
the Company has changed how it evaluates its operations internally, resulting in
a change in its reported segments from those reported in its Forms 10-Q for
fiscal 2001. Subsequent to the disposal, the Company operates in two distinct
segments - Products and 1-800 LETS MEET(R). The Products segment includes
products for conferencing; sound reinforcement; broadcast telephone interface;
assistive listening applications; and, technical services related to the
Company's products. The 1-800 LETS MEET(R) segment includes operator-assisted
conferencing; on-demand, reservationless conference calling; Webconferencing;
and, audio and video streaming. Information for the prior years has been
reclassified to conform to this new method of evaluating segments and to show
continuing and discontinued operations.
The accounting policies of the reportable segments are the same as those
described in the summary of significant accounting policies included in the
Company's 2001 Annual Report on Form 10-K.
The Company's reportable segments are strategic business units that offer
products and services to satisfy different customer needs. They are managed
separately because each segment requires focus and attention on its distinct
market and distribution channels.
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
The following table summarizes the segment information:
1-800 LETS Company
Products MEET(R) Totals
-------- ------- ------
Quarter Ended December 31, 2001:
- -------------------------------
Net sales $ 8,673,719 $ 3,908,579 $12,582,298
Cost of goods sold 3,260,119 1,796,998 5,057,117
----------- ----------- -----------
Gross profit 5,413,600 2,111,581 7,525,181
Marketing and selling 1,991,235 771,491 2,762,726
General and administrative 756,443 522,676 1,279,119
Product development 1,169,573 -- 1,169,573
----------- ----------- -----------
Total operating expenses 3,917,251 1,294,167 5,211,418
Operating income 1,496,349 817,414 2,313,763
Other income 65,633
-----------
Income from continuing operations
before income taxes 2,379,396
Provision for income taxes (887,515)
-----------
Net income from continuing operations $ 1,491,881
===========
Quarter Ended December 31, 2000:
- -------------------------------
Net sales $ 6,880,993 $ 2,799,390 $ 9,680,383
Cost of goods sold 2,594,050 1,377,108 3,971,158
----------- ----------- -----------
Gross profit 4,286,943 1,422,282 5,709,225
Marketing and selling 1,323,725 587,760 1,911,485
General and administrative 1,137,143 268,836 1,405,979
Product development 555,600 -- 555,600
----------- ----------- -----------
Total operating expenses 3,016,468 856,596 3,873,064
Operating income 1,270,475 565,686 1,836,161
Other income 118,727
-----------
Income from continuing operations
before income taxes 1,954,888
Provision for income taxes (752,477)
-----------
Income from continuing operations 1,202,411
Income from discontinued operations,
net of applicable taxes of $200,748 337,451
-----------
Net income $ 1,539,862
===========
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
1-800 LETS Company
Products MEET(R) Totals
-------- ------- ------
Year-to-Date At December 31, 2001:
Net sales $ 16,165,036 $ 7,637,645 $23,802,681
Cost of goods sold 6,086,352 3,552,742 9,639,094
----------- ----------- -----------
Gross profit 10,078,684 4,084,903 14,163,587
Marketing and selling 3,653,800 1,578,353 5,232,153
General and administrative 1,481,098 1,077,688 2,558,786
Product development 1,921,523 -- 1,921,523
----------- ----------- -----------
Total operating expenses 7,056,421 2,656,041 9,712,462
Operating income 3,022,263 1,428,862 4,451,125
Other income 210,558
-----------
Income from continuing operations
before income taxes 4,661,683
Provision for income taxes (1,758,096)
-----------
Net income from continuing operations $ 2,903,587
===========
Year-to-Date At December 31, 2000:
Net sales $ 14,058,716 $ 4,954,663 $19,013,379
Cost of goods sold 5,230,194 2,506,517 7,736,711
----------- ----------- -----------
Gross profit 8,828,522 2,448,146 11,276,668
Marketing and selling 2,581,021 1,242,551 3,823,572
General and administrative 1,848,283 648,769 2,497,052
Product development 1,040,495 -- 1,040,495
----------- ----------- -----------
Total operating expenses 5,469,799 1,891,320 7,361,119
Operating income 3,358,723 556,826 3,915,549
Other income 182,806
-----------
Income from continuing operations
before income taxes 4,098,355
Provision for income taxes (1,551,990)
-----------
Income from continuing operations 2,546,365
Income from discontinued operations,
net of applicable taxes of $311,235 523,175
-----------
Net income $ 3,069,540
===========
8. Purchase of Ivron Systems, Ltd.
On October 3, 2001, the Company through its wholly owned subsidiary, Gentner
Ventures, Inc., purchased all of the issued and outstanding shares of Ivron
Systems, Ltd., of Dublin, Ireland ("Ivron"). Ivron was a privately-held
developer of video conferencing technology and equipment. The Company
anticipates that this acquisition will help position the Company to develop
competitive video products, enhance audio sales, and successfully enter the
video conferencing market. Following the closing, Michael Peirce, the former
chairman of Ivron, was appointed to ClearOne's board of directors. In addition,
a majority of the Ivron employees remained with the Company.
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
At the closing, each of the six Ivron shareholders received approximately
US$1.12 per Ivron common share. There were 5,366,637 Ivron common shares
outstanding at the time. After June 30, 2002, each former Ivron shareholder will
also receive approximately .08 shares of the Company's common stock for each
Ivron share previously held, provided that certain video product development
contingencies are met. The Company expects that these contingencies could be met
early in fiscal year 2003. Thereafter, for the Company's completed fiscal years
2003 and 2004, the former Ivron shareholders may share in up to US$17,000,000 of
additional cash consideration provided that the Company achieves certain EPS
targets. To the extent that these video product development contingencies and
EPS targets are met, any amounts paid would be treated as additional purchase
consideration in accordance with SFAS No. 141, APB No. 16, "Business
Combinations," and EITF Issue No. 95-8, "Accounting for Contingent Consideration
Paid to the Shareholders of an Acquired Enterprise in a Purchase Business
Combination."
As part of the transaction, all outstanding options to purchase Ivron shares
were cancelled in consideration for an aggregate cash payment of US$650,000 to
the optionees. In addition, the former Ivron optionees who remain with the
Company are eligible to participate in a cash bonus program that will pay
bonuses based on the performance of the Company in fiscal years 2003 and 2004.
The maximum amount payable under this bonus program is an aggregate of
US$1,000,000.
The total value of the consideration paid, $6,650,000 in cash through December
31, 2001, was determined based on arm's length negotiations between the Company
and the Ivron shareholders, that took into account a number of factors of the
business including historic revenues, operating history, products, intellectual
property and other factors. The Company also incurred approximately $274,000 of
direct acquisition costs.
As of the acquisition date, the Company acquired tangible assets consisting
primarily of accounts receivable, inventory, and property and equipment of
approximately $762,000. The Company assumed liabilities consisting primarily of
trade accounts payable, accrued compensation and other accrued liabilities of
approximately $437,000. The Company also acquired cash of approximately
$459,000. Based upon a preliminary evaluation performed by an independent
valuation specialist, the Company acquired intangible assets, primarily
developed technology, of approximately $8,000,000. As such, the fair value of
the net assets acquired by the Company totaled approximately $8,780,000. This is
compared to the cash consideration paid through December 31, 2001 to acquire
Ivron of $6,650,000. Because the fair value of the acquired assets exceeds the
cash consideration paid, and because additional purchase price consideration may
be issued upon resolution of certain contingencies, pursuant to SFAS No. 141,
the Company has recorded a liability representing deferred consideration of
approximately $2,130,000 as of December 31, 2001.
The Company has recorded intangible assets of $8,000,000 related to acquired
core technology and goodwill of $274,000 related to its direct acquisition
costs. These allocations are subject to change based upon the final evaluation
by the independent valuation specialist and resolution of the purchase price
contingencies. Based upon the preliminary evaluation of the independent
valuation specialist, the useful lives of the technology are 3 years for
$300,000 and 7 years for $7,700,000. As such, amortization of $300,000 has been
recorded for the three months ended December 31, 2001. In accordance with SFAS
No. 142, no amortization has been recorded for goodwill. Management and the
independent valuation specialist continue to evaluate the useful lives of the
components of the technology based upon the Company's assessment of the period
of time over which the technology is expected to contribute to the cash flows of
the Company. As such, the preliminary useful lives used to calculate
amortization for the three months ended December 31, 2001 are subject to change,
but represent management's best estimate of the useful lives as of December 31,
2001.
The operations of Ivron are included in the statement of income for the period
from October 3, 2001 to December 31, 2001. The following pro forma combined
financial information reflects operations as if the acquisition of Ivron had
occurred as of July 1, 2000. The pro forma combined financial information is
presented for illustrative purposes only, does not purport to be indicative of
the Company's results of operations as of the date hereof, and is not indicative
necessarily of what the Company's actual results of operations would have been
had the acquisition been consummated on such date.
Three months ended
December 31,
------------
2001 2000
---- ----
Net revenue from continuing operations.................................. $ 12,582,299 $ 9,942,383
============ ============
Net income from continuing operations................................... $ 1,491,881 $ 222,435
============ ============
Net income per share - basic from continuing operations................. $ 0.17 $ 0.03
Net income per share - dilutive from continuing operations.............. $ 0.16 $ 0.02
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (continued)
Six months ended
December 31,
------------
2001 2000
---- ----
Net revenue from continuing operations.................................. $ 23,849,245 $ 19,515,379
============ ============
Net income from continuing operations................................... $ 1,202,720 $ 726,613
============ ============
Net income per share - basic from continuing operations................. $ 0.14 $ 0.08
Net income per share - dilutive from continuing operations.............. $ 0.13 $ 0.08
9. Stock Repurchase Program
During April 2001, the Company announced that its board of directors had
approved a stock repurchase program to purchase up to 500,000 shares of the
Company's common stock over the next six months on the open market or in private
transactions. During the fourth quarter of fiscal year 2001, the Company
repurchased 15,300 shares on the open market. During the first quarter of fiscal
year 2002, the Company repurchased 5,000 shares on the open market. During the
second quarter of fiscal year 2002, the Company did not repurchase any shares on
the open market. All repurchased shares were retired. The stock repurchase
program expired in October 2001.
10. Private Placement
On December 11, 2001, the Company closed a private placement of 1,500,000 shares
of common stock. Gross proceeds from the private placement were $25,500,000,
before costs and expenses associated with this transaction which totaled
approximately $1,650,000.
11. Subsequent Event - Definitive Merger Agreement to Acquire E.mergent
On January 21, 2002, the Company signed a definitive merger agreement to acquire
E.mergent, Inc. (Nasdaq: EMRT), a provider of video conferencing products and
related services. Under the terms of the agreement, E.mergent will merge into a
subsidiary of the Company. The Company will pay $7.3 million in cash and will
issue, or reserve for issuance upon the exercise of assumed stock options,
873,000 shares of the Company's common stock in exchange for all of E.mergent's
fully diluted equity, including all outstanding E.mergent stock options to be
assumed by the Company in connection with the merger. The actual amount of cash
and the Company's shares exchanged for each outstanding E.mergent share will
depend on the number of E.mergent shares outstanding at the time of the merger.
The transaction will be accounted for as a purchase. Completion is subject to
approval by E.mergent's stockholders and other closing conditions. Further
information about the proposed merger is available in the Company's Form 8-K and
registration statement on Form S-4, both filed with the Securities and Exchange
Commission on February 6, 2002. The registration statement, which is intended to
register the ClearOne common stock shares to be issued in the merger, is
currently under review by the Securities and Exchange Commission. The Company
presently anticipates that, if all conditions to completion of the merger are
met, the merger may be completed some time in the fourth quarter of fiscal 2002.
The Company also issued warrants to purchase 150,000 shares of its common stock
to its financial advisor. Such warrants were valued at approximately $1,556,000
using the Black Scholes method.
13
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION
General
Effective January 1, 2002, we changed our name to ClearOne Communications Inc.
We will continue to trade under the symbol GTNR until March 15, 2002. This is
intended to help familiarize the financial community with our new name, after
which we will trade under the symbol CLRO.
We develop, manufacture, market and distribute products and services for the
conferencing equipment, conferencing services, and broadcast markets. In the
fourth quarter of fiscal year 2001, we changed our reportable operating segments
to reflect how we evaluate our operating performance and allocate resources.
Prior to the fourth quarter of fiscal year 2001, our reportable segments
included RFM/Broadcast, Conferencing Products, Conferencing Services and Other.
On April 12, 2001, we sold the assets of the remote control portion of the
RFM/Broadcast division. Subsequent to this disposal, we report two segments -
Products and 1-800 LETS MEET(R). In the Products segment, we have applied our
core digital technology to the development of products for conferencing, sound
reinforcement, assistive listening and broadcast applications. During fiscal
2001, we introduced the PSR1212, the XAP(TM) 800, the ClearOne(R) conference
phone, and the VRC2500. As a result of our acquisition of Ivron Systems, Ltd.
("Ivron") on October 2001, we introduced the VuLink during the second quarter of
fiscal 2002. These new products contributed to a 26.1% increase in product-based
revenues in the second quarter of 2002 compared to the second quarter of fiscal
2001 and a 15.0% increase for the six-month period ended December 31, 2001
compared to the six-month period ended December 31, 2000. In the 1-800 LETS
MEET(R) segment, we provide operator-assisted conferencing; on-demand,
reservationless conference calling; Webconferencing; and audio and video
streaming. We focus on increasing sales in this segment by adding to our direct
sales force, and by engaging new resellers and new private label accounts. These
efforts contributed to a 39.6% increase in service-based revenues in the second
quarter of fiscal 2002 compared to the second quarter of fiscal 2001 and a 54.2%
increase for the six-month period ended December 31, 2001 compared to the
six-month period ended December 31, 2000. The 1-800 LETS MEET(R) segment
includes revenues and expenses from the conferencing service bureau called 1-800
LETS MEET(R) as well as other private label business conducted by us.
Purchase of Ivron Systems, Ltd.
As we previously announced, on October 3, 2001, we purchased all of the issued
and outstanding shares of Ivron. Ivron was, at the time of the purchase, a
privately-held developer of video conferencing technology and equipment with
executive offices in Dublin, Ireland. As a result of the acquisition, we
acquired a product already being sold by Ivron, the VuLink video conferencing
product. We currently plan to operate Ivron as an indirect wholly-owned
subsidiary and continue its focus on developing new video conferencing products.
We anticipate that this acquisition will help position us to develop competitive
video products, enhance audio sales, and successfully enter the video
conferencing market. Following the closing, Michael Peirce, the former chairman
of Ivron, was appointed to our board of directors. In addition, a majority of
the Ivron employees remained with us.
The total value of the consideration paid in the acquisition through December
31, 2001, is $6,650,000 in Cash. After June 30, 2002, each former Ivron
shareholder will also receive approximately .08 shares of our common stock for
each Ivron share previously held, provided that certain video product
development contingencies are met. We expect that these contingencies could be
met early in fiscal year 2003. Thereafter, for our completed fiscal years 2003
and 2004, the former Ivron shareholders may share in up to US$17,000,000 of
additional cash consideration provided that we achieve certain EPS targets. To
the extent that these video product development contingencies and EPS targets
are met, any amounts paid would be treated as additional purchase consideration
in accordance with SFAS No. 141, APB No. 16, "Business Combinations," and EITF
Issue No. 95-8, "Accounting for Contingent Consideration Paid to the
Shareholders of an Acquired Enterprise in a Purchase Business Combination." We
also incurred approximately $274,000 of direct acquisition costs.
As of the acquisition date, we acquired tangible assets consisting primarily of
accounts receivable, inventory, and property and equipment of approximately
$762,000. We assumed liabilities consisting primarily of trade accounts payable,
accrued compensation and other accrued liabilities of approximately $437,000. We
also acquired cash of approximately $459,000. Based upon a preliminary
evaluation performed by an independent valuation specialist, we acquired
intangible assets, primarily developed technology, of approximately $8,000,000.
As such, the fair value of the net assets acquired by us totaled approximately
$8,780,000. This is compared to the cash consideration paid through December 31,
2001 to acquire Ivron of $6,650,000. Because the fair value of the acquired
assets exceeds the cash consideration paid, and because additional purchase
price consideration may be issued upon resolution of certain contingencies,
pursuant to SFAS No. 141, we have recorded a liability representing deferred
consideration of approximately $2,130,000 as of December 31, 2001.
We have recorded intangible assets of $8,000,000 related to acquired core
technology and goodwill of $274,000 related to its direct acquisition costs.
These allocations are subject to change based upon the final evaluation by the
independent valuation specialist and resolution of the purchase price
contingencies. Based upon the preliminary evaluation of the independent
14
valuation specialist, the useful lives of the technology are 3 years for
$300,000 and 7 years for $7,700,000. As such, amortization of $300,000 has been
recorded for the three months ended December 31, 2001. In accordance with SFAS
No. 142, no amortization has been recorded for goodwill. Management and the
independent valuation specialist continue to evaluate the useful lives of the
components of the technology based upon our assessment of the period of time
over which the technology is expected to contribute to our cash flows. As such,
the preliminary useful lives used to calculate amortization for the three months
ended December 31, 2001 are subject to change, but represent our best estimate
of the useful lives as of December 31, 2001.
Private Placement
On December 11, 2001, we closed a private placement of 1,500,000 shares of
common stock. Gross proceeds from the private placement were $25,500,000, before
costs and expenses associated with this transaction which totaled approximately
$1,650,000. We also filed a Form S-3 registration statement with the Securities
and Exchange Commission to allow the public resale of such shares. We plan to
use the proceeds from the private placement for general corporate purposes, the
funding of the proposed merger with E.mergent, Inc. described below, and the
funding of other future acquisitions in furtherance of our strategy of
considering suitable acquisitions to grow and diversify our business. The
Company also issued warrants to purchase 150,000 shares of its common stock to
its financial advisor. Such warrants were valued at approximately $1,556,000
using the Black Scholes method. See "Subsequent Event - Definitive Merger
Agreement to Acquire E.mergent".
Discontinued Operations
On April 12, 2001, we sold the assets of the remote control portion of the
RFM/Broadcast division to Burk Technology, Inc. of Littleton, MA ("Burk") for
$3.2 million, including $750,000 in cash at closing, and $1.75 million in the
form of a seven (7) year promissory note, with interest at the rate of nine
percent (9%), secured by a subordinate security interest in the personal
property of Burk. The gain associated with the note receivable is recognizable
for book purposes but not for tax purposes until cash is received. As such, we
have established a deferred tax liability for $511,000 in connection with this
deferred gain. In addition, up to $700,000 more is payable by Burk as a
commission over a period of up to seven years. The commission is based upon
future net sales of Burk over base sales established within the agreement. This
amount will be recognized as received. We realized a gain on the sale of
$1,220,024, net of applicable income taxes of $725,788.
Summary operating results of the discontinued operations are as follows:
Quarter Ended December 31,
--------------------------
2001 2000
---- ----
Net sales............................................ $ - $ 931,365
Cost of goods sold................................... - 281,238
Marketing and selling................................ - 76,022
Product development.................................. - 35,906
---------- ----------
Income from discontinued operations before income taxes - 538,199
Provision for income taxes........................... - (200,748)
---------- ----------
Income from discontinued operations.................. $ - $ 337,451
========== ==========
Basic earnings per share from discontinued operations $ 0.00 $ 0.04
Diluted earnings per share from discontinued operations $ 0.00 $ 0.04
Year-to-Date Ended December 31,
-------------------------------
2001 2000
---- ----
Net sales............................................ $ - $1,627,827
Cost of goods sold................................... - 542,509
Marketing and selling................................ - 171,759
Product development.................................. - 79,149
---------- ----------
Income from discontinued operations before income taxes - 834,410
Provision for income taxes........................... - (311,235)
---------- ----------
Income from discontinued operations.................. $ - $ 523,175
========== ==========
Basic earnings per share from discontinued operations $ 0.00 $ 0.06
Diluted earnings per share from discontinued operations $ 0.00 $ 0.06
15
Consolidated Results of Continuing Operations
Sales from continuing operations in the second quarter of fiscal 2002 increased
30.0% to $12,582,298 from $9,680,383 in the second quarter of fiscal 2001. Sales
from continuing operations for the six-month period ended December 31, 2001
increased 25.2% to $23,802,681 from $19,013,379 for the six-month period ended
December 31, 2000.
Product revenues grew 26.1% in the second quarter of fiscal 2002 to $8,673,719
from $6,880,993 in the second quarter of fiscal 2001. Product revenues increased
15.0% for the first six months of fiscal 2002 to $16,165,036 from $14,058,716
for the first six months of fiscal 2001. This increase was mainly due to
continued success of the Audio Perfect(R) product line, as well as the
introduction of new products, including the PSR1212, the XAP(TM) 800 and the
VuLink. The Audio Perfect(R) product line began shipping in April of 1998 with
the AP800, and also includes the AP10, the AP400, AP Tools, the AP IR Remote,
and the APV200-IP. During the second quarter of fiscal 2001, we began shipping
the PSR1212, a digital matrix mixer for the sound reinforcement marketplace.
During the fourth quarter of fiscal 2001, we introduced our next generation
audio product--the XAP(TM) 800. Sales of these products have continued strongly
into fiscal 2002. Examples of typical applications using our products are
corporate conference rooms, distance learning rooms, and courtrooms. We have
realized more of the revenue associated with such applications as a result of
this expanded product line. Product revenues also include telephone interface
products, which are used to connect telephone line audio to broadcast audio
equipment, and assistive listening products, which provide enhanced audio for
people with hearing difficulties.
The 1-800 LETS MEET(R) segment experienced sales growth of 39.6% in the second
quarter of fiscal 2002 as compared to the second quarter of fiscal 2001.
Revenues were $3,908,579 for the three-month period ended December 31, 2001 as
compared to $2,799,390 for the three-month period ended December 2000. Revenues
increased 54.2% for the first two quarters of fiscal 2002 to $7,637,645 from
$4,954,663 for the first two quarters of fiscal 2001. We attributed the growth
in sales in this segment to an increased customer base due in part to an
increase in sales staff for marketing conference calling services, an increase
in resellers selling our services, and an overall increase in market size during
the past year. Our conference calling services are being marketed not only to
corporate clients but also to telephone service providers for resale.
Our gross profit margin from continuing operations was 59.8% in the second
quarter of fiscal 2002 compared to 59.0% in the second quarter of fiscal 2001.
Our gross profit margin from continuing operations was 59.5% for the six-month
period ended December 31, 2001 compared to 59.3% for the six-month period ended
December 31, 2000. The increase in gross profit margins was driven by an
increase in service segment gross margins. Service segment margins increased as
a result of effective price negotiations for lower network charges.
Our operating expenses increased 34.6% comparing the second quarter of fiscal
2002 to the second quarter of fiscal 2001. Continuing operations expense for the
second quarter of fiscal 2002 were $5,211,418, as compared to $3,873,064 for the
second quarter of fiscal 2001. Continuing operations expense increased 31.9% for
the six-month period ended December 31, 2001 to $9,712,462 from $7,361,119 for
the six-month period ended December 31, 2000.
Marketing and selling expenses for the second quarter of fiscal 2002 were
$2,762,726 as compared to $1,911,485 for the second quarter of fiscal 2001. As a
percentage of revenues, marketing and selling expenses increased to 21.9% for
the second quarter of fiscal 2002, compared to 19.8% for the second quarter of
fiscal 2001. Marketing and selling expenses for the first six months of fiscal
2002 were $5,232,153 as compared to $3,823,572 for the first six months of
fiscal 2001. As a percentage of revenues, marketing and selling expenses
increased to 22.0% for the six-month period ended December 31, 2001, compared to
20.1% for the six-month period ended December 31, 2000. The year-over-year
increase in marketing and selling expenses was primarily due to our commitment
to increase resources for marketing and selling to increase momentum for our new
products.
Product development expenses increased 110.5% when comparing the second quarter
of fiscal 2002 to the second quarter of fiscal 2001. Product development
expenses for the second quarter of fiscal 2002 were $1,169,573, as compared to
$555,600 for the second quarter of fiscal 2001. As a percentage of revenues,
product development expenses increased to 9.3% for the second quarter of fiscal
2002 up from 5.7% for the second quarter of fiscal 2001. Product development
expenses increased 84.7% when comparing the first six months of fiscal 2002 to
the first six months of fiscal 2001. Product development expenses for the
six-month period ended December 31, 2001 were $1,921,523, as compared to
$1,040,495 for the six-month period ended December 31, 2000. As a percentage of
revenues, product development expenses increased to 8.1% for the first two
quarters of fiscal 2002 up from 5.5% for the first two quarters of fiscal 2001.
The increase in product development expenses is due to increased salaries
associated with additional personnel and development costs for new product
development. The increase is also due to the additional engineers acquired in
the Ivron purchase along with amortization expense associated with Ivron
technology.
General and administrative expenses decreased 9.0% for the second quarter of
fiscal 2002 as compared to the second quarter of fiscal 2001. Expenses for the
second quarter of fiscal 2002 were $1,279,119 as compared to $1,405,979 for the
second quarter of fiscal 2001. General and administrative expenses were 10.2% of
16
revenues for the second quarter of fiscal 2002, compared to 14.5% for the second
quarter of fiscal 2001. The decrease primarily is related to lower bad debt
expense. In the second quarter of 2001, a customer filed bankruptcy resulting in
a $398,453 bad debt expense. General and administrative expenses increased 2.5%
for the six-month period ended December 31, 2001 as compared to the six-month
period ended December 31, 2000. Expenses for the first two quarters of fiscal
2002 were $2,558,786 as compared to $2,497,052 for the first two quarters of
fiscal 2001. General and administrative expenses were 10.7% of revenues for the
first two quarters of fiscal 2002, compared to 13.1% for the first two quarters
of fiscal 2001. The increase in dollars was largely attributable to the costs
incurred in hiring additional personnel to support increased sales volume and
the infrastructure costs associated with the hiring of such new personnel.
Interest income decreased 32.6% for the second quarter of fiscal 2002 as
compared to the second quarter of fiscal 2001. This decrease is due to the
decrease in cash and cash equivalents following the purchase of Ivron on October
3, 2001coupled with declining interest rates. Because funds from the private
placement were not received until December 11, 2001, we only realized interest
income on our increased cash balance for the period from December 11, 2001 to
December 31, 2001. Interest income was consistent for the six-month period ended
December 31, 2001, compared to the same period ended December 31, 2000.
Interest expense decreased 57.4% when comparing the second quarter of fiscal
2002 to the second quarter of fiscal 2001, due to the maturing of certain of our
capital leases. Interest expense decreased 59.0% when comparing the six-month
period ended December 31, 2001 to the six-month period ended December 31, 2000.
During the second quarter of fiscal 2002, income tax expense for continuing
operations was calculated at a combined federal and state effective tax rate of
approximately 37.3%, resulting in an income tax expense of $887,515. This
compares to the second quarter of fiscal 2001, where the effective tax rate was
38.5%, and the income tax expense for continuing operations was $752,477. For
the six-month period ended December 31, 2001, income tax expense for continuing
operations was calculated at a combined federal and state effective tax rate of
approximately 37.7%, resulting in an income tax expense of $1,758,096. This
compares to the six-month period ended December 31, 2000, where the effective
tax rate was 37.9%, and the income tax expense for continuing operations was
$1,551,990.
Net income from continuing operations for the second quarter of fiscal 2002 was
$1,491,881, or an increase of 24.1%, compared to net income from continuing
operations of $1,202,411 for the second quarter of fiscal 2001. Net income from
continuing operations for the six-month period ended December 31, 2001 was
$2,903,587, or an increase of 14.0%, compared to net income from continuing
operations of $2,546,365 for the same period ended December 31, 2000. These
results are due to increased revenues offset by increases in expenses as
described above.
Financial Condition and Liquidity
We have cash and cash equivalents of $26.8 million on December 31, 2001, which
represents an increase of $19.9 million compared to cash and cash equivalents of
$6.9 million on and June 30, 2001. Based upon continuing operations, net
operating activities provided cash of $3.1 million in the first six months of
fiscal 2002. Net investing activities used cash of $7.2 million primarily due to
the purchase of Ivron on October 3, 2001. Net financing activities provided cash
of $24.0 million, primarily due to proceeds from a private placement of
1,500,000 shares of common stock that closed December 11, 2001.
We have an available revolving line of credit of $5.0 million, which is secured
by our accounts receivable and inventory. The interest rate on the line of
credit is variable (250 basis points over the London Interbank Offered Rate
(LIBOR) or prime less 0.25 percent, whichever we choose). The borrowing rate was
5.0% on December 31, 2001. There was no outstanding balance on December 31,
2001. The line of credit was renewed as of December 22, 2001 and will expire on
December 22, 2002. Borrowings under the line of credit are subject to certain
financial and operating covenants. We were in compliance with these covenants on
December 31, 2001.
During April 2001, we announced that our board of directors had approved a stock
repurchase program to purchase up to 500,000 shares of our common stock over the
following six months. These purchases are discretionary on the part of
management and are to be made on the open market or in private transactions. In
the second quarter of fiscal 2002, we did not repurchase any shares. Prior to
that time, we had repurchased and retired 20,300 shares. The stock repurchase
program has expired.
We believe that our working capital, bank line of credit and cash flows from
operating activities will be sufficient to meet our operating and capital
expenditure requirements for continuing operations for the next twelve months.
In the longer term, or if we experience a decline in revenue, or in the event of
other unforeseen events, we may require additional funds and may seek to raise
such funds through public or private equity or debt financing, bank lines of
credit, or other sources. No assurance can be given that additional financing
will be available or, if available, will be on terms favorable to us. See
"Factors that May Affect Future Results - Lack of capital may adversely limit
our growth or operations".
17
Subsequent Event - Definitive Merger Agreement to Acquire E.mergent
On January 21, 2002, we signed a definitive merger agreement to acquire
E.mergent, Inc. (Nasdaq: EMRT), a provider of video conferencing products and
related services. Under the terms of the agreement, E.mergent will merge into a
subsidiary of ours. We will pay $7.3 million in cash and will issue, or reserve
for issuance upon the exercise of assumed stock options, 873,000 shares of our
common stock in exchange for all of E.mergent's fully diluted equity, including
all outstanding E.mergent stock options to be assumed by us in connection with
the merger. The actual amount of cash and our shares exchanged for each
outstanding E.mergent share will depend on the number of E.mergent shares
outstanding at the time of the merger. The transaction will be accounted for as
a purchase. Completion is subject to approval by E.mergent's stockholders and
other closing conditions. Further information about the proposed merger is
available in our Form 8-K and registration statement on Form S-4, both filed
with the Securities and Exchange Commission on February 6, 2002. The
registration statement, which is intended to register the ClearOne common stock
shares to be issued in the merger, is currently under review by the Securities
and Exchange Commission in accordance with its standard review and comment
procedures applicable to registration statements. Once the Securities and
Exchange Commission declares the registration statement effective, we and
E.mergent will mail a proxy statement/prospectus to E.mergent's shareholders.
E.mergent will then hold a shareholders meeting for the purpose of voting on the
proposed merger. We presently anticipate that, if all conditions to completion
of the merger are met including approval by the E.mergent shareholders, the
merger may be completed some time in the fourth quarter of fiscal 2002.
Factors that May Affect Future Results
This Quarterly Report on Form 10-Q contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended.
Forward-looking statements relate to our future plans, objectives, expectations,
and intentions. These statements may be recognized by the use of words such as
"believes," "expects," "may," "will," "intends," "plans," "should," "seeks,"
"anticipates," and similar expressions. In particular, statements regarding our
markets and market share, demand for our products and services, FCC actions,
manufacturing capacity and component availability, and the development and
introduction of new products and services are forward-looking statements and
subject to material risks. Actual results could differ materially from those
projected in the forward-looking statements as a result of the factors set forth
below and the matters set forth in the report generally. We caution the reader,
however, that this list of factors may not be exhaustive, particularly with
respect to future factors. Any forward-looking statements are made pursuant to
the Private Securities Litigation Reform Act of 1995 and, as such, speak only as
of the date made. We undertake no responsibility to update publicly any
forward-looking statements for any reason, even if new information becomes
available or other events occur in the future.
We may not be able to keep up with rapid technological change in the audio and
videoconferencing industries, which could make our products obsolete and
adversely affect our operating results.
Our products and services markets are characterized by rapid technological
change. Our future performance will depend in large part upon our ability to
develop and market new products and services in these markets in a timely
fashion that responds to customers' needs and incorporates new technology and
standards.
We may not be able to design and manufacture products that address customer
needs or achieve market acceptance. Any significant failure to design,
manufacture, and successfully introduce new products or services could
materially harm our business. The markets in which we compete have historically
involved the introduction of new and technologically advanced products and
services that cost less or perform better. If we are not competitive in our
research and development efforts, our products may become obsolete or be priced
above competitive levels.
We may face intense competition in the audio and videoconferencing industries,
which could adversely affect our business.
The markets for our products and services are highly competitive. These markets
include our traditional dealer channel, the market for our conferencing
services, and our retail channel. We compete with businesses having
substantially greater financial, research and development, manufacturing,
marketing, and other resources. We expects our competitors to continue to
improve the performance of their current products or services, to reduce their
current products or service sales prices and to introduce new products or
services that may offer greater performance and improved pricing. If we fail to
maintain or enhance our competitive position, we could experience pricing
pressures and reduced sales, margin, profits, and market share, each of which
could materially harm our business.
18
We may not be able to market our products and services effectively, which may
adversely affect our revenues.
We are subject to the risks inherent in the marketing and sale of current and
new products and services in an evolving marketplace. We must effectively
allocate our resources to the marketing and sale of these products through
diverse channels of distribution. If our current marketing strategy is
unsuccessful, or it is unable to timely adapt to the evolving needs of the
market place, our business could suffer.
Difficulties in estimating customer demand in our product segment could harm our
operating results.
Orders from our resellers are based on demand from end-users. Prospective
end-user demand is difficult to measure. This means that any period could be
adversely impacted by low end-user demand, which could in turn negatively affect
orders we receive from resellers. Our expectations for both short- and long-term
future net revenues are based on our own estimates of future demand as well as
backlog based on our blanket purchase order program in which certain dealers
commit to purchase specified quantities of products over a twelve month period.
We also base expense levels on those revenue estimates. If our estimates are not
accurate, our financial performance could be adversely affected.
Our profitability may be adversely affected by our continuing dependence on our
distribution channel.
We market our products primarily through a network of dealers and master
distributors. All of our agreements regarding such dealers and distributors are
non-exclusive and terminable at will by either party and we cannot assure you
that any or all such dealers or distributors will continue to offer our
products.
Price discounts to our distribution channel are based on performance. However,
there are no obligations on the part of such dealers and distributors to provide
any specified level of support to our products or to devote any specified time,
resources or efforts to the marketing of our products. There are no prohibitions
on dealers or distributors offering products that are competitive with our
products. Most dealers do offer competitive products. We reserve the right to
maintain house accounts, which are for products sold directly to customers. The
loss of dealers or distributors could have a material adverse effect on our
business.
Our reseller customer contracts are typically short-term and early terminations
of our contracts may harm our results of operations.
We do not typically enter into long-term contracts with our reseller customers,
and we cannot be certain as to future order levels from our reseller customers.
When we do enter into a long-term contract, the contract is generally terminable
at the convenience of the customer. In the event of an early termination by one
of our largest customers, it is unlikely that we will be able to rapidly replace
that revenue source, which would harm our results of operations.
Lack of capital may adversely limit our growth or operations.
As of December 31, 2001, we had approximately $26.8 million in cash and $38.3
million in working capital. If we use these resources in our efforts to
diversify and grow our business through suitable acquisitions or other means,
such as our use of cash in the proposed merger with E.mergent, we may at some
point in the future be required to seek additional financing. We cannot assure
you that any additional financing would be available on acceptable terms, or at
all. If our capital becomes insufficient and additional funding is unavailable,
inadequate or not available on acceptable terms, it may adversely affect our
ability to grow or maintain operations.
Service interruptions could affect our business.
We rely heavily on our network equipment, telecommunications providers, data,
and software to support all of our functions. Our conference calling service
relies 100 percent on our network equipment for our revenues. We cannot
guarantee that our back-up systems and procedures will operate satisfactorily in
an emergency. Should we experience such a failure, it could seriously jeopardize
our ability to continue operations. In particular, should our conference calling
service experience even a short term interruption of our network or
telecommunication providers, our ongoing customers may choose a different
provider, and our reputation may be damaged, reducing our attractiveness to new
customers.
We depend on a limited number of suppliers for components and the inability to
obtain sufficient components could adversely affect our business.
Certain electronic components used in connection with our products can only be
obtained from single manufacturers and we are dependent upon the ability of
these manufacturers to deliver such components to our suppliers so that they can
meet our delivery schedules. We do not have a written commitment from such
suppliers to fulfill our future requirements. Our suppliers maintain an
inventory of such components, but there can be no assurance that such components
19
will always be readily available, available at reasonable prices, available in
sufficient quantities, or deliverable in a timely fashion. If such key
components become unavailable, it is likely that we will experience delays,
which could be significant, in production and delivery of our products unless
and until we can otherwise procure the required component or components at
competitive prices, if at all. The lack of availability of these components
could have a materially adverse effect on us.
We have experienced long component lead times in the past, but we are
experiencing improved lead times on many products. Even though we have purchased
more of these "longer-lead-time" parts to ensure continued delivery of products,
reduction in these inventories has tracked with the reduction of lead times.
Suppliers of some of these components are currently or may become our
competitors, which might also affect the availability of key components to us.
It is possible that other components required in the future may necessitate
custom fabrication in accordance with specifications developed or to be
developed by us. Also, in the event we, or any of the manufacturers whose
products we expect to utilize in the manufacture of our products, are unable to
develop or acquire components in a timely fashion, our ability to achieve
production yields, revenues and net income may be adversely affected.
Our business could be adversely affected by unanticipated software problems.
We have developed custom software for our products and have licensed additional
software from third parties. This software may contain undetected errors,
defects or bugs. If we were to discover significant errors or defects in the
future, we may not be able to fix them or fix them in a timely or cost effective
manner. Our inability to do so could harm our business.
Our business could be adversely affected if we were to experience technical
difficulties or delays.
We may experience technical difficulties and delays with the manufacturing of
our products. The products we manufacture involve sophisticated and complicated
components and manufacturing techniques. Potential difficulties in the
manufacturing process that we could experience include difficulty in meeting
required specifications and difficulty in achieving necessary manufacturing
efficiencies. If we are not able to manage and minimize such potential
difficulties, our sales could be negatively affected.
Delays in the distribution process could have an adverse effect on our results
of operations.
Our financial performance is dependent in part on our ability to provide prompt,
accurate, and complete services to customers on a timely and competitive basis.
Delays in distribution in our day-to-day operations or material increases in
costs of procuring and delivering products could have an adverse effect on our
results of operations. Any failure of our computer operating systems, the
Internet or our telephone system could adversely affect our ability to receive
and process customers' orders and ship products on a timely basis. Strikes,
termination of air travel, or other service interruptions affecting Federal
Express Corporation, United Parcel Service of America, Inc., or other common
carriers used by us to receive necessary components or other materials or to
ship our products also could impair our ability to deliver products on a timely
and cost-effective basis.
If we are unable to protect our intellectual property rights, our competitive
position could be harmed or we could be required to incur expenses to enforce
our rights.
We currently rely primarily on a combination of trade secrets, copyrights,
trademarks, and nondisclosure agreements to establish and protect our
proprietary rights in our products. We cannot assure that others will not
independently develop similar technologies, or duplicate or design around
aspects of our technology. We believe that our products and other proprietary
rights do not infringe upon any proprietary rights of third parties. We cannot
assure you, however, that third parties will not assert infringement claims in
the future. Such claims could divert our management's attention and be
expensive, regardless of their merit. In the event of a claim, we might be
required to license third party technology or redesign our products, which may
not be possible or economically feasible.
Our business may be adversely impacted if the government stopped funding certain
sales or if it changes regulations.
In the conferencing market, we are dependent on government funding to place
distance learning sales and courtroom equipment sales. In the event government
funding was stopped, these sales would be negatively impacted. Additionally,
many of our products are subject to federal governmental regulations, such as
those of the Federal Communications Commission. New regulations could adversely
impact sales.
We do not intend to pay dividends.
We have never paid cash dividends on our securities and do not intend to declare
or pay cash dividends in the foreseeable future. We expect to retain earnings to
finance and expand our business. Furthermore, our revolving line of credit
prohibits the payment of dividends on our common stock.
20
Our stockholders may experience dilution from outstanding option exercises and
any future financings.
As of December 31, 2001, we had granted options to purchase 1,760,979 shares
under our 1990 Incentive Plan and 1998 Stock Option Plan. Holders of these
options are given an opportunity to profit from a rise in the market price of
our common stock with a resulting dilution in the interests of the other
stockholders. The holders of the options may exercise them at a time when we
might be able to obtain additional capital through a new offering of securities
on terms more favorable than those provided therein. Our grant of additional
options may result in further dilution.
Our future success depends on our ability to retain our Chief Executive Officer.
We are substantially dependent upon certain of our employees, including Frances
M. Flood, President and Chief Executive Officer and a director and stockholder.
The loss of Ms. Flood could have a material adverse effect on us. We currently
have in place a key person life insurance policy on the life of Ms. Flood in the
amount of $5,000,000.
Existing directors and officers can exert considerable control over us.
Our officers and directors together had beneficial ownership of approximately
21.5% of our common stock (including options that are currently exercisable or
exercisable within sixty (60) days) as of February 1, 2002. Assuming our
officers' and directors' actual beneficial ownership remained unchanged until
completion of the merger, together they would have beneficial ownership of
approximately 19.8% of our common stock after the merger. This significant
holding in the aggregate places the officers and directors in a position, when
acting together, to effectively control us and could delay or prevent a change
in control.
International sales are accounting for an increasing portion of our net revenue,
and risks inherent in international sales could harm our business.
International sales represent a significant portion of our total revenue from
continuing operations. For example, international sales represented 10% of our
total sales for the second quarter of fiscal 2002 and 10% for the second quarter
of fiscal 2001. International sales represented 10% of our total sales for the
six-month period ended December 31, 2001 and 11% for the six-month period ended
December 31, 2000. Our international business is subject to the financial and
operating risks of conducting business internationally, including: unexpected
changes in, or imposition of, legislative or regulatory requirements;
fluctuating exchange rates, tariffs and other barriers; difficulties in staffing
and managing foreign subsidiary operations; export restrictions; greater
difficulties in accounts receivable collection and longer payment cycles;
potentially adverse tax consequences; and, potential hostilities and changes in
diplomatic and trade relationships.
Our sales in the international market are denominated in U.S. Dollars and
Gentner EuMEA transacts business in U.S. Dollars, however, its financial
statements are prepared in the Euro, according to German accounting principles.
Although conversion to the Euro has eliminated currency exchange rate risk for
transactions between the member countries, consolidation of Gentner EuMEA's
financial statements with ours, under United States generally accepted
accounting principles, requires remeasurement to U.S. Dollars which is subject
to exchange rate risks.
The continued integration of our subsidiaries and the integration of any
additional acquired businesses involves uncertainty and risk.
We have dedicated substantial management resources in order to achieve the
anticipated operating efficiencies from integrating Ivron with us. Difficulties
encountered in integrating our subsidiary's operations could adversely impact
our business, results of operations or financial condition. We have dedicated
substantial management resources to the porposed acquisition of E.mergent. Also,
we intend to pursue acquisition opportunities in the future. The integration of
acquired businesses could require substantial management resources. There can be
no assurance that any such integration will be accomplished without having a
short or potentially long-term adverse impact on our business, results of
operations or financial condition, or that the benefits expected from any such
integration will be fully realized, or that the acquisition will occur.
We have dedicated substantial management resources to the proposed acquisition
of E.mergent. There can be no assurance that the proposed acquisition will be
completed in a timely manner or that the proposed merger will occur.
Our operating results could be volatile and difficult to predict, and in some
future quarters, our operating results may fall below the expectations of
securities analysts and investors, which could result in material declines of
our stock price.
Our operating results may vary depending on a number of factors, including, but
not limited to, the following:
o demand for our audio and video systems and services;
o the timing, pricing and number of sales of our products;
21
o actions taken by our competitors, including new product introductions and
enhancements;
o changes in our price or the prices of our competitors;
o our ability to develop and introduce new products and to deliver new
services and enhancements that meet customer requirements in a timely
manner;
o the length of the sales cycle for our products;
o our ability to control costs;
o technological changes in our markets;
o deferrals of customer orders in anticipation of product enhancements or new
products;
o customer budget cycles and changes in these budget cycles;
o general economic factors; and
o other unforeseen events that may effect the economy such as the terrorist
attacks in New York, NY and Washington, D.C. on September 11, 2001.
If such factors result in our operating results falling below the expectations
of securities analysts and investors, our stock price could decline materially.
New Accounting Pronouncements
In July 2001, the FASB issued SFAS No. 141, "Business Combinations." SFAS 141
establishes new standards for accounting and reporting requirements for business
combinations and supersedes APB Opinion No. 16, "Business Combinations" and SFAS
No. 38, "Accounting for Preacquisition Contingencies of Purchased Enterprises."
SFAS No. 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. Use of the
pooling-of-interest method is now prohibited. The statement applies to any
business combinations accounted for using the purchase method for which the date
of acquisition is July 1, 2001 or later, modifies the criteria for recognizing
intangible assets and expands disclosure requirements. We have adopted this
statement in accounting for the acquisition of Ivron Systems, Ltd. as of October
3, 2001.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets" which addresses financial accounting and reporting for acquired goodwill
and other intangible assets and supersedes APB Opinion No. 17, "Intangible
Assets." SFAS No. 142 eliminates amortization of goodwill and intangible assets
with indefinite lives and instead sets forth methods to periodically evaluate
goodwill for impairment. SFAS No. 142 provides guidance for testing goodwill and
intangible assets that will not be amortized for impairment. The amortization
provisions of Statement 142 apply to goodwill and intangible assets acquired
after June 30, 2001. With respect to goodwill and intangible assets acquired
prior to July 1, 2001, companies are required to adopt Statement 142 in their
fiscal year beginning after December 15, 2001 (i.e., January 1, 2002 for
calendar year companies). Early adoption is permitted for companies with fiscal
years beginning after March 15, 2001 provided that their first quarter financial
statements have not been issued. We plan to adopt this statement on July 1, 2002
and, as such, we are continuing to evaluate the impact of this statement on our
financial statements. Unamortized goodwill was approximately $2,810,000 as of
December 31, 2001. Amortization of goodwill was approximately $67,600 and
$367,600 for the three and six months ended December 31, 2001.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." This Statement addresses financial accounting
and reporting for the impairment or disposal of long-lived assets. This
Statement supersedes FASB Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and the
accounting and reporting provisions of APB Opinion No. 30, "Reporting the
Results of Operations and Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual, and Infrequently Occurring Events and
Transactions," for the disposal of a segment of a business (as previously
defined in that opinion). This Statement also amends ARB No. 51, "Consolidated
Financial Statements," to eliminate the consolidation for a subsidiary for which
control is likely to be temporary. We are required to adopt SFAS No. 144
effective July 1, 2002. We are currently evaluating the impact of this statement
on our financial statements.
Item 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk represents the risk of changes in value of a financial instrument,
derivative or non-derivative, caused by fluctuations in interest rates, foreign
exchange rates and equity prices. Changes in these factors could cause
fluctuations in the results of our operations and cash flows. In the ordinary
course of business, we are exposed to foreign currency and interest rate risks.
These risks primarily relate to the sale of products and services to foreign
customers and changes in interest rates on our capital leases.
We currently have limited market risk sensitive instruments related to interest
rates. Our capital lease obligations total $119,000 at December 31, 2001. We do
not have significant exposure to changing interest rates on these capital leases
because interest rates for the majority of the capital leases are fixed. We have
not undertaken any additional actions to cover interest rate market risk and are
not a party to any other interest rate market risk management activities. A
22
hypothetical 10 percent change in market interest rates over the next year would
not impact our earnings or cash flows as the interest rates on the majority of
the capital leases are fixed.
We do not purchase or hold any derivative financial instruments for trading
purposes.
23
PART II - OTHER INFORMATION
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
- --------------------------------------------------
As described previously, in December, 2001, we completed a private sale of
1,500,000 shares of our common stock to certain select institutional and
individual investors at a price of $17.00 per share. Net proceeds were
approximately $23,850,000. Wedbush Morgan Securities, Inc. served as the
placement agent for the transaction, receiving aggregate fees of approximately
$1,530,000 and a warrant for 150,000 shares of common stock. The warrant has an
exercise price of $17.00 per share and expires on November 27, 2006. We filed a
registration statement on Form S-3 covering the resale of the securities sold in
the private placement.
The sale and issuance of common stock in the private sale transaction was deemed
to be exempt from registration under the Securities Act of 1933, as amended, by
virtue of Section 4(2) of such Act and the related Regulation D. The recipients
in each case represented to us their status as accredited investors and their
intention to acquire the securities for investment only and not with a view to
the distribution thereof.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- -----------------------------------------------------------
At our annual meeting of shareholders held November 14, 2001, we submitted four
matters to a vote of the shareholders.
1. The shareholders re-elected all seven of our directors with the
following vote
For Withhold
Edward Dallin Bagley 5,402,577 141,675
Brad R. Baldwin 5,417,427 126,825
Frances M. Flood 5,216,266 327,986
Randall J. Wichinski 5,167,722 376,530
David Wiener 5,414,777 129,475
Harry Spielberg 5,416,851 127,401
Michael A. Peirce 5,417,552 126,700
2. The shareholders approved amendment of our Articles of Incorporation to
change the name of the company from "Gentner Communications, Inc.," to "ClearOne
Communications, Inc." with the following vote: 5,468,778 for, 53,140 against,
and 22,334 abstain. There were no broker non-votes.
3. The shareholders approved an increase in the number of shares of common
stock reserved for issuance under our 1998 Stock Option Plan from 1,700,000
shares to 2,500,000 shares with the following vote: 1,393,863 for, 1,353,432
against, and 27,027 abstain. There were no broker non-votes.
4. The shareholders ratified the appointment of Ernst & Young, LLP,
certified public accountants, as the our independent certified accountants for
the 2002 fiscal year with the following vote: 5,183,519 for, 347,589 against,
and 13,144 abstain. There were no broker non-votes.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) Exhibits
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
2.1 Share Purchase Agreement dated October 3, 2001, among Gentner
Communications Corporation, Gentner Ventures, Inc. and the
Shareholders of Ivron Systems, Ltd. (incorporated by reference
from the Company's Current Report on Form 8-K filed October 18,
2001).
3.1 1 Articles of Incorporation and all amendments thereto through
March 1, 1988. (Page 10) (incorporated by reference from the
Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1989)
3.2 1 Amendment to Articles of Incorporation, dated July 1, 1991.
(Page 65) (incorporated by reference from the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 1991)
24
3.3 1 Bylaws, as amended on August 24, 1993. (Page 16) (incorporated
by reference from the Company's Annual Report on Form 10-KSB
for the fiscal year ended June 30, 1993)
3.4 1 Amendment to Articles of Incorporation, dated December 12,
2001.
4.1 Form of Stock Purchase Agreement for private placement
transaction (incorporated by reference from the Company's
registration statement on Form S-3 filed November 23, 2001)
1 Denotes exhibits specifically incorporated into this Form 10-Q by
reference, pursuant to Regulation S-K, Item 10. These documents are located
under File No. 0-17219 and are located at the Securities and Exchange
Commission, Public Reference Branch, 450 South 5th St., N.W., Washington,
DC 20549.
(b) Reports on Form 8-K
A report on Form 8-K was filed October 18, 2001, to announce the purchase of
Ivron Systems, Ltd. The report included the following financial statements: (1)
audited financial statements of Ivron Systems, Ltd. for fiscal years ended
December 31, 1998, 1999, and 2000; and (2) unaudited pro forma information of
Gentner Communications Corporation and Ivron Systems, Ltd. as of and for the
fiscal year ended June 30, 2001.
A report on Form 8-K/A was filed November 23, 2001, amending the prior Form 8-K
to include the following revised financial statements: (1) audited financial
statements of Ivron Systems, Ltd. for fiscal years ended December 31, 1998,
1999, and 2000 and the unaudited condensed interim financial information of
Ivron Systems, Ltd. for the nine month periods ended September 30, 2000 and
2001; and (2) unaudited pro forma information of Gentner Communications
Corporation and Ivron Systems, Ltd. as of and for the period from July 1, 2001
to September 30, 2001.
25
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CLEARONE COMMUNICATIONS, INC.
/s/ Randall J. Wichinski
--------------------------------------------
Randall J. Wichinski
Chief Financial Officer and Vice President
Date: February 14, 2002
26
ARTICLES OF AMENDMENT TO
THE ARTICLES OF INCORPORATION
OF GENTNER COMMUNICATIONS CORPORATION
(hereafter ClearOne Communications, Inc.)
Pursuant to Sections 16-10a-1003 and 16-10a-1006 of the Utah Revised
Business Corporation Act, the undersigned, James A. Valeo, being the Vice
President of Gentner Communications Corporation, a Utah corporation (the
"Corporation"), hereby certifies the following:
1. Article I of the Articles of Incorporation of the Corporation is
deleted in its entirety and the following is substituted therefor:
ARTICLE I
NAME
The name of this corporation is ClearOne Communications Inc.
[End of Article I]
2. This Amendment to the Articles of Incorporation (the "Amendment") was
adopted (i) by the Board of Directors of the Corporation as of September 17,
2001, and (ii) with the recommendation of the Board of Directors, at a meeting
of the shareholders of the Corporation held on November 14, 2001.
3. As of the date of the record date for the shareholders meeting
referenced in paragraph 2, the Corporation had 8,628,478 shares of outstanding
Common Stock all of which were entitled to vote on the above noted Amendment and
5,544,252 of which were indisputably present at the shareholder's meeting at
which the vote was taken. Common Stock is the only class of stock of the
Corporation. The Amendment was approved, receiving 5,468,778 votes, which
constituted a majority of the outstanding shares of Common Stock of the
Corporation.
4. These Articles of Amendment to the Articles of Incorporation shall
become effective on January 1, 2002.
IN WITNESS WHEREOF, the undersigned has executed these Articles of
Amendment to the Articles of Incorporation as of this 12th day of December,
2001.
GENTNER COMMUNCIATIONS
CORPORATION, a Utah corporation
By /s/ James A. Valeo
---------------------------------
James A. Valeo, Vice President