SECURITIES AND EXCHANGE COMMISSION

 

WASHINGTON, D.C. 20549

 

FORM 10-K

 

(MARK ONE)

 

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

 

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

 

OR

 

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

 

FOR THE TRANSITION PERIOD FROM            TO           

 

COMMISSION FILE NUMBER 0-22046

 

BOGEN COMMUNICATIONS INTERNATIONAL, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

 

 

COMMON STOCK, $0.001 PAR VALUE

 

(Title of class)

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   YES ý  NO o

 

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

 

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

 

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

 

DOCUMENTS INCORPORATED BY REFERENCE

 

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

 

PART I

All statements contained herein that are not historical facts, including, but not limited to, statements regarding Bogen Communications International, Inc. and its subsidiaries (collectively, the “Company”) and its current business strategy, projected sources and uses of cash, and plans for future development and operations, are based upon current expectations. These statements are forward-looking in nature and involve a number of risks and uncertainties. Actual results may differ materially. Among the factors that could cause actual results to differ materially are the following: competitive factors, including the fact that the Company’s competitors are highly focused and may have greater resources and/or name recognition than the Company; changes in technology and the Company’s ability to develop or acquire new or improved products and/or modify and upgrade its existing products, including, but not limited to, the introduction and development of the Company’s products; changes in labor, equipment and capital costs; changes in access to suppliers and sub-contractors; currency fluctuations; changes in United States and foreign regulations affecting the Company’s business; future acquisitions or strategic partnerships; implementation or termination of strategic initiatives or transactions; availability of sufficient capital to finance potential acquisitions on terms satisfactory to the Company; general business and economic conditions; political instability in certain regions; employee turnover; issues relating to the Company’s internal systems; and other factors described from time to time in the Company’s reports filed with the Securities and Exchange Commission. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which are made pursuant to the Private Litigation Reform Act of 1995 and, as such, speak only as of the date made.

 

ITEM 1.  BUSINESS

 

Bogen Communications International, Inc., (the “Registrant”, and together with its subsidiaries, the “Company”), develops, produces and sells sound processing equipment, telecommunications peripherals and Unified Messaging products and services, through its direct subsidiaries.

 

The Company’s United States business develops, manufactures, and/or distributes commercial telecommunications and audio products through Bogen Corporation (“Bogen”) and through its subsidiaries, Bogen Communications, Inc. (“BCI”) and Apogee Sound International, LLC (“Apogee”).

 

The Company’s European business develops, manufactures, and markets voicemail systems and Unified Messaging products and services through Speech Design International, Inc. (“SDI”) and through SDI’S subsidiaries, Speech Design GmbH (“Speech Design”) and Speech Design Carrier Systems GmbH (Carrier Systems), formerly Digitronic Computersysteme GmbH, both based in Germany, Satelco AG (“Satelco”), based in Switzerland, and Speech Design (Israel) Ltd., based in Israel.

 

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

 

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

 

Speech Design focuses on digital voice processing systems for the mid-sized Private Branch Exchange (“PABX”) market, targeting the underdeveloped European voice processing market. With the launch in late 1995 of its product family called “Memo”, Speech Design added innovative non-PC based voice mail systems to its existing line of telecommunication peripheral products, which includes voice-mail, automated attendants, digital announcers and message/music-on-hold systems.  In late 1998, Speech Design introduced the Teleserver Pro range of modular, higher-end (2-8 ports) voice and call processing peripherals.  In addition to a higher capacity voice mail than possible with Memo, Teleserver also offers LAN connectivity to PC networks and ACD (automatic call distribution) functionality.  In 1999, Speech Design added Unified Messaging products and services, through its flagship product, Thor(TM).  Thor improves communications within any enterprise and delivers value-added services to Internet service providers (“ISPs”), as well as mobile and fixed-line network operators (“carriers”).  Thor integrates fax and voice-mail into an existing e-mail environment, and e-mail and fax into the mobile-phone environment.  In 2000 and 2001, Thor was further developed to become a multifunctional added-value services platform for carriers, delivering innovative new applications such as SMS (Short Message Service) to fixed-line telephones.

 

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Speech Design sells its voicemail products through leading European telephone switch manufacturers in Germany, and through major independent dealers outside Germany. Speech Design’s Thor Unified Messaging system in its enterprise version is sold through switch manufacturers and IT system integrators. In addition, Thor unified messaging services and platforms are sold directly to mobile and fixed-line carriers and Internet Service Providers (“ISPs”), primarily in Europe but also in emerging markets.

 

The Registrant is a Delaware corporation whose principal executive offices are located at 50 Spring Street, Ramsey, New Jersey 07446 and its telephone number is (201) 934-8500.

 

COMPANY HISTORY

 

The Registrant, formerly known as European Gateway Acquisition Corp., was formed on May 6, 1993.  On October 13, 1993, the Registrant consummated an initial public offering (the “IPO”) of units consisting of one share of the Registrant’s common stock, $.001 par value per share (“Common Stock”), and two warrants (the “Warrants”), each entitling the holder thereof to purchase one share of Common Stock.  The Company called such Warrants for redemption as of May 1, 2000.  An aggregate of 64,615 warrants were not exercised prior to such date and were cancelled and redeemed for $.01 per Warrant.

 

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

 

On May 20, 1998, the Company consummated the acquisition of the remaining 33% equity interest in Speech Design, held by the founders and managing directors of Speech Design. The aggregate consideration paid by the Company for the 33% equity interest approximated U.S. $8.8 million before acquisition costs, consisting of DM 7,570,000 (approximately U.S. $4.8 million) in cash and 458,000 restricted shares of the Common Stock.

 

On December 31, 1998, Speech Design acquired 100% of Carrier Systems, located in northern Germany.  Carrier Systems is a developer and manufacturer of LAN and Internet based unified messaging products. The aggregate purchase price, including direct costs of $145,000, amounted to approximately $1.2 million in cash and assumption of certain liabilities. The terms of the acquisition agreement also provide for additional cash consideration up to DM 2.8 million (or approximately $1.7 million) to be paid based on achievement of targeted sales levels. Such targeted levels have not been met in the past and may be modified for future periods.

 

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

 

On September 27, 2001, an agreement was signed with 2.T-Telematik Venture Beteiligungsgesellschaft mgH (“T-Venture”), a venture capital subsidiary of Deutsche Telekom AG, a world leader in telecommunications, to sell 2% of SDI, a newly-formed Company subsidiary which now holds all equity in Speech Design, the company’s European operation, to T-Venture. Sale of the SDI common stock minority holding was for approximately 842,000 Euros, about $765,000.  T-Venture also received a warrant to purchase another 2% of SDI shares at prices that, if SDI becomes separately traded, would be established at a discount to initial public market prices.  Separately, T-Venture signed a marketing agreement entitling it to receive 1% of SDI stock if T-Venture assisted Speech Design in attaining certain Unified Messaging sales objectives by December 31, 2001.  The marketing agreement expired without being exercised at December 31, 2001.

 

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

 

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BOGEN (DOMESTIC OPERATIONS)

 

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

 

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

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

 

BOGEN’S PRODUCT LINES

 

TELCO

 

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

 

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

 

COMMERCIAL AUDIO

 

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

 

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

 

PRO-AUDIO

 

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

 

ENGINEERED SYSTEMS

 

Bogen’s Engineered Systems product line features custom designed intercom/paging systems that are sold to contractors for installation primarily in schools.

 

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During the second quarter of 1999, Bogen added a new line of Multi-Media Controllers, marketed under the trade name “iQuest (TM)”.  Its Internet Protocol (“IP”) based communication format allows educators to administer, schedule, view and control educational media resources (such as multiple VCRs, DVDs, Laser Disks, and others devices) remotely located in their school’s media center. In 2001 Engineered Systems expanded its market with the addition and introduction of the institutional clock product line.

 

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

 

BOGEN’S SALES AND MARKETING

 

TELCO PRODUCT LINES

 

Bogen distributes its Telco products to approximately 100 distributors who operate 200 telecommunications distribution centers.  These distributors sell to thousands of telecommunications installers, interconnects dealers, and VAR’s across North America.  In addition to its distribution network, Bogen has a relationship with about 50 message/music-on-hold studios that specialize in creating custom messages. These studios sell their services along with Bogen’s Telco products.  Bogen also has an original equipment manufacturer (OEM) agreement to supply private label overhead paging systems to Avaya Communications, a spin-off from Lucent Technologies (“Lucent”), and Exp@nets, also a Lucent spin-off.

 

Bogen markets its Telco products through a team of regional sales representatives, who sell Bogen’s Telco and other complementary products to distributors in their assigned territories.

 

COMMERCIAL AUDIO, PRO-AUDIO, AND ENGINEERED SYSTEMS PRODUCT LINES

 

Bogen’s Commercial Audio products are marketed through several independent manufacturers’ representatives under the direction of Bogen’s internal sales management team.  Bogen’s Engineered Systems products are sold to a network of contractors covering North America by a staff of Bogen-employed Regional Managers.  The field sales personnel receive a salary and bonus based on performance and the representatives are compensated on a commission basis. Sales agreements are maintained with all of Bogen’s independent sales representatives and Engineered Systems contractors. The sales representative agreements typically permit the sale of Bogen products by the representative in a specific territory assigned to one sales representative firm.  Similarly, the Engineered Systems contractor agreements typically allow the contractor to purchase and install specific product lines in a designated territory.

 

Bogen distributes its Commercial Audio products through about 1,000 active sound contractors, sound equipment and electronic distributors, and audio dealers, and is often sold as a complete system solution designed to satisfy an end-user’s specific needs. Virtually every major master sound products distributor, industrial equipment distributor, and commercial security products distributor in North America stocks Bogen’s Commercial Audio products.  In addition, approximately 200 major contractors and dealers market Bogen’s Engineered Systems.  The principal users of these products are industrial, professional, commercial and civic concerns and institutions such as schools, nursing homes, correctional facilities, retail stores, restaurants and churches. Bogen’s management believes that these user markets are relatively stable and that Bogen has developed significant name recognition in these markets.

 

The Apogee product line was acquired by Bogen in August 1999 and consists of a worldwide network of almost 250 distributors, touring companies, and contractors who specialize in the area of entertainment sound systems.  The wide Apogee line includes speakers and speaker systems, amplifiers, processors and system balancing and design equipment.  Apogee speaker products range from compact cabinets for foreground music applications to large arrays that can accommodate applications in theaters, arenas, stadiums, and other larger facilities where high-quality entertainment sound is required.  In addition to a base of customers in the United States, approximately 45% of Apogee’s business in 2001 was derived from export sales.

 

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NEW PRODUCTS INTRODUCTION

 

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

 

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

 

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

 

In 2001 Bogen introduced the CAM2 microphone mixer as a follow up to last years introduction of the CAM8 series of microphone mixers. The CAM2 is a significant up grade of Bogen’s venerable CAM microphone mixer. Improvements include output level meter, clip indicators for each input channel, phantom microphone power per input and a dual level signal output to mention a few. The CAM 2 is a popular distributor item because of its economical price and simple operation. The CAM 2 is intended to improve the unit’s popularity through a much-enhanced feature set while selling at a price similar to the CAM.

 

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

 

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

 

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BOGEN’S SALES OUTSIDE THE U.S.

 

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

 

BOGEN’S SOURCING AND MATERIALS

 

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

 

In view of periodic economic instability in Asia, the Company takes precautions to ensure that production will continue without interruption such as assuring, to the extent practicable, that alternative sources of supplies and subcontractors are available.  There can be no assurance, however, that events beyond the Company’s control, including, without limitation, the financial requirements of any of the Company’s suppliers and subcontractors, will not disrupt the production schedule or the Company’s source of supplies.  Any such disruption may have a material adverse effect on the Company’s results of operations.

 

BOGEN’S PATENTS AND TRADEMARKS

 

“Bogen(R)” is a trademark of the Company, which is registered in the United States and in certain foreign countries throughout the world.  The trademark expires in the United States and in these countries between 2009 and 2010.  Trademark applications and renewals for the Bogen mark have been filed in other countries.  Bogen has also obtained U.S. trademark registration for the trade name “Multicom2000(R)”.  This trademark is utilized in connection with Engineered Systems and expires in June 2011.  Bogen has obtained U.S. trademark registration for the trademark “NEAR”.  This trademark expires in November 2011.  In addition, Bogen holds a U.S. trademark for the mark “Speech Design(R)”, which will expire on December 31, 2006, and which can be renewed at that time for an additional ten years.  Other trademarks currently in the application process include “NEAR Armadillo Speakers”, “Easy Install Speakers”, and “iQuest”.  The Company believes that certain of these trademarks provide substantial value to the Company.

 

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

 

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

 

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BOGEN’S RESEARCH AND DEVELOPMENT

 

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

 

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

 

Also during 2001 Bogen undertook development of a new line of modular input amplifiers to replace its aging existing line of product. Expected to be available during the first quarter of 2002, the new line of products will have added features and is intended to compete well against alternative products.

 

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

 

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

 

Bogen’s product development group partnered with a large manufacturer of headsets to create the current line of Bogen headsets. Bogen performed critical product evaluations on product iterations, electrical evaluations on the amplifiers and assistance in obtaining the required safety and FCC approvals for the products.

 

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

 

During 2001, Apogee’s in-house engineering department completed development of the APL series of self-powered loudspeakers. This new product line of 7 products is based on and revitalizes well-established and accepted loudspeaker products.  The line provides an extremely compact means of creating an audio system by building the high-powered amplifiers into the speaker enclosure. The speakers in this product line were derived from Apogee’s best selling passive speakers and maintained the same form factors. This allows customers who have already made an investment in mounting hardware to use the APL products without the need to purchase new hardware. Special high-efficiency amplifiers were needed for these products. These loudspeakers have been joined with the most up-to-date amplifier technology to produce products that have the greatest ease of use and overall performance of any product currently on the market.  Apogee partnered with two companies producing innovative high-powered (up to 1000 watts) and high-performance amplifiers in order to obtain amplifiers small enough in size and low enough in heat dissipation to meet the strict requirement of the APL products. Apogee’s in-house engineering then designed the critical front-end processing electronics that protect and enhance the performance of the speakers.

 

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

 

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

 

There can be no assurances that any new products will be able to compete with similar products offered by other manufacturers.

 

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

 

BOGEN’S COMPETITION AND MAJOR CUSTOMERS

 

Bogen’s competition varies by market and product line.  Bogen competes on name recognition, price, delivery, availability, innovation and product features and quality.  However, such factors vary in relative importance depending on the markets and products involved.  Bogen has concentrated on markets in which it believes that it can obtain a significant market share, be one of the top two or three suppliers, or which have substantial growth potential.  Bogen’s key strength continues to be its distribution channels and name recognition, especially in the school market, background/foreground music market, overhead paging, and the security markets.

 

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

 

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

 

The Engineered System customer market is a highly specialized market characterized by low unit volume and high dollar sales.  Bogen’s principal competition comes from Rauland Borg Corp., the market leader in this area, and Dukane Corporation, each of which, like Bogen, has been in the market for several decades and has well established name recognition and distribution channels.

 

BACKLOG OF ORDERS

 

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

 

SPEECH DESIGN (FOREIGN OPERATIONS)

 

Speech Design, located in Germering, Germany, outside Munich, and Hamburg, Germany, develops, manufactures and markets telephone peripheral hardware utilizing digital voice processing technologies.

 

Speech Design product lines include voice mail systems, automated attendants, digital announcers, message/music-on-hold systems and Unified Messaging products and services. Speech Design’s products are in the Telco line of products.

 

In late 1995, Speech Design launched its “Memo(TM)” product line of stand-alone non-PC based voice mail peripherals for small-to-medium PABX’s.  The high-end Memo-CDA model includes a CD based music and information on hold system.  Memo offers full integration with most of the popular PABX models on the European market and has rapidly become one of the fastest selling voice mail systems in the 2 - 4 port (channel) category. In late 1998, Speech Design introduced the “Teleserver Pro(TM)” range of modular, higher-end (2 - 8 port) voice and call processing peripherals.  In addition to higher capacity voice mail than possible with Memo, Teleserver also offers ACD (automatic call distribution) functionality.

 

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On December 31, 1998, Speech Design acquired 100% of Carrier Systems, located in northern Germany. Carrier Systems is a developer and manufacturer of LAN and Internet-based Unified Messaging products. It’s flagship product, Thor™, improves communications within any enterprise and delivers value-added services to Internet service providers (“ISPs”) and mobile as well as fixed-line carriers.  Thor integrates fax and voice mail into an existing e-mail environment.  The user can retrieve and manipulate all messages either locally, using the familiar PC-desktop, or remotely, via an Internet computer, telephone or fax machine from anywhere in the world.  Services such as listening to e-mails on the telephone, forwarding e-mails or faxes to a fax machine nearby, or message notification to a mobile phone are available.  Thor has been sold to several major ISPs operating in Europe, including America On Line, 1&1, GMX, and Easynet.  Deutsche Telekom (“DT”), Europe’s largest telecommunications company, selected Thor as the strategic platform for its added value messaging services in the fixed-line network.  In 2001, three Thor-based services were launched by DT.  Based on the DT experience, further carrier projects were implemented with e-plus in Germany (e-mail reading on the mobile telephone), TDC in Denmark, and Vodacom in South Africa (both SMS-to-Voice: delivery of SMS messages to fixed-line telephones). The enterprise version of Thor, compatible with MS Exchange, Lotus Notes and other corporate e-mail servers, was launched in mid-1999.

 

SPEECH DESIGN’S PRODUCT LINE

 

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

 

SPEECH DESIGN’S SALES AND MARKETING

 

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

 

In 1994, Speech Design acquired a 67% interest in Satelco, a Swiss company that is a marketer of telephone peripherals and a distributor of Speech Design’s and Bogen’s products.  In order to further support its efforts to enter the UK market, Speech Design founded a sales subsidiary, Speech Design (UK) Ltd., in early 1996.  Due to a slower-than-expected UK market development, Speech Design (UK) Ltd. was closed effective December 31, 2000 (Speech Design continues to sell to UK customers directly from Germany).  Sales outside of Germany constituted 19% of total sales in 2001; up from 16% in 2000.

 

In mid-1996, a manufacturing subsidiary, Speech Design (Israel) Ltd., was founded in Israel and has assumed production of certain product lines from Speech Design, resulting in reduced manufacturing cost and tax levels.  The Israeli facility was granted a 10-year income-tax exemption effective January 1, 1997.  In 2001, approximately 30% of all units manufactured by Speech Design came from the Israel facility.

 

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

 

Speech Design attempts to differentiate itself both from high-end suppliers of large customized systems and suppliers of semi-professional, price-sensitive solutions for the small company sector by providing standard, high-quality, affordable and easy-to-use products for the small to mid-size PABX.

 

Speech Design sells its voicemail products through resellers.  In Germany, Speech Design’s main customers are sales organizations of leading PABX manufacturers and major independent dealers.  In other European countries, Speech Design has exclusive agreements with national distributors, which in Switzerland is a Speech Design subsidiary, which market to the reseller base in their respective territories.  Sales to three customers of Speech Design totaled approximately $10,305,000, accounting for 60% of Speech Design’s net sales in 2001.

 

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Thor unified messaging systems are sold directly to service providers (ISP’s and telecommunications carriers) as well as indirectly (through PABX manufacturers and IT system integrators) to corporate customers.  In 2001, Speech Design has focused on developing sales of Thor platforms to mobile and fixed line network operators (“carriers”).  A major contract was signed with Deutsche Telekom (“DT”) in late 2000, with three different services launched in 2001.  Revenues consist of per-mailbox pricing, maintenance fees, and certain development/customization fees.  In addition, some contracts with ISP’s/carriers are based on revenue-sharing:  the ISP or carrier provides access to their customer base and marketing support, while the end-user pays a per-minute toll to access Thor services (for example e-mail reading on the mobile telephone) and a portion of this revenue is passed back to Speech Design.   In late 2001, several major international carriers started Thor-based services: e-plus in Germany, TDC (formerly TeleDanmark) in Denmark, and Vodacom in South Africa.

 

GERMANY

 

In Germany, Speech Design has developed an effective approach for local distribution of voice processing products. Speech Design sells directly to the regional sales offices of the leading manufacturers of PABX equipment including Siemens, Tenovis (formerly Bosch Telecom), DeTeWe and DT.  Approximately 63% of Speech Design’s sales are to these customers (which percentage corresponds to these manufacturers’ approximate joint share of the PABX market).  Speech Design has achieved central pricing agreements and technical as well as commercial endorsements from the headquarters of each of these companies.  The regional offices of these companies consist of approximately 200 locations and a combined sales force of approximately 3,000 people.  Speech Design’s sales and technical team supports and motivates the regional sales forces of the large PABX companies to actively market Speech Design’s products.  Speech Design routinely updates its data bank of all PABX sales representatives in Germany to help the sales team optimize communications and efficiency.  In late 1999, Speech Design entered into an OEM agreement with DT, under which DT resells the full range of Speech Design’s voicemail products. DT offers the systems under its own “Octopus Mail” trademark to its installed base of customers, as well as to new switch customers.

 

In 2001, Speech Design continued to intensify its efforts to sell voice mail systems to the installed switch base (“the aftermarket”).  Since the Company’s distributors mainly focus on sales to new switch customers, the aftermarket is largely under-penetrated and offers significant sales potential.  The aftermarket effort centers on the high-end Teleserver product.

 

Speech Design considers its sales network in Germany, Europe’s largest telecommunications market, to be one of its most valuable assets and a market entry barrier to potential competitors.

 

For the enterprise version of Thor, Speech Design uses the existing PABX sales channel and builds an additional IT system integrator reseller network.  For Thor sales to ISP’s and carriers, potential German customers in this field are being approached directly by Speech Design’s senior key account executives.

 

OUTSIDE OF GERMANY

 

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

 

SPEECH DESIGN’S SOURCING AND MATERIAL

 

Speech Design manufactures its products in cooperation with a network of German subcontractors and its Israeli subsidiary.  Speech Design purchases all mechanical and electronic components for its products and ships them for board-level assembly work by its subcontractors.  Speech Design’s own manufacturing group assembles finished products from pre-tested modules and performs final quality tests.

 

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

 

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

 

SPEECH DESIGN’S PATENTS AND TRADEMARKS

 

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

 

SPEECH DESIGN’S RESEARCH AND DEVELOPMENT

 

Speech Design’s in-house engineering department is responsible for research and development and production engineering of all Speech Design products.  In 2001, the R&D department maintained its focus on the development of Speech Design’s next generation call processing platform, suitable both for integration into PABX’s (switches) and for stand-alone operation.  The platform offers higher scalability (up to 30 ports), digital (ISDN) interfaces and a standard, open-platform operating system (Linux).  In comparison, the currently marketed Memo and Teleserver product lines cannot be switch-integrated, scale to a maximum of 8 ports, have analog-only interfaces and are based on a proprietary operating system.  Under an OEM and Licensing Agreement, the first implementation of the new platform is an integrated voicemail system for a leading European switch manufacturer, to be launched in early 2002.

 

The R&D team responsible for the development of the Thor unified messaging platform and services is based at Carrier Systems.  In 2001, the main effort was to complete the development of a turnkey system aimed at ISPs and mobile telcos, offering customers a rapid service rollout with a minimum investment of their own in-house resources.  The package includes web-based registration infrastructure, database management and customized front-end design.  Customization of Thor for several added-value services at DT and three other carrier customers, along with the introduction of new applications such as SMS-to-voice, accounted for a significant portion of the engineering effort in 2001.  In addition, the core technology team continued to expand Thor capabilities by including voice recognition, telephone access to PIM (Personal Information Manager) functions, voice-XML standards, and other areas.

 

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

 

SPEECH DESIGN’S COMPETITION

 

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

 

There is no single dominating company in the European market for small to mid-size PABX peripherals.  With the exception of Northern Telecom, Lucent, and a handful of other competitors who are highly focused on the large, customized systems market, Speech Design’s competition comes from a large number of smaller companies offering PC-based voice mail systems.  These companies tend to be highly focused in their national markets and generally cannot afford to be global players due to the cost of establishing distribution channels and gaining regulatory approval for selling telecommunications products in each country.

 

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

 

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Management believes that the combination of Speech Design’s mid-size PABX focus, broad and unique product range and Europe-wide distribution presence may enable Speech Design to become a leading provider of telephone peripherals in many European countries.  There can be no assurance, however, that such results will occur or that the Teleserver family of voice mail and related products and Thor Unified Messaging System will increase Speech Design’s competitive advantage in Europe, because this industry is highly sensitive to general economic conditions and is characterized by rapid technological change.  Speech Design’s ability to compete successfully may depend in substantial measure on its ability to develop or acquire new or improved equipment, techniques and products and/or to modify and upgrade its existing equipment, techniques and products.

 

SPEECH DESIGN’S BACKLOG OF ORDERS

 

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

 

GOVERNMENT REGULATIONS AND INDUSTRY CERTIFICATIONS

 

The U.S. Federal government regulates domestic telecommunications equipment and related industries.  The Federal agency vested with primary jurisdiction over the telecommunication industry is the Federal Communications Commission (the “FCC”).  Many telephone peripheral producers and distributors, while not directly regulated by the FCC, are nevertheless substantially affected by the enforcement of its regulations and changes in its regulatory policy.

 

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

 

To successfully access the Canadian market, Bogen must obtain Underwriters Laboratory Canada and Canadian Standards Association authorizations for all AC powered products, which it has done for all of its current products.

 

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

 

In 1995, Speech Design received the ISO 9001 Quality Certificate for its research and development, production and customer support operations in Germany.  In 1996, the Quality Mark was extended to include Speech Design’s Israel subsidiary.  In 1999, Carrier Systems was certified.  ISO 9001 is an internationally recognized Quality Assurance certification.

 

EMPLOYEES

 

As of December 31, 2001, the Company had approximately 250 full-time employees engaged in its businesses.  The Company also uses temporary and/or part-time employees, as required.  About 15 of Bogen’s U.S. employees are subject to collective bargaining agreements, which expire in June and September of 2003.  The Company considers its relationship with its employees to be satisfactory.

 

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ITEM 2.  PROPERTIES

 

The Registrant’s principal place of business is located at 50 Spring Street, Ramsey, New Jersey 07446, which is subleased from an unaffiliated third party.  Bogen also maintains its principal warehouse and executive offices at that location.  The lease, which covers approximately 70,000 square feet, commenced on January 1, 1987 and was extended for 10 years on November 28, 2000.&