SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): July 5, 2000
Gentner Communications Corporation
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(Exact Name of Registrant as Specified in its Charter)
UTAH
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(State or Other Jurisdiction of Incorporation)
17219 87-0398877
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(Commission File Number) (I.R.S. Employer Identification No.)
1825 Research Way, Salt Lake City, Utah 84119
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(Address of Principal Executive Offices) (Zip Code)
(801) 975-7200
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(Registrant's Telephone Number, Including Area Code)
Not Applicable
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(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
The undersigned Registrant hereby amends and restates its Current Report on
Form 8-K filed with the Securities and Exchange Commission on July 20, 2000,
which excluded certain financial statements and pro forma financial information
not available at the time of filing.
Item 2. Acquisition or Disposition of Assets.
On July 5, 2000, pursuant to the "Asset Purchase Agreement" dated July 5,
2000, Gentner Communications Corporation, (the "Registrant"), purchased
substantially all of the assets of ClearOne, Inc. (Woburn, Mass.), a
privately-held developer and manufacturer of multi-media group communications
products.
The Registrant will account for the acquisition of these assets under the
purchase method of accounting. The assets were acquired with $1.76 million in
cash and 129,871 shares of the Registrant's restricted stock. The cash purchase
price was paid from the Registrant's general working capital. The total value of
consideration paid for the assets was determined based on arm's length
negotiations between the Registrant and ClearOne, which took into account
ClearOne's financial position, operating history, products, intellectual
property and other factors relating to ClearOne's business. There are no
material relationships between ClearOne and the Registrant prior to completion
of this transaction.
The assets purchased were used in the development and support of ClearOne's
component technology products for both audio and video teleconferencing
applications. The Registrant currently intends to use such assets in
substantially the same manner. The Registrant will retain ClearOne's facilities
in Woburn, MA.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Business Acquired. Audited financial statements
of ClearOne, Inc.
Page No.
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Report of Independent Auditors................................... F-1
Balance Sheet as of April 30, 2000............................... F-2
Statement of Operations for the year ended April 30, 2000........ F-3
Statement of Stockholders' Equity (Deficiency)
for the year ended April 30, 2000........................... F-4
Statement of Cash Flows for the year ended April 30, 2000........ F-5
Notes to Financial Statements.................................... F-7
(b) Unaudited Pro Forma Financial Information. Unaudited Pro Forma Condensed
Combined Financial Statements of Gentner Communications Corporation and
ClearOne, Inc.
Page No.
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Pro Forma Condensed Combined Financial Information (unaudited)... F-19
Pro Forma Condensed Combined Balance Sheet
as of June 30, 2000 (unaudited)............................. F-19
Pro Forma Condensed Combined Statement of Operations
for the year ended June 30, 2000 (unaudited)................ F-21
Notes to Pro Forma Condensed Financial Information (unaudited)... F-22
(c) Exhibits
Page No.
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Exhibit 10.8 - Asset Purchase Agreement between
Gentner Communications Corp., a Utah Corporation
and ClearOne, Inc., a Massachusetts Corporation ............ E-1
Exhibit 23.1 - Consent of Edward A. Scribner, CPA ............... E-46
<PAGE>
EDWARD A. SCRIBNER, CPA
170 WORCESTER STREET, SUITE 208
WELLESLEY, MA 02481-5508
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of ClearOne, Inc.
I have audited the accompanying balance sheet of ClearOne, Inc. a Massachusetts
corporation as of April 30, 2000, and the related statements of operations,
changes in stockholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. My
responsibility is to express an opinion on these financial statements based on
my audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of ClearOne, Inc. as of April 30,
2000, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
Edward A. Scribner, CPA
Wellesley, MA
July 15, 2000
F-1
<PAGE>
<TABLE>
Financial Statements of Business Acquired
ClearOne Inc.
Balance Sheet
<CAPTION>
April 30, 2000
Assets
Current Assets
<S> <C>
Cash and cash equivalents $ 71,391
Accounts receivable 64,193
Less: Allowance for bad debt (9,358)
Inventory 650,351
Prepaid expenses 5,752
Other current assets 2,190
-----------
Total Current Assets 784,519
Property and Equipment
Equipment 619,932
Furniture and fixtures 18,857
Leasehold improvements 21,203
Less accumulated depreciation (343,708)
-----------
316,284
Other Assets
Deposits 62,250
Organizational costs net of amortization 12,556
Intangible assets 21,624
-----------
96,430
-----------
$ 1,197,233
===========
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $ 27,362
Accrued expenses 32,585
Accrued wages and other payroll liabilities 8,821
Accrued interest 20,485
Accrued warranty costs 3,949
Accrued advertising costs 16,563
Pension plan payable 3,274
State and local taxes payable 456
Short-term portion of stockholder loan 2,892,000
-----------
Total Current Liabilities 3,005,495
Stockholders' Equity
Series B Preferred Stock, $.01 par value;
2,000,000 shares authorized, issued and outstanding 20,000
Series A Preferred Stock, $.01 par value;
1,000,000 shares authorized,
627,050 shares issued and outstanding 6,271
Common Stock, $.01 par value;
11,000,000 shares authorized,
3,200,000 shares issued and outstanding at April 30, 2000 32,000
Paid-in capital 5,626,060
Less: Stock subscription receivable (330)
Accumulated deficit (7,470,263)
Less: Donated treasury stock, 2,200,000 common shares at cost (22,000)
-----------
(1,808,262)
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$ 1,197,233
===========
</TABLE>
See notes to financial statements.
F-2
<PAGE>
<TABLE>
Financial Statements of Business Acquired
ClearOne Inc.
Statement of Operations
<CAPTION>
April 30, 2000
<S> <C>
Revenues $ 98,588
Cost of Goods Sold 77,994
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Gross Profit 20,594
Expenses
General and administrative 304,604
Engineering 50,939
Marketing and selling 299,832
Operations 96,771
Research and development 243,187
Depreciation 178,351
Amortization 57,002
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1,230,686
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Net Loss From Operations (1,210,092)
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Other Income and (Expenses)
License agreement revenue 400,000
Interest expense (199,145)
Impairment of license agreements (156,751)
Inventory write down to net realizable value (91,180)
Realized loss on asset dispositions (36,929)
Realized loss on abandoned leasehold improvements (14,170)
Other Income 642
-----------
(97,533)
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Net Loss Before Taxes (1,307,625)
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State and Local Taxes (456)
Net Loss $(1,308,081)
===========
</TABLE>
See notes to financial statements.
F-3
<PAGE>
<TABLE>
Financial Statements of Business Acquired
ClearOne Inc.
Statement of Stockholders Equity (Deficiency)
<CAPTION>
Additional
Paid-In Accumulated
Shares Amount Shares Amount Capital Shares Amount Deficit Total
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<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- $ -
Balance at April 30, 1999 3,200,000 $ 32,000 2,627,050 $ 26,271 $5,603,730 - $ - $(6,162,182) $(500,181)
--------------------------------------------------------------------------------------------------------
Treasury Stock
Return of founders common stock
donated to treasury stock - - - - 22,000 2,200,000 (22,000) - -
Net loss for the year ended
April 30, 2000 - - - - - - - (1,308,081) (1,308,081)
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- - - - 22,000 2,200,000 (22,000) (1,308,081) (1,308,081)
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Balance at April 30, 2000 3,200,000 $ 32,000 2,627,050 $ 26,271 $5,625,730 2,200,000 $ (22,000) $(7,470,263) (1,808,262)
========================================================================================================
</TABLE>
See notes to financial statements.
F-4
<PAGE>
<TABLE>
Financial Statements of Business Acquired
ClearOne, Inc.
Statements of Cash Flows
<CAPTION>
April 30, 2000
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Cash Flows From Operating Activities
<S> <C>
Net income $ (1,308,081)
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Depreciation 178,351
Amortization 57,002
Allowance for bad debt 1,758
Unearned revenue (400,000)
Product design and R&D equipment written down to net realizable value 30,550
Impairment of license agreements 156,751
Inventory write down to net realizable value 91,180
Realized loss on asset dispositions 36,929
Realized loss on abandoned leasehold improvements 14,170
(Increase) decrease in operating assets
Accounts receivable 154,256
License revenue receivable 200,000
Inventory 8,629
Prepaid expenses 3,333
Deposits 60,000
Employee receivables 36,431
Other current assets 2,938
Increase (decrease) in operating liabilities
Accounts Payable (116,988)
Accrued expenses (47,702)
Accrued wages (68,899)
Accrued interest 4,040
Accrued warranty costs 1,224
Accrued advertising costs 16,563
Pension plan payable 3,274
State and local taxes payable (1,104)
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Net Cash Provided (Used) By Operating Activities (885,395)
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Cash Flows From Investing Activities
Payments for property and equipment (6,810)
Leasehold improvements (21,203)
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Net Cash Provided (Used) By Investing Activities (28,013)
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Cash Flows From Financing Activities
Shareholder loans 962,000
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Net Cash Provided (Used) By Financing Activities 962,000
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Net Increase (Decrease) In Cash And Cash Equivalents 48,592
Beginning Cash And Cash Equivalents 22,799
Ending Cash And Cash Equivalents $ 71,391
=============
</TABLE>
See notes to financial statements.
F-5
<PAGE>
<TABLE>
Financial Statements of Business Acquired
ClearOne, Inc.
Statements of Cash Flows
(Continued)
<CAPTION>
April 30, 2000
--------------
Supplemental disclosure of cash flow information
<S> <C>
Cash paid during year for interest $ 195,104
=========
Income taxes paid $ 456
=========
Supplemental disclosure of noncash investing
and financing activities
Disposal of equipment and trademarks:
Cost $ 86,595
Accumulated depreciation (39,458)
---------
Adjusted Basis 47,137
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Selling Price 10,208
---------
Loss on disposal $ 36,929
=========
Abandonment of leasehold improvements:
Cost $ 20,446
Accumulated depreciation (6,276)
---------
Loss on abandonment $ 14,170
=========
Impairment of license agreements:
Cost $ 261,252
Accumulated amortization (104,501)
---------
Loss on impairment $ 156,751
=========
Return of founders common stock
donated to treasury stock
2,200,000 shares at cost (.01 par value) $ 22,000
=========
</TABLE>
See notes to financial statements
F-6
<PAGE>
ClearOne, Inc.
Notes To Financial Statements
April 30, 2000
Note 1. - Summary of Significant Accounting Policies
The Company
ClearOne, Inc. (the Company) was a development stage enterprise, up through
April 30, 1999. The Company has undertaken the development and marketing of new
technologies in the field of audio conferencing. The financial statements and
notes are representations of the Company's management, who is responsible for
their integrity and objectivity. The accounting policies of the Company are in
accordance with generally accepted accounting principles and have been
consistently applied in preparing these financial statements.
The Company initially incorporated in New Jersey. The Company's founders and
attorney shortly thereafter decided it would be better to conduct business under
Massachusetts law. The Company transferred its stock subscriptions and related
deposits for stock to a Massachusetts corporation as of May 6, 1997, the date of
incorporation in Massachusetts. The Company was originally incorporated under
the name, InterVision Corporation, Inc., and then changed its name to ClearOne,
Inc.
The Company designs, markets, and manufactures high performance
telecommunications equipment. ClearOne, Inc. is a privately held company located
in Woburn, Massachusetts.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
Revenue Recognition
Revenues from product sales are recognized when earned. For financial reporting
purposes, revenues generated by sales to distributors and retailers under
agreements allowing certain rights of return may be deferred until the product
is sold by the distributor or retailer.
Revenues from licensing of products will be recognized upon contract execution,
provided all shipment and significant obligations have been met, fees are fixed
or determinable and collection is probable. Revenue, if any, from maintenance
contracts and upgrade agreements will be recognized ratably over the contract
and upgrade agreement. Revenue, if any, from consulting and training is
recognized upon performance.
Cash, Cash Equivalents, and Short Term Investments
The Company considers all highly liquid debt instruments with an original
maturity of three months or less to be cash equivalents. Management determines
F-7
<PAGE>
the appropriate classification of debt and equity securities at the time of
purchase and reevaluates the classification at each reporting date. During the
year ended April 30,2000, the Company classified its investments as
available-for-sale. The cost of the Company's investments is determined based
upon specific identification. Investments classified as available-for-sale are
reported at fair value with unrealized gains and losses, net of related tax, if
any, recorded as a separate component of stockholder's equity. At April 30,
2000, the Company's investments classified as available-for-sale totaled zero.
Cash equivalents include a $60,000 good faith deposit returnable on demand by
Company from a foreign contract manufacturer. The deposit is presented at cost
and has subsequently been returned to Company on June 30, 2000.
Inventory
Inventory is stated at the lower of cost using the first-in, first-out method,
or market, defined as net realizable value. At April 30, 2000 inventory consists
of raw materials of $485,499 and finished goods of $164,852 valued at net
realizable value. The amount reported as inventory at April 30, 2000 is after a
write down of $91,180 to reflect market value as net realizable value. The
amount was charged to other income and expenses since the Company entered into a
sale of the bulk of its inventory on July 5, 2000, at a price that is deemed to
be the net realizable value.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed using the straight-line
method based upon the shorter of the estimated useful lives, ranging from three
to five years or the lease term of the respective assets as follows:
Furniture and fixtures 5 years, Computer and testing equipment 3 years, and
leasehold improvements 5 years.
Molds and dies have been developed for products, and their cost of $156,303 is
included in equipment. The cost has not been depreciated due to the fact that
the molds and dies have not been placed into service since use has not been
considered significant.
Leasehold improvements totaling $20,446 (original cost) abandoned at prior
locations have been written off during the year ended April 30, 2000.
Developed Software and Product Design
Research and development costs are charged to operations as incurred. In
accordance with FAS-86, costs incurred to develop software that will be sold,
leased, or otherwise marketed by the Company are capitalized after technological
feasibility has been established and through the period of general availability
of the product. During the year ended April 30, 2000, the Company had none.
License Agreements
The Company has purchased certain software licensing agreements for software and
module components to be included in their products. Management has capitalized
the license agreements and amortizes them over the useful lives of 5 years.
Amortization of license agreements for the year ended April 30, 2000 equaled
$52,250.
The carrying value of the long term assets such as license agreements that are
granted to the company are reviewed on an annual basis for the existence of
facts or circumstances both internally and externally that may suggest
impairment. The Company determined as of April 30, 2000, that an impairment had
occurred based on gross expected future cash flows being insignificant, if any,
since the license agreements significantly pertain to a suspended product. The
cash flow estimates used to determine the impairment contain management's best
estimate using appropriate and customary assumptions and projections as of April
30, 2000. The amount of the impairment was $156,751.
F-8
<PAGE>
On March 24, 1999, the Company granted a perpetual, worldwide, irrevocable,
non-exclusive and non-transferable license to VideoServer, Inc., now called
Ezenia, Inc., for certain software in source and object code form, and reference
hardware design, except as part of a sale of the portion of the Company's
business associated with software or reference design, or a merger or sale of
all the stock or assets of either the Company or VideoServer, without the prior
consent of the other party.
The license is to use and modify software and the reference design, in all
forms, including but not limited to source code and object code forms. Ezenia,
Inc. and its subsidiaries may use the software and the reference design for the
purpose of creating conferencing products as well as making, using, selling and
licensing such products. Ezenia, Inc. must restrict access to employees,
consultants and contractors who need to know. Ezenia's products may be
demonstrated, loaned, marketed, sold and or sub-licensed without restriction
either or through its channels of distribution.
The Company further grants to Ezenia, Inc. a perpetual, worldwide, irrevocable,
non-exclusive, non-transferable right and license to use the software internally
and to sub-license (under legally enforceable agreements) and distribute the
software in object code form, to end users and/or resellers, as part of or in
conjunction with the Ezenia products except as part of a sale of the portion of
the Company's business associated with the software or reference design or a
merger or sale of substantially all of the stock or assets of either the company
or Ezenia without the prior consent of the other party which consent shall not
be unreasonable withheld. Ezenia may also sub-license the source code to the
software provided it is in conjunction with or as part of the Ezenia products
(hardware and software) and where in circumstances Ezenia must place source code
into escrow as part of a maintenance or support agreement.
Ezenia, Inc. will be entitled to a finder's fee of 6% from any referrals that
obtain rights to the reference design or software for the purpose of creating a
product from the company as a result of a demonstration of the product. In
consideration of the license rights granted by the company to Ezenia, Ezenia
paid a license fee of $400,000 that was reflected as unearned license revenue as
of April 30, 1999 until shipment and obligations had been met. On August 5,
1999, the Company had fulfilled its shipment and other contractual obligations;
the Company was able to reflect the $400,00 as license revenue. Ezenia will also
pay $4,000 for each hardware unit ordered, After 180 days of free software
upgrade, the Company will receive $25,000 per year for any and all updates
purchased by Ezenia. As of April 30, 2000, The Company had received zero dollars
under this agreement. The Company agrees to indemnify, defend and hold Ezenia
harmless from and against any claims, actions, or demands alleging that the
software in its unmodified form directly infringes or misappropriates any U.S.
patent, trademark, copyright, trade secret and proprietary right of any third
party. Breach of contract for any cause or action under this agreement, will be
solely limited to the actual dollar amount that either party received from the
other as a result of this agreement.
Intangible Assets
Intangible assets consist of pending trademarks and patents. The costs incurred
have been capitalized and will be amortized over the useful life of the
trademarks and patents once they have been approved.
Management has deemed that the pending trademarks have no future use due to the
sale of some of the Company's assets as described in Note 12. The cost of $5,884
for pending trademarks has been written off as a charge to loss on asset
dispositions during the year ended April 30, 2000.
Income Taxes
The principal items accounting for the differences between the income tax
benefits computed using the United States statutory rate and the provision for
income taxes are as follows:
F-9
<PAGE>
April 30, 2000
Federal tax benefit at statutory rate $ (442,615)
State tax benefit, net of federal effect (123,672)
Research and experimentation credits ( -- )
Unutilized net operating losses 566,287
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Total $ --
Net deferred tax assets comprise:
Net operating loss carry forwards $ 2,677,112
Research and experimentation credit carry forwards 175,408
Valuation allowance (2,852,520)
-----------
Net deferred tax assets $ --
Due to the uncertainty surrounding the realization of the deferred tax assets in
the future tax returns, the Company has placed a valuation allowance against its
otherwise recognizable net deferred tax assets. Should the Company achieve
profitability, these deferred tax assets may be available to offset future
income tax liabilities and expenses.
At April 30, 2000 the Company had the following carry forwards available to
reduce future taxable income and income taxes:
Federal State
Net operating loss carry forwards $ 6,154,281 $ 6,152,913
Research and experimentation credit carry forwards $ 124,240 $ 51,168
The federal and state net operating loss carry forwards expire through the year
2020, and the research and experimentation credit carry forwards expire through
the year 2019.
For federal and state tax purposes, the Company's net operating loss and
research and experimentation credit carry forwards could be subject to certain
limitations on annual utilization if certain changes in ownership were to occur,
as defined by federal and state tax laws.
The Company has a current tax liability to the State of Massachusetts payable in
the amount of $456 due to the jurisdiction's minimum excise tax.
Concentration of Credit Risk and Uncertainties
Financial instruments that potentially subject the Company to significant
concentrations of risk consist principally of cash, cash equivalents, short-term
investments and trade accounts receivable. The Company places its cash, cash
equivalents, and short-term investments in market rate accounts with reputable
financial institutions. At times, such deposits in the United States may be in
excess of FDIC insured limits. Cash equivalents may present risk of changes in
value because of interest rate changes.
The trade accounts receivable risk is limited due to the breath of entities
comprising the Company's direct customer base and that of its distributors and
also their dispersion across different industries and geographical regions. The
Company evaluates the credit worthiness of customers, as appropriate and
maintains an adequate allowance for potential uncollectible accounts.
F-10
<PAGE>
The Company has entered into numerous distribution agreements both domestically
and internationally in order to obtain distribution channels for its products.
These agreements generally provide lower and favorable pricing arrangements in
comparison to a direct or retail sale. These agreements provide the distributors
in some cases, advertising allowances, volume discounts, payment discounts,
pricing protection for a limited amount of time in most cases 60 days notice and
standard warranty guarantee, one year domestically and in some cases eighteen
months internationally. Some of the agreements require minimum annual sales to
maintain favorable pricing terms. All agreements are subject to annual review
and contain release clauses for non-performance without penalty for early
terminations.
The Company has entered into an international distribution agreement that calls
for all payments to be made by the distributor in the currency of the New Taiwan
dollar. As of April 30, 2000, there is immaterial exposure associated with this
agreement.
Fair Value of Financial Instruments
The carrying amount for the Company's financial instruments, including cash and
cash equivalents, accounts receivable, accounts payable and accrued liabilities
approximate fair value because of the general immediate or short term maturity
of these financial instruments.
Accounting For Stock-Based Compensation
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation", encourages but does not require, companies to record
compensation cost for stock-based employee compensation plans at fair value. The
Company has chosen to continue to account for stock-based compensation using the
intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. Accordingly, the compensation cost for
stock options is measured as the excess, if any, of the quoted market price of
the Company's stock at the date of the grant over the amount an employee or
consultant must pay to acquire the stock. As of April 30, 2000, there has been
no compensation expense recognized because the grant price exceeds the market
price.
Advertising
Advertising costs amounting to $113,577 for the year ended April 30, 2000 were
charged to marketing and selling as incurred.
The Company has entered into a co-marketing agreement with a publicly traded
company to cooperate in the development of teleconferencing solutions through
joint use of both companies' products. This agreement was for one year,
beginning April 23, 1998 and ending on April 23, 1999, with terms for an
automatic annual renewal. Both companies agreed to create joint marketing
resources to market their bundled products. These efforts include, but are not
limited to: joint training sessions, application notes, demonstration programs,
road-show promotions, trade show exhibits, advertising, trade journal articles,
and demonstration units. This agreement has been terminated as of July 5, 2000.
F-11
<PAGE>
Warranty Cost and Reserve
The Company generally provides a warranty for up to one year on domestic sales
and eighteen months for international sales at no extra charge. A reserve is
recorded for probable costs in connection with warranties based on Company's
experience. The accrued warranty costs were $3,949 for the year ended April 30,
2000. Warranty cost directly charged to cost of goods sold were $6,677 for the
year ended April 30, 2000.
Commissions
Effective October 1, 1999, the Company entered into a Full Service
Representative Agreement with USA Marketing Group, Inc. in which the
Representative would be its exclusive sales representative to solicit orders on
all of the Company's product in the Continental United States, for 5% of net
invoice price of products. The original agreement was effective October 1, 1999
with either party able to cancel the agreement by giving 60 days advance notice
to the other party. On January 22, 2000, the Company and the Representative
amended the agreement so that the Representative starting March 1, 2000 would be
paid a monthly consulting fee of $2,500 for the period March 1, 2000 through
June 1, 2000 and an advance commission of $2,500 a month from the period March
1, 2000 through June 1, 2000. The Company will deduct the advance commission
from the monthly commission due. During the year ended April 30, 2000, all fees
paid to the Representative for $10,598 have been expensed to marketing and
selling. As of June 1, 2000 either party can again cancel the agreement by
giving 60 days advance notice to the other party. As of June 30, 2000, the
Company verbally notified Representative that the agreement was terminated.
Note 2. - Revolving Line of Credit
At April 30, 2000, the Company has a $3,500,000 revolving line of credit with a
stockholder of which $2,892,000 was outstanding and payable to the stockholder.
Available credit at April 30, 2000 was $608,000. The agreement is collateratized
by inventory, chattel paper, equipment, general intangibles and fixtures and
insurance proceeds associated with these described items. All rents, monies,
payments, other rights arising out of a sale, lease or other disposition of any
of the property described above is considered substitute collateral. Starting
October 1, 1999, all interest due on the outstanding line of credit was paid and
further interest is to be calculated monthly on the outstanding line as of the
first day of the month. The revolving line of credit bears a fixed interest rate
at 8.5%. The Company may borrow against the line of credit until the stockholder
makes demand. At that time, the full amount of the revolving line of credit will
be due and payable. The revolving line of credit contains certain financial
covenants including events of default which allow the stockholder other
collateral including the right of set off against checking, savings and other
investment accounts of the corporation, continuing security agreements which
remain in effect even though all or any part of the indebtedness is paid in full
and even though for a period of time the corporation may not be indebted to
stockholder; the Company cannot bulk sale assets, transfer assets, assign
collateral or borrow without prior written consent of stockholder which consent
would not be unreasonably withheld. This revolving line of credit is senior in
terms of collateral to all preferred and common stock issued, outstanding and
authorized.
As a result of obtaining this revolving line of credit from a stockholder the
existing demand note payable from the same stockholder for $2,150,000 as of
September 1, 1999 has been converted to this new revolving line of credit. Cash
paid for interest was $195,104 in 2000.
Note 3. - Related Party Transactions
A stockholder from Pinway Electronics Co., Ltd. (Pinway), who is also a
stockholder in ClearOne, was hired by the Company to perform consulting services
in exchange for stock options totaling 25,000 shares of common stock, 5,000 of
which was contingent upon the delivery of strategic products or services. As of
April 30, 2000 none of these options have been exercised.
F-12
<PAGE>
The company obtained advances from a stockholder during the year ended April 30,
2000 as mentioned in Note 2. - Revolving Line of Credit.
One of the original founders of the Company has an executive position with the
licensee of certain of the Company's technology, VideoServer, Inc., now called
Ezenia, Inc.
Note 4. - Commitments and Contingencies
Lease Agreements
The Company leases its primary facility under a non-cancelable operating lease
that expires in March 2003. The agreement provides for annual increments of rent
in predetermined amounts, subject to inflationary increases, and requires the
Company to pay insurance and normal maintenance costs.
Future minimum lease payments under non-cancelable operating lease as of April
30, 2000 are as follows:
2001....................................$ 39,937
2002.................................... 39,937
2003.................................... 39,937
-------
$119,811
========
Rent expense for the operating lease was $129,345 for the year ended April 30,
2000.
The Company leases equipment under a 39 month operating lease that began on May
1, 1999. The future minimum lease payments under this agreement as of April 30,
2000 are as follows:
2001 ..............................$ 4,574
2002 .............................. 4,574
2003 .............................. 762
---------
$ 9,910
=========
The lease expense for this agreement was $4,738 for the year ended April 30,
2000.
Stock Warrants
Warrants to purchase 2,000,000 shares of the Company's common stock at a price
per share of $2 have been granted to the Company's first round investors
exercisable on or before any initial public offering date, which is yet to be
determined.
Note 5. - Stock Option Plans
In 1997, the Company completed its initial private offering (the offering) of
its common stock selling 2,000,000 shares at $2 per share.
In 1997, the Company established a stock option plan which is currently being
treated as a non-qualified stock option plan. The Company has set aside
2,715,000 shares of its common stock for this plan. A certain percentage of the
shares granted will be vested after one year with the remaining shares under the
stock option plan vesting at 6.25% quarterly thereafter until fully vested.
Another portion of the original award under the stock option plan would be
F-13
<PAGE>
granted after one year and based on the holder's performance as reviewed by
his/her immediate supervisor and then the compensation committee. The final
portion of the award under the stock option plan will be granted after two years
and will be based on the Company's performance as determined by its annual
audited financial statements. Vesting is strictly conditional on the employee
remaining a full-time employee. If an individual ceases to be an employee of the
company he has 90 days to exercise any vested options that they may have had. As
of April 30, 2000, no one who has left the company has exercised any stock
options. Further restrictions may apply as detailed in the Company's stock
option plan. The option price is determined by the compensation committee based
on the Company's current financial status.
In addition, the Company has set aside 85,000 shares of its common stock for
consultants who perform key services to the Company. The option price is
determined by the compensation committee based on the Company's current
financial status. Vesting is determined on a case-by-case basis by the
compensation committee
Note 6. - Recapitalization and Capital Structure
On January 12, 1999, the Company undertook a recapitalization of its capital
structure by unanimous consent of the stockholders. The authorized capital stock
of the Company was changed from 10,000,000 shares of common stock, $.01 par
value to the following:
11,000,000 shares common stock, $.01 par value;
2,000,000 shares Series B preferred stock, $.01 par value; and
1,000,000 shares Series A preferred stock, $.01 par value.
The founders retained their class of shares as Common Stock for a total of
3,200,000 shares, $.01 par value. The first round investors converted their
total of 2,000,000 shares of Common Stock in a one for one conversion to Series
B Preferred Stock retaining the same par value and paid-in capital value. Series
A Preferred Stock was issued in the year ended April 30, 1999 as a second round
of equity financing.
Common Stock:
The voting, dividend, and liquidation rights of the holders of Common Stock are
subject to and qualified by the rights of the holders of the Series B and Series
A Preferred Stock. The holders of the Common Stock are entitled to one vote for
each share held at all meetings of stockholders (and written actions in lieu of
meetings). Dividends may be declared and paid on the Common Stock from funds
lawfully available therefore as and when determined by the Board of Directors
and subject to any preferential dividend rights of any then outstanding Series B
or Series A Preferred Stock. Upon the dissolution or liquidation of the Company,
whether voluntary or involuntary, holders of Common Stock will be entitled to
receive all assets of the Company available for dissolution to its stockholders,
after paying revolving line of credit and subject to any preferential rights of
any then outstanding Series B or Series A Preferred Stock.
Series B Preferred Stock:
Scheduled to start on January 1, 2000, the holders of the Series B Preferred
Stock will be entitled to receive dividends at the rate of 4% of the sum of
$2.00 (the "Original Purchase Price") whenever funds are legal available as and
when declared by the Board of Directors. As of the date of these financial
statement, no dividends have been declared. Dividends on the Series B Preferred
Stock will be non-cumulative. In the event of any liquidation, dissolution, or
winding up of the Company, the holders of Series B Preferred Stock will be
entitled to receive in preference to the holders of the Common Stock and amount
equal to $2.00 per share. Holders of Series B Preferred Stock will have the
right to convert their shares of Series B Preferred Stock, at the option of such
holder, at any time into shares of Common Stock. The total number of shares of
Common Stock into which shares of Series B Preferred Stock may be converted
initially will be determined by dividing the Original Purchase Price by the
conversion price (the "Conversion Price"). The initial Conversion Price will be
the Original Purchase Price. The Conversion Price will be subject to adjustment
to reflect stock dividends, stock splits, and similar events on a weighted
F-14
<PAGE>
average basis to prevent dilution in the event that the Company issues
additional shares at a purchase price less than the applicable Conversion Price.
The Series B Preferred Stock will be automatically converted into Common Stock,
at the then applicable Conversion Price, upon the closing of a sale of the
Company's shares of Common Stock pursuant to a firm commitment of underwritten
public offering by the Company at a public offering price per share. Except with
respect to the election of Directors of the Company, each holder of outstanding
shares of Series B Preferred Stock shall be entitled to the number of votes
equal to the number of shares of Common Stock into which the shares of Series B
Preferred Stock are convertible.
As long as there is at least 50% of the Series B Preferred Stock initially
issued outstanding, the consent of the holders of at least a majority of the
issued and outstanding Series B Preferred Stock voting as a separate class shall
be required for (1) changing corporation's articles of organization and/or
by-laws which would effect the rights of the Series B Preferred shareholders;
(2) creating a new class of stock with a greater preference or priority to
Series B as to dividends or assets; (3) creating a convertible bond, notes or
other obligations that had a greater preference or priority to Series B as to
dividends or assets; (4) a corporate reorganization that would result in common
stock having a greater preference or priority to Series B as to dividends or
assets; (5) redemption of common stock except from employees, advisors,
officers, directors, consultants and service providers which terms have been
approved by the Board of Directors; and (6) merger, sale or consolidation of the
corporation.
Series A Preferred Stock:
Scheduled to start on January 1, 2000, the holders of the Series A Preferred
Stock will be entitled to receive dividends at the rate of 4% of the sum of
$2.60 (the "Original Purchase Price") whenever funds are legal available as and
when declared by the Board of Directors. As of the date of these financial
statements, no dividends have been declared. No dividend shall be paid on the
common stock at a rate greater than the rate at which dividends are paid on the
Series B Preferred Stock. Dividends on the Series A Preferred Stock will be
non-cumulative. In the event of any liquidation, dissolution, or winding up of
the Company, the holders of Series A Preferred Stock will be entitled to receive
in preference to the holders of the Common Stock and amount equal to $2.60 per
share. Holders of Series A Preferred Stock will have the right to convert their
shares of Series A Preferred Stock, at the option of such holder, at any time
into shares of Common Stock. The total number of shares of Common Stock into
which shares of Series A Preferred Stock may be converted initially will be
determined by dividing the Original Purchase Price by the conversion price (the
"Conversion Price"). The initial Conversion Price will be the Original Purchase
Price. The Conversion Price will be subject to adjustment to reflect stock
dividends, stock splits, and similar events on a weighted average basis to
prevent dilution in the event that the Company issues additional shares at a
purchase price less than the applicable Conversion Price. The Series A Preferred
Stock will be automatically converted into Common Stock, at the then applicable
Conversion Price, upon the closing of a sale of the Company's shares of Common
Stock pursuant to a firm commitment of underwritten public offering by the
Company at a public offering price per share. Except with respect to the
election of Directors of the Company, each holder of outstanding shares of
Series A Preferred Stock shall be entitled to the number of votes equal to the
number of shares of Common Stock into which the shares of Series A Preferred
Stock are convertible.
As long as there is at least 50% of the Series A Preferred Stock initially
issued outstanding, the consent of the holders of at least a majority of the
issued and outstanding Series A Preferred Stock voting as a separate class shall
be required for (1) changing corporation's articles of organization and/or
by-laws which would effect the rights of the Series A Preferred shareholders;
(2) creating a new class of stock with a greater preference or priority to
Series A as to dividends or assets; (3) creating a convertible bond, notes or
other obligations that had a greater preference or priority to Series A as to
dividends or assets; (4) a corporate reorganization that would result in common
stock having a greater preference or priority to Series A as to dividends or
assets; (5) redemption of common stock except from employees, advisors,
officers, directors, consultants and service providers which terms have been
approved by the Board of Directors; and (6) merger, sale or consolidation of the
corporation.
F-15
<PAGE>
Note 7. - 401(k) Savings Plan
The Company adopted a 401(k) savings plan (the savings plan) covering
substantially all of its employees, subject to the age requirement being 21 for
participation. Under the savings plan, eligible employees may contribute up to
the maximum allowed by the IRS from their compensation to the savings plan. The
Company matching contribution is zero at this time. However, the Company has the
option to make profit sharing contributions to the plan subject to a
predetermined vesting schedule in the future.
Note 8. - Going Concern
The conditions of recurring operating losses, working capital deficiencies,
negative cash flows from operations, seeking new methods of financing,
substantial dependency on the success of a particular product, employee turn
over, and need to significantly revise operations, indicated that the Company
was unable to continue as a going concern for the year ended April 30, 1999. As
a result of the subsequent sale of a significant amount of the Company's assets
on July 5, 2000, the Company has obtained enough liquidity to continue as a
going concern for the immediate future. A stockholder has agreed to fund the
financial requirements of the Company if the operating expenses exceed available
cash for the foreseeable future.
Note 9. - Comprehensive Income
In June of 1997, the Financial Accounting Standards Board issued SFAS No.130,
"Reporting Comprehensive Income." SFAS No. 130 established standards for
reporting comprehensive income and its components in a financial statement.
Comprehensive income as defined included all changes in equity (net asset)
during a period from non-owner sources. Examples of items to be included in
comprehensive income, which are excluded from net income, include foreign
currency translation adjustments and unrealized gains/losses on
available-for-sale securities. There were no adjustments required for the year
ended April 30, 2000.
Note 10. - Segment Reporting
Effective April 30, 2000, the Company adopted SFAS No.131, "Disclosures About
Segments of an Enterprise and Related Information." SFAS No.131 established
standards for reporting information by public companies about operating segments
in annual financial statements. It also established standards for related
disclosure about products and services, geographic areas and major customers.
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker, or decision making group, in deciding how to
allocate resources and in assessing performance. The Company's chief operating
decision-maker is the chief executive officer of the Company.
The Company is predominately a speakerphone manufacturer with its products being
distributed and manufactured worldwide for the year ended April 30, 2000. In
addition, the Company licenses its technology, and finalized its first license
to one customer during the year ended April 30, 2000.
Financial information about the segments:
Products License Agreement
Revenue $ 98,588 $ 400,000
Cost of Goods Sold 77,994 --
F-16
<PAGE>
Note 11. - Nonrecurring Charge
During the fiscal year ended April 30, 2000. The Company evaluated several
aspects of its business and made strategic decisions that effected portions of
the Company's business. The Company moved to concentrate its business on its
newer speakerphone version and Microphone Pads. This allowed the Company to
narrow its focus on key equipment distributors and related products for these
distributors. As a result an evaluation and analysis of the Company's license
agreements, pending trademarks and certain patents was conducted. Based on the
projected earnings and undiscounted cash flow analysis of the affected business
activities, the Company determined the fair value of certain assets should be
adjusted. Accordingly, certain assets were revalued and $162,635 was recorded as
a nonrecurring, non-cash charge. The $162,635 consists of the $156,751
impairment of license agreements, and the $5,884 write down of pending
trademarks charged to loss on asset dispositions. The Company does not
anticipate any significant cash charge, beyond those recorded, to complete
implementation of its new strategic direction.
Note 12. - Subsequent Event
On or about May 23, 2000 the Company entered into a vendor agreement with a
vendor for the period July 7, 2000 through June 30, 2001 which includes a
minimum purchase amount by the vendor of $350,000. This order is subject to the
terms of the agreement which include, but are not limited to, 120 days price
increase notice, guaranteed price decline protection by the Company, the lowest
vendor price offered to any other vendor, 9% rebate on the $350,000 gross
purchase price, a $5,000 slotting fee per SKU, a 10% gross purchase discount for
Market Development Fund and a 1.1% gross dock allowance on receipt of goods from
vendor.
On July 5, 2000, the Company agreed to sell Gentner Communications Corporation
(the Buyer) effectively all of its assets including property and equipment such
as but not limited to equipment, furniture and fixtures, leasehold improvements,
certain inventories of raw materials and supplies, goods in process and finished
goods, intellectual property rights developed and patented, licenses and rights
thereunder, remedies against infringements thereof, and rights to participation
of enforceable interests therein under the laws of all jurisdictions. Acquired
assets as defined by the agreement include leases, capital and operating, if
any, such as the primary facility lease along with minimum lease payments as
mentioned in Note 4. - Commitments and Contingencies, prepaid items, causes of
actions, choices in actions, rights of recovery, creative materials, advertising
and promotional materials, distribution agreements, vendor agreements subject to
only those liabilities and obligations pursuant to contracts assumed by the
Buyer as part of the acquired assets. In addition, all rights and obligations
associated with the VideoServer (Ezenia, Inc.) license was renegotiated and
amended as part of this agreement. The Buyer agrees to pay to the Seller the
total amount of $3,758,085 as follows:
(1) $200,000 in cash deposit
(2) $100,000 in cash by wire transfer as part of the escrowed amount
(3) $1,458,085 in cash by wire transfer to the Seller at the closing
(4) $2,000,000 in value of the Buyer's shares which is 129,871 shares
arrived at by a quotient, the numerator is 2,000,000 and the
denominator was $15.40 which is the adjusted trading price for the ten
(10) trading days between May 1, 2000 and May 10, 2000
As mentioned there will be escrowed $100,000 in cash and additional 29,591
Buyer's shares from the 129,871 that the Company is entitled to during the
set-off rights period that will be for eighteen months from the closing date.
The Buyer shall have the option of recouping all or any adverse consequences as
defined in the agreement such as taxes, liens, attorney's fees and damages once
the aggregate equals or exceeds $34,000. The Company has ten days to contest
claims and subjects offset to arbitration process.
F-17
<PAGE>
The agreement is subject to certain covenants that include but not limited to
the Company obtaining third party consents that involve transferring of certain
licenses with terms that exist and/or require modification, the Corporation will
be required to maintain its business operation substantially intact for at least
a period of eighteen months in order to insure survival of representations and
warranties that are a part of this agreement.
F-18
<PAGE>
Pro Forma Financial Information
Gentner Communications Corporation and ClearOne, Incorporated
Unaudited Pro Forma Condensed Combined Financial Information
The following unaudited pro forma condensed combined financial information gives
effect to the asset purchase transaction of ClearOne by the Registrant using the
purchase method of accounting. The unaudited pro forma condensed combined
balance sheet as of June 30, 2000 gives effect to the acquisition as if the
acquisition had occurred on that date. The unaudited pro forma condensed
combined balance sheet includes the balance sheet of the Registrant as of June
30, 2000 and the balance sheet of ClearOne as of April 30, 2000. The unaudited
pro forma condensed combined statement of operations for the year ended June 30,
2000 gives effect to the acquisition as if the acquisition had occurred on July
1, 1999. The unaudited pro forma condensed combined statement of operations
presented for the year ended June 30, 2000 includes the historical financial
results of the Registrant for the year ended June 30, 2000 and of ClearOne for
the year ended April 30, 2000.
Unaudited pro forma combined financial information is presented for illustrative
purposes only and is not necessarily indicative of the financial position or
results of operations that would have actually been reported had the purchase
occurred at the beginning of the period presented, nor is it necessarily
indicative of future financial position or results of operations. These
unaudited pro forma combined financial statements are based upon the respective
historical financial statements of Gentner and ClearOne and do not incorporate,
nor do they assume, any benefits from cost savings or synergies of operations of
the combined company.
<TABLE>
Unaudited Pro Forma Financial Information
Pro Forma Condensed Combined Balance Sheet
As of June 30, 2000
<CAPTION>
Historical
----------
Gentner
Communications ClearOne, Pro Forma Pro Forma
Corporation Inc. Adjustments Combined
---------------------------------------------------------------------
ASSETS
Current assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 5,374,996 $ 71,391 $(1,798,085) A
(71,391) B $ 3,576,911
Accounts receivable, net 4,153,677 4,153,677
54,835 (54,835) B
Inventory 3,484,992 3,784,077
650,351 (351,266) B
Income tax receivable 987,912 987,912
Deferred taxes 136,000 136,000
Other current assets 678,744 7,942 (7,942) B 678,744
--------------------------------------------- ----------------
Total current assets 14,816,321 784,519 (2,283,519) 13,317,321
Property and equipment, net 3,050,349 316,284 3,366,633
Other assets:
Deposits 62,250 (3,000) B 59,250
Organizational costs, net 12,556 (12,556) B -
Other assets 53,861 21,624 3,101,855 D 3,177,340
--------------------------------------------- ----------------
Total other assets 53,861 96,430 3,086,299 3,236,590
--------------------------------------------- ----------------
Total assets $17,920,531 $ 1,197,233 $ 802,780 $19,920,544
============================================= ================
</TABLE>
F-19
<PAGE>
<TABLE>
<CAPTION>
Historical
----------
Gentner
Communications ClearOne, Pro Forma Pro Forma
Corporation Inc. Adjustments Combined
---------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
<S> <C> <C> <C> <C>
Accounts payable $ 767,095 $ 27,362 $ (27,362) B $ 767,095
Accrued expenses 1,739,826 86,133 (86,133) B 1,739,826
Current portion of capital lease obligation 249,859 249,859
Short-term portion of stockholder loan 2,892,000 (2,892,000) E -
--------------------------------------------- ----------------
Total current liabilities 2,756,780 3,005,495 (3,005,495) 2,756,780
Capital lease obligations 205,530 205,530
Deferred tax liability 205,000 205,000
--------------- ----------------
Total liabilities 3,167,310 3,167,310
Shareholders' equity:
Common stock, 50,000,000 shares authorized, par
value $.001, 8,427,145 issued and outstanding at
June 30, 2000 8,427 130 G 8,557
Series B Preferred Stock, $.01 par value; 2,000,000
shares authorized, issued and outstanding 20,000 (20,000) C -
Series A Preferred Stock, $.01 par value; 1,000,000
shares authorized, 627,050 shares issued and 6,271 (6,271) C -
Common Stock $.01 par value; 11,000,000 shares
authorized, 3,200,000 shares issued and outstanding 32,000 (32,000) C -
Additional paid-in capital 6,697,090 5,626,060 (5,626,060) C
1,999,883 G 8,696,973
Less: Stock subscription receivable (330) 330 C -
Retained earnings (accumulated deficit) 8,047,704 (7,470,263) 7,470,263 C 8,047,704
Less: Donated treasury stock, 2,200,000 common shares
at cost (22,000) 22,000 C -
--------------------------------------------- ----------------
Total shareholders' equity 14,753,221 (1,808,262) 3,808,275 16,753,234
--------------------------------------------- ----------------
Total liabilities and shareholders' equity $17,920,531 $ 1,197,233 $ 802,780 $19,920,544
============================================= ================
</TABLE>
See accompanying notes to unaudited pro forma
condensed combined financial statements
F-20
<PAGE>
<TABLE>
Unaudited Pro Forma Condensed Combined Statement of Operations
For the year ended June 30, 2000
<CAPTION>
Historical
----------
Gentner
Communications ClearOne, Pro Forma Pro Forma
Corporation Inc. Adjustments Combined
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 30,871,942 $ 98,588 400,000 H $ 31,370,530
Cost of goods sold 11,932,811 77,994 91,180 I 12,101,985
-------------------------------------------------- -----------------
Gross profit 18,939,131 20,594 308,820 19,268,545
Operating expenses:
Marketing and selling 6,763,752 299,832 7,063,584
General and administrative 3,132,125 687,667 268,124 D
207,850 I 4,295,766
Research and product development 1,821,656 243,187 2,064,843
-------------------------------------------------- -----------------
Total operating expenses 11,717,533 1,230,686 475,974 13,424,193
Operating income (loss) 7,221,598 (1,210,092) (167,154) 5,844,352
Other income (expense):
Interest income 236,387 236,387
Interest expense (65,554) (199,145) 199,145 E (65,554)
License agreement revenue 400,000 (400,000) I
Impairment of license agreement (156,751) 156,751 I
Inventory write down to net realizable value (91,180) 91,180 I
Realized loss on asset disposition (36,929) 36,929 I
Realized loss on abandoned leaseholds improvements (14,170) 14,170 I
Other, net 8,503 642 9,145
-------------------------------------------------- -----------------
Total other income (expense) 179,336 (97,533) 98,175 179,978
-------------------------------------------------- -----------------
Income (loss) before income taxes 7,400,934 (1,307,625) (68,979) 6,024,330
Provision for income taxes (2,672,601) (456) 23,453 F (2,649,604)
-------------------------------------------------- -----------------
Net income (loss) $ 4,728,333 $ (1,308,081) $ (45,526) $ 3,374,726
================================================== =================
Basic earnings per common share .57 .40
Diluted earnings per common share .54 .38
Weighted average shares outstanding:
Basic 8,269,941 129,871 G 8,399,812
Diluted 8,740,209 129,871 G 8,870,080
</TABLE>
See accompanying notes to unaudited pro forma
condensed combined financial statement
F-21
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
NOTE 1.
On July 5, 2000, the Registrant executed its asset purchase agreement with
ClearOne. Under the terms of the agreement, the Registrant purchased the fixed
assets, portions of the inventory, certain deposits , and the technological
infrastructure, including patents, of ClearOne. The Registrant issued 129,871
shares of common stock valued at $15.40 and cash of $1,758,085 and incurred
acquisition costs of $40,000 in the transaction. The following is a summary of
the purchase price allocation:
Fixed Assets $ 316,284
Inventory 299,085
Patents 21,624
Goodwill 3,101,855
Other Assets 59,250
----------
Total $3,798,098
NOTE 2.
The unaudited pro forma condensed combined balance sheet includes the
adjustments necessary to give effect to the ClearOne purchase as if it had
occurred at June 30, 2000 and to reflect the allocation of costs to the fair
value of tangible and intangible assets acquired as noted above. The unaudited
pro forma condensed combined statement of operations includes the adjustments
necessary to give effect to the ClearOne purchase as if it had occurred at July
1, 1999.
Adjustments included in the pro forma condensed combined financial
statements are summarized as follows:
(A) Cash outlay for acquisition includes:
o $1,758,085 - Cash paid for a portion of the purchase price as
specified in the asset purchase agreement.
o $ 40,000 - Cash paid for costs associated with the acquisition.
(B) Elimination of assets that were not purchased or liabilities that were
not assumed as part of the acquisition.
(C) Elimination of the equity of ClearOne.
(D) Amount represents goodwill of $3,061,855, capitalized acquisition
costs of approximately $40,000 and related pro forma goodwill
amortization expense for the year ended June 30, 2000.
(E) Elimination of the ClearOne debt, which was not assumed, and related
interest expense.
(F) Amount represents an adjustment to the income tax provision due to the
change in taxable income from pro forma adjustments at a federal tax
rate of 34%.
(G) Shares or value of shares issued for a portion of the purchase price
as specified in the asset purchase agreement.
(H) License revenue reported by ClearOne as a non-operating item that has
been reclassified to conform to the Registrant's method of
presentation.
(I) Certain expenses reported by ClearOne as non-operating expenses that
have been reclassified to conform to the Registrant's method of
presentation.
F-22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Gentner Communications Corp.
(Registrant)
By: /s/ Susie Strohm
---------------------------------------
Susie Strohm
Vice President, Finance
(Duly authorized Officer and Principal
Financial and Accounting Officer)
Dated: September 18, 2000
F-23
