ClearOne Communications, Inc., is a provider of end-to-end video and audio conferencing services, including the manufacture and sale of video and audio conferencing products. From its inception as a manufacturer of this equipment through 2001, ClearOne sold its products through a nationwide network of manufacturer’s representatives. Sometime in early 2001, ClearOne decided to alter its business model and instead of utilizing manufacturer’s representatives, began selling its products through a nationwide network of distributors complemented by a direct sales force. Through early 2001, ClearOne experienced robust growth and increased product sales every quarter. From the selected financial data extracted from ClearOne’s Form 10-Ks that follow, this growth appeared to continue through fiscal 2002. However, a complaint filed by the SEC against ClearOne alleges that things may not be as rosy as they seem.

Required:
1. Retrieve the SEC’s complaint against ClearOne Communications, Inc. (www.sec.gov/litigation/litreleases/lr17934.htm). Describe management’s scheme for inflating revenue.
2. The SEC alleges that by the end of fiscal 2002, ClearOne had stuffed approximately $11.5 million of inventory into the distribution channel. On the basis of this assertion, what was the approximate amount of its alleged revenue overstatement by the end of 2002?
3. Does the financial statement data presented support your estimate? Why, or why not?