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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
/x/ Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1996
OR
/ / Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _______________ to _______________
Commission file number 0-17219
GENTNER COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
Utah 87-0398877
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1825 Research Way, Salt Lake City, Utah 84119
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (801) 975-7200
NOT APPLICABLE
(Former name, former address and former fiscal year,
if changed since last report.)
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.
/x/ Yes / / No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
Class of Common Stock May 10, 1996
$0.001 par value 7,662,375 shares
GENTNER COMMUNICATIONS CORPORATION
BALANCE SHEETS
(Unaudited)
March 31, June 30,
1996 1995
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . .$ 196,590 $ 119,238
Accounts receivable . . . . . . . . . . . . . 1,316,678 1,644,376
Inventory . . . . . . . . . . . . . . . . . . 3,596,578 3,324,866
Other current assets . . . . . . . . . . . . 192,763 140,088
--------- ---------
Total current assets . . . . . . . . . . . 5,302,609 5,228,568
Property and equipment, net . . . . . . . . . . 1,577,123 1,829,161
Other assets, net . . . . . . . . . . . . . . . 129,486 140,731
--------- ---------
Total assets . . . . . . . . . . . . . . . $ 7,009,218 $ 7,198,460
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable . . . . . . . . . . . . . . . .$ 1,125,382 $ 1,508,687
Accounts payable . . . . . . . . . . . . . . 614,266 943,723
Accrued expenses . . . . . . . . . . . . . . 223,247 297,426
Current portion of long-term debt . . . . . . 167,829 93,506
Current portion of capital lease obligations 136,129 128,486
--------- ---------
Total current liabilities . . . . . . . . . 2,266,853 2,971,828
Long-term debt . . . . . . . . . . . . . . . . 459,231 229,372
Capital lease obligations . . . . . . . . . . . 198,104 283,799
--------- ---------
Total liabilities . . . . . . . . . . . . . 2,924,188 3,484,999
Shareholders' equity:
Common stock, 50,000,000 shares authorized, par
value $.001, 7,662,375 and 7,455,375 shares
issued and outstanding at March 31, 1996
and June 30, 1995 . . . . . . . . . . . . . 7,662 7,455
Additional paid-in capital . . . . . . . . . 4,386,747 4,244,641
Accumulated deficit . . . . . . . . . . . . . (309,379) (538,635)
--------- ---------
Total shareholders' equity . . . . . . . . 4,085,030 3,713,461
--------- ---------
Total liabilities and shareholders' equity $ 7,009,218 $ 7,198,460
========= =========
GENTNER COMMUNICATIONS CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
-----------------------
1996 1995
--------- ---------
Net sales . . . . . . . . . . . . . . . . . . .$ 2,378,502 $ 3,046,771
Cost of goods sold . . . . . . . . . . . . . . 1,315,558 1,882,207
--------- ---------
Gross profit . . . . . . . . . . . . . . . 1,062,944 1,164,564
Operating expenses:
Marketing and selling . . . . . . . . . . . . 542,712 625,709
General and administrative . . . . . . . . . 326,940 362,825
Product development . . . . . . . . . . . . . 266,607 88,817
--------- ---------
Total operating expenses . . . . . . . . . 1,136,259 1,077,351
--------- ---------
Operating income (loss) . . . . . . . . . . (73,315) 87,213
Other income (expense):
Interest income . . . . . . . . . . . . . . . 500 359
Interest expense . . . . . . . . . . . . . . (37,357) (59,885)
Other, net . . . . . . . . . . . . . . . . . (12,587) (5,678)
--------- ---------
Total other income (expense) . . . . . . . (49,444) (65,204)
--------- ---------
Income before income taxes . . . . . . . . . . (122,759) 22,009
Provision (benefit) for income taxes . . . . . (26,757) -
--------- ---------
Net income (loss) . . . . . . . . . . . . .$ (96,002) $ 22,009
========= =========
Net earnings (loss) per common share . . . . . $ (0.01) $ -
========= =========
GENTNER COMMUNICATIONS CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended
March 31,
-----------------------
1996 1995
--------- ---------
Net sales . . . . . . . . . . . . . . . . . . .$ 8,228,662 $ 7,985,150
Cost of goods sold . . . . . . . . . . . . . . 4,388,948 4,651,902
--------- ---------
Gross profit . . . . . . . . . . . . . . . 3,839,714 3,333,248
Operating expenses:
Marketing and selling . . . . . . . . . . . . 1,706,118 1,707,853
General and administrative . . . . . . . . . 1,026,936 1,291,859
Product development . . . . . . . . . . . . . 718,819 570,856
--------- ---------
Total operating expenses . . . . . . . . . 3,451,873 3,570,568
--------- ---------
Operating income (loss) . . . . . . . . . 387,841 (237,320)
Other income (expense):
Interest income . . . . . . . . . . . . . . . 1,987 11,495
Interest expense . . . . . . . . . . . . . . (135,882) (116,861)
Other, net . . . . . . . . . . . . . . . . . (24,690) 2,509
--------- ---------
Total other income (expense) . . . . . . . (158,585) (102,857)
--------- ---------
Income (loss) before income taxes . . . . . . . 229,256 (340,177)
Provision (benefit) for income taxes . . . . . - -
--------- ---------
Net income (loss) . . . . . . . . . . . . .$ 229,256 $ (340,177)
========= =========
Net earnings (loss) per common share . . . . . $ 0.03 $ (0.05)
========= =========
GENTNER COMMUNICATIONS CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
March 31,
-------------------------
1996 1995
---------- ----------
Cash flows from operating activities:
Cash received from customers . . . . . . . $ 8,518,852 $ 7,547,888
Cash paid to suppliers and employees . . . (8,150,951) (9,523,333)
Interest received . . . . . . . . . . . . . 3,862 10,370
Interest paid . . . . . . . . . . . . . . . (144,178) (111,873)
Income taxes refunded (paid) . . . . . . . (25,900) 243,743
---------- ----------
Net cash provided by (used in) operating
activities . . . . . . . . . . . . . . . 201,685 (1,833,205)
---------- ----------
Cash flows from investing activities:
Purchases of property and equipment . . . . (109,925) (592,584)
Increase in capitalized software development
and purchased software costs. . . . . . . - (95,700)
Decrease (increase) in other assets . . . . 25,944 (17,697)
---------- ----------
Net cash used in investing activities . . (83,981) (705,981)
---------- ----------
Cash flows from financing activities:
Proceeds from employee stock option exercises 142,313 -
Net borrowings (repayments) under line of
credit . . . . . . . . . . . . . . . . . . . (99,618) 1,450,000
Issuance of short-term notes to vendors . . - 602,902
Principal payments of short-term notes to
vendor . . . . . . . . . . . . . . . . . . (283,687) -
Proceeds from issuance of long-term debt . 400,000 282,500
Principal payments of capital lease obligations(103,542) (130,049)
Principal payments of long-term debt . . . (95,818) (59,149)
---------- ----------
Net cash provided by (used in) financing
activities . . . . . . . . . . . . . . . (40,352) 2,146,204
---------- ----------
Net increase (decrease) in cash . . . . . . . 77,352 (392,982)
Cash at the beginning of the year . . . . . . 119,238 433,824
---------- ----------
Cash at the end of the period . . . . . . . .$ 196,590 $ 40,842
========== ==========
Supplemental disclosure of cash flow information:
Property and equipment financed by capital
leases . . . . . . . . . . . . . . . . . $ 25,490 $ 127,113
========== ==========
GENTNER COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS
March 31, 1996
(Unaudited)
1. Basis of Presentation
The accompanying unaudited financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB of
Regulation S-B. Accordingly, certain information and footnote
disclosures normally included in complete financial statements have been
condensed or omitted. These financial statements should be read in
conjunction with the financial statements and footnotes thereto included
in the Company's 1995 Annual Report on Form 10-KSB.
In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have
been included. The results of operations for interim periods are not
necessarily indicative of the results of operations to be expected for
the full year.
2. Earnings (Loss) Per Common Share
Earnings (loss) per common share was calculated using the modified
treasury stock method. The weighted average number of common shares
outstanding for the three months ended March 31, 1996 and 1995 were
7,662,375 and 7,338,375, respectively. Amounts for the nine months
ended March 31, 1996 and 1995 were 7,632,139 and 7,338,375,
respectively. Stock options and warrants to purchase common stock have
been excluded from the per share amounts for all periods inasmuch as the
effects were antidilutive.
3. Inventory
Inventory is summarized as follows:
(Unaudited)
March 31, June 30,
1996 1995
--------- ---------
Raw materials . . . . . . . . . . . . . .$ 987,496 $ 959,478
Work in progress . . . . . . . . . . . . 971,578 1,380,393
Finished goods . . . . . . . . . . . . . 1,637,504 984,995
--------- ---------
Total inventory . . . . . . . . . . . .$ 3,596,578 $ 3,324,866
========= =========
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Sales for the three months ended March 31, 1996 decreased 22%
compared to the same period during the prior fiscal year. Weather
factors and the federal government shutdown were the primary reasons for
the third quarter decline. The decrease was virtually offset by sales
increases earlier in the fiscal year attributable to shipments of new
products. As a result, sales for the nine-month period grew 3% over the
same period during fiscal 1995.
Broadcast sales decreased 23% during the third quarter of fiscal
1996. The Company distributes a significant amount of its broadcast
products through dealers located in the Northeastern part of the United
States. During the month of January, severe winter weather conditions
in that area affected several of these businesses and their customers
who postponed orders. In addition, capital investment plans by
broadcast customers were uncertain until the passage of recent
Telecommunications legislation. After the Telecommunications bill was
passed, the approval of station ownership changes affecting such plans
were interrupted by the temporary shutdown of the Federal Communications
Commission. Despite the quarterly decline, Broadcast market sales for
the nine months ended March 31, 1996 were up 6% over the same comparable
period during fiscal 1995. The increased sales from earlier in the
fiscal year were due to the Company's new TS612 talk show telephone
system. The Company has received favorable customer response to this
product, and has finalized new system enhancements which it introduced
during the last three months. Increased sales also resulted from
another new product, the Company's recently introduced Telehybrid
telephone interface unit. This new product allows broadcasters to make
easy connections to either digital or analog phone lines in various "on-
air" broadcast applications. Sales during the coming year are also
anticipated to increase as a result of the new GSC-3000 product series
that was unveiled at the April National Association of Broadcasters
trade show in Las Vegas. The new hardware and software products are
designed to augment the Company's existing transmitter site control
products by allowing station managers to monitor several different sites
using PC-based networked systems.
Sales to the audio segment of the Teleconferencing market (the
"Audioconferencing" market) were also comparatively lower, decreasing by
22% during the three-month period as compared to the previous fiscal
year. Weather conditions caused similar problems with customers in this
market as well. However, these sales decreases were affected more by
the federal government situation. A significant number of the Company's
audioconferencing systems are utilized in distance learning applications
located at higher education facilities. The Company's dealers bid many
of these systems to universities and colleges who purchase the equipment
using federal grants. While grant approvals at federal agencies were
temporarily suspended, time-sensitive bids expired requiring dealers to
prepare new bid packages. Sales during the first part of the fiscal
year were higher than in fiscal 1995, resulting in year-to-date
Audioconferencing sales remaining relatively flat. The higher sales
experienced earlier in the year were primarily due to shipments of the
new AVT line of products. These units were designed specifically for
use in conjunction with videoconferencing and distance learning. Also
contributing to Audioconferencing sales throughout the current fiscal
year were shipments of the ET100 portable audioconferencer. The Company
spent time earlier in the 1996 fiscal year making design modifications
and improvements to the ET100, and released version 2.0 during the
second fiscal quarter. The Company expects sales of its portable
audioconferencers to grow further, particularly as a result of shipments
of its recently announced ET10 portable audioconferencer, the first full
duplex conferencing product designed for use in an individual office or
cubicle. The Company began ET10 shipments during February of 1996.
The Company's gross profit margin percentage increased from 38% to
45% during the three months ended March 31, 1996, as compared to last
year's third quarter. Most of the difference is because the gross
profit margin was lower than usual during last year's third quarter.
During the three months ended March 31, 1995, the Company made several
improvements in manufacturing processes. Included therein were
extensive revisions and updates made to the standard costs of several
products and product subassemblies. These adjustments resulted in a
devaluation of the total recorded inventory cost by approximately
$160,000. Accordingly, the Company reflected the change as additional
cost of goods sold during that quarter. The revised product costs,
coupled with a moderate price increase which took effect July 1, 1995,
resulted in improved margins over the next three quarters ended June 30,
September 30, and December 31, 1995, when gross profit margins were 46%,
48%, and 47%, respectively. These improvements have resulted in the
current fiscal year-to-date gross profit margin improving to 47%
compared to last year's 42%. As anticipated, slightly lower profit
margins of new products introduced during the quarter ended March 31,
1996, along with the aforementioned lower sales of other
audioconferencing products resulted in the 45% margin experienced during
this last quarter. The Company believes that margins experienced during
the rest of the 1996 calendar year will be at approximately this same
level or slightly lower as sales of these new products become more
significant. However, the Company also anticipates higher gross profits
resulting from the overall increase in sales.
Operating expenses for the third quarter increased by 5% compared
to last year. The higher costs were due primarily to increased product
development efforts aimed at new products brought to market during the
third quarter, and some that will be introduced later this year. However,
the 200% increase in quarterly product development expenses over last
year also reflect the fact that approximately $75,000 of software
development costs were capitalized during the prior year's third
quarter. Had such costs been expensed, product development expenses
would have increased by 63%. Marketing and selling expenses for the
quarter decreased 13% as compared to last year. This was due to
decreased costs associated with the lower sales levels, along with lower
marketing expenses incurred compared to last year when the Company was
heavily promoting the ET100 and TS612 products. General and
administrative expenses were lower by 10%. This reflected cost saving
efforts and efficiencies gained by modifying the organizational
structure, a process which began yielding results during the latter half
of fiscal 1995.
For the nine-month period ended March 31, 1996 operating expenses
overall were down by 3% compared to the same period a year earlier,
mainly as a result of the 21% decrease in general and administrative
costs. Such expenses were lower for the same cost-saving reasons
mentioned above in connection with the third quarter. Offsetting these
savings, however, were increases in product development costs year-to-
date, which were up 26%. This was due primarily to expenses incurred
during the current fiscal year's second and third quarters associated
with new product and product enhancements, and also as a result of the
aforementioned lower third quarter expenses during fiscal 1995.
Marketing and selling expenses, despite this year's third quarter
decline, remained flat year-to-date.
The differences in interest expense incurred during the three and
nine-month periods ended March 31, 1996 stemmed from differences in
usage of the Company's line of credit facility. In addition, due to
utilizing much of its excess cash beginning in fiscal 1995, the Company
earned significantly less interest income during the first half of
fiscal 1996.
Financial Condition and Liquidity
The Company's current ratio increased from 1.8:1 to 2.3:1 during
the nine months since June 30, 1995. The factor contributing most to
the change was an adjustment of short-term debt which occurred during
fiscal 1996's first quarter. The Company obtained permanent long-term
financing for several items of furniture and equipment acquired over the
previous two years, and applied the proceeds towards the short-term line
of credit. This enabled the Company during the second quarter of fiscal
1996 to significantly reduce the amounts owing to vendors, thus reducing
the accounts payable balance by 18% by December 31, 1995. Accounts
payable balances were then reduced by another 21% during this last third
quarter in part by using funds collected from customers, thereby
reducing the balance in accounts receivable. Inventory has increased 8%
during the nine-month period as a result of the Company continuing its
efforts of providing adequate finished product availability to satisfy
current and expected customer demand. Yet the Company also intends to
continue benefiting from ongoing inventory management programs started
during fiscal 1995. Such efforts, intended to improve raw material
purchasing efficiencies and reduce inventory size overall, began
yielding results during the second quarter of fiscal 1996, and served to
reduce raw materials 21% during the three months ended March 31, 1996.
Unfortunately, the sales decline during the same period resulted in
finished goods inventory levels rising during the quarter by 35%, a rate
faster than anticipated. As a result, the Company adjusted purchasing
and manufacturing schedules in an effort to temporarily reduce the
production of finished goods until sales decreases the stock on hand.
The 16% decline in work in progress inventory reflects these efforts.
During the first quarter of fiscal 1996, the Company renewed its
line of credit arrangement with a commercial bank. The terms of the
arrangement remained the same as before, with $1.75 million available at
1% over prime, maturing on October 31, 1996. There was $1.13 million
outstanding at March 31, 1996.
The Company is continuing to maximize its efforts to maintain
stable cash flows during an overall period of sales growth and ongoing
product development. Changing its short-term debt position helped to
increase available cash reserves. However, the Company believes that
ongoing cash flows will improve more as a result of continuing
management's focus on maintaining satisfactory profitability following
last fiscal year's period of operational expansion and intense product
promotion. Already the Company has seen the positive operational cash
flow results from this course of action. As sales continue to increase
and profits are achieved, the Company is confident that it can achieve
its business plan through a combination of internally generated funds,
and short-term and/or long-term borrowing, if necessary.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the quarter.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
GENTNER COMMUNICATIONS CORPORATION
/s/ David L. Harmon
-----------------------------
David L. Harmon
Chief Financial Officer
Date: May 10, 1996