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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 September 30, 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 November 10, 1996
$0.001 par value 7,662,375 shares
GENTNER COMMUNICATIONS CORPORATION
BALANCE SHEETS
(Unaudited)
September 30, June 30,
1996 1996
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . $ 248,325 $ 213,763
Accounts receivable . . . . . . . . . . . . . . . 1,520,742 1,556,436
Inventory . . . . . . . . . . . . . . . . . . . . 2,948,735 3,229,765
Other current assets. . . . . . . . . . . . . . . 343,976 111,743
---------- ----------
Total current assets. . . . . . . . . . . . . . 5,061,778 5,111,707
Property and equipment, net . . . . . . . . . . . . 1,788,440 1,514,629
Other assets, net . . . . . . . . . . . . . . . . . 177,074 153,874
---------- ----------
Total assets. . . . . . . . . . . . . . . . . . $ 7,027,292 $ 6,780,210
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable . . . . . . . . . . . . . . . . . . $ 863,949 $ 916,041
Accounts payable. . . . . . . . . . . . . . . . . 785,480 503,168
Accrued expenses. . . . . . . . . . . . . . . . . 233,658 294,729
Current portion of long-term debt . . . . . . . . 155,095 163,314
Current portion of capital lease obligations. . . 188,620 138,787
---------- ----------
Total current liabilities . . . . . . . . . . . 2,226,802 2,016,039
Long-term debt. . . . . . . . . . . . . . . . . . . 394,124 427,250
Capital lease obligations . . . . . . . . . . . . . 360,986 163,163
---------- ----------
Total liabilities . . . . . . . . . . . . . . . 2,981,912 2,606,452
Shareholders' equity:
Common stock, 50,000,000 shares authorized, par value
$.001, 7,662,375 shares issued and outstanding . 7,662 7,662
Additional paid-in capital. . . . . . . . . . . . 4,422,747 4,422,747
Accumulated deficit . . . . . . . . . . . . . . . (385,029) (256,651)
---------- ----------
Total shareholders' equity. . . . . . . . . . . 4,045,380 4,173,758
---------- ----------
Total liabilities and shareholders' equity. . . $ 7,027,292 $ 6,780,210
========== ==========
GENTNER COMMUNICATIONS CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
September 30,
------------------------
1996 1995
---------- ----------
Net sales. . . . . . . . . . . . . . . . . . . . . .$ 2,940,205 $ 2,787,149
Cost of goods sold . . . . . . . . . . . . . . . . . 1,581,985 1,440,326
---------- ----------
Gross profit . . . . . . . . . . . . . . . . . . 1,358,220 1,346,823
Operating expenses:
Marketing and selling. . . . . . . . . . . . . . . 777,172 564,881
General and administrative . . . . . . . . . . . . 436,152 336,284
Product development. . . . . . . . . . . . . . . . 237,574 217,991
---------- ----------
Total operating expenses . . . . . . . . . . . . 1,450,898 1,119,156
---------- ----------
Operating income (loss). . . . . . . . . . . . . (92,678) 227,667
Other income (expense):
Interest income. . . . . . . . . . . . . . . . . . - 862
Interest expense . . . . . . . . . . . . . . . . . (35,811) (50,147)
Other, net . . . . . . . . . . . . . . . . . . . . 111 -
---------- ----------
Total other income (expense) . . . . . . . . . . (35,700) (49,285)
---------- ----------
Income (loss) before income taxes. . . . . . . . . . (128,378) 178,382
Provision for income taxes . . . . . . . . . . . . . - 26,757
---------- ----------
Net income (loss). . . . . . . . . . . . . . . .$ (128,378) $ 151,625
========== ==========
Net earnings (loss) per common share . . . . . . . .$ (0.02) $ 0.02
========== ==========
GENTNER COMMUNICATIONS CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
September 30,
-------------------------
1996 1995
---------- ----------
Cash flows from operating activities:
Cash received from customers . . . . . . . . . .$ 2,927,293 $ 3,016,895
Cash paid to suppliers and employees . . . . . . (2,578,655) (2,792,477)
Interest received. . . . . . . . . . . . . . . . - 862
Interest paid. . . . . . . . . . . . . . . . . . (36,497) (50,425)
Income taxes refunded (paid) . . . . . . . . . . 19,900 (5,900)
---------- ----------
Net cash provided by operating activities. . . 332,041 168,955
---------- ----------
Cash flows from investing activities:
Purchases of property and equipment. . . . . . . (124,480) (28,640)
Decrease (increase) in other assets. . . . . . . (33,517) 14,451
---------- ----------
Net cash used in investing activities. . . . . (157,997) (14,189)
---------- ----------
Cash flows from financing activities:
Proceeds from employee stock option exercises. . - 137,500
Net borrowings (repayments) under line of credit (52,092) (398,000)
Principal payments of short-term notes to vendors - (256,937)
Proceeds from issuance of long-term debt . . . . - 400,000
Principal payments of capital lease obligations. (46,045) (35,428)
Principal payments of long-term debt . . . . . . (41,345) (20,780)
---------- ----------
Net cash used in financing activities. . . . . (139,482) (173,645)
---------- ----------
Net increase (decrease) in cash. . . . . . . . . . 34,562 (18,879)
Cash at the beginning of the year. . . . . . . . . 213,763 119,238
---------- ----------
Cash at the end of the period. . . . . . . . . . .$ 248,325 $ 100,359
========== ==========
Supplemental disclosure of cash flow information:
Property and equipment financed by capital leases $ 293,701 $ -
========== ==========
GENTNER COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS
September 30, 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 1996 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 September 30, 1996 and 1995 were
7,662,375 and 7,338,375, respectively. Stock options and warrants to purchase
common stock have been excluded from the presented computation of per share
amounts for all periods inasmuch as the effects were antidilutive.
3. Inventory
Inventory is summarized as follows:
(Unaudited)
September 30, June 30,
1996 1996
---------- ----------
Raw materials . . . . . . . . . . . . . . . . $ 933,709 $ 962,504
Work in progress. . . . . . . . . . . . . . . 1,012,159 866,279
Finished goods. . . . . . . . . . . . . . . . 1,002,868 1,400,982
---------- ----------
Total inventory . . . . . . . . $ 2,948,735 $ 3,229,765
========== ==========
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales for the three months ended September 30, 1996 increased 5% compared
to the same period during the prior fiscal year. The primary reason for the
increase were sales of new Broadcast and Teleconferencing products. Sales of
existing Broadcast and Assistive Listening System ("ALS") products also
experienced increases during the quarter.
Broadcast sales increased 7% during the first quarter of fiscal 1997, as
compared to the same quarter during the previous fiscal year. The Company had
higher sales of its TS612 multi-line talk show product line, due to new
additions and network connection enhancements introduced over the last nine
months. Broadcast sales also grew as a result of the Company beginning
shipments to selected customers of its new GSC3000 product series. Introduced
in April of 1996, the new product line is expected to significantly grow sales
of the Company's Site Control line of products. Regular shipments are
expected to begin during the quarter ending December 31, 1996. Site Control
products help broadcasters fulfill legal requirements for monitoring and
controlling remote transmitter sites. The new GSC line will allow station
managers to monitor several different sites using one networked system.
Sales to the audio segment of the Teleconferencing market (the
"Audioconferencing" market) decreased 8% during the three-month period as
compared to the previous fiscal year. The decline was due to lower sales of
the Company's older line of audioconferencing room system products. Many of
the features of these systems have been improved and incorporated into the new
GT724 teleconferencing system. This product began shipping at the beginning
of the first quarter ended September 30, 1996, and carries a lower sales price
and has more integrated components than most of the older systems. As a
result, customers have shown a preference for the newer systems over the older
units which were brought to market in 1993. Although affecting sales of the
older systems in its introductory quarter, the Company believes that sales of
the new GT724 will grow to more than offset the decrease due to the product's
strong customer appeal and much wider potential use in teleconferencing
applications. Recently, the product won the annual special recognition award
for Most Significant Advance awarded by Teleconference magazine. In addition,
several distance learning and telemedicine organizations have named the GT724
as the product of choice to be included with their systems. The Company is
also devoting resources to the development of additional new audioconferencing
system products anticipated to be introduced by the end of the current fiscal
year.
Contributing to the overall sales increase for the quarter were higher
sales of ALS products, due partially as a result of sales of the new PTX
portable transmitter introduced last year. ALS products represent one of the
Company's fastest growing product segments, growing 84% during the three
months ended September 30, 1996, as compared to the same period of the
previous fiscal year.
During the quarter ended June 30, 1996, the Company began significant new
initiatives to augment its efforts in the areas of marketing and sales. These
activities carried over into the first quarter of fiscal 1997 as well. In
September 1996, the Company hired its first Vice President of Sales and
Marketing. Management believes this new position is key to serving the
Company's markets and positioning the Company for additional sales growth and
profitability. The Company also plans to devote additional sales and
marketing resources to all market areas. In addition, several new sales
employees, including a new sales director, have been hired to focus
exclusively on the Company's teleconferencing service. The Company recently
launched a new national marketing campaign for this service, which has been
renamed 1.800.LETS MEET. The Company has already begun to see the positive
results from these efforts and anticipates significant growth in the service
segment of its business, as well as sales growth overall during the current
fiscal year.
The Company's gross profit margin percentage during the three months
ended September 30, 1996, was 46% as compared to last year's first quarter
when the gross margin percentage was 48%. The difference was mainly
attributable to the varied product mix in effect during the respective
periods.
Operating expenses for the first quarter increased by 30% compared to
last year. The higher costs were due primarily to a 38% jump in sales and
marketing costs as previously mentioned above. These cost increases resulted
from hiring additional sales employees, developing new advertising campaigns,
and conducting new research of the Teleconferencing market. General and
administrative expenses also rose during the quarter as compared to the same
period during the prior fiscal year. The higher amounts are due mainly to
additional employees hired since a year ago, who focus primarily on human
resource and information systems management. These additional resources are
anticipated to be essential for the Company to successfully implement its
growth plans for the current fiscal year. Product development costs also rose
9% as a result of additional activities involved in bringing the new Site
Control products to market, along with establishing engineering groups focused
on specific product areas. The Company has entered into an investment phase
for the near future, and anticipates these increases in overhead expenses to
continue. However, the Company also expects these moves will increase sales
and profitability in the long-term.
The differences in interest expense incurred during the respective three-
month periods ended September 30, 1996 and 1995 stemmed mostly from
differences in usage of the Company's line of credit facility.
FINANCIAL CONDITION AND LIQUIDITY
The Company's current ratio decreased from 2.5:1 to 2.3:1 during the
three months since June 30, 1996. The factor contributing most to the change
was a 56% increase in the accounts payable balance, due primarily to the
purchase of GSC-related raw materials toward the end of the quarter.
Offsetting somewhat the effect of this increase was a 9% decrease in inventory
amounts. Over the last two years, the Company has concentrated on better
inventory management and purchasing efficiencies. Positive results began to
show during fiscal 1996's second quarter, and have continued ever since. Over
the last six months the Company has specifically focused on strategic levels
of finished goods in relation to anticipated sales. Those efforts resulted in
a 28% finished goods inventory decline during the quarter ended September 30,
1996.
In October 1996, the Company renewed its line of credit arrangement
($863,949 outstanding at September 30, 1996) with a different commercial bank.
The terms of the new lending arrangement are for a maximum amount outstanding
of $2.5 million at an interest rate which is variable, depending on various
financial ratios. Specifically, the rate can range from three to five basis
points over the London Interbank Offered Rate (LIBOR). Currently, the rate is
8.8%. The loan is secured by accounts receivable and inventory, and is
scheduled to mature at the end of October 1997.
The Company has been successful in improving cash flows during the prior
fiscal year and those efforts have carried into fiscal 1997's first quarter.
By reducing its short-term debt, the Company has been able to increase
available cash reserves. The Company's cash flow position has also improved
as a result of implementing successful inventory management programs. Already
the Company has seen the positive operational cash flow results from this
course of action. This will allow the Company to pursue its plans for fiscal
1997 of enhancing marketing and sales activities to achieve sales growth. As
sales continue to increase and inventory management processes continue, the
Company anticipates that it can achieve its business plan through a
combination of internally generated funds, and short term and/or long-term
borrowing, if necessary.
To the extent any statement presented herein deals with information that
is not historical, such statement is necessarily forward-looking. As such, it
is subject to the occurrence of many events outside of the Company's control
that could cause the Company's results to differ materially from those
anticipated.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
EX-27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Form 8-K, dated August 7, 1996, that
reported the Board of Directors of the Company had extended the
exercise date of the Company's outstanding warrants for one
year from September 22, 1996 to September 22, 1997.
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: November 13, 1996