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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 December 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
_________________________________________________________________
(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 February 13, 1996
$0.001 par value 7,662,375 shares
GENTNER COMMUNICATIONS CORPORATION
BALANCE SHEETS
(Unaudited)
December 31, June 30,
1996 1996
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . $ 363,648 $ 213,763
Accounts receivable . . . . . . . . . . . . . . . . 1,724,126 1,556,436
Inventory . . . . . . . . . . . . . . . . . . . . . 2,523,946 3,229,765
Other current assets. . . . . . . . . . . . . . . . 246,140 111,743
--------- ---------
Total current assets. . . . . . . . . . . . . . . 4,857,860 5,111,707
Property and equipment, net . . . . . . . . . . . . . 2,121,695 1,514,629
Other assets, net . . . . . . . . . . . . . . . . . . 324,909 153,874
--------- ---------
Total assets. . . . . . . . . . . . . . . . . . . $ 7,304,464 $ 6,780,210
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable . . . . . . . . . . . . . . . . . . . $ 894,777 $ 916,041
Accounts payable. . . . . . . . . . . . . . . . . . 708,549 503,168
Accrued expenses. . . . . . . . . . . . . . . . . . 410,368 294,729
Current portion of long-term debt . . . . . . . . . 245,524 163,314
Current portion of capital lease obligations. . . . 192,407 138,787
--------- ---------
Total current liabilities . . . . . . . . . . . . 2,451,625 2,016,039
Long-term debt. . . . . . . . . . . . . . . . . . . . 570,608 427,250
Capital lease obligations . . . . . . . . . . . . . . 312,371 163,163
--------- ---------
Total liabilities . . . . . . . . . . . . . . . . 3,334,604 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 . . . . . . . . . . . . . . . . (460,549) (256,651)
--------- ---------
Total shareholders' equity. . . . . . . . . . . . 3,969,860 4,173,758
--------- ---------
Total liabilities and shareholders' equity. . . . $ 7,304,464 $ 6,780,210
========= =========
GENTNER COMMUNICATIONS CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
December 31,
---------------------------
1996 1995
---------- ----------
Net sales . . . . . . . . . . . . . . . . . . $ 3,557,674 $ 3,063,011
Cost of goods sold. . . . . . . . . . . . . . 1,888,343 1,633,064
---------- ----------
Gross profit. . . . . . . . . . . . . . . . 1,669,331 1,429,947
Operating expenses:
Marketing and selling . . . . . . . . . . . 1,034,006 598,525
General and administrative. . . . . . . . . 461,802 363,712
Product development . . . . . . . . . . . . 189,566 234,221
---------- ----------
Total operating expenses. . . . . . . . . 1,685,374 1,196,458
---------- ----------
Operating income (loss) . . . . . . . . . (16,043) 233,489
Other income (expense):
Interest income . . . . . . . . . . . . . . - 625
Interest expense. . . . . . . . . . . . . . (38,176) (48,378)
Other, net. . . . . . . . . . . . . . . . . (21,302) (12,103)
---------- ----------
Total other income (expense). . . . . . . (59,478) (59,856)
---------- ----------
Income (loss) before income taxes . . . . . . (75,521) 173,633
Provision for income taxes. . . . . . . . . . - -
---------- ----------
Net income (loss) . . . . . . . . . . . . $ (75,521) $ 173,633
========== ==========
Net earnings (loss) per common share. . . . . $ (0.01) $ 0.02
========== ==========
GENTNER COMMUNICATIONS CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended
December 31,
---------------------------
1996 1995
---------- ----------
Net sales . . . . . . . . . . . . . . . . . . $ 6,497,879 $ 5,850,160
Cost of goods sold. . . . . . . . . . . . . . 3,470,328 3,073,390
---------- ----------
Gross profit. . . . . . . . . . . . . . . . 3,027,551 2,776,770
Operating expenses:
Marketing and selling . . . . . . . . . . . 1,811,178 1,163,406
General and administrative. . . . . . . . . 897,954 699,996
Product development . . . . . . . . . . . . 427,140 452,212
---------- ----------
Total operating expenses. . . . . . . . . 3,136,272 2,315,614
---------- ----------
Operating income (loss) . . . . . . . . . (108,721) 461,156
Other income (expense):
Interest income . . . . . . . . . . . . . . - 1,487
Interest expense. . . . . . . . . . . . . . (73,987) (98,525)
Other, net. . . . . . . . . . . . . . . . . (21,190) (12,103)
---------- ----------
Total other income (expense). . . . . . . (95,177) (109,141)
---------- ----------
Income (loss) before income taxes . . . . . . (203,898) 352,015
Provision for income taxes. . . . . . . . . . - 26,757
---------- ----------
Net income (loss) . . . . . . . . . . . . $ (203,898) $ 325,258
========== ==========
Net earnings (loss) per common share. . . . . $ (0.03) $ 0.04
========== ==========
GENTNER COMMUNICATIONS CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
December 31,
------------------------------
1996 1995
----------- -----------
Cash flows from operating activities:
Cash received from customers . . . . . . $ 6,265,022 $ 5,874,882
Cash paid to suppliers and employees . . (5,352,098) (5,736,124)
Interest received. . . . . . . . . . . . - 3,362
Interest paid. . . . . . . . . . . . . . (71,427) (106,814)
Income taxes refunded (paid) . . . . . . 19,100 (25,900)
----------- -----------
Net cash provided by operating
activities. . . . . . . . . . . . . . 860,597 9,406
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment. . . (607,769) (49,338)
Issuance of note receivable. . . . . . . (147,327) -
Increase in other assets . . . . . . . . (69,047) (1,591)
----------- -----------
Net cash used in investing activities. (824,143) (50,929)
----------- -----------
Cash flows from financing activities:
Proceeds from employee stock option
exercises . . . . . . . . . . . . . . . - 142,313
Net repayments under line of credit. . . (21,264) (75,000)
Principal payments of short-term notes
to vendors. . . . . . . . . . . . . . . - (283,687)
Proceeds from issuance of
long-term debt. . . . . . . . . . . . . 319,669 400,000
Principal payments of capital
lease obligations . . . . . . . . . . . (90,873) (79,163)
Principal payments of long-term debt . . (94,101) (48,037)
----------- -----------
Net cash provided by financing
activities. . . . . . . . . . . . . . 113,431 56,426
----------- -----------
Net increase in cash . . . . . . . . . . . 149,885 14,903
Cash at the beginning of the year. . . . . 213,763 119,238
----------- -----------
Cash at the end of the period . . . . . . $ 363,648 $ 134,141
=========== ===========
Supplemental disclosure of cash flow information:
Property and equipment financed by
capital leases. . . . . . . . . . . . . $ 293,701 $ 25,490
=========== ===========
GENTNER COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 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 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 was 7,662,375 and 7,659,864, respectively, for the three months
ended December 31, 1996 and 1995. For the six-month periods then ended, the
amounts were 7,662,375 and 7,617,022, respectively. Stock options and
warrants to purchase common stock have been excluded from the presented
computation of per share amounts inasmuch as the effects were either
immaterial or antidilutive.
3. Inventory
Inventory is summarized as follows:
(Unaudited)
December 31, June 30,
1996 1996
---------- ----------
Raw materials. . . . . . . . . . . . . . $ 825,138 $ 962,504
Work in progress . . . . . . . . . . . . 843,786 866,279
Finished goods . . . . . . . . . . . . . 855,022 1,400,982
---------- ----------
Total inventory. . . . . . . . . . . . $ 2,523,946 $ 3,229,765
========== ==========
4. Employee Stock Purchase Plan
During the month of January 1997, the Company established an Employee
Stock Purchase Plan, and on January 27, 1997 the shares to be issued under the
Plan were registered with the Securities and Exchange Commission. 500,000
shares of common stock are authorized to be issued and purchased under the
Plan. Under the terms of the Plan, employees will have the opportunity
through a common broker to purchase shares for their account on the open
market at market prices. The Company will then issue new compensatory shares
to employees at a rate of one share for every nine shares purchased. The Plan
requires that all such shares purchased and issued are to be held by employees
for a period of at least one year.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales for the three months ended December 31, 1996 increased by 16%
compared to the same period during the prior fiscal year. The primary reason
for the increase during fiscal 1997's second quarter was higher sales of new
Broadcast and Teleconferencing products. Sales of existing Broadcast and
Assistive Listening System ("ALS") products also experienced increases during
the quarter. Increased sales of these products was the same reason the
Company's year-to-date sales increased 11%, as compared to the six-month
period during fiscal 1996.
Sales to the Broadcast market, which represent just over half of the
Company's business, grew by 17% and 12%, respectively, during the three and
six-month periods ended December 31, 1996, when compared to the same period
last 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 twelve months. Broadcast sales also grew
particularly during the second quarter as a result of the Company beginning
regular shipments 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. 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) increased 18% during this fiscal year's second
quarter, and increased 5% year-to-date as compared to the corresponding
periods of the prior fiscal year. The increase in the second quarter resulted
primarily from sales growth in the Company's line of room system products,
particularly the new GT724 teleconferencing system. The new product has
strong customer appeal and wider potential teleconferencing applications than
the Company's other audioconferencing room products. Several distance
learning and telemedicine organizations have named the GT724 as the product of
choice to be included with their systems. During the second quarter, the
Company also experienced a 35% increase in sales of its audioconferencing
service. The growth was a result of higher sales and marketing efforts
devoted to this area. During the last part of the calendar year the Company
test marketed a regional advertising campaign in which the service was
reintroduced using the brand name 1-800 LETS MEET. The Company plans to
continue emphasizing its sales efforts on behalf of the service, and also
plans to devote additional resources to the development of new
audioconferencing system products anticipated to be introduced during the
coming calendar year.
Contributing to the overall sales increase for the second 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 21% during the second
quarter ended December 31, 1996, and have grown 48% so far during the current
fiscal year as compared to the corresponding periods of last year.
Operating expenses for the second quarter grew 41%, and increased 35%
during the six months ended December 31, 1996, when compared to the same
periods of the prior fiscal year. The increases resulted mainly from
significant increases in sales and marketing costs. During the last part of
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
have continued throughout the current fiscal year 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 has also devoted additional sales and marketing resources to all
market areas, particularly with respect to its aforementioned
audioconferencing service. These activities resulted in a 78% jump in sales
and marketing expenses during the second quarter compared with the same period
of the prior fiscal year, and a 56% increase in such expenses for the first
half of fiscal 1997. General and administrative expenses have risen during
the three and six-month periods, respectively, by 27% and 28%, primarily as a
result of hiring increases in the areas of human resources and information
systems management. In addition, during the second quarter the Company moved
into expanded office and warehouse space located adjacent to its existing
facilities. The new space has effectively doubled the Company's available
square footage, resulting in increased occupancy costs. Product development
costs declined 19% during the most recent quarter and were lower by 5% year-
to-date for the current fiscal year compared to last. The decreases reflect
less development activity so far this year than the prior fiscal year, during
which the Company had been devoting resources to bringing the TS612 product to
market. The Company expects development costs to increase during the last
half of fiscal 1997 as it moves closer to finishing work on significant new
audioconferencing room system products. The Company is in an investment phase
currently, and anticipates these increases in overhead expenses to continue.
However, the Company also expects these moves will continue to increase sales,
resulting in profitability in the long-term.
The differences in interest expense incurred during the second quarter
and the current fiscal year-to-date primarily reflect 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 2.0:1 during the six
months since June 30, 1996. The factor contributing most to the change was a
41% increase in the accounts payable balance, along with a 39% increase in the
quarter-end level of accrued expenses. The increases stem primarily from the
purchase of additional GSC3000-related raw materials over the last four
months, along with the general increase in operating expenses mentioned above.
The change in current ratio was also affected by a 22% 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.
Although efforts have been directed to inventory balances overall, during the
last nine months the Company has particularly focused on strategic levels of
finished goods in relation to anticipated sales. Those efforts resulted in a
28% finished goods inventory decline during fiscal 1997's first quarter, and
an additional 15% decrease during the quarter ended December 31, 1996. The
Company feels that the amount of finished goods at present in relation to
sales volume is sufficient to support anticipated sales levels, and plans to
continue its attention in reducing raw materials. So far this year, raw
materials have been reduced 14%.
In October 1996, the Company renewed its line of credit arrangement
($894,777 outstanding at December 31, 1996) with a different commercial bank.
The terms of the new lending arrangement are for a higher maximum amount
outstanding than the Company had previously ($2.5 million available, up from
$1.75 million), and 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 8.9%. 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 the first half of fiscal 1997.
By reducing its short-term debt over the last twelve months, along with
arranging for a higher credit limit, 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. These activities combined 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, 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
None
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: February 13, 1997