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, 1995
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 February 9, 1996
$0.001 par value 7,662,375 shares
GENTNER COMMUNICATIONS CORPORATION
BALANCE SHEETS
(Unaudited)
December 31, June 30,
1995 1995
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . .$ 134,141 $ 119,238
Accounts receivable . . . . . . . . . . . . . 1,579,941 1,644,376
Inventory . . . . . . . . . . . . . . . . . . 3,602,068 3,324,866
Other current assets . . . . . . . . . . . . 301,717 140,088
--------- ---------
Total current assets . . . . . . . . . . . 5,617,867 5,228,568
Property and equipment, net . . . . . . . . . . 1,641,257 1,829,161
Other assets, net . . . . . . . . . . . . . . . 180,511 140,731
--------- ---------
Total assets . . . . . . . . . . . . . . . $ 7,439,635 $ 7,198,460
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable . . . . . . . . . . . . . . . $ 1,150,000 $ 1,508,687
Accounts payable . . . . . . . . . . . . . . 775,670 943,723
Accrued expenses . . . . . . . . . . . . . . 299,480 297,426
Current portion of long-term debt . . . . . . 159,467 93,506
Current portion of capital lease obligations 182,088 128,486
--------- ---------
Total current liabilities . . . . . . . . . 2,566,705 2,971,828
Long-term debt . . . . . . . . . . . . . . . . . 515,374 229,372
Capital lease obligations . . . . . . . . . . . 176,524 283,799
--------- ---------
Total liabilities . . . . . . . . . . . . . 3,258,603 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 December 31, 1995
and June 30, 1995 . . . . . . . . . . . . . . 7,662 7,455
Additional paid-in capital . . . . . . . . . . 4,386,747 4,244,641
Accumulated deficit . . . . . . . . . . . . . . (213,377) (538,635)
--------- ---------
Total shareholders' equity . . . . . . . . . 4,181,032 3,713,461
--------- ---------
Total liabilities and shareholders' equity $ 7,439,635 $ 7,198,460
========= =========
GENTNER COMMUNICATIONS CORPORATION
STATEMENTS OF INCOME
(Unaudited)
Three Months Ended
December 31,
-----------------------
1995 1994
--------- ---------
Net sales . . . . . . . . . . . . . . . . . . $ 3,063,011 $ 2,663,466
Cost of goods sold . . . . . . . . . . . . . . 1,633,064 1,498,809
--------- ---------
Gross profit . . . . . . . . . . . . . . . . 1,429,947 1,164,657
Operating expenses:
Marketing and selling . . . . . . . . . . . . 598,525 467,556
General and administrative . . . . . . . . . 363,712 453,065
Product development . . . . . . . . . . . . . 234,221 195,849
--------- ---------
Total operating expenses . . . . . . . . . 1,196,458 1,116,470
--------- ---------
Operating income . . . . . . . . . . . . . 233,489 48,187
Other income (expense):
Interest income . . . . . . . . . . . . . . . 625 4,622
Interest expense . . . . . . . . . . . . . . . (48,378) (28,588)
Other, net . . . . . . . . . . . . . . . . . . (12,103) (6,699)
--------- ---------
Total other income (expense) . . . . . . . . (59,856) (30,665)
--------- ---------
Income before income taxes . . . . . . . . . . . 173,633 17,522
Provision for income taxes . . . . . . . . . . . - -
--------- ---------
Net income . . . . . . . . . . . . . . . . $ 173,633 $ 17,522
========= =========
Net earnings per common share . . . . . . . . .$ 0.02 $ -
========= =========
GENTNER COMMUNICATIONS CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended
December 31,
-----------------------
1995 1994
--------- ---------
Net sales . . . . . . . . . . . . . . . . . . $ 5,850,160 $ 4,938,379
Cost of goods sold . . . . . . . . . . . . . . 3,073,390 2,769,695
--------- ---------
Gross profit . . . . . . . . . . . . . . . . 2,776,770 2,168,684
Operating expenses:
Marketing and selling . . . . . . . . . . . . 1,163,406 1,082,144
General and administrative . . . . . . . . . 699,996 929,034
Product development . . . . . . . . . . . . . 452,212 482,039
--------- ---------
Total operating expenses . . . . . . . . . 2,315,614 2,493,217
--------- ---------
Operating income . . . . . . . . . . . . . 461,156 (324,533)
Other income (expense):
Interest income . . . . . . . . . . . . . . 1,487 11,136
Interest expense . . . . . . . . . . . . . . (98,525) (56,976)
Other, net . . . . . . . . . . . . . . . . . . (12,103) 8,187
--------- ---------
Total other income (expense) . . . . . . . . (109,141) (37,653)
--------- ---------
Income before income taxes . . . . . . . . . . . 352,015 (362,186)
Provision for income taxes . . . . . . . . . . . 26,757 -
--------- ---------
Net income . . . . . . . . . . . . . . . . $ 325,258 $ (362,186)
========= =========
Net earnings (loss) per common share . . . . . $ 0.04 $ (0.05)
========= =========
GENTNER COMMUNICATIONS CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
December 31,
------------------------
1995 1994
--------- ---------
Cash flows from operating activities:
Cash received from customers . . . . . . . $ 5,874,882 $ 5,067,379
Cash paid to suppliers and employees . . (5,736,124) (6,376,799)
Interest received . . . . . . . . . . . . . 3,362 10,386
Interest paid . . . . . . . . . . . . . . . (106,814) (56,976)
Income taxes paid . . . . . . . . . . . . . (25,900) -
--------- ---------
Net cash provided by (used in) operating
activities . . . . . . . . . . . . . . 9,406 (1,356,010)
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment . . . . (49,338) (479,137)
Decrease (increase) in other assets . . . . (1,591) 2,238
--------- ---------
Net cash used in investing activities . . (50,929) (476,899)
--------- ---------
Cash flows from financing activities:
Proceeds from employee stock option exercises 142,313 -
Net borrowings (repayments) under line of
credit . . . . . . . . . . . . . . . . . . (75,000) 1,250,000
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 . . . . . . . . . . . . . . . . (79,163) (89,113)
Principal payments of long-term debt . . . . (48,037) (38,618)
--------- ---------
Net cash provided by financing activities 56,426 1,404,769
--------- ---------
Net increase (decrease) in cash and cash
equivalents . . . . . . . . . . . . . . . . 14,903 (428,140)
Cash and cash equivalents at the beginning
of the year . . . . . . . . . . . . . . . . 119,238 433,824
--------- ---------
Cash and cash equivalents at the end of the
period . . . . . . . . . . . . . . . . . . .$ 134,141 $ 5,684
========= =========
Supplemental disclosure of cash flow information:
Property and equipment financed by capital
leases . . . . . . . . . . . . . . . . . .$ 25,490 $ 127,113
========= =========
GENTNER COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1995
(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 (see the accompanying exhibit, "Statement re:
Computation of Per Share Earnings"). Stock options and warrants to
purchase common stock have been excluded from the presented computation
of per share amounts in periods when the effect was antidilutive.
3. Inventory
Inventory is summarized as follows:
(Unaudited)
December 31, June 30,
1995 1995
--------- ---------
Raw materials . . . . . . . . . . . . . $ 1,238,384 $ 959,478
Work in progress . . . . . . . . . . . . 1,152,299 1,380,393
Finished goods . . . . . . . . . . . . . 1,211,385 984,995
--------- ---------
Total inventory . . . . . . . . . . . $ 3,602,068 $ 3,324,866
========= =========
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales for the three months ended December 31, 1995 increased 15%
compared to the same period during the prior fiscal year, and sales for
the six-month period increased 18% over the same period in fiscal 1994.
Shipments of new products during the respective time periods was the
primary reason for the increases.
Broadcast market sales increased 16% during the second quarter of
fiscal 1996, and increased 25% year-to-date as compared to the same
periods during fiscal 1995. The main reason for the increase was sales
of the Company's new TS612 talk show telephone system. The Company has
received very favorable customer response to this product, and is
finalizing new system enhancements which it anticipates introducing
during the third quarter of the current fiscal year. Increased sales
also resulted from another new product, the Company's recently introduced
Telehybrid telephone interface unit. The new product allows broadcasters
to make easy connections to either digital or analog phone lines in
various "on-air" broadcast applications. It can also be used in
situations involving audioconferencing.
Sales to the audio segment of the Teleconferencing market (the
"Audioconferencing" market) increased 13% during both the three and six-
month periods ended December 31, 1995, as compared to the same periods a
year ago. One reason for the increases was due to shipments of the new
AVT line of products. These units were designed specifically for use in
conjunction with videoconferencing and distance learning applications.
Audioconferencing sales were also higher than last year due to 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
anticipates ET10 shipments beginning during the third quarter.
The Company's gross profit margin percentage increased from 44% to
47% during the three months and six months ended December 31, 1995 as
compared to the same periods during the previous year. Although the
Company did experience some variations in its sales mix during the
respective periods, most of the difference was due to moderate price
increases which took effect July 1, 1995. The Company believes that
gross margins experienced during the rest of the 1996 fiscal year will be
slightly lower due to small decreases in profit margins of the new
products scheduled to be introduced. However, the Company also
anticipates higher gross profits resulting from an overall increase in
sales.
Operating expenses for the second quarter increased by 7% compared
to last year. The increase was due primarily to increased marketing
promotions, along with an increase in product development efforts.
Marketing and selling expenses rose 28% as compared to last year due to
more extensive marketing activities aimed at increasing sales of existing
products as well as continuing the ongoing promotion of new products.
Product development costs increased 20% due to efforts in bringing to
market certain features and new product enhancements for the TS612 and
ET100. Offsetting both of these cost increases was a 20% decline in
general and administrative expenses. The reduction stems mainly from
cost saving efforts and efficiencies gained in modifying the
organizational structure. This process, started during the latter part
of fiscal 1994, began yielding results during the last half of fiscal
1995 and continued on into fiscal 1996.
For the six-month period ended December 31, 1995, operating
expenses overall went down by 7% compared to the same period a year
earlier. Product development costs for the first half of the current
fiscal year were down 6%, notwithstanding the aforementioned second
quarter increase. The reason year-to-date expenses decreased was the
significant drop in engineering costs during the first quarter of fiscal
1996, compared to last year's first quarter when much effort was being
focused on preparing the TS612 and ET100 products to ship. The second
quarter rise in marketing and selling expenses, compared to last year,
was somewhat offset by lower expenses earlier this year versus last when
the Company was heavily engaged in promoting these two new products. As
a result, year-to-date marketing and selling expenses experienced an
increase of only 8%. Year-to-date general and administrative costs
compared to last year decreased 27% for the same reasons mentioned above
in connection with the quarter ended December 31, 1995.
The Company incurred, respectively, 69% and 73% more interest
expense during the three and six-month periods ended December 31, 1995
than it did the previous year, stemming from increased 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 fiscal 1996.
FINANCIAL CONDITION AND LIQUIDITY
The Company's current ratio increased from 1.8:1 to 2.2:1 during
the six 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 to
significantly reduce the amounts owing to vendors, thus reducing the
accounts payable balance by 18% as compared to the end of the previous
fiscal year. Inventory increased 8% during the six-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 fully implement 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 three months
ended December 31, 1995 when inventory decreased 4%.
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 $1.15 million
outstanding at December 31, 1995.
The Company is continuing to maximize its efforts to maintain
stable cash flows during a time 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
(11) Statement re Computation of Per Share Earnings
(27) Financial Data Schedule
(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: February 10, 1996
EXHIBIT 11
GENTNER COMMUNICATIONS CORPORATION
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Three Months Ended Six Months Ended
December 31, December 31,
--------------------- ---------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
Primary:
Earnings:
Net income (loss) . . . $ 173,633 $ 17,522 $ 325,258 $ (362,186)
Assumed interest expense
reduction on retirement
of long-term liabilities - - - -
Assumed interest income
increase on purchase of
investments . . . . . . - - - -
---------- ---------- ---------- ----------
Adjusted net income
(loss). . . . . . . . $ 173,633 $ 17,522 $ 325,258 $ (362,186)
========== ========== ========== ==========
Shares:
Weighted average number
of common shares
outstanding . . .. . . . 7,659,864 7,338,375 7,617,022 7,338,375
Assumed exercise of
weighted number of
options and warrants
outstanding . . . . . . - - - -
Assumed repurchase of
common shares . . . . . - - - -
---------- ---------- ---------- ----------
Adjusted weighted
average of common
shares outstanding . 7,659,864 7,338,375 7,617,022 7,338,375
========== ========== ========== ==========
Primary Earnings
(Loss) Per Share . . . $0.02 $0.00 $0.04 ($0.05)
========== ========== ========== ==========
Fully Diluted:
Earnings:
Net income (loss) . . . $ 173,633 $ 17,522 $ 325,258 $ (362,186)
Assumed interest expense
reduction on retirement
of long-term liabilities 39,072 37,776 78,307 64,829
Assumed interest income
increase on purchase of
investments . . . . . . 13,048 30,712 23,020 57,946
---------- ---------- ---------- ----------
Adjusted net income
(loss). . . . . . . . $ 225,753 $ 86,010 $ 426,585 $ (239,411)
========== ========== ========== ==========
Shares:
Weighted average number
of common shares
outstanding . . . . . . 7,659,864 7,338,375 7,617,022 7,338,375
Assumed exercise of
weighted number of
options and warrants
outstanding . . . . . . 3,901,536 3,994,025 3,932,639 3,994,025
Assumed repurchase of
common shares . . . . . (1,532,475)(1,467,675) (1,531,775)(1,467,675)
---------- ---------- ---------- ----------
Adjusted weighted
average of common
shares outstanding . 10,028,925 9,864,725 10,017,886 9,864,725
========== ========== ========== ==========
Full Diluted Earnings
(Loss) Per Share . . $0.02 $0.01 $0.04 ($0.02)
========== ========== ========== ==========
5
3-MOS 6-MOS
JUN-30-1996 JUN-30-1996
DEC-31-1996 DEC-31-1996
134,141 134,141
0 0
1,724,941 1,724,941
145,000 145,000
3,602,068 3,602,068
5,617,867 5,617,867
3,722,384 3,722,384
2,081,127 2,081,127
7,439,635 7,439,635
2,566,705 2,566,705
691,898 691,898
7,662 7,662
0 0
0 0
4,173,370 4,173,370
7,439,635 7,439,635
3,063,011 5,850,160
3,063,011 5,850,160
1,633,064 3,073,390
1,633,064 3,073,390
0 0
0 0
48,378 98,525
173,633 352,015
0 26,757
173,633 325,258
0 0
0 0
0 0
173,633 325,258
0.02 0.04
0.02 0.04
