1
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, 1997
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.)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act 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
State 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 5, 1998
--------------------- ----------------
$0.001 PAR VALUE 7,676,868 SHARES
Transitional Small Business Disclosure Format (check one)
[ ] Yes [X] No
2
GENTNER COMMUNICATIONS CORPORATION
INDEX
PAGE
NUMBER
------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets
December 31, 1997 (unaudited) and June 30, 1997. . . . . . . . . . . . . . . . 3
Statements of Operations
Three Months Ended December 31, 1997 and
1996 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Statements of Operations
Six Months Ended December 31, 1997 and
1996 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Condensed Statements of Cash Flows
Six Months Ended December 31, 1997 and
1996 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Note to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . 8
PART II - OTHER INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2
3
GENTNER COMMUNICATIONS CORPORATION
BALANCE SHEETS
(Unaudited)
December 31, June 30,
1997 1997
---- ----
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . $ 12,409 $ 63,992
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . 1,569,133 1,682,254
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,177,134 2,668,761
Other current assets . . . . . . . . . . . . . . . . . . . . . . 251,779 136,177
---------- ----------
Total current assets . . . . . . . . . . . . . . . . . . . 5,010,455 4,551,184
Property and equipment, net. . . . . . . . . . . . . . . . . . . . . . 2,319,881 2,493,287
Related party note receivable . . . . . . . . . . . . . . . . . . . . 136,019 139,000
Other assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . 129,517 152,383
---------- ----------
Total assets . . . . . . . . . . . . . . . . . . . . . . . $7,595,872 $7,335,854
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable. . . . . . . . . . . . . . . . . . . . . . . . . . $ 531,365 $ 722,997
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . 315,748 471,072
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . 705,592 356,446
Current portion of long-term debt . . . . . . . . . . . . . . . 270,949 257,164
Current portion of capital lease obligations . . . . . . . . . . 240,071 254,951
---------- ----------
Total current liabilities . . . . . . . . . . . . . . . . 2,063,725 2,062,630
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 549,336 687,274
Capital lease obligations . . . . . . . . . . . . . . . . . . . . . . 676,984 784,354
---------- ----------
Total liabilities . . . . . . . . . . . . . . . . . . . . 3,290,045 3,534,258
Shareholders' equity:
Common stock, 50,000,000 shares authorized, par value $.001,
7,675,443 and 7,663,405 shares issued and outstanding
at December 30, 1997 and June 30, 1997 . . . . . . . . . . . . 7,675 7,663
Additional paid-in capital . . . . . . . . . . . . . . . . . . . 4,432,000 4,423,482
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . (133,848) (629,549)
---------- ----------
Total shareholders' equity . . . . . . . . . . . . . . . . 4,305,827 3,801,596
---------- ----------
Total liabilities and shareholders' equity . . . . . . . . $7,595,872 $7,335,854
========== ==========
See accompanying notes
3
4
GENTNER COMMUNICATIONS CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
December 31,
-------------------------
1997 1996
---- ----
Net sales . . . . . . . . . . . . . . . . . . . . . $4,000,813 $ 3,557,674
Cost of goods sold . . . . . . . . . . . . . . . . 1,799,281 1,888,343
---------- -----------
Gross profit . . . . . . . . . . . . . . . . 2,201,532 1,669,331
Operating expenses:
Marketing and selling . . . . . . . . . . . . 769,431 1,034,006
General and administrative . . . . . . . . . 745,780 461,802
Product development . . . . . . . . . . . . . 347,831 189,566
---------- -----------
Total operating expenses. . . . . . . . 1,863,042 1,685,374
Operating income (loss) . . . . . . . . 338,490 (16,043)
Other income (expense):
Interest income . . . . . . . . . . . . . . . 3,495 -
Interest expense . . . . . . . . . . . . . . (59,797) (38,176)
Other, net . . . . . . . . . . . . . . . . . 5,334 (21,302)
---------- -----------
Total other income (expense) . . . . . (50,968) (59,478)
---------- -----------
Income (loss) before income taxes . . . . . . . . . 287,522 (75,521)
Provision for income taxes . . . . . . . . . . . . - -
---------- -----------
Net income (loss) . . . . . . . . . . . $ 287,522 $ (75,521)
========== ===========
Basic and fully diluted net earnings (loss) per
common share . . . . . . . . . . . . . . . . . . $ 0.04 $ (0.01)
========== ===========
See accompanying notes
4
5
GENTNER COMMUNICATIONS CORPORATION
STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended
December 31,
-------------------------
1997 1996
---- ----
Net sales . . . . . . . . . . . . . . . . . . . . . $7,725,793 $ 6,497,879
Cost of goods sold . . . . . . . . . . . . . . . . . 3,626,281 3,470,328
---------- -----------
Gross profit . . . . . . . . . . . . . . . . . 4,099,512 3,027,551
Operating expenses:
Marketing and selling . . . . . . . . . . . . 1,506,211 1,811,178
General and administrative . . . . . . . . . . 1,345,493 897,954
Product development . . . . . . . . . . . . . 644,321 427,140
---------- -----------
Total operating expenses . . . . . . . . 3,496,025 3,136,272
Operating income (loss) . . . . . . . . 603,487 (108,721)
Other income (expense):
Interest income . . . . . . . . . . . . . . . 7,212 0
Interest expense . . . . . . . . . . . . . . . (124,350) (73,987)
Other, net . . . . . . . . . . . . . . . . . . 9,352 (21,190)
---------- -----------
Total other income (expense) . . . . . . (107,786) (95,177)
---------- -----------
Income (loss) before income taxes . . . . . . . . . 495,701 (203,898)
Provision for income taxes . . . . . . . . . . . . . - -
---------- -----------
Net income (loss) . . . . . . . . . . . $ 495,701 $ (203,898)
========== ===========
Basic and fully diluted net earnings (loss) per
common share . . . . . . . . . . . . . . . . . . $ 0.06 $ (0.03)
========== ===========
See accompanying notes
5
6
GENTNER COMMUNICATIONS CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
December 31,
-------------------------
1997 1996
---- ----
C>
Cash flows from operating activities:
Cash received from customers . . . . . . . . . . . . . . . . $ 7,825,724 $ 6,265,022
Cash paid to suppliers and employees . . . . . . . . . . . . (7,163,714) (5,352,098)
Interest received . . . . . . . . . . . . . . . . . . . . . 7,212 -
Interest paid . . . . . . . . . . . . . . . . . . . . . . . (127,654) (71,427)
Income taxes refunded (paid) . . . . . . . . . . . . . . . . (900) 19,100
----------- -----------
Net cash provided by operating activities . . . . . . 540,668 860,597
----------- -----------
Cash flows from investing activities:
Purchases of property and equipment . . . . . . . . . . . . (149,102) (607,769)
Issuance of note receivable . . . . . . . . . . . . . . . . - (147,327)
Increase in other assets . . . . . . . . . . . . . . . . . . (2,099) (69,047)
----------- -----------
Net cash used in investing activities . . . . . . . . (151,201) (824,143)
----------- -----------
Cash flows from financing activities:
Proceeds from employee stock option exercises . . . . . . . 8,530 -
Net repayments under line of credit . . . . . . . . . . . . (191,632) (21,264)
Proceeds from issuance of long-term debt . . . . . . . . . . - 319,669
Principal payments of capital lease obligations . . . . . . (133,794) (90,873)
Principal payments of long-term debt . . . . . . . . . . . . (124,154) (94,101)
----------- -----------
Net cash (used in) provided by financing activities. . (441,050) 113,431
----------- -----------
Net (decrease) increase in cash . . . . . . . . . . . . . . . . . (51,583) 149,885
Cash at the beginning of the year . . . . . . . . . . . . . . . . 63,992 213,763
----------- -----------
Cash at the end of the period . . . . . . . . . . . . . . . . . . $ 12,409 $ 363,648
=========== ===========
Supplemental disclosure of cash flow information:
Property and equipment financed by capital leases . . . . . $ 11,545 $ 293,701
=========== ===========
See accompanying notes
6
7
GENTNER COMMUNICATIONS CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
(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 1997 Annual Report and 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 8,076,408 and 7,662,375 respectively, for the three months
ended December 31, 1997 and 1996. For the six-month periods then ended, the
amounts were 7,916,486 and 7,662,375, respectively. For the year ended June
30, 1997, stock options and warrants to purchase common stock have been
excluded from the presented computation of per share amounts inasmuch as the
effects are either immaterial or antidilutive.
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accountings Standards No. 128, Earnings per Share. Statement 128
replaced the previously reported primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options, warrants,
and convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. The Company has adopted
FAS 128. All earnings per share amounts for all periods have been presented,
and where necessary, restated to conform to the Statement 128 requirements.
3. INVENTORY
Inventory is summarized as follows:
(Unaudited)
December 30, June 30,
1997 1997
---- ----
Raw Materials $ 928,238 $ 897,481
Work in progress 959,837 648,712
Finished Goods 1,289,059 1,122,568
------------- -------------
Total inventory $ 3,177,134 $ 2,668,761
============= =============
7
8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Sales for the three months ended December 31, 1997 increased 12%
compared to the same three-month period last year. This growth is primarily
due to a 46% increase in the Teleconferencing segment (including both product
and service). Year-to-date sales increased 19% as compared to the same
six-month period in the previous year. Year-to-date growth is also due to
sales increases in the Teleconferencing segment.
Sales in the Teleconferencing segment increased 46% comparing second
quarter of this fiscal year to the same quarter last year. This increase is
primarily due to increased sales in the Company's Teleconferencing Service,
which experienced a 167% sales growth over the same quarter last fiscal year.
This increase in sales is a result of the Company hiring a dedicated sales
staff who aggressively markets its conference calling service. During the
second quarter, sales of the GT724 installed Teleconferencing System also
increased, contributing to the Teleconferencing segment growth. The Company
began shipping this product June 1996. The GT724 is used in many different
teleconferencing applications, particularly courtrooms, distance learning
facilities, and corporate boardrooms. The Teleconferencing segment increased
54% comparing the six-month period ending December 31, 1997 to the same period
last year. The Teleconferencing Service sales increased 176% year- to-date as
compared to the same period of the prior year. This year-to-date increase is
also due to the increase in sales for the Teleconferencing Service and the
growth in GT724 sales.
Broadcast sales decreased 3% in the second quarter of this year as
compared to the second quarter of last year. While the domestic market for
telephone interface products may be shrinking due to radio and television
station consolidation, the Company has experienced significant sales growth
internationally for its telephone interface products. In Remote Site Control,
the Company saw GSC3000 sales increase significantly when comparing second
quarters, year over year. The GSC3000 monitors and adjusts the settings at one
or more remote transmitter sites using one networked system. Using the GSC3000
an engineer can manually adjust the settings at the remote site via a personal
computer. The growth in the Remote Site Control product line can be attributed
to ongoing software improvements, as well as the new voice interface module for
the GSC3000. The voice interface allows an engineer to call the broadcast
equipment from any telephone, check on its status, and make adjustments. Sales
in the Broadcast segment decreased 1% year-to-date as compared to the same
period in 1996.
Assistive Listening Systems products continue to show sales growth.
ALS sales grew 19% for the three-month period ended December 31, 1997 as
compared to the same period in 1996. This increase is a result of product
enhancements and additional OEM agreements with companies that want the Company
to produce their private label ALS products. ALS sales grew 37% for the
six-month period ended December 31, 1997 as compared to the same period in
1996. The reasons for year-to-date growth are also due to product enhancements
and additional OEM agreements.
The Company's gross profit margin percentage was 55% for the first
quarter of this year, compared to 47% for the same quarter last year. This
increase is primarily due to price increases the beginning of this fiscal year,
aggressive vendor pricing, new products with a higher gross profit margin, a
different product mix, and a critical focus on improving manufacturing
processes. The Company's conference calling service has a lower gross profit
margin than its manufacturing operations, which, as conference calling becomes
a higher percentage of total sales, could negatively impact the Company's
overall gross profit margin. Year-to-date gross profit margin is 53% as
compared to 47% for the same period last year. The increase in the
year-to-date gross profit margin is also due to price increases the beginning
of this fiscal year, aggressive vendor pricing, new products with a higher
gross profit margin, a different product mix, and a critical focus on improving
manufacturing processes.
Operating expenses for the quarter grew 11% when comparing the same
periods of this year to last year. One of the most significant portions of the
increase came in general and administrative expenses which grew 61%
8
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations (continued)
comparing second quarter this year to second quarter last year. This is mainly
due to the CEO Severance package (as described below). Additionally, the
Company has increased expenses in its Product Development area, which grew 83%
when comparing the second quarter of this year to the same quarter last year.
Year-to-date operating expenses grew 11% when comparing the same periods of
this year to last year. Growth in year-to-date operating expenses resulted
from the same reasons that the quarter grew.
Second quarter General and Administrative expenses are up 61% compared
to the same period last year. This second quarter increase is primarily due to
the CEO Severance package. The year-to-date expenses are up 50% when comparing
1997 to the same period in 1996. The year-to- date increase is due to the
severance package and the Company's move to an expanded facility in November
1996. This facility is about twice the size of the old building, which has
resulted in an increase in occupancy costs. The increase is also due to the
Company writing off certain deferred expenses associated with the Company's
warrants that expired in September of 1997.
Product development expenses increased 83% in the second quarter of
this fiscal year compared to the second quarter last year. This is because of
expanded product development and product compliance activities. It also
increased 51% year-to-date 1997 compared to 1996. This increase is essentially
due to hiring additional engineers to facilitate product development.
Sales and Marketing second quarter expenses decreased 26% over the
prior year's second quarter. This decrease is primarily due to the Company
bringing all advertising development and expenditures in house. Additionally,
last year, the Company had significant advertising expenses associated with a
national campaign for its conference calling service. There was also a
decrease of 17% when comparing year-to-date expenses for this year to the same
period last year. This decrease is also due to the reduction of advertising
expenses, as well as the closing of the Company's California and New Jersey
offices.
Interest expense for the quarter is up 57% compared to the same
quarter last year. This increase is due to increased debt balances. The
facility expansion was financed through leases and notes that were established
in the third quarter of last fiscal year. Interest expense increased 68% for
the six-month period ending December 31, 1997 as compared to the same period
last year. This increase was also due to increased debt balances to finance
the facility expansion.
Financial Condition and Liquidity
The Company's current ratio increased from 2.20:1 on June 30, 1997 to
2.43:1 on December 31, 1997. This increase in current ratio was caused
primarily by an increase in inventory. This increase in inventory is because
of raw material purchases and elevated levels of work-in- process for a new
product line that the Company expects to begin shipping in the near future.
Other factors affecting the current ratio are a decrease in the outstanding
balance on the Company's line-of-credit account, and a reduction in accounts
payable.
The Company has an outstanding line of credit of $2.0 million, which
is secured by the Company's accounts receivable. The interest rate on the line
is a variable interest rate (anywhere from three to five basis points over the
London Interbank Offered Rate (LIBOR)). As of December 31, 1997 the
outstanding balance was $531,000 and the interest rate was 9.96%. This line
has a one year term, expiring in December of 1998.
The Company continues to experience strong operating cash flows.
Increasing sales and profitability have contributed to positive operating cash
flows. As sales continue to increase, the Company expects to achieve its
9
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Financial Condition and Liquidity (continued)
business plan through a combination of internally generated funds and
short-term or long-term borrowings, if necessary.
CEO Severance Package
The Board of Directors of the Company has approved the material terms of a
Severance Agreement providing for the departure of Russell D. Gentner from the
offices of President and Chief Executive Officer of the Company (though he will
continue as a Director and Chairman of the Board of the Company). Until the
Severance Agreement is executed by the Company and Mr. Gentner, there can be no
assurance that the material terms of the Agreement will remain unchanged.
Forward Looking Statements and Risk Factors
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 occurrence of many events outside of the Company's
control. Please see a detailed list of the risk factors that are outlined in
the Company's 1997 annual report and form 10-KSB.
10
11
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibits Required by Item 601 of Regulation S-B
The following exhibit is hereby incorporated by reference from the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1989. The
exhibit number shown as appeared in the 1989 Form 10-K as originally filed.
EXHIBIT
NUMBER DESCRIPTION
3.1*+ Articles of Incorporation and all amendments thereto through
March 1, 1998. (Page 10)
The following exhibit is hereby incorporated by reference from the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1989. The
exhibit number shown as appeared in the 1989 Form 10-K as originally filed.
EXHIBIT
NUMBER DESCRIPTION
3.1*+ Amendment to Articles of Incorporation, dated July 1, 1991.
The following exhibit is hereby incorporated by reference from the Company's
Form 10-KSB for the fiscal year ended June 30, 1993. The exhibit number shown
as appeared in the 1993 Form 10-KSB as originally filed.
EXHIBIT
NUMBER DESCRIPTION
3*+ Bylaws, as amended on August 24, 1993. (Page 16)
* Denotes exhibits specifically incorporated in this Form 10-KSB by
reference to other filings pursuant to the provisions of Rule 12B-32 under the
Securities Exchange Act of 1934.
+ Denotes exhibits specifically incorporated into this Form 10-KSB by
reference (and their page location in such filing), pursuant to Regulation S B,
Section 228. These documents are located under File No. 0-17219 and are
located at the Securities and Exchange Commission, Public Reference Branch, 450
5th St., N.W., Washington, DC 20549.
(b) Reports on Form 8-K
None
11
12
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/ Susie Strohm
-----------------------------------
Susie Strohm
Vice President, Finance
Date: February 5, 1998
12
13
EXHIBIT INDEX
The following exhibit is hereby incorporated by reference from the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1989. The
exhibit number shown as appeared in the 1989 Form 10-K as originally filed.
EXHIBIT
NUMBER DESCRIPTION
3.1*+ Articles of Incorporation and all amendments thereto through
March 1, 1998. (Page 10)
The following exhibit is hereby incorporated by reference from the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1989. The
exhibit number shown as appeared in the 1989 Form 10-K as originally filed.
EXHIBIT
NUMBER DESCRIPTION
3.1*+ Amendment to Articles of Incorporation, dated July 1, 1991.
The following exhibit is hereby incorporated by reference from the Company's
Form 10-KSB for the fiscal year ended June 30, 1993. The exhibit number shown
as appeared in the 1993 Form 10-KSB as originally filed.
EXHIBIT
NUMBER DESCRIPTION
3*+ Bylaws, as amended on August 24, 1993. (Page 16)
* Denotes exhibits specifically incorporated in this Form 10-KSB by
reference to other filings pursuant to the provisions of Rule 12B-32 under the
Securities Exchange Act of 1934.
+ Denotes exhibits specifically incorporated into this Form 10-KSB by
reference (and their page location in such filing), pursuant to Regulation S B,
Section 228. These documents are located under File No. 0-17219 and are
located at the Securities and Exchange Commission, Public Reference Branch, 450
5th St., N.W., Washington, DC 20549.
5
1
U.S. DOLLARS
3-MOS
JUN-30-1998
OCT-01-1997
DEC-31-1997
1
12,409
0
1,569,133
0
3,177,134
5,010,455
2,319,881
0
7,595,872
2,063,725
0
0
0
7,675
4,298,152
7,595,872
4,000,813
4,009,642
1,799,281
1,863,042
0
0
59,797
287,522
0
287,522
0
0
0
287,522
0.04
0.04
