UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
|X| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended June 30, 2001
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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
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GENTNER COMMUNICATIONS CORPORATION
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(Exact name of registrant as specified in its charter)
Utah 87-0398877
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1825 Research Way, Salt Lake City, Utah 84119
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (801) 975-7200
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Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
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None None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.001 par value
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(Title of class)
Indicate by check mark whether the issuer (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. Yes |X| No |_|
Indicate by check mark disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K. |_|
The aggregate market value of the voting common stock held by
non-affiliates is approximately $66,576,342 at September 1, 2001. This value was
computed at the price of $10.89 at which the stock traded on September 1, 2001
(which date is within 60 days of the filing of this Form 10-K).
The number of shares outstanding of the issuer's Common Stock as of
September 1, 2001 was 8,612,978.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Overview
Gentner Communications Corporation (the "Company") was organized under the laws
of the State of Utah on July 8, 1981 as Gentner Engineering Company, Inc. On
March 26, 1985, Gentner Engineering Company went public by way of a reverse
purchase when Insular, Inc. (incorporated in Utah on July 8, 1983), acquired
Gentner Engineering and changed its name to Gentner Electronics Corporation. On
July 1, 1991, Gentner Electronics Corporation changed its name to Gentner
Communications Corporation to more accurately reflect the expanding nature of
its business.
The Company primarily develops, manufactures, markets and distributes products
and services for the conferencing equipment, conferencing services, and
broadcast markets. Until 1991, the Company's primary business was the sale of
studio and transmitter-related equipment to broadcast facilities. Since then,
the Company has applied its core digital audio technology to the development of
products for conferencing, sound reinforcement, and assistive listening
applications. In addition, the Company offers conferencing services, including
conference calling, Webconferencing, document conferencing, audio and video
streaming, and customer training and education.
The Company initially began selling its products to the telephone interface
portion of the broadcast market. These products are primarily used to put
callers on the air for call-in talk shows. In 1991, using the technological
expertise gained in the broadcast market, the Company commenced marketing
products specifically developed for the audioconferencing market. The Company's
audioconferencing products provide users with a natural, two-way method of
conversation without the cut-offs, distortion, noise and echo associated with
traditional speakerphones. Audioconferencing products are installed in
conference rooms, courtrooms, and distance learning facilities. The Company also
develops assistive listening systems that provide enhanced audio for those with
hearing disabilities. Over the past two years, the Company has expanded its
market opportunity by introducing products targeting the videoconferencing and
sound reinforcement markets. Videoconferencing products are typically installed
in the same types of venues as the Company's audioconferencing products. Sound
reinforcement products target larger venues, such as stadiums, arenas, theaters,
houses of worship and convention centers. Product sales from continuing
operations accounted for 71% of the Company's total sales from continuing
operations during fiscal 2001, compared to 79% in fiscal 2000 and 84% in fiscal
1999.
In fiscal 1993, the Company introduced Gentner Conference Call(R) (1-800 LETS
MEET(R)), a comprehensive teleconferencing service. Over the past two years, the
Company has expanded its service offerings to include on-demand, reservationless
conference calling, Webconferencing, and audio and video streaming over the
Internet. During fiscal year 2001, sales conferencing services accounted for 29%
of the Company's total sales from continuing operations, compared to 21% in
fiscal 2000 and 16% in fiscal 1999.
The Company's international sales were 13%, 12%, and 12% of total sales for
fiscal years 2001, 2000, and 1999, respectively.
Business Strategy
In fiscal year 2001, the Company changed its reportable operating segments to
reflect how it evaluates its operating performance and allocates resources.
Prior to fiscal year 2001, the Company's reportable segments included
RFM/Broadcast, Conferencing Products, Conferencing Services and Other. On July
5, 2000, the Company concluded the purchase of the assets of ClearOne, Inc.
Through this purchase, the Company obtained valuable technology for
videoconferencing products, as well as existing audioconferencing products and
related technology. As of April 12, 2001, the Company sold the assets of the
remote control portion of the RFM/Broadcast division. Subsequent to the
disposal, the Company now operates in two different segments - Products and
Services. See Note 15 to the Consolidated Financial Statements for further
information on Segment Reporting. The operating results of the remote control
portion of the division have been separately reported as discontinued operations
for all periods presented. See further discussion of Discontinued Operations in
Item 7.
The Products segment is responsible for the following areas: room system
audioconferencing and videoconferencing products, sound reinforcement products,
broadcast telephone interface products, and assistive listening systems.
2
The Services segment is responsible for all teleconferencing services, including
full-service conference calling; on-demand, reservationless conference calling,
Webconferencing, and audio and video streaming.
The Company is focused on increasing its share of target markets through new
product and service introductions, and through enhanced international efforts.
Products and Services
Products Segment
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Room System Conferencing Products. In 1991, the Company combined the digital
technology in its broadcast telephone products with Digital Echo Cancellation(R)
to develop a line of conferencing products. These products are used in such
settings as conference rooms, distance learning facilities, and courtrooms.
Examples of current applications include executive boardrooms for Bell South
Telecommunications, The Boeing Company, and the National Geographic Society;
distance learning facilities in Oklahoma, Indiana, Nebraska, North Carolina and
Wisconsin; and courtroom applications for the Montreal Court System and the
Federal Bankruptcy Courts in San Jose. The Company is well known for these types
of quality products.
In 1998, the Company introduced and began shipping a new line of conferencing
products under the brand name of Audio Perfect(R). The Audio Perfect(R) product
line currently consists of the AP800, AP400, AP10, AP-Ware(TM), AP IR Remote
Control and APV200-IP. Building upon its Audio Perfect(R) technology, the
Company began shipping the newest generation of conferencing products, the
XAP(TM) 800 and XAP(TM) TH1, in June 2001. The XAP(TM) and Audio Perfect(R)
products are comprehensive room-audio control systems designed to excel in the
most demanding acoustical environments and routing configurations. Typical
applications include conference rooms, courtrooms, corporate boardrooms, and
distance learning facilities. The XAP(TM) and AudioPerfect(R) products are also
used for integrating audio with videoconferencing systems.
The XAP(TM) 800 is the Company's most powerful, feature-rich audioconferencing
product to date. It builds upon the proprietary Distributed Echo Cancellation(R)
technology of the Company's popular AP800 and on the proven software control and
signal processing capabilities of the Company's PSR1212. It also incorporates
noise cancellation technology, assignable processing blocks, advanced automatic
gain control and speech leveler, an advanced matrix mixer, advanced room
combining technology, and wall-panel controls.
The XAP(TM) TH1 is the telephone interface portion of the XAP(TM) 800. It
connects audioconferencing participants via a telephone line. The XAP(TM) TH1
provides the best available quality for single telephone line conferencing, and
it enables up to 16 callers to be conferenced into a XAP(TM) 800 system using 16
XAP(TM) TH1s.
The AP800 performs the combined functions of several audio devices, including an
eight-channel automatic microphone mixer, a 12 X 12 matrix mixer, an audio
processor, an equalizer and an audio network controller. It also functions as an
echo canceller using the Company's digital Distributed Echo Cancellation(R)
(D.E.C.)(R) technology. Before D.E.C., only one echo canceller was used to
eliminate acoustic echo during a call. With D.E.C., an echo canceller, an
equalizer and an audio processor are placed on every microphone input, yielding
crystal-clear audio in a greater variety of environments.
The AP10 is used with the AP800 as a telephone interface to connect
audioconferencing participants via a telephone line. Each Audio Perfect(R)
system can be expanded to interface with up to eight AP800's and 16 AP10's,
providing a network of up to 16 phone lines, 32 line inputs, and 64 microphones,
all operating as a single unit.
The AP400 combines the scaled down functions of the AP800, the AP10 and an
internal power amplifier. Its four microphone inputs, compared to the AP800's
eight microphone inputs, make the AP400 more practical for small to medium sized
rooms.
AP-Ware(TM) is a PC-based software designed to enhance the Audio Perfect(R)
family of products. AP-Ware(TM) simplifies the set-up, configuration and
operation of the Audio Perfect(R) system by employing a graphical user
interface. The graphic orientation provides access to the same features
available via the front-panel controls of the AP800, AP400 and AP10, but does so
in a more user-friendly manner. AP-Ware(TM) can control an entire Audio
Perfect(R) system using only one serial connection, and can communicate with AP
units both locally and remotely via modem.
The AP IR Remote Control uses infrared transmission to operate the AP800, AP400
and AP10. Features include connect, disconnect, dial, redial, speed dial, hook
flash, volume control and micFrophone mute.
3
The APV200-IP is a videoconferencing system that the Company purchases from
Viseon Video, Inc. The APV200-IP delivers high-quality video, is standards
based, and connects directly to any size TV, LCD projector, flat screen, PC, or
laptop computer. When combined with other Audio Perfect(R) products, the
APV200-IP can support up to 64 microphones and multiple cameras, providing
top-quality sound and video for any size room.
In July 2000, the Company purchased substantially all of the assets of ClearOne,
Inc., a Woburn, Massachusetts-based developer of multimedia communications
equipment. With the asset purchase, the Company enhanced its technology with
respect to videoconferencing, which it believes enables the Company to more
effectively meet customer demands for specific features and functionality in
future products by bringing videoconferencing product development in-house.
In addition to the videoconferencing technology gained in the ClearOne, Inc.
asset purchase, the Company acquired two audioconferencing products. The Gentner
ClearOne(R) is a portable, plug-and-play conference phone. It complements the
Company's product suite and expands current distribution methods because it can
be sold through retail distribution channels as well as through the Company's
existing network of dealers and integrators. In addition, the Company obtained
the "VTC AccuMic" a microphone pad that is ideally used as high-quality,
affordable audio support for any videoconferencing system. It is typically used
when audio coverage from a single microphone is insufficient.
Sound Reinforcement Products. In March 2000, the Company began shipping the
PA870 power amplifier, and in December 2000, the Company began shipping the
PSR1212 matrix mixer with audio processing capabilities. Both the PA870 and the
PSR1212 are designed for sound reinforcement applications in large venues such
as hotels, theaters, convention centers, and houses of worship.
Broadcast Telephone Interface Products. The Company's telephone interface
product line offers a full selection of products ranging from simple single-line
couplers, which enable users to send and receive audio over a single telephone
line, to computerized multiple-line systems used in talk-show programs. An
example of the computerized multi-line system is the Company's TS612, which it
began selling in fiscal 1995. Using the TS612, talk-show hosts can screen calls,
bring callers on-air, conference several callers together, or monitor whether
callers are on hold or talking to the show's producer. The Company believes its
share of the domestic telephone interface market is currently 50% or greater,
with potential for the largest growth in international markets.
In April 2001, the Company sold the remote control portion of the RFM/Broadcast
product line. The purchase was made by Burk Technology of Littleton, MA. The
purchase price was $3.2 million.
Assistive Listening System Products. In March 1993, the Company began shipping
its Assistive Listening System (ALS) products. These products help the Company's
customers comply with the Americans with Disabilities Act (ADA) by providing
enhanced audio for hearing impaired people in public places such as theaters,
houses of worship, schools, courtrooms, stadiums and arenas.
In February 1999, the Company introduced its Venture series of ALS products
designed specifically for tour audio and language translation applications.
Venture operates in the 216 MHz frequency range that has been designated by the
Federal Communications Commission (FCC) for use in hearing assistance
applications not specifically designed for the hearing impaired.
Backlog. As of June 30, 2001, the Company's backlog was approximately $10.5
million. As of June 30, 2000, the Company's backlog was approximately $1.8
million. The Company anticipates 100% of the backlog at June 30, 2001 to be
shipped by June 30, 2002. The increase in the Company's backlog is due to the
blanket purchase order program for the Company's dealers which was implemented
during the third quarter of fiscal 2001. See further discussion under
Consolidated Results of Continuing Operations in Item 7.
Net revenues from the products segment was $28.2 million in fiscal 2001, $22.2
million in fiscal 2000 and $17.1 million in fiscal 1999.
4
Services Segment
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Conference Calling Services. In February 1993, the Company launched its
teleconferencing service to provide customers with a complete offering of
conferencing solutions. Gentner Conference Call(R) (1-800 LETS MEET(R)) can
connect many different telephone callers worldwide with superior service and
excellent clarity. The Company also facilitates videoconferences,
dataconferences, and satellite conferences. In November 1999, the Company
enhanced its teleconferencing service with the introduction of Instant
Access(TM) Conferencing, which enables customers to conduct a conference call at
any time, from any location, without a reservation.
Webconferencing Services. In October 1999, the Company introduced
TheDataPort.com Webconferencing service to complement its existing
teleconferencing service offerings. TheDataPort.com enables customers to conduct
live, interactive meetings over the Internet, incorporating visual elements such
as graphics, slides, and charts. Polling, Q & A sessions, and audio and video
transmission are also available, and the event can be saved and archived for
on-demand playback. The DataPort.com runs on the WebEx(R) Webconferencing
platform.
Audio and Video Streaming Services. In July 2001, the Company added audio and
video streaming to its suite of conferencing services, enabling customers to
enhance conference calls with live and archived audio and video over the
Internet. Gentner offers audio and data streaming through a third party
provider.
Net revenues from the services segment was $11.7 million in fiscal 2001, $5.9
million in fiscal 2000 and $3.2 million in fiscal 1999.
Markets
Conferencing Equipment Market
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The Company believes that there is significant growth potential in the U.S.
market for conferencing equipment. Frost & Sullivan, an international marketing
consulting company that publishes market research reports, projects the target
market for the Company's conferencing products to grow from $940 million in 2000
to $2.5 billion in 2006.
This market is made up of three separate components: the audioconferencing
systems market, the videoconferencing systems market, and the installed portion
of the professional audio market. According to Frost & Sullivan, the
audioconferencing systems market is projected grow from $91 million in 2000 to
$320 million in 2006, or at a compound annual growth rate of 23.1%. The Company
estimates that it increased its share of this market in 2000 to 17% from 15% in
1999. The videoconferencing systems market is projected to grow from $350
million in 2000 to $1.1 billion in 2006, or at a compound annual growth rate of
22.9%. The Company estimates that the market for its sound reinforcement
equipment is approximately $500 million. There can be no assurance that these
markets will increase as expected, if at all.
The Company believes that the conferencing equipment market provides significant
sales growth potential for the future, and plans to continue providing solutions
to businesses and other end users through the sale of conferencing products.
Conferencing Services Market
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The Company also believes there is significant opportunity for its conferencing
services. According to Frost & Sullivan, the total market for conferencing
services in 2000 was $1.4 billion and should grow to $2.5 billion by 2006. The
Company grew revenue from its conferencing services segment 98% in fiscal 2001
to $11.7 million from $5.9 million in fiscal 2000. There can be no assurance
that this market will grow as expected, if at all.
This market is made up of two separate components: audioconferencing services
and Webconferencing reseller services. The total audioconferencing services
market is projected to grow from $1.4 billion in 2000 to $2.2 billion in 2006,
or at a compound annual growth rate of 7.0%. The Webconferencing reseller
services market is projected to grow from $12 million in 2000 to $354 million in
2006, or at a compound annual growth rate of 73.5%. There can be no assurance
that these markets will increase as expected, if at all.
Broadcast Market
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The Company's broadcast telephone interface products are targeted and sold to
radio and television stations, broadcast networks, and other professional audio
customers. The Company believes that the worldwide market for the products is
5
approximately $30 million. The Company estimates that it has a worldwide market
share of approximately 13%. The United States is considered to be the
predominant segment of the worldwide broadcast market, with over 12,000 radio
and 1,200 television stations in operation. The Company's products are primarily
sold to upgrade broadcast studios. The size of the domestic broadcast market is
fixed, as the Federal Communications Commission limits the total number of
broadcast station licenses.
The Company has traditionally concentrated its efforts on selling its products
in the United States. However, while the United States is considered to be the
largest single broadcast market segment in the world, it is believed to
represent only 20% of the total worldwide broadcast telephone interface market.
The international broadcast market is expanding as a result of government
deregulation and privatization of stations and the increasing number of
frequencies available for commercial use. In 1991, the Company began focusing
efforts on expanding its international market share and has appointed dealers
located in key areas around the world (see "Description of Business -
Distribution").
Marketing and Sales
The Company's conferencing products are primarily sold through professional
audio/visual equipment dealers and consultants. These dealers and consultants,
in turn, provide audio and video solutions to end users in applications such as
corporate boardroom systems, distance learning facilities, and courtrooms. The
Company reaches these end users through a sales representative and dealer
network that regularly interacts with potential end users in the target market.
The Company actively participates alongside this network at communication
forums, trade shows, and industry promotions. The Company is reinforcing those
efforts by remaining involved in the distribution network and offering dealer
training and education on its products and services.
In addition to employing the dealer/consultant channel described above, the
Company sells the ClearOne(R) conference phone through retail distribution
channels such as office equipment and supply stores. The ClearOne(R) conference
phone is a lower-priced product that does not require professional installation,
making it suitable for direct purchase by the end-user. As discussed previously,
the Company acquired this technology from ClearOne, Inc. in fiscal 2001.
The Company relies on a direct sales force and outside representative network to
sell its conference calling and Webconferencing services. The Company believes
that it has the potential to cross-sell its products and services by partnering
with key dealers. The Company also believes it has an advantage in that it can
provide higher-quality products and services as a package for organizations'
conferencing needs.
Due to the large size of the conferencing equipment market and its potential for
intense competition, the Company expects this segment will continue to require
substantial marketing resources and research and development efforts. To this
end, the Company intends to continue to seek highly trained and experienced
personnel. Additionally, the Company has aggressively focused on research and
development to create an expanded and, what the Company believes to be, a
technologically superior line of products. The Company's strategy continues to
be to sell its conferencing products through national and international dealers
who focus on integrating conferencing facilities for organizations.
Sales efforts for the Company's broadcast telephone interface products focus on
the domestic and international sale of these products through a worldwide
network of dealers. Such efforts have included a combination of product
catalogs, trade shows, telemarketing, direct mail, trade advertising, fax on
demand, an Internet Web-page, and direct selling. The Company intends to support
dealers with product information, brochures and data sheets, and has been
increasing its activities aimed at garnering the attention of end users. The
Company intends to sponsor sales promotions to encourage dealers to feature the
Company's products, and will also focus more on end-user interaction efforts.
The Company also intends to exhibit its products at high-profile industry trade
shows to ensure that its products remain highly visible to dealers and
broadcasters.
Technical Services
Technical service, which is generally conducted over the telephone and sometimes
on site, provides timely, interactive help to customers needing operational or
technical assistance with the Company's products. The Company's technical
services team provides application and design assistance, customer and dealer
training, technical documentation, and a product rental program to reduce down
time during repair of a customer's product. The Company's technical services
team also regularly communicates with the Company's engineering and
manufacturing groups to ensure that customer feedback can be directed toward
initiating product improvements and incorporated into future products. Technical
service plays a vital role in solving customer problems and building customer
confidence. The Company has focused its resources on ensuring that strong
technical service to its customers remains a competitive advantage.
6
Warranty and Service
The Company provides a one-year warranty on its products, which covers both
parts and labor. The Company, at its option, repairs or replaces products that
are defective during the warranty period if the proper preventative maintenance
procedures have been followed by customers. Repairs that are necessitated by
misuse of such products or that are required outside the warranty period are not
covered by the Company's warranty.
In case of a defective product, the customer typically returns it to the
Company's facility in Salt Lake City, Utah. The Company's service personnel then
replace or repair the defective item and ship it back to the customer.
Generally, all servicing is done at the Company's plant, and the Company charges
its customers a fee for those service items that are not covered by warranty.
The Company also sells extended warranties for its Audio Perfect products, which
enable customers to get a replacement unit within 24 hours.
Distribution
Product Segment
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Conferencing Products. The Company sells its conferencing systems and components
through independent audio/visual equipment dealers and consultants. The Company
also uses a national network of independent sales representatives. Currently,
89% of the Company's conferencing system sales are in the United States. The
Company's primary strategy for foreign expansion is to establish dealers and
master distributors in markets where it believes there is a growing need for the
type of products and services offered by the Company.
Sound Reinforcement Products. The Company sells its sound reinforcement products
to the professional audio market via the same network of sales representatives,
consultants, and dealers that sells the Company's conferencing products.
Broadcast Telephone Interface Products. The Company's broadcast telephone
interface products are generally sold in the United States through
non-exclusive, independent broadcast equipment dealers. End users generally
place orders with a dealer by calling a toll free number. The market is highly
competitive, and it is not unusual for a customer to call several dealers to get
the best possible price. Once a customer orders equipment, a dealer orders the
product from the Company to be shipped directly to the customer or, in some
instances, ships the product to the customer from the dealer's inventory.
ALS Products. The Company sells its ALS products to the professional audio
market via the same network of sales representatives, consultants, and dealers
that sells the Company's conferencing products.
For international product sales, the Company has established Gentner
Communications EuMEA GmbH, a wholly owned subsidiary, in October 2000.
Headquartered in Nuremberg, Germany, Gentner EuMEA focuses on distribution,
technical support, and training in Europe, the Middle East and northern Africa.
In addition, the Company has established, and continues to establish,
international relationships with dealers and master distributors for its
conferencing products in Africa, Asia, Australia, Europe, North America, and
South America.
Services Segment
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Conference Calling Webconferencing and Audio and Video Streaming Services. The
Company primarily sells its conference calling service through telemarketing
directly to end users, and continues to expand its activities and the number of
employees in this area. The Company also utilizes this sales force to cross-sell
certain conferencing products directly to end users. The Company also sells
services through its product dealers and independent representatives, and
provides wholesale conference calling services to several long distance
companies.
Competition
The principal competitive factors in the Company's markets include innovative
product design, product quality, established customer relationships, name
recognition, distribution, and price.
The Company believes that its ability to successfully compete in the
conferencing markets is essential to the Company's growth and development. There
are other companies with substantial financial, technical, manufacturing, and
marketing resources currently engaged in the development and marketing of
similar products and services. Some of these companies have launched products
7
and services competitive with those being developed and manufactured by the
Company. However, the Company has used its core digital technology to produce
what it believes to be superior conferencing equipment and services. The Company
believes it is the only provider of both high-end conferencing products and
comprehensive conference calling services, and hopes it can uniquely position
itself in the expanding conferencing markets.
In the audioconferencing systems market, the Company's competitors include
Polycom, ASPI Digital, SoundGear, and other companies that offer both tabletop
and installed systems. While Gentner owns the greatest portion of the installed
segment of the market, Polycom owns the largest portion of the tabletop portion
of the market, as well as the majority of the overall audioconferencing systems
market. In the videoconferencing systems market, the Company's primary
competitors include Polycom, Tandberg, PictureTel, and Sony. In the conferencing
services market, the Company's competitors include large Interexchange Carriers,
including AT&T, Global Crossing, Sprint, and WorldCom, as well as independent
service providers. Many competitors in each market have substantial financial
resources and production, marketing, engineering and other capabilities with
which to develop, manufacture, market and sell their products. In addition,
there is potential for new companies to enter theses markets with new products
and services competitive with those of the Company.
In the broadcast market, the Company has several competitors in each of its
product lines. There is not, however, any single competitor who directly
competes with the Company in all such product lines. Although some of the
Company's competitors are smaller in terms of annual revenues and
capitalization, such competitors usually focus on a single product line. They
can therefore devote their resources to products that are directly competitive
with, and which may adversely impact sales of, the Company's products. However,
the Company's name is well known with respect to its products. The Company
believes that this advantage, coupled with the Company's size, will help it to
preserve and increase its market share. However, there can be no assurance that
the Company will be able to compete successfully or that competition will not
have a material adverse effect on the Company's results of operations.
Product Development
The Company is highly committed to research and development. The Company views
its investment in research and development as a key ingredient to long-term
business success. The Company's research and development expenditures were
$2,502,169 in fiscal 2001, $1,270,819 in fiscal 2000 and $1,194,686 in fiscal
1999.
The Company is continually developing new products and services. Current
research and development efforts are focused on the audioconferencing products,
videoconferencing products, sound reinforcement products, broadcast telephone
interface products and assistive listening system products. The Company also
invests resources in refining existing products. Moreover, the Company continues
to allocate resources to obtain and maintain product regulatory compliance, both
domestically and internationally.
The Company's core technological competencies include many areas of
telecommunications, including telephone echo cancellation and acoustic echo
cancellation. The Company's capability to use Digital Signal Processing (DSP)
technology to perform audio processing operations is also a core competency.
This technology is critical to the performance of the Company's products.
The Company maintains an internal computer aided design (CAD) team. This team
creates the necessary electrical schematics, printed circuit board designs,
mechanical designs, and manufacturing documentation to support the research and
development efforts. The Company's CAD and product design teams use networked
computing systems and sophisticated software programs to facilitate all aspects
of product development.
The Company believes that ongoing development of its core technological
competencies is vitally important to future sales.
Patent and Proprietary Rights
Trade secrets, proprietary information, and technical know-how are important to
the Company's scientific and commercial success. The Company currently relies
primarily on a combination of trade secrets and nondisclosure agreements to
establish and protect its proprietary rights in its products. Although the
Company continues to take appropriate measures to protect the proprietary rights
in its products, there can be no assurance that these measures will be
successful. In addition, the laws of certain foreign countries may not protect
its intellectual property to the same extent as the laws of the United States.
The Company holds U.S. patent number 6,173,059 B1, which deals with technology
in the Gentner ClearOne(R) conference phone.
8
The Company holds federal registered servicemarks for 1-800 LETS MEET(R),
GENTNER CONFERENCE CALL(R), GENTNER COURT CONFERENCE(R), PERFECT COMMUNICATION
THROUGH TECHNOLOGY, SERVICE AND EDUCATION(R), and WE PUT THE WORLD ON SPEAKING
TERMS(R). The Company holds federal registered trademarks for GENTNER(R),
"GENTNER(R)" (as both the name and logo), AUDIO PERFECT(R), CLEARONE(R), "C
O(R)" (logo), DISTRIBUTED ECHO CANCELLATION(R), and DISTRIBUTED ECHO
CANCELLATION (D.E.C.)(R). In addition to these registered servicemarks and
trademarks, the Company has federal applications pending for the following
trademarks: VTM(TM), VVD(TM), and XAP(TM). The Company also has federal
applications pending for the following servicemarks: EXPRESS CONFERENCESM, and
INSTANT ACCESSSM.
The Company holds the following international trademarks in Europe: GENTNER(R)
and "GENTNER(R)" (as both the name and logo). The Company also has applications
pending for the following trademarks: PERFECT COMMUNICATION THROUGH TECHNOLOGY,
SERVICE, AND EDUCATION(TM) in Europe; GENTNER(R) and CLEARONE(R) in Canada; and
GENTNER(R) and CLEARONE(R) in Brazil.
Government Regulation
The Company designs and manufactures its equipment in accordance with the
technical design standards of the Federal Communications Commission (FCC) Part
15 and Part 68. Part 15 of the FCC Rules governs the levels of electromagnetic
radiation emanating from commercial computing equipment. The Company endeavors
to conform all of its products covered by Part 15 of the FCC Rules based on
testing performed at a FCC approved testing facility. Part 68 of the FCC Rules
sets forth standards for telephone equipment that are intended to be connected
to the Public Switch Telephone Network (PSTN) used within the United States. The
Company's applicable telecommunications products are tested by an independent
testing laboratory and are registered by the FCC.
The Company also designs and manufactures its equipment pursuant to industry
product safety standards. The Canadian Standards Association (CSA), an approved
Nationally Recognized Testing Laboratory (NRTL) under the direction of the
Occupational Safety and Health Administration (OSHA), tests all products and
performs quarterly audits for continuing compliance with applicable safety
standards.
Several of the Company's products are currently registered for sale in various
international markets. The Company must conform to design standards similar to
those of the FCC and CSA in each of the foreign countries in which the products
are sold.
Manufacturing
The Company currently manufactures and/or assembles its products using purchased
or leased manufacturing equipment. It is anticipated that the equipment
presently being used will continue to be utilized for several years. The
Company's manufacturing facility incorporates modern, modular, assembly work
stations and work accessories that are designed to enhance the efficiency and
quality of the manufacturing process. In March 2000, the Company supplemented
its existing manufacturing capacity by adding a second surface-mount assembly
line. The new equipment is substantially faster, providing three times the
equipment capacity with just one more assembly line. The Company believes that
it has sufficient capacity to meet increased demand into fiscal 2002. However,
the Company may experience unanticipated demand or constraints on capacity,
which could adversely affect the business.
The Company generally purchases its assembly components from distributors, but
also buys a limited amount of components directly from local fabricators. Its
principal suppliers include Avnet/Marshall, Arrow/Bell, Future Electronics,
Precise Metal Products (all located in the United States), and Suntech Circuits
(located in Taiwan).
The Company's policy is to have a minimum of two vendor sources. Many of the
components utilized are bonded by certain distributors and manufacturers. The
bonding process places ordered products on the distributors' shelves until the
Company requires the products. The Company is also pursuing a consignment
relationship with some of its distributors. These agreements will move inventory
to "on-site" vendor stock locations, which will be managed by the vendors.
Inventory will be owned by the vendor until such time as needed. Only product
used will be charged to the Company. Availability has been limited for certain
components. These difficult-to-find components include, but are not limited to,
capacitors, memory products, connectors, and microprocessors. The Company has
been successful at locating an adequate supply of components to prevent
production stoppage, but these scarce components are costing more, thus putting
9
pressure on product margins. Disruptions in supply or significant increases in
components costs from these vendors would have an adverse effect on the
Company's operations.
The Company's ALS products, as well as the ClearOne(TM) conference phone
product, are manufactured in Taiwan and shipped to the Company's facility for
sale, ready for delivery to its customers.
During fiscal 2001, the Company's videoconferencing products were manufactured
by Viseon Video, Inc., formerly known as RSI Systems, Inc., in Minneapolis,
Minnesota and shipped to the Company's facility, ready for delivery to its
customers.
The Company upgraded its real-time computer system in May 2000. The new program
is a graphical version of the previous program and provides a more user-friendly
interface, increased capabilities, and greater access to management data. The
software is covered under a maintenance contract that allows for new version
upgrades. The Company has developed an extensive software back-up system that
provides for daily back-ups housed in a fireproof safe as well as biweekly
back-ups in an off-site storage facility.
Telecommunications and Information Systems
The Company has become heavily reliant on its telecommunications and information
systems network in order to conduct its day-to-day operations. Failure of the
network for an extended amount of time could be detrimental to the Company's
ongoing business (see "Factors that May Affect Future Results"). As such, the
Company is establishing, and will continue to develop, an infrastructure that
can support and enhance growth, reduce down-time, and improve operational
efficiencies. Network features aimed at these objectives include pre-wiring of
the Company's building for ease of changes and new installations; several
different back-up power sources to guard against power failure; redundant
equipment and circuit cards for some equipment; alarm systems and monitoring
equipment; and a temperature controlled network room. In addition, the Company
backs up its electronic data daily and stores the backup information off-site in
case of catastrophic failure.
The Company also has redundant teleconferencing bridging equipment that will
enable the Company to continue to provide bridging services in the event of
equipment failure. In addition, the Company has established relationships with
other teleconferencing service providers to outsource the Company's
teleconferencing business in the event of equipment failure.
Especially noteworthy is that as revenues from the Services segment grow, the
network structure must expand at the same rate. The Company has a fully scalable
network sufficient to accommodate projected future growth.
Financial Information by Geographic Region
See the consolidated financial statements, and footnote 13 thereto, for a
discussion of financial information by geographic region.
Employees
As of June 30, 2001, the Company had 193 employees, 188 of which were employed
on a full-time basis. None of the Company's employees are subject to a
collective bargaining agreement.
ITEM 2. PROPERTIES
All of the Company's U.S. operations, including its executive offices,
conference call service, product sales, research and development, and
manufacturing, and warehousing, are conducted in a 57,000 square-foot facility
located south of Salt Lake City. The Company leases this facility under an
agreement that expires in October 2006. The Company believes the facility will
be reasonably adequate to meet its needs for the next twelve months.
Gentner Communications EuMEA, GmbH leases an office in Nuremberg, Germany for
its operations which consists of 191 square meters and is under an agreement
that expires in April 2003.
10
ITEM 3. LEGAL PROCEEDINGS
The Company is from time to time subject to claims and suits arising in the
ordinary course of business. In the Company's opinion, the ultimate resolution
of these matters will not have a material adverse effect on its financial
position, results of operations or liquidity.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders of the Company during the
fiscal year ended June 30, 2001.
11
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Since March 31, 2000, the Company's common stock has been traded on the NASDAQ
National Market under the symbol "GTNR." Prior to that date, the Company's stock
traded on the NASDAQ Small Cap Market. The following table sets forth the high
and low bid quotations for the common stock for the last two fiscal years.
2001 High Low
---- ---- ---
First Quarter $ 17.13 $ 12.00
Second Quarter 16.44 8.50
Third Quarter 15.69 9.75
Fourth Quarter 14.30 9.50
2000 High Low
---- ---- ---
First Quarter $ 8.63 $ 5.00
Second Quarter 17.88 8.00
Third Quarter 24.38 11.50
Fourth Quarter 20.25 11.25
The above inter-dealer quotations were obtained from the National Association of
Securities Dealers (NASD), do not reflect markups, markdowns, or commissions,
and may not represent actual transactions.
As of September 1, 2001, there were approximately 7,000 holders of common stock
of the Company.
The Company does not pay a cash dividend and does not anticipate doing so in the
foreseeable future. Currently, the Company's line of credit arrangement
prohibits the payment of dividends. The Company intends to retain earnings for
future capital requirements, growth and product development.
In May 2000, the Company entered into an agreement to purchase substantially all
of the assets of ClearOne, Inc. for $1.7 million in cash and 129,871 shares of
unregistered Company Common Stock valued at $15.40 per share. The acquisition
was consummated July 5, 2000. The issuance of Common Stock to ClearOne, Inc. was
exempt from registration under the Securities Act of 1933, as amended, as a
private offering made pursuant to the Section 4(2) of such act.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data has been derived from the Gentner's
audited Consolidated Financial Statements. The information set forth below is
not necessarily indicative of results of future operations, and should be read
in conjunction with "Management's Discussion and Analysis or Plan of Operation"
and the consolidated financial statements and related notes thereto included
elsewhere in this Form 10-K.
The presentation of 1997 and 1998 financial data has been modified from that
shown in the audited financial statements for those years in order to reflect
results of continuing and discontinued operations separately.
12
SELECTED CONSOLIDATED FINANCIAL DATA
Years Ended June 30,
--------------------
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Operating results:
Net sales $ 39,878,405 $ 28,118,413 $ 20,268,102 $ 15,159,842 $ 11,825,570
Costs and expenses:
Costs of goods sold 16,503,062 11,008,323 8,907,754 7,434,240 6,161,013
Marketing and selling 7,753,292 6,165,917 4,313,639 3,189,014 3,131,723
General and administrative 4,648,999 3,132,125 2,544,665 2,470,949 2,006,999
Product development 2,502,169 1,270,819 1,194,686 864,276 790,082
------------ ------------ ------------ ------------ ------------
Operating income (loss) 8,470,883 6,541,229 3,307,358 1,201,361 (264,247)
Other income (expense) 373,147 179,336 (78,112) (213,707) (206,622)
------------ ------------ ------------ ------------ ------------
Income (loss) from continuing operations
before income taxes 8,844,030 6,720,565 3,229,246 987,654 (492,869)
Provision from income taxes 3,318,845 2,418,823 1,208,900 26,694 22,091
------------ ------------ ------------ ------------ ------------
Income (loss) from continuing operations 5,525,185 4,301,742 2,020,346 960,960 (492,960)
Income (loss) from discontinued operations,
net of applicable taxes 737,280 426,591 524,125 443,489 120,062
Gain on disposal of business segment,
net of applicable taxes 1,220,024 -- -- -- --
------------ ------------ ------------ ------------ ------------
Net income (loss) $ 7,482,489 $ 4,728,333 $ 2,544,471 $ 1,404,449 $ (372,898)
============ ============ ============ ============ ============
Earnings per common share:
Basic earnings (loss) from continuing operations $ 0.64 $ 0.52 $ 0.25 $ 0.13 $ (0.06)
Diluted earnings (loss) from continuing operations $ 0.61 $ 0.49 $ 0.24 $ 0.12 $ (0.06)
Basic earnings from discontinued operations $ 0.23 $ 0.05 $ 0.06 $ 0.05 $ 0.01
Diluted earnings from discontinued operations $ 0.22 $ 0.05 $ 0.06 $ 0.06 $ 0.01
Basic earnings (loss) $ 0.87 $ 0.57 $ 0.31 $ 0.18 $ (0.05)
Diluted earnings (loss) $ 0.83 $ 0.54 $ 0.30 $ 0.18 $ (0.05)
Weighted average shares outstanding:
Basic 8,593,510 8,269,941 8,080,536 7,679,985 7,662,494
Diluted 9,015,644 8,740,209 8,468,884 7,960,252 7,662,494
Financial data:
Current assets $ 19,411,029 $ 14,816,321 $ 9,281,753 $ 5,828,365 $ 4,551,184
Property, plant and equipment, net 3,696,615 3,050,349 2,125,959 2,320,336 2,493,287
Total assets 27,597,623 17,920,531 11,519,414 8,311,740 7,335,854
Long-term debt, net of current maturities -- -- -- 402,584 687,274
Capital leases, net of current maturities 48,227 205,530 455,389 752,728 784,354
Total stockholders' equity 24,501,510 14,753,221 8,352,359 5,237,006 3,801,596
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
General
The Company develops, manufactures, markets and distributes products and
services for the conferencing equipment, conferencing services, and broadcast
markets. In fiscal year 2001, the Company changed its reportable operating
segments to reflect how it evaluates its operating performance and allocates
resources. Prior to fiscal year 2001, the Company's reportable segments included
RFM/Broadcast, Conferencing Products, Conferencing Services and Other. As of
April 12, 2001, the Company sold the assets of the remote control portion of the
RFM/Broadcast division. Subsequent to the disposal, the Company reports two
segments - Products and Services. In the Product segment, the Company has
applied its core digital technology to the development of products for
conferencing, sound reinforcement, assistive listening and broadcast
applications. During fiscal 2001, the Company introduced the PSR1212, the
XAP(TM) 800, the ClearOne(R) conference phone, and the VRC2500, which
contributed to a 27% increase in product-based revenues compared to fiscal 2000.
In the Service segment, the Company focused on increasing sales by adding to its
direct sales force, and by engaging new resellers and new private label
accounts. These efforts resulted in a 98% increase in service-based revenues in
fiscal 2001 compared to fiscal 2000. The Services segment includes revenues and
expenses from the conferencing service bureau called 1-800 LETS MEET(R).
Discontinued Operations
On April 12, 2001, the Company sold the assets of the remote control portion of
the RFM/Broadcast division to Burk Technology, Inc. of Littleton, MA ("Burk")
for $3.2 million, including $750,000 in cash at closing, and $1.75 million in
the form of a seven (7) year promissory note, with interest at the rate of nine
percent (9%), secured by a subordinate security interest in the personal
property of Burk. The gain associated with the note receivable is recognizable
for book purposes but not for tax purposes until cash is received. As such, the
Company has established a deferred tax liability for $511,000 in connection with
this deferred gain. In addition, up to $700,000 more is payable by Burk as a
13
commission over a period of up to seven years. The commission is based upon
future net sales of Burk over base sales established within the agreement. This
amount will be recognized as received. The Company retained remote control
related inventory in the amount of $70,000 and zero liabilities at June 30,
2001. The Company realized a gain on the sale of $1,220,024, net of applicable
income taxes of $725,788.
Summary operating results of the discontinued operations are as follows:
Year Ended June 30,
-------------------
2001 2000 1999
---- ---- ----
Net sales $ 2,369,054 $ 2,753,529 $ 2,722,224
Cost of goods sold 806,581 924,488 969,933
Marketing and selling 281,852 597,835 616,101
Product development 104,736 550,837 300,265
----------- ----------- -----------
Income before income taxes 1,175,885 680,369 835,925
Provision for income taxes (438,605) (253,778) (311,800)
Gain on disposal of business segment, net of taxes 1,220,024 -- --
----------- ----------- -----------
Net income from discontinued operations $ 1,957,304 $ 426,591 $ 524,125
=========== =========== ===========
Basic earnings per share from
discontinued operations $ 0.23 $ 0.05 $ 0.06
Diluted earnings per share from
discontinued operations $ 0.22 $ 0.05 $ 0.06
Consolidated Results of Continuing Operations
Year Ended June 30, 2001 Compared to Year Ended June 30, 2000
-------------------------------------------------------------
Sales from continuing operations for the year ended June 30, 2001 increased 42%
to $39,878,405 from $28,118,413 in fiscal 2000. This dollar increase is split
evenly between product sales and services sales.
Product revenues grew 27% in fiscal 2001 to $28,189,612 from $22,226,504 in
fiscal 2000. This increase was mainly due to continued success of the Audio
Perfect(R) product line, as well as the introduction of new products, including
the PSR1212 and the XAP(TM) 800. The Audio Perfect(R) product line began
shipping in April of 1998 with the AP800, and also includes the AP10, the AP400,
AP Tools, the AP IR Remote, and the APV200-IP. Examples of typical applications
using the Company's products are corporate conference rooms, distance learning
rooms, and courtrooms. The Company has realized more of the revenue associated
with such applications as a result of this expanded product line. During the
second quarter of fiscal 2001, the Company began shipping the PSR1212, a digital
matrix mixer for the sound reinforcement marketplace. During the fourth quarter
of fiscal 2001, the company introduced its next generation audio product--the
XAP(TM) 800. Product revenues also include telephone interface products, which
are used to connect telephone line audio to broadcast audio equipment, and
assistive listening products, which provide enhanced audio for people with
hearing difficulties.
The Services segment, which is also known as 1-800 LETS MEET(R), experienced
sales growth of 98% in fiscal 2001 as compared to fiscal 2000. Service revenues
were $11,688,793 in fiscal 2001 as compared to $5,891,909 in fiscal 2000. The
Company offers operator-assisted conferencing; on-demand, reservationless
conference calling; Webconferencing, and audio and video streaming. The Company
attributed the growth in sales to an increased customer base due in part to an
increase in sales staff for marketing conference calling services, an increase
in resellers selling the Company's services, and an overall increase in market
size during the past year. The Company's conference calling service is being
marketed not only to corporate clients but also to telephone service providers
for resale.
The Company's gross profit margin from continuing operations was 58.6% for
fiscal 2001 compared to 60.8% for fiscal 2000. The decrease in gross margins is
the result of three factors. First, the Company implemented a blanket purchase
order program for its dealers during the third quarter of the fiscal year. This
program offers higher discounts off list price in exchange for larger quantity
orders. The dealers then have 12 months to take delivery of the product. This
program is intended to enable the Company to better predict its manufacturing
schedule, expense levels and net revenues. The second factor is increased raw
material component costs during the first half of the year. During the latter
half of fiscal 2001, the Company began to experience lower pricing on raw
material components. The third factor is that the Company's Services segment has
14
a higher cost-of-goods rate. As this segment becomes a bigger portion of the
total revenue, it will create a lower overall gross margin percentage.
The Company believes that most of the key components required for the production
of its products are currently available in sufficient quantities to meet the
Company's needs. The Company has experienced long component lead times in the
past, but is starting to see moderating lead times on many components. Even
though the Company has purchased more of these "longer-lead-time" parts to
ensure continued delivery of products, reduction in these inventories will track
the reduction of lead times with an undetermined lag time. The Company also
continues to focus on locating other sources for raw materials and enhancing
vendor relationships to further ensure adequate materials.
The Company's operating expenses increased 41% comparing fiscal 2001 to fiscal
2000. Fiscal 2001 continuing operations expenses were $14,904,460, as compared
to $10,568,861 for fiscal 2000.
Marketing and selling expenses for fiscal 2001 were $7,753,292 as compared to
$6,165,917 for the prior year. As a percentage of revenues, marketing and
selling expenses decreased to 19.4% in fiscal 2001, compared to 21.9% in fiscal
2000. The year-over-year increase in marketing and selling expenses was
primarily due to higher commission expenses resulting from increased sales. Also
contributing to the increase were shelving expenses related to retail marketing.
Product development expenses increased 97% when comparing fiscal 2001 to fiscal
2000. Fiscal 2001 product development expenses were $2,502,169, as compared to
$1,270,819 in fiscal 2000. As a percentage of revenues, product development
expenses increased to 6.3% in fiscal 2001 up from 4.5% in fiscal 2000. The
increase in product development expenses is due to increased salaries associated
with additional personnel and development costs associated with new product
development.
General and administrative expenses increased 48% during fiscal 2001 as compared
to fiscal 2000. Fiscal 2001 expenses were $4,648,999 as compared to $3,132,125
in fiscal 2000. General and administrative expenses were 11.7% of revenues in
fiscal 2001, compared to 11.1% in fiscal 2000. The increase in dollars was due
to a one-time bad debt write off of approximately $400,000 with respect to a
single customer who filed bankruptcy during the second quarter. Also associated
with this increase were the costs incurred in hiring personnel to support
increased sales volume and the infrastructure costs associated with the hiring
of such new personnel, as well as costs associated with the Company's Woburn,
Massachusetts office, and the amortization expense associated with the goodwill
acquired in the ClearOne, Inc. asset purchase.
Interest income increased 68% in fiscal 2001 as compared to fiscal 2000. This
increase is due to the increase in cash and cash equivalents.
Interest expense decreased 35% when comparing fiscal 2001 to fiscal 2000, due to
the maturing of certain of the Company's capital leases.
During fiscal 2001, income tax expense for continuing operations was calculated
at a combined federal and state effective tax rate of approximately 37.5%,
resulting in an income tax expense of $3,318,845. This compares to fiscal 2000,
where the effective tax rate was 36%, and the income tax expense for continuing
operations was $2,418,823.
Net income from continuing operations for fiscal 2001 was $5,525,185, or an
increase of 28%, compared to net income from continuing operations of $4,301,742
for fiscal 2000. These results are due to increased revenues offset by increases
in expenses as described above.
Year Ended June 30, 2000 Compared to Year Ended June 30, 1999
-------------------------------------------------------------
Sales from continuing operations for the year ended June 30, 2000 increased 39%
to $28,118,413 from $20,268,102 in fiscal 1999. Product revenues increased 30%
by $5,169,724 and service revenues increased 83% by $2,680,587.
Product revenues experienced a 30% increase when comparing fiscal 2000 to fiscal
1999, increasing from $17,056,780 to $22,226,504. This increase was mainly due
to continued success of the Audio Perfect(R) product line, as well as the
introduction of new products, including the APV200 IP and the GT1524. The Audio
Perfect(R) product line began shipping in April of 1998 with the AP800, and also
includes the AP10, the AP400, AP Tools, the AP IR Remote, and the APV200-IP. The
Company has realized more of the revenue associated with a room installation as
a result of the expanded product line. During the third quarter of fiscal 2000,
the Company began shipping the PA870 power amplifier. Product revenues also
include telephone interface products and assistive listening products.
15
The Services segment, which is also known as 1-800 LETS MEET(R), experienced
sales growth of 83% in fiscal 2000 as compared to fiscal 1999. Service revenues
were $5,891,909 in fiscal 2000 as compared to $3,211,322 in fiscal 1999. The
Company attributes this growth in sales to an increased customer base as well as
the overall market growth for the year. This increase was also the result of the
Company expanding its sales staff, who markets its conference calling service,
and the Company's commitment to quality service. The Company's conference
calling service is being marketed not only to corporate clients, but also to
long distance telephone service providers for resale.
The Company's gross profit margin percentage was 61% in fiscal 2000 and 56% in
fiscal 1999. This increase was primarily due to improved margins in conferencing
services, improved manufacturing processes, new products with higher gross
profit margins, and a different product mix.
During the second and third quarter of fiscal 2000, the Company conducted a
physical inventory of its fixed assets. The Company wrote off gross fixed assets
of $1,042,366 and wrote off accumulated depreciation of $1,038,234 during the
third quarter to reconcile the books to the physical assets.
The Company's operating expenses increased 31% comparing fiscal 2000 to fiscal
1999. Fiscal 2000 continuing operations expenses were $10,568,861, as compared
to $8,052,990 for fiscal 1999.
Marketing and selling expenses increased 43% in fiscal 2000 to $6,165,917 from
$4,313,639 the prior year. As a percentage of revenues, marketing and selling
expenses were 21.9% in fiscal 2000 compared to 21.2% in fiscal 1999. The
year-over-year increase in marketing and selling expenses was primarily due to
higher commission expense resulting from increased sales. Also contributing to
the increase were higher salary expenses and recruiting costs connected to the
hiring of additional marketing and selling personnel.
Product development expenses increased 6% in fiscal 2000 to $1,270,819 from
$1,194,686 in fiscal 1999. As a percentage of revenues, product development
expenses were 4.5% in fiscal 2000 as compared to 5.9% in fiscal 1999. The
increase in absolute dollars was due to the development expenses for new
products and the hiring of personnel.
General and administrative expenses increased 23% in fiscal 2000 to $3,132,125
from $2,544,665 in fiscal 1999. General and administrative expenses were 11.1%
of revenues in fiscal 2000, compared to 12.6% in fiscal 1999. The increase in
absolute dollars was mainly due to hiring of personnel to support sales
increases and the infrastructure costs associated with the hiring of such new
personnel. Also contributing to the increase was the expense associated with the
NASDAQ National Market listing fees.
Interest income increased 159% in fiscal 2000 as compared to fiscal 1999. This
increase is due to the increase in cash and cash equivalents.
Interest expense decreased 56% when comparing fiscal 2000 to fiscal 1999, due to
the maturing of certain of the Company's leases and the payoff of several notes
late in fiscal 1999.
During fiscal 2000 income tax expense was calculated at a combined federal and
state effective tax rate of approximately 36.0%, resulting in a tax expense of
$2,418,823 which compares to an effective tax rate of 37.4% and tax expense of
$1,208,900 for fiscal 1999.
Net income from continuing operations for fiscal 2000 was $4,301,742, or an
increase of 113%, compared to net income from continuing operations of
$2,020,346 for fiscal 1999.
Financial Condition and Liquidity
The Company had cash and cash equivalents of $6.9 million on June 30, 2001,
which represents an increase of $1.5 million compared to cash and cash
equivalents of $5.4 million on and June 30, 2000. Based upon continuing
operations, net operating activities provided cash of $3.7 million in fiscal
2001. Net investing activities used cash of $3.2 million primarily due to
expenditures for property and equipment and cash paid relating to the ClearOne
acquisition. Net cash used for financing activities was $0.1 million. Net cash
flow from discontinued operations totaled $1.0 million.
The Company had cash and cash equivalents of $5.4 million and $3.9 million at
June 30, 2000 and June 30, 1999, respectively, an increase of $1.5 million.
Based on continuing operations, net operating activities provided cash of $2.5
16
million in fiscal 2000, a decrease of $1.3 million from 1999, primarily due to
an increase in accounts receivable because of increased credit sales to new
customers. Net investing activities used cash of $1.7 million primarily due to
expenditures for property and equipment. Net cash provided by financing
activities was $0.2 million, primarily due to proceeds from exercise of employee
stock options, partially offset by payments of capital lease obligations
totaling approximately $216,000. Net cash flows from discontinued operations
totaled $0.5 million in 2000.
The Company has an available revolving line of credit of $5.0 million, which is
secured by the Company's accounts receivable and inventory. The interest rate on
the line of credit is variable (250 basis points over the London Interbank
Offered Rate (LIBOR) or prime less 0.25 percent, whichever the Company chooses).
The borrowing rate was 6.44 percent on June 30, 2001. There was no outstanding
balance on June 30, 2001. The line of credit was renewed as of December 22, 2000
and will expire on December 22, 2001. Borrowings under the line of credit are
subject to certain financial and operating covenants. The Company was in
compliance with the covenants on June 30, 2001.
During April 2001, the Company announced that its board of directors had
approved a stock repurchase program to purchase up to 500,000 shares of the
Company's common stock over the following six months. These purchases are
discretionary on the part of management and are to be made on the open market or
in private transactions. In fiscal 2001, the Company repurchased and
subsequently retired 15,300 shares for $191,381.
Management believes that the Company's working capital, bank line of credit and
cash flows from operating activities will be sufficient to meet the Company's
operating and capital expenditure requirements for continuing operations for the
next twelve months. In the longer term, or if the Company experiences a decline
in revenue, or in the event of other unforeseen events, the Company may require
additional funds and may seek to raise such funds through public or private
equity or debt financing, bank lines of credit, or other sources. No assurance
can be given that additional financing will be available or, if available, will
be on terms favorable to the Company. See "Factors that May Affect Future
Results - Limited Capitalization".
Factors that May Affect Future Results
This Annual Report on Form 10-K contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended.
Forward-looking statements relate to the Company's future plans, objectives,
expectations, and intentions. These statements may be recognized by the use of
words such as "believes," "expects," "may," "will," "intends," "plans,"
"should," "seeks," "anticipates," and similar expressions. In particular,
statements regarding the Company's markets and market share, demand for its
products and services, FCC actions, manufacturing capacity and component
availability, and the development and introduction of new products and services
are forward-looking statements and subject to material risks. Actual results
could differ markedly from those projected in the forward-looking statements as
a result of the factors set forth below and the matters set forth in the report
generally. The Company cautions the reader, however, that this list of factors
may not be exhaustive, particularly with respect to future factors. Any
forward-looking statements are made pursuant to the Private Securities
Litigation Reform Act of 1995 and, as such, speak only as of the date made.
Rapid Technological Change
--------------------------
The products and services markets are highly competitive and characterized by
rapid technological change. The Company's future performance will depend in
large part upon its ability to remain competitive and to develop and market new
products and services in these markets in a timely fashion that responds to
customers' needs and incorporates new technology and standards.
The Company may not be able to design and manufacture products that address
customer needs or achieve market acceptance. Any significant failure to design,
manufacture, and successfully introduce new products or services could
materially harm the Company's business.
The markets in which the Company competes have historically involved the
introduction of new and technologically advanced products and services that cost
less or perform better. If the Company is not competitive in its research and
development efforts, its products may become obsolete or be priced above
competitive levels.
Although management believes that, based on their performance and price, its
products and services are currently attractive to customers, there can be no
assurance that competitors will not introduce comparable or technologically
superior products or services, which are priced more favorably than the
Company's.
17
Competition
-----------
The markets for the Company's products and services are highly competitive.
These markets include the Company's traditional dealer channel, the market for
its conferencing services, and the retail channel. The Company competes with
businesses having substantially greater financial, research and development,
manufacturing, marketing, and other resources. If the Company fails to maintain
or enhance its competitive position, it could experience pricing pressures and
reduced sales, margin, profits, and market share, each of which could materially
harm the Company.
General Economic Condition
--------------------------
As the Company's business has grown, it has become increasingly subject to
adverse changes in general economic conditions, which can result in reductions
in capital expenditures by customers, longer sales cycles, deferral or delay of
purchase commitments for products, and increased price competition. Although
these factors have not materially impacted the Company in recent years, if the
current economic slowdown continues or worsens, these factors could adversely
affect the Company's business and results of operations.
Marketing
---------
The Company is subject to the risks inherent in the marketing and sale of
current and new products and services in an evolving marketplace. The Company
must effectively allocate its resources to the marketing and sale of these
products through diverse channels of distribution. The Company's current
strategy is to establish distribution channels and direct selling efforts in
markets where it believes there is a growing need for its products and services.
For example, with the acquisition of the ClearOne assets the Company has
expanded its products to include the retail market. There can be no assurance
that this strategy will prove successful.
Difficulties in Managing Growth
-------------------------------
The Company is experiencing a period of significant expansion in personnel,
facilities and infrastructure, and management anticipates that further expansion
will be required to address potential growth in the Company's customer base and
market opportunities. This expansion will require continued application of
management, operational and financial resources.
To manage the expected growth of operations and personnel, the Company may need
to improve its transaction processing, operational and financial systems,
procedures and controls. The Company's current and planned personnel, systems,
procedures and controls may not be adequate to support its future operations.
Difficulties in managing these challenges could adversely affect the Company's
financial performance.
Difficulties in Estimating Customer Demand Could Harm Our Operating Results
---------------------------------------------------------------------------
Orders from the Company's resellers are based on demand from end-users.
Prospective end-user demand is difficult to measure. This means that any period
could be adversely impacted by lower end-user demand, which could in turn
negatively affect orders the Company receives from resellers. The Company's
expectation for both short- and long-term future net revenues are based on the
Company's own estimate of future demand as well as backlog based on the blanket
purchase order program, as discussed above. The Company also bases expense
levels on those revenue estimates. If the Company's estimates are not accurate,
the financial performance of the Company could be adversely affected.
Dependence on Distribution Network
----------------------------------
The Company markets its products primarily through a network of dealers and
master distributors. All of the Company's agreements regarding such dealers and
distributors are non-exclusive and terminable at will by either party. Although
the Company believes that its relationships with such dealers and distributors
are good, there can be no assurance that any or all such dealers or distributors
will continue to offer the Company's products.
Price discounts to the Company's distribution channel are based on performance.
However, there are no obligations on the part of such dealers and distributors
to provide any specified level of support to the Company's products or to devote
any specific time, resources or efforts to the marketing of the Company's
products. There are no prohibitions on dealers or distributors offering products
that are competitive with those of the Company. Most dealers do offer
18
competitive products. The Company reserves the right to maintain house accounts,
which are for products sold directly to customers. The loss of dealers or
distributors could have a material adverse effect on the Company's business.
Limited Capitalization
----------------------
As of June 30, 2001, the Company had $6.9 million in cash and $17.0 million in
working capital. The Company may be required to seek additional financing if
anticipated levels of revenue are not realized, if higher than anticipated costs
are incurred in the development, manufacture, or marketing of the Company's
products, or if product demand exceeds expected levels. There can be no
assurance that any additional financing would be available on acceptable terms,
or at all.
In addition, the Company's $5 million revolving line of credit matures in
December of 2001 and there can be no assurance that the Company will be able to
extend the maturity date of the line of credit or obtain a replacement line of
credit from another commercial institution. The Company had no outstanding
balance payable on the line of credit as of June 30, 2001. To the extent the
line of credit is not extended or replaced and cash from operations is
insufficient to fund operations, the Company may be required to seek additional
financing.
Telecommunications and Information Systems Network
--------------------------------------------------
The Company is highly reliant on its network equipment, telecommunications
providers, data, and software, to support all functions of the Company. The
Company's conference calling service relies 100 percent on the network for its
revenues. While the Company endeavors to provide for failures in the network by
providing back-up systems and procedures, there is no guarantee that these
back-up systems and procedures will operate satisfactorily in an emergency.
Should the Company experience such a failure, it could seriously jeopardize its
ability to continue operations. In particular, should the Company's conference
calling service experience even a short term interruption of its network or
telecommunication providers, its ongoing customers may choose a different
provider, and its reputation may be damaged, reducing its attractiveness to new
customers.
Dependence on Supplier and Singlw
e Source of Supply
Certain electronic components used in connection with the Company's products can
only be obtained from single manufacturers and the Company is dependent upon the
ability of these manufacturers to deliver such components to the Company's
suppliers so that they can meet the Company's delivery schedules. The Company
does not have a written commitment from such suppliers to fulfill the Company's
future requirements. The Company's suppliers maintain an inventory of such
components, but there can be no assurance that such components will always be
readily available, available at reasonable prices, available in sufficient
quantities, or deliverable in a timely fashion. If such key components become
unavailable, it is likely that the Company will experience delays, which could
be significant, in production and delivery of its products unless and until the
Company can otherwise procure the required component or components at
competitive prices, if at all. The lack of availability of these components
could have a materially adverse effect on the Company.
The Company believes that most of the key components required for the production
of its products are currently available in sufficient quantities. The Company
has experienced long component lead times in the past, but is experiencing
improved lead times on many products. Even though the Company has purchased more
of these "longer-lead-time" parts to ensure continued delivery of products,
reduction in these inventories have tracked with the reduction of lead times.
Suppliers of some of these components are currently or may become competitors of
the Company, which might also affect the availability of key components to the
Company. It is possible that other components required in the future may
necessitate custom fabrication in accordance with specifications developed or to
be developed by the Company. Also, in the event the Company, or any of the
manufacturers whose products the Company expects to utilize in the manufacture
of its products, is unable to develop or acquire components in a timely fashion,
the Company's ability to achieve production yields, revenues and net income may
be adversely affected.
Software Risks
--------------
The Company has developed custom software for its products and has licensed
additional software from third parties. This software may contain undetected
errors, defects or bugs. Although the Company has not suffered significant harm
from any errors or defects to date, the Company may discover significant errors
or defects in the future that the Company may or may not be able to fix or fix
in a timely or cost effective manner. The Company's inability to do so could
harm its business.
19
Manufacturing Process Risks
---------------------------
While the Company has substantial experience in designing and manufacturing its
products, the Company may still experience technical difficulties and delays
with the manufacturing of the Company's products. Potential difficulties in the
design and manufacturing process that could be experienced by the Company
include difficulty in meeting required specifications, difficulty in achieving
necessary manufacturing efficiencies, and difficulties in obtaining materials on
a timely basis.
Reliance on Efficiency of Distribution and Third Parties
--------------------------------------------------------
The Company's financial performance is dependent in part on its ability to
provide prompt, accurate, and complete services to customers on a timely and
competitive basis. Delays in distribution in the Company's day-to-day operations
or material increases in the Company's costs of procuring and delivering
products could have an adverse effect on the Company's results of operations.
Any failure of either the Company's computer operating systems, the Internet or
the Company's telephone system could adversely affect the Company's ability to
receive and process customers' orders and ship products on a timely basis.
Strikes or other service interruptions affecting Federal Express Corporation,
United Parcel Service of America, Inc., or other common carriers used by the
Company to receive necessary components or other materials or to ship the
Company's products also could impair its ability to deliver products on a timely
and cost-effective basis.
Lack of Patent Protection
-------------------------
The Company currently relies primarily on a combination of trade secret,
copyright, trademark, and nondisclosure agreements to establish and protect its
proprietary rights in its products. There can be no assurance that others will
not independently develop similar technologies, or duplicate or design around
aspects of the Company's technology. The Company believes that its products and
other proprietary rights do not infringe any proprietary rights of third
parties. There can be no assurance, however, that third parties will not assert
infringement claims in the future. Such claims could divert management's
attention and be expensive, regardless of their merit. In the event of a claim,
the Company might be required to license third party technology or redesign its
products, which may not be possible or economically feasible.
Government Funding and Regulation
---------------------------------
In the conferencing market, the Company is dependent on government funding to
place its distance learning sales and courtroom equipment sales. In the event
government funding was stopped, these sales would be negatively impacted.
Additionally, many of the Company's products are subject to governmental
regulations. New regulations could significantly adversely impact sales.
Dividends Unlikely
------------------
The Company has never paid cash dividends on its securities and does not intend
to declare or pay cash dividends in the foreseeable future. Earnings are
expected to be retained to finance and expand its business. Furthermore, the
Company's revolving line of credit prohibits the payment of dividends on its
Common Stock.
Potential Dilutive Effect of Outstanding Options and Possible Negative Effect of
--------------------------------------------------------------------------------
Future Financing
----------------
The Company has outstanding options issued under the Company's 1990 Incentive
Plan and the 1998 Stock Option Plan, which include options to purchase up to
3,200,000 shares of Common Stock granted or available for grant. As of June 30,
2001, the Plans have 1,750,798 options outstanding. Holders of these options are
given an opportunity to profit from a rise in the market price of the Company's
Common Stock with a resulting dilution in the interests of the other
stockholders. The holders of the options may exercise them at a time when the
Company might be able to obtain additional capital through a new offering of
securities on terms more favorable than those provided therein.
Dependence Upon Key Employees
-----------------------------
The Company is substantially dependent upon certain of its employees, including
Frances M. Flood, President and Chief Executive Officer and a director and
shareholder of the Company. The loss of Ms. Flood by the Company could have a
material adverse effect on the Company. The Company currently has in place a key
person life insurance policy on the life of Ms. Flood in the amount of
$5,000,000.
20
Possible Control by Officers and Directors
------------------------------------------
The officers and directors of the Company together had beneficial ownership of
approximately 29.0 percent of the Company's Common Stock (including options that
are currently exercisable or exercisable within sixty (60) days) as of September
1, 2001. This significant holding in the aggregate places the officers and
directors in a position, when acting together, to effectively control the
Company and could delay or prevent a change in control.
Collectability of Outstanding Receivables
-----------------------------------------
The Company grants credit without requiring collateral to substantially all of
its customers. Although the possibility of a large percentage of customers
defaulting exists, the Company believes this scenario to be highly unlikely.
International Sales and Related Risks
-------------------------------------
International sales represent a significant portion of the Company's total
revenue. For example, international sales represented 13 percent of the
Company's total sales for fiscal 2001 and 12 percent for fiscal 2000. If the
Company is unable to maintain international market demand, its results of
operations could be materially harmed. The Company's international business is
subject to the financial and operating risks of conducting business
internationally, including: unexpected changes in, or imposition of, legislative
or regulatory requirements; fluctuating exchange rates, tariffs and other
barriers; difficulties in staffing and managing foreign subsidiary operations;
export restrictions; greater difficulties in accounts receivable collection and
longer payment cycles; potentially adverse tax consequences; and potential
hostilities and changes in diplomatic and trade relationships.
During October 2000, the Company established Gentner Communications EuMEA GmbH,
a wholly owned subsidiary headquartered in Nuremberg, Germany. The subsidiary
began operations during December 2000. Gentner EuMEA focuses on distribution,
technical support, and training in Europe, the Middle East and Africa.
The Company's sales in the international market are denominated in U.S. Dollars
and, Gentner EuMEA transacts business in U.S. Dollars, however, its financial
statements are prepared in German Deutsche Marks according to German accounting
principles. Consolidation of Gentner EuMEA's financial statements with those of
the Company, under United States generally accepted accounting principles,
requires remeasurement to U.S. Dollars which is subject to exchange rate risks.
Euro Conversion
---------------
On January 1, 1999, eleven member countries of the European Union established
fixed conversion rates between their existing currencies ("legal currencies")
and one common currency, the Euro. The Euro is now trading on currency exchanges
and may be used in certain transactions such as electronic payments. Beginning
in January 2002, new Euro-denominated notes and coins will be used, and legacy
currencies will be withdrawn from circulation. The conversion to the Euro has
eliminated currency exchange rate risk for transactions between the member
countries, which for the Company primarily consists of sales to certain
customers and payments to certain suppliers. The Company is currently addressing
the issues involved with the new currency, which include converting information
technology systems, recalculating currency risk, and revising processes for
preparing accounting and taxation records. Based on the work completed so far,
the Company does not believe the Euro conversion will have a significant impact
on the results of its operations or cash flows.
Integration of Acquired Business
--------------------------------
The Company has dedicated and will continue to dedicate, substantial management
resources in order to achieve the anticipated operating efficiencies from
integrating ClearOne. Difficulties encountered in integrating ClearOne's
operations could adversely impact the business, results of operations or
financial condition of the Company. Also, the Company intends to pursue
acquisition opportunities in the future. The integration of acquired businesses
could require substantial management resources. There can be no assurance that
any such integration will be accomplished without having a short or potentially
long-term adverse impact on the business, results of operations or financial
condition of the Company or that the benefits expected from any such integration
will be fully realized.
21
New Accounting Pronouncements
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin (SAB) 101, "Revenue Recognition in Financial Statements." SAB 101B,
which was issued in June 2000, delayed the implementation date of SAB 101 until
no later than the fourth fiscal quarter of fiscal years beginning after December
15, 1999. This SAB clarifies proper methods of revenue recognition given certain
circumstances surrounding sales transactions. The Company adopted SAB 101 in its
fourth fiscal quarter of 2001. As expected, the adoption of SAB 101 did not have
a material impact on the Company's financial statements.
In 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which was
subsequently amended by SFAS No. 137 "Accounting for Derivative Financial
Instruments and Hedging Activities - Deferral of the Effective Date of SFAS No.
133" and SFAS No. 138 "Accounting for Certain Derivative Instruments and Certain
Hedging Activities." SFAS No. 133 establishes accounting and reporting standards
requiring that every derivative instrument, including certain derivative
instruments embedded in other contracts, be recorded in the balance sheet as
either an asset or liability measured at its fair value. The statement also
requires that changes in the derivative's fair value be recognized in earnings
unless specific hedge accounting criteria are met. SFAS No. 133, as amended by
SFAS No. 137 and SFAS No. 138, is effective for all fiscal years beginning after
June 15, 2000. The Company adopted SFAS No. 133 in fiscal 2001. Because the
Company currently does not hold any derivative instruments, as expected, the
adoption of SFAS No. 133 did not have a material impact on the Company's
financial condition or results of operations.
In July 2001, the FASB issued SFAS No. 141, "Business Combinations." SFAS 141
establishes new standards for accounting and reporting requirements for business
combinations and supersedes APB Opinion No. 16, "Business Combinations" and SFAS
No. 38, "Accounting for Preacquisition Contingencies of Purchased Enterprises."
SFAS No. 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. Use of the
pooling-of-interest method is now prohibited. The statement applies to any
business combinations accounted for using the purchase method for which the date
of acquisition is July 1, 2001 or later, modifies the criteria for recognizing
intangible assets and expands disclosure requirements. The Company does not
expect this statement to have a material impact on its financial statements.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets" which addresses financial accounting and reporting for acquired goodwill
and other intangible assets and supersedes APB Opinion No. 17, "Intangible
Assets." SFAS No. 142 eliminates amortization of goodwill and intangible assets
with indefinite lives and instead sets forth methods to periodically evaluate
goodwill for impairment. SFAS No. 142 provides guidance for testing goodwill and
intangible assets that will not be amortized for impairment. The amortization
provisions of Statement 142 apply to goodwill and intangible assets acquired
after June 30, 2001. With respect to goodwill and intangible assets acquired
prior to July 1, 2001, companies are required to adopt Statement 142 in their
fiscal year beginning after December 15, 2001 (i.e., January 1, 2002 for
calendar year companies). Early adoption is permitted for companies with fiscal
years beginning after March 15, 2001 provided that their first quarter financial
statements have not been issued. The Company is continuing to evaluate the
impact of this statement on its financial statements.
ITEM 7A. Qualitative and Quantitative Disclosures About Market Risk
Market risk represents the risk of changes in value of a financial instrument,
derivative or non-derivative, caused by fluctuations in interest rates, foreign
exchange rates and equity prices. Changes in these factors could cause
fluctuations in the results of the Company's operations and cash flows. In the
ordinary course of business, the Company is exposed to foreign currency and
interest rate risks. These risks primarily relate to the sale of products and
services to foreign customers and changes in interest rates on the Company's
capital leases.
The Company currently has limited market risk sensitive instruments related to
interest rates. The Company's capital leases obligations total $230,000 at June
30, 2001. The Company does not have significant exposure to changing interest
rates on these capital leases because interest rates for the majority of the
capital leases are fixed. The Company has not undertaken any additional actions
to cover interest rate market risk and is not a party to any other interest rate
market risk management activities. A hypothetical 10 percent change in market
interest rates over the next year would not impact the Company's earnings or
cash flows as the interest rates on the majority of the capital leases are
fixed.
The Company does not purchase or hold any derivative financial instruments for
trading purposes.
22
Although the Company's subsidiary enters into transactions in currencies other
than its functional currency, foreign currency exposures arising from these
transactions are not material to the Company. The primary foreign currency
exposure arises from the remeasurement of the Company's net equity investment in
its foreign subsidiary to U.S. dollars. The primary currency to which the
Company is exposed is the German Deutsche Mark. The fair value of the Company's
net foreign investments would not be materially affected by a 10 percent adverse
change in foreign currency exchange rates from June 30, 2001 levels.
23
ITEM 8. FINANCIAL STATEMENTS
Index to Consolidated Financial Statements
------------------------------------------
Page
----
Report of Independent Auditors...................................... 25
Consolidated Balance Sheets as of June 30, 2001 and 2000............ 26
Consolidated Statements of Income for fiscal years
ended June 30, 2001, 2000, and 1999................................ 27
Consolidated Statements of Cash Flows for fiscal years
ended June 30, 2001, 2000, and 1999................................ 28
Consolidated Statements of Shareholders' Equity for fiscal years
ended June 30, 2001, 2000, and 1999................................ 29
Notes to Consolidated Financial Statements.......................... 30
24
Report of Independent Auditors
The Board of Directors and Shareholders
GENTNER COMMUNICATIONS CORPORATION
We have audited the accompanying consolidated balance sheets of Gentner
Communications Corporation as of June 30, 2001 and 2000, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three years in the period ended June 30, 2001. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Gentner
Communications Corporation at June 30, 2001 and 2000, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended June 30, 2001, in conformity with accounting principles generally
accepted in the United States.
/s/ Ernst & Young, L.L.P.
Salt Lake City, Utah
July 27, 2001
25
GENTNER COMMUNICATIONS CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30,
-------------------------
2001 2000
---- ----
ASSETS
Current assets:
Cash and cash equivalents .............................. $ 6,852,243 $ 5,374,996
Accounts receivable, less allowances of $436,000 in 2001
and $302,000 in 2000 ............................... 7,212,970 4,153,677
Note receivable - current portion ...................... 71,423 --
Inventory .............................................. 4,132,034 3,484,992
Income tax receivable .................................. -- 987,912
Deferred tax assets .................................... 247,402 136,000
Prepaid expenses ....................................... 779,648 678,744
----------- -----------
Total current assets ............................... 19,295,720 14,816,321
Property and equipment, net ................................ 3,696,615 3,050,349
Goodwill, net .............................................. 2,633,732 --
Note receivable - long term portion ........................ 1,716,477 --
Related party note receivable .............................. -- 52,488
Other intangible assets, net ............................... 181,722 --
Deposits and other assets .................................. 73,357 1,373
----------- -----------
Total assets ....................................... $27,597,623 $17,920,531
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ....................................... $ 568,782 $ 767,095
Accrued compensation and other benefits ................ 410,416 694,219
Income tax payable ..................................... 421,749 --
Other accrued expenses ................................. 719,112 1,045,607
Current portion of capital lease obligations ........... 181,827 249,859
----------- -----------
Total current liabilities .......................... 2,301,886 2,756,780
Capital lease obligations .................................. 48,227 205,530
Deferred tax liabilities ................................... 746,000 205,000
----------- -----------
Total liabilities .................................. 3,096,113 3,167,310
Shareholders' equity:
Common stock, 50,000,000 shares authorized, par value
$.001, 8,617,978 and 8,427,145 shares issued and
outstanding at June 30, 2001 and 2000, respectively .. 8,618 8,427
Additional paid-in capital ............................. 8,962,699 6,697,090
Retained earnings ...................................... 15,530,193 8,047,704
----------- -----------
Total shareholders' equity ......................... 24,501,510 14,753,221
----------- -----------
Total liabilities and shareholders' equity ......... $27,597,623 $17,920,531
=========== ===========
See accompanying notes
26
GENTNER COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
Years ended June 30,
-------------------------------------------------------------
2001 2000 1999
---- ---- ----
Product sales.......................... $28,189,612 70.7% $22,226,504 79.0% $17,056,780 84.2%
Service sales.......................... 11,688,793 29.3% 5,891,909 21.0% 3,211,322 15.8%
----------- ---- ----------- ---- ----------- ----
Total net sales.................... 39,878,405 100.0% 28,118,413100.0% 20,268,102 100.0%
Cost of goods sold - products.......... 10,633,956 37.7% 8,033,867 36.1% 6,670,149 39.1%
Cost of goods sold - services.......... 5,869,106 50.2% 2,974,456 50.5% 2,237,605 69.7%
----------- ---- ----------- ---- ----------- ----
Total cost of goods sold........... 16,503,062 41.4% 11,008,323 39.2% 8,907,754 44.0%
----------- ---- ----------- ---- ----------- ----
Gross profit........................... 23,375,343 58.6% 17,110,090 60.8% 11,360,348 56.0%
Operating expenses:
Marketing and selling.............. 7,753,292 19.4% 6,165,917 21.9% 4,313,639 21.2%
General and administrative......... 4,648,999 11.7% 3,132,125 11.1% 2,544,665 12.6%
Product development................ 2,502,169 6.3% 1,270,819 4.5% 1,194,686 5.9%
----------- ---- ----------- ---- ----------- ----
Total operating expenses....... 14,904,460 37.4% 10,568,861 37.5% 8,052,990 39.7%
----------- ---- ----------- ---- ----------- ----
Operating income............... 8,470,883 21.2% 6,541,229 23.3% 3,307,358 16.3%
Other income (expense):
Interest income.................... 397,438 1.0% 236,387 0.8% 91,411 0.5%
Interest expense................... (42,517) (0.1)% (65,554)(0.2)% (148,253) (0.7)%
Other, net......................... 53,768 0.1% 8,503 0.0% (21,270) (0.1)%
Loss on foreign currency
transactions...................... (35,542) (0.1)% -- 0.0% -- 0.0%
----------- ---- ----------- ---- ----------- ----
Total other income (expense)... 373,147 0.9% 179,336 0.6% (78,112) (0.3)%
----------- ---- ----------- ---- ----------- ----
Income from continuing operations
before income taxes................ 8,844,030 22.1% 6,720,565 23.9% 3,229,246 16.0%
Provision for income taxes............. 3,318,845 8.3% 2,418,823 8.6% 1,208,900 6.0%
----------- ---- ----------- ---- ----------- ----
Income from continuing operations.. 5,525,185 13.8% 4,301,742 15.3% 2,020,346 10.0%
Discontinued operations:
Income from discontinued operations,
net of applicable taxes ($438,605
in 2001, $253,778 in 2000 and
$311,800 in 1999).................. 737,280 426,591 524,125
Gain on disposal of business segment,
net of applicable taxes ($725,788
in 2001)........................... 1,220,024 -- --
----------- ----------- -----------
Net income............................. $ 7,482,489 $ 4,728,333 $ 2,544,471
=========== =========== ===========
Basic earnings per common share
from continuing operations......... $ 0.64 $ 0.52 $ 0.25
Diluted earnings per common share
from continuing operations......... $ 0.61 $ 0.49 $ 0.24
Basic earnings per common share
from discontinued operations....... $ 0.23 $ 0.05 $ 0.06
Diluted earnings per common shares
from discontinued operations....... $ 0.22 $ 0.05 $ 0.06
Basic earnings per common share........ $ 0.87 $ 0.57 $ 0.31
Diluted earnings per common share...... $ 0.83 $ 0.54 $ 0.30
See accompanying notes
27
GENTNER COMMUNICATIONS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30,
-----------------------------------------
2001 2000 1999
---- ---- ----
Cash flows from operating activities:
Net income from continuing operations .............. $ 5,525,185 $ 4,301,742 $ 2,020,346
Adjustments to reconcile net income from
continuing operations to net cash provided by
continuing operating activities:
Depreciation and amortization of property and
equipment ..................................... 1,044,878 751,202 659,074
Amortization of other assets .................... 269,068 19,467 27,495
Deferred income tax ............................. (81,402) (33,000) 142,000
Provision for bad debts ......................... 575,909 74,863 17,733
Gain on investments ............................. (4,442) (7,771) (5,783)
Tax benefits from stock option exercises
allocated to contributed capital ............. 117,084 1,287,000 239,000
Changes in operating assets and liabilities:
Accounts receivable .......................... (3,635,202) (1,986,246) (516,637)
Inventory .................................... (354,001) (623,781) 248,233
Income taxes ................................. 1,194,873 (1,216,999) 182,305
Other current assets ......................... (100,904) (535,303) 31,226
Accounts payable and other accrued expenses .. (833,324) 448,011 707,810
----------- ----------- -----------
Net cash provided by continuing operating
activities ............................... 3,717,722 2,479,185 3,752,802
Cash flows from investing activities:
Purchases of property and equipment ................ (1,356,275) (1,684,200) (466,451)
Purchase of business ............................... (1,758,085) -- --
Decrease (increase) in deposits and other assets ... (9,335) -- 1,753
----------- ----------- -----------
Net cash used in investing activities ...... (3,123,695) (1,684,200) (464,698)
Cash flows from financing activities:
Proceeds from issuance of common stock ............. 15,095 30,274 3,912
Exercise of employee stock options ................. 324,989 355,255 327,970
Repurchase of common stock ......................... (191,381) -- --
Principal payments on capital lease obligations .... (252,841) (215,854) (318,594)
Principal payments on long-term debt ............... -- -- (688,214)
----------- ----------- -----------
Net cash provided by (used in) financing
activities .............................. (104,138) 169,675 (674,926)
----------- ----------- -----------
Net increase in cash from continuing operations ....... 489,889 964,660 2,613,178
Net cash flow from discontinued operations ............ 987,358 488,153 593,680
Cash at the beginning of the year ..................... 5,374,996 3,922,183 715,325
----------- ----------- -----------
Cash at the end of the year ........................... $ 6,852,243 $ 5,374,996 $ 3,922,183
=========== =========== ===========
Supplemental disclosure of cash flow information:
Property and equipment financed by capital leases... $ 27,507 $ -- $ --
Income taxes paid, net ............................. $(2,575,481) $(2,635,601) $ (956,827)
Interest paid ...................................... $ (42,517) $ (65,554) $ (150,072)
Consideration paid in stock for purchase of
business ......................................... $(2,000,013) $ -- $ --
See accompanying notes
28
GENTNER COMMUNICATIONS CORPORATION
CONSOLDIATED STATEMENTS OF SHAREHOLDERS' EQUITY
Common Stock Additional Total
------------------------ Paid-In Retained Shareholders'
Shares Amount Capital Earnings Equity
------ ------ ------- -------- ------
Balances at June 30, 1998 ......... 7,698,523 $ 7,699 $ 4,454,407 $ 774,900 $ 5,237,006
Exercise of employee stock
options ..................... 429,702 430 327,540 -- 327,970
Issuance of common stock ...... 1,466 1 3,911 -- 3,912
Tax benefits from stock option
exercises allocated to
contributed capital ......... -- -- 239,000 -- 239,000
Net income .................... -- -- -- 2,544,471 2,544,471
--------- ----------- ----------- ----------- -----------
Balances at June 30, 1999 ......... 8,129,691 8,130 5,024,858 3,319,371 8,352,359
Exercise of employee stock
options ..................... 296,000 296 354,959 -- 355,255
Issuance of common stock ...... 1,454 1 30,273 -- 30,274
Tax benefits from stock option
exercises allocated to
contributed capital ......... -- -- 1,287,000 -- 1,287,000
Net income .................... -- -- -- 4,728,333 4,728,333
--------- ----------- ----------- ----------- -----------
Balances at June 30, 2000 ......... 8,427,145 8,427 6,697,090 8,047,704 14,753,221
Exercise of employee stock
options ..................... 75,125 75 324,914 -- 324,989
Issuance of common stock ...... 1,137 1 15,094 -- 15,095
Tax benefits from stock option
exercises allocated to
contributed capital ......... -- -- 117,084 -- 117,084
Consideration paid in stock for
the purchase of business .... 129,871 130 1,999,883 -- 2,000,013
Repurchase and retirement of
common stock by the Company . (15,300) (15) (191,366) -- (191,381)
Net income .................... -- -- -- 7,482,489 7,482,489
--------- ----------- ----------- ----------- -----------
Balances at June 30, 2001 ......... 8,617,978 $ 8,618 $ 8,962,699 $15,530,193 $24,501,510
========= =========== =========== =========== ===========
See accompanying notes
29
GENTNER COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
Organization
Gentner Communications Corporation (the "Company"), designs and manufactures
high-technology electronic equipment for the conferencing and broadcast markets
and provides conference calling services. The Company provides products and
services domestically and internationally. The Company generally grants credit
without requiring collateral to its customers within these markets.
During October 2000, the Company established Gentner Communications EuMEA GmbH,
a wholly owned subsidiary headquartered in Nuremberg, Germany. The subsidiary
began operations during December 2000. Gentner EuMEA focuses on distribution,
technical support, and training in Europe, the Middle East and northern Africa.
The Company is now providing consolidated financial statements that include
Gentner EuMEA. This practice commenced in the second quarter of fiscal 2001. All
intercompany transactions have been eliminated in consolidation.
Summary of Significant Accounting Policies
Cash Equivalents - The Company considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
Inventory - Inventories are stated at the lower of cost (first-in, first-out) or
market.
Shipping and Handling Costs - Shipping and handling costs are expensed as
incurred and included in cost of sales.
Revenue Recognition - Revenue from product sales is recognized at the time
product is shipped. Revenue from service sales is recognized at the time the
service is rendered. The Company records reserves for sales returns and
uncollectible accounts, at the time the product is shipped or service is
rendered. Historically, the Company's estimate of sales returns and
uncollectible accounts has not materially varied from actual results.
Foreign Currency Translation - The functional currency of the Company's foreign
subsidiary is the U.S. dollar. Accordingly, the results of operations of the
Company's foreign subsidiary, which are recorded by the subsidiary in German
Deutsche Marks, are remeasured into the U.S. dollar using average exchange rates
during the year, while the assets, liabilities and equity accounts are
remeasured using period end exchange rates and historical rates, as appropriate.
The impact of this remeasurement is recorded in earnings.
Property and Equipment - Property and equipment are stated at cost. Depreciation
and amortization are provided over the estimated useful lives of the respective
assets using the straight-line method. Repairs and maintenance costs are
expensed as incurred.
Long-Lived Assets - The Company regularly evaluates the carrying amounts of
long-lived assets, including goodwill and other intangible assets, as well as
the related amortization periods, to determine whether adjustments to these
amounts or to the useful lives are required based on current circumstances or
events. The evaluation, which involves significant management judgment, is based
on various analyses including cash flow and profitability projections. To the
extent such projections indicate that future undiscounted cash flows are not
sufficient to recover the carrying amounts of the related long-lived assets, the
carrying amount of the underlying assets will be reduced, with the reduction
charged to expense, so that the carrying amount is equal to fair value,
primarily determined based upon future discounted cash flows. No impairment of
the Company's long-lived assets has been indicated to date.
Goodwill and Other Intangible Assets - Other intangible assets consist
principally of purchased technology, value assigned to a non-compete agreement
and certain other intangible assets. The Company amortizes goodwill, purchased
technology and other intangible assets on a straight-line basis over periods
30
ranging from three to fifteen years. Accumulated amortization was $515,285 and
$246,217 at June 30, 2001 and 2000, respectively. The Company performs an
evaluation of other assets on a periodic basis to determine that the recorded
costs are not in excess of their net realizable value.
Earnings per Share - The following table sets forth the computation of basic and
diluted net income per share:
Year Ended June 30,
-----------------------------------
2001 2000 1999
---- ---- ----
Numerator:
Income from continuing operations.......... $5,525,185 $4,301,742 $2,020,346
Income from discontinued operations........ 737,280 426,591 524,125
Gain on disposal of business segment....... 1,220,024 -- --
---------- ---------- ----------
Net income................................. $7,482,489 $4,728,333 $2,544,471
========== ========== ==========
Denominator for basic net income per
share - weighted average shares:............. 8,593,510 8,269,941 8,080,536
Dilutive common stock equivalents using treasury
stock method:................................ 422,134 470,268 388,348
---------- ---------- ----------
Denominator for diluted net income per share -
weighted average shares:.................... 9,015,644 8,740,209 8,468,884
========= ========= =========
Basic net income per share:
Continuing operations...................... $ 0.64 $ 0.52 $ 0.25
Discontinued operations.................... 0.23 0.05 0.06
---------- ---------- ----------
Basic net income per share..................... $ 0.87 $ 0.57 $ 0.31
========= ========== =========
Diluted net income per share:
Continuing operations...................... $ 0.61 $ 0.49 $ 0.24
Discontinued operations.................... 0.22 0.05 0.06
---------- ---------- ----------
Diluted net income per share................... $ 0.83 $ 0.54 $ 0.30
========= ========== =========
Options to purchase 663,250, 523,500 and 45,000 shares of common stock were
outstanding as of June 30, 2001, 2000 and 1999, respectively, but were not
included in the computation of diluted earnings per share as the effect would be
antidilutive.
Research and Product Development Costs - Research and product development costs
are expensed as incurred.
Income Taxes - The Company provides for income taxes based on the asset and
liability method required by SFAS No. 109, "Accounting for Income Taxes." Under
the asset and liability method, deferred tax assets and deferred tax liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and deferred tax liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and deferred tax liabilities of a change in tax
rates is recognized in operations in the period that includes the enactment
date.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts in the financial statements and
these accompanying notes. Actual results could differ from those estimates.
Stock-Based Compensation - Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," (SFAS 123) defines a fair value-based
method of accounting for and measuring compensation expense related to
stock-based compensation plans and encourages adoption of the standard. However,
the Statement allows entities to continue to measure compensation expense for
stock-based plans using the intrinsic value-based method prescribed by
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees". The Company has elected to continue to account for stock-based
compensation plans using the provisions of APB Opinion No. 25. Pro forma
footnote disclosure of net income has been made as if the fair value based
method of accounting defined in the Statement had been applied.
Advertising Expenses - Advertising expenses are expensed as incurred.
Advertising expense for fiscal years 2001, 2000 and 1999 totaled $357,700,
$186,400 and $475,800, respectively.
31
New Accounting Pronouncements - In December 1999, the Securities and Exchange
Commission issued Staff Accounting Bulletin (SAB) 101, "Revenue Recognition in
Financial Statements." SAB 101B, which was issued in June 2000, delayed the
implementation date of SAB 101 until no later than the fourth fiscal quarter of
fiscal years beginning after December 15, 1999. This SAB clarifies proper
methods of revenue recognition given certain circumstances surrounding sales
transactions. The Company adopted SAB 101 in its fourth fiscal quarter of 2001.
As expected, the adoption of SAB 101 did not have a material impact on the
Company's financial statements.
In 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which was
subsequently amended by SFAS No. 137 "Accounting for Derivative Financial
Instruments and Hedging Activities - Deferral of the Effective Date of SFAS No.
133" and SFAS No. 138 "Accounting for Certain Derivative Instruments and Certain
Hedging Activities." SFAS No. 133 establishes accounting and reporting standards
requiring that every derivative instrument, including certain derivative
instruments embedded in other contracts, be recorded in the balance sheet as
either an asset or liability measured at its fair value. The statement also
requires that changes in the derivative's fair value be recognized in earnings
unless specific hedge accounting criteria are met. SFAS No. 133, as amended by
SFAS No. 137 and SFAS No. 138, is effective for all fiscal years beginning after
June 15, 2000. The Company adopted SFAS No. 133 in fiscal 2001. Because the
Company currently does not hold any derivative instruments, as expected, the
adoption of SFAS No. 133 did not have a material impact on the Company's
financial condition or results of operations.
In July 2001, the FASB issued SFAS No. 141, "Business Combinations." SFAS 141
establishes new standards for accounting and reporting requirements for business
combinations and supersedes APB Opinion No. 16, "Business Combinations" and SFAS
No. 38, "Accounting for Preacquisition Contingencies of Purchased Enterprises."
SFAS No. 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. Use of the
pooling-of-interest method is now prohibited. The statement applies to any
business combinations accounted for using the purchase method for which the date
of acquisition is July 1, 2001 or later, modifies the criteria for recognizing
intangible assets and expands disclosure requirements. The Company does not
expect this statement to have a material impact on its financial statements.
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible
Assets" which addresses financial accounting and reporting for acquired goodwill
and other intangible assets and supersedes APB Opinion No. 17, "Intangible
Assets." SFAS No. 142 eliminates amortization of goodwill and intangible assets
with indefinite lives and instead sets forth methods to periodically evaluate
goodwill for impairment. SFAS No. 142 provides guidance for testing goodwill and
intangible assets that will not be amortized for impairment. The amortization
provisions of Statement 142 apply to goodwill and intangible assets acquired
after June 30, 2001. With respect to goodwill and intangible assets acquired
prior to July 1, 2001, companies are required to adopt Statement 142 in their
fiscal year beginning after December 15, 2001 (i.e., January 1, 2002 for
calendar year companies). Early adoption is permitted for companies with fiscal
years beginning after March 15, 2001 provided that their first quarter financial
statements have not been issued. The Company is continuing to evaluate the
impact of this statement on its financial statements.
Reclassification - Certain amounts reported in prior year financial statements
have been reclassified to conform with current year presentations.
2. Discontinued Operations
On April 12, 2001, the Company sold the assets of the remote control portion of
the RFM/Broadcast division to Burk Technology, Inc. of Littleton, MA ("Burk").
Burk is a privately-held developer and manufacturer of broadcast facility
control systems products. The Company retained the accounts payable of the
remote control portion of the RFM/Broadcast division. Burk assumed obligations
for (i) unfilled customer orders, and (ii) satisfying warranty obligations to
both existing customers of the Company, and for inventory sold to Burk.
The assets of the remote control portion of the RFM/Broadcast division were sold
to Burk for $3.2 million, including $750,000 in cash at closing, and $1.75
million in the form of a seven (7) year promissory note, with interest at the
rate of nine percent (9%), secured by a subordinate security interest in the
personal property of Burk. The gain associated with the note receivable is
recognizable for book purposes but not for tax purposes until cash is received.
As such, the Company has established a deferred tax liability for $511,000 in
connection with this deferred gain. In addition, up to $700,000 more is payable
by Burk as a commission over a period of up to seven years. The commission is
based upon future net sales of Burk over base sales established within the
agreement. This amount will be recognized as received. The Company retained
32
remote control related inventory in the amount of $70,000 and zero liabilities
at June 30, 2001. The Company realized a gain on the sale of $1,220,024, net of
applicable income taxes of $725,788.
Summary operating results of the discontinued operations are as follows:
Year Ended June 30,
-----------------------------------
2001 2000 1999
---- ---- ----
Net sales.................................. $2,369,054 $2,753,529 $2,722,224
Cost of goods sold......................... 806,581 924,488 969,933
Marketing and selling...................... 281,852 597,835 616,101
Product development........................ 104,736 550,837 300,265
---------- ---------- ----------
Income before income taxes................. 1,175,885 680,369 835,925
Provision for income taxes................. (438,605) (253,778) (311,800)
Gain on disposal of business segment,
net of taxes............................. 1,220,024 -- --
---------- ---------- ----------
Net income from discontinued operations.... $1,957,304 $ 426,591 $ 524,125
========== ========== ==========
Basic earnings per share from
discontinued operations.................. $ 0.23 $ 0.05 $ 0.06
Diluted earnings per share from
discontinued operations.................. $ 0.22 $ 0.05 $ 0.06
3. Comprehensive Income
As of July 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income." Comprehensive income for
the years ended June 30, 2001, 2000, and 1999 was equal to net income.
4. Significant Customer
For the periods ended June 30, 2001, 2000, and 1999, the Company did not have
sales to any customer that equaled or exceeded ten percent of net revenue.
5. Financial Instruments
The carrying values of cash and cash equivalents, accounts receivable and
payable, the Company's line of credit and accrued liabilities all approximate
fair value due to the short-term maturities of these assets and liabilities. The
carrying values of virtually all long-term notes payable and capital leases also
approximate fair value because applicable interest rates either fluctuate based
on market conditions or approximate the Company's current borrowing rate.
The carrying value of the note receivable approximates fair value because the
fixed rate on the note receivable approximates a market rate of interest.
6. Inventory
Inventory is summarized as follows:
June 30,
-------------------------
2001 2000
---- ----
Raw materials $ 2,500,098 $ 1,559,210
Work in progress 195,149 437,112
Finished goods 1,436,787 1,488,670
----------- -----------
Total inventory $ 4,132,034 $ 3,484,992
=========== ===========
Total inventory is net of a reserve for obsolete and slow-moving inventory of
$226,000 and $94,000 at June 30, 2001 and 2000, respectively.
33
7. Property and Equipment
Major classifications of property and equipment and estimated useful lives are
as follows:
June 30,
-------------------------
2001 2000
---- ----
Office furniture and equipment - 5 to 10 years...... $ 4,541,371 $ 3,476,023
Manufacturing and test equipment - 5 to 10 years.... 2,304,680 1,959,630
Telephone bridging equipment - 10 years............. 857,450 678,490
Vehicles - 3 to 5 years............................. -- 22,318
----------- -----------
7,703,501 6,136,461
Accumulated depreciation and amortization........... (4,006,886) (3,086,112)
----------- -----------
Net property and equipment....................... $ 3,696,615 $ 3,050,349
=========== ===========
8. Line of Credit
The Company maintains a revolving line of credit (no outstanding balance on $5.0
million available at June 30, 2001 and 2000) with a commercial bank that expires
December 22, 2001 and which the Company anticipates renewing beyond that date.
The line of credit is secured by the Company's accounts receivable and
inventory. The interest rate on the line of credit is a variable interest rate
(250 basis points over the London Interbank Offered Rate (LIBOR) or prime less
0.25%, whichever the Company chooses). The borrowing rate was 6.44% as of June
30, 2001. The weighted average interest rate for the years ended June 30, 2001,
2000 and 1999, respectively, was 8.14%, 7.58% and 8.1%. The terms of the line of
credit prohibit the payment of dividends and require the Company to maintain
other defined financial ratios and restrictive covenants. The Company was in
compliance with all such covenants at June 30, 2001 and 2000. No compensating
balance arrangements are required.
9. Leases
The Company has entered into capital leases with finance companies to finance
the purchase of certain furniture and equipment. Property and equipment under
capital leases are as follows:
June 30,
-------------------------
2001 2000
---- ----
Office furniture and equipment...................... $ 936,819 $ 495,528
Manufacturing and test equipment.................... 478,598 478,599
Telephone bridging equipment........................ 284,296 296,117
Vehicles............................................ -- 22,318
----------- -----------
1,699,713 1,292,562
Accumulated depreciation and amortization........... (1,018,919) (956,811)
----------- -----------
Net property and equipment under capital leases.. $ 680,794 $ 335,751
=========== ===========
Amortization expense for assets recorded under capital leases is included with
depreciation expense.
34
Future minimum lease payments under capital leases and noncancelable operating
leases with initial terms of one year or more are as follows:
Capital Operating
------- ---------
For years ending June 30:
2002............................................. $ 208,763 $ 1,243,759
2003............................................. 36,641 1,036,557
2004............................................. 7,316 590,425
2005............................................. 7,316 410,058
2006............................................. 2,439 418,604
Thereafter....................................... -- 139,535
----------- -----------
Total minimum lease payments.................. 262,475 $ 3,838,938
----------- ===========
Less use taxes...................................... (15,672)
-----------
Net minimum lease payments.................... 246,803
Less amount representing interest................... (16,749)
-----------
Present value of net minimum lease payments... 230,054
Less current portion................................ (181,827)
-----------
Capital lease obligation......................$ 48,227
============
Certain operating leases contain escalation clauses based on the consumer price
index. Rental expense, which was composed of minimum rentals under operating
lease obligations, was $1,052,293, $664,026 and $511,836 for the years ended
June 30, 2001, 2000 and 1999, respectively. The Company's operating lease on its
facility, which expires 2006, provides for renewal options extending the terms
an additional ten years. Rates charged would be at prevailing market rates at
the time of renewal.
10. Royalty Agreements
The Company was a general partner in two limited partnerships, Gentner Research
Ltd. ("GRL") and Gentner Research II, Ltd. ("GR2L"), both related parties. GRL
sold the proprietary interest in a remote control product line to the Company in
exchange for royalty agreements in 1987 and 1988. Royalty expense under the
agreements with GRL for the years ended June 30, 2001, 2000 and 1999, was
$3,600, $16,000 and $39,900, respectively. GRL was dissolved on February 20,
2001 after consent to dissolution and liquidation was received by a majority of
the partners of GRL. The product line, which incorporated the proprietary
interest, was deemed no longer integral to the product segment of the Company's
business.
In fiscal 1997, GR2L sold the proprietary interest in a new remote control
product to the Company in exchange for a royalty agreement. Royalty expense for
sales of remote control product under this agreement with GR2L for the years
ended June 30, 2001, 2000 and 1999 was $90,793, $106,084 and $82,989,
respectively. As of June 30, 2001, 2000 and 1999, GR2L owed the Company $0,
$52,488 and $98,633, respectively, which was in the form of a note receivable
from the partnership to the Company. The terms of the note were such that 50% of
all the royalty proceeds were applied to the payment of the note's principal and
interest first. The note was payable in full on April 30, 2001, and the interest
rate on the note was equal to the Company's cost of short term funds. The note
was repaid and GR2L was dissolved on May 21, 2001 after the completion of the
sale of the remote control portion of the RFM/Broadcast division to Burk
Technology. The Company paid $178,516 to GR2L in 2001, representing its royalty
on the gain on the sale of the remote control product line. This amount is
included in the determination of gain on sale in the statement of income.
11. Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components of
the Company's deferred tax liabilities and assets are as follows:
35
2001 2000
---- ----
Deferred tax liabilities:
Deferred tax gain on disposal of discontinued operations..... $ 511,000 $ --
Tax over book depreciation of fixed assets................... 278,000 225,000
----------- -----------
Total deferred tax liabilities.................................. 789,000 225,000
Deferred tax assets:
Book over tax amortization of intangibles.................... 43,000 20,000
Accounts receivable and other related reserves............... 110,000 87,000
Inventory reserves........................................... 49,000 35,000
Other accruals............................................... 88,402 14,000
----------- -----------
Total deferred tax assets....................................... 290,402 156,000
----------- -----------
Net deferred tax liabilities.............................. $ (498,598) $ (69,000)
=========== ===========
The classification of these deferred tax assets and liabilities on the balance
sheets as of June 30 are as follows:
2001 2000
---- ----
Net current deferred tax assets................................. $ 247,402 $ 136,000
Net non-current deferred tax liabilities........................ 746,000 205,000
----------- -----------
Net deferred tax liabilities.................................... $ (498,598) $ (69,000)
=========== ===========
As discussed in Note 2, the deferred tax liability related to the deferred tax
gain on disposal of discontinued operations relates solely to the note
receivable issued in conjunction with the disposal of a business segment as does
the related deferred tax expense.
Income taxes on income from continuing operations for the years ending June 30
consist of the following:
2001 2000 1999
---- ---- ----
Current:
Federal......................................... $ 2,771,400 $ 998,220 $ 695,183
State........................................... 444,080 166,603 132,717
Foreign......................................... 67,683 -- --
Tax benefits allocated to contributed capital... 117,084 1,287,000 239,000
----------- ----------- -----------
Total current...................................... 3,400,247 2,451,823 1,066,900
Deferred:
Federal......................................... (69,000) (30,000) 128,000
State........................................... (11,000) (3,000) 14,000
Foreign......................................... (1,402) -- --
----------- ----------- -----------
Total deferred..................................... (81,402) (33,000) 142,000
----------- ----------- -----------
$ 3,318,845 $ 2,418,823 $ 1,208,900
=========== =========== ===========
The reconciliation of the consolidated provision for income taxes to amounts
determined by applying the prevailing U.S. federal statutory tax rates to
pre-tax income from continuing operations is as follows for the year ended June
30:
2001 2000 1999
---- ---- ----
Tax at federal statutory rate...................... 34.0% 34.0% 34.0%
Increase (reduction) in computed tax rate
resulting from:
State income taxes, net of federal effect....... 3.3 3.3 3.3
Change in valuation allowance................... - - (3.9)
Nondeductible entertainment expenses and life
insurance premiums........................... 0.1 0.3 0.1
Other........................................... 0.1 (1.6) 3.9
---- ---- ----
37.5% 36.0% 37.4%
==== ==== ====
36
12. Stock Options
The Company's 1990 Incentive Plan ("1990 Plan") has shares of common stock
available for issuance to employees and directors. Provisions of the 1990 Plan
include the granting of stock options. Generally, stock options vest over a five
year period at 10%, 15%, 20%, 25% and 30% per year over years one through five.
Certain other stock options vest in full after eight years (2004). Under the
1990 Plan, there are 200,000 shares available under options still outstanding.
The Company also has a 1998 Stock Option Plan ("1998 Plan"). Provisions of the
1998 Plan include the granting of stock options. Certain options granted through
December 1999 will vest based on earnings per share goals through 2003 but cliff
vest after 9.75 years if earnings per share goals are not met. Options granted
subsequent to December 1999 will vest based on earnings per share goals through
2005 but cliff vest after six years if earnings per share goals are not met.
Under the 1998 Plan, there are 1,700,000 shares available. The 1998 Plan expires
June 10, 2008, or when all the shares available under the plan have been issued.
Information for the fiscal years 1999 through 2001 with respect to the Plans is
as follows:
Weighted
Number of Average
Stock Options Shares Exercise Price
------------- ------ --------------
Outstanding at June 30, 1998 1,853,000 $ 1.61
Options granted 100,000 3.38
Options expired and canceled (115,250) 2.25
Options exercised (429,702) 0.75
---------
Outstanding at June 30, 1999 1,408,048 1.94
Options granted 744,500 13.57
Options expired and canceled (348,000) 5.43
Options exercised (296,000) 1.22
---------
Outstanding at June 30, 2000 1,508,548 12.89
Options granted 500,500 12.73
Options expired and canceled (183,125) 10.81
Options exercised (75,125) 4.33
---------
Outstanding at June 30, 2001 1,750,798 $ 8.37
=========
The following table summarizes information about stock options outstanding at
June 30, 2001 under the Plans:
Options Outstanding Options Exercisable
------------------- -------------------
Weighted Weighted
Options Average Weighted Options Average
Exercise Outstanding at Contractual Average Exercisable at Exercise
Price Range June 30, 2001 Remaining Life Exercise Price June 30, 2001 Price
----------- ------------- -------------- -------------- ------------- -----
$0.72 to $1.96 331,548 2.8 years $0.78 252,798 $0.77
$1.97 to $3.92 432,000 6.9 years $2.66 246,000 $2.66
$3.93 to $5.88 20,000 7.8 years $3.94 8,000 $3.94
$5.89 to $9.81 27,500 8.3 years $9.69 13,250 $9.69
$9.82 to $11.77 94,000 9.6 years $10.64 10,800 $10.44
$11.78 to $13.73 211,500 9.3 years $12.52 36,500 $12.40
$13.74 to $15.70 633,750 8.9 years $14.58 163,196 $14.42
$15.71 to $19.63 500 8.7 years $19.63 125 $19.63
--------- -------
Total 1,750,798 730,669
========= =======
There were 398,875 options available for future grant at June 30, 2001. However,
251,250 of the options available are from the 1990 plan which, under the terms
of the 1998 plan are no longer issuable. The following are the options
exercisable at the corresponding weighted average exercise price at June 30,
2001, 2000 and 1999, respectively: 730,669 at $5.38; 304,798 at $1.45 and
341,548 at $0.82.
37
On May 12, 1999 the Company registered with the Securities and Exchange
Commission all shares of common stock previously issued or issuable under the
1998 Plan.
The Company applies Accounting Principles Board Opinion No. 25 "Accounting for
Stock Issued to Employees" and related interpretations in accounting for its
option plans. No compensation expense has been recognized for options granted
under the stock option plans because the exercise price of the options equals
the market price of the underlying stock on the date of the grant. If
compensation expense for the Company's stock-based compensation plan had been
determined consistent with SFAS 123 "Accounting and Disclosure of Stock-based
Compensation," the Company's net income and diluted earnings per share would
have been the pro forma amount indicated below:
Fiscal Year Fiscal Year Fiscal Year
2001 2000 1999
---- ---- ----
Net Income
As Reported $7,482,489 $4,728,333 $2,544,471
diluted earnings per share $ 0.83 $ 0.54 $ 0.30
Pro Forma $4,879,869 $1,788,567 $1,865,777
diluted earnings per share $ 0.54 $ 0.22 $ 0.22
The pro forma results above are not likely to be representative of the effects
of applying SFAS 123 on reported net income for future years as these amounts
only reflect the expense from three years.
The weighted average fair value as defined by SFAS 123 of each option granted in
fiscal 2001, 2000 and 1999 is estimated as $12.73, $8.83 and $1.97,
respectively, on the date of grant using the Black-Scholes model with the
following weighted average assumptions: expected dividend yield, 0%; risk-free
interest rate, 4.85%; expected price volatility, 82.75%; and expected life of
options, 6.25 years.
13. International Sales
The Company provides products to the international professional communications
market. These products are designed, manufactured, distributed from, and
serviced at the Company's facilities in Salt Lake City, Utah. During October
2000, Gentner established Gentner Communications EuMEA GmbH, a wholly owned
subsidiary that began operations during December 2000. Gentner EuMEA focuses on
distribution, technical support and training to Europe, the Middle East and
northern Africa. The Company also uses either master distributors or
international dealers to facilitate its international sales. Currently, the
Company's products are distributed to at least 70 different countries.
The Company ships products to unaffiliated distributors in worldwide markets. In
fiscal 2001, 2000 and 1999, such international sales were $5,100,100, $3,512,600
and $2,508,400, respectively, and accounted for 13%, 12% and 12% of total sales
from continuing operations. During those years, the Company shipped the
following amounts to the following areas: Canada - $1,221,500, $1,040,600 and
$1,040,900; EuMEA - $2,063,200, $1,120,900 and $663,100; Asia - $884,100,
$718,600 and $331,000; Latin America - $199,600, $118,800 and $145,700; Other
Areas - $731,700, $513,800 and $327,600.
14. Retirement Savings and Profit Sharing Plan
The Company has a 401(k) retirement savings and profit sharing plan to which it
makes discretionary matching contributions, as authorized by the Board of
Directors. All full-time employees who are at least 21 years of age and have a
minimum of six months of service with the Company at the plan date are eligible
to participate in the plan. Matching contributions, if made, are based upon
amounts participating employees contribute to the plan. The Company's retirement
plan contribution expense for the 2001, 2000 and 1999 fiscal years totaled
$66,000, $96,000 and $69,000, respectively.
15. Segment Reporting
As a result of the sale of the remote control product line, the Company has
changed how it evaluates its operations internally, resulting in a change in its
reported segments from its Form 10-KSB for fiscal year 2000. Subsequent to the
disposal, the Company operates in two different segments - Products and
Services. The Products segment includes products for conferencing, sound
reinforcement, broadcast telephone interface and assistive listening
applications. The Services segment includes operator-assisted conferencing;
on-demand, reservationless conference calling; Webconferencing, and audio and
38
video streaming. Information for the prior years has been restated to conform to
this new method of evaluating segments and to show continuing and discontinued
operations.
The accounting policies of the reportable segments are the same as those
described in the summary of significant accounting policies. The Company
evaluates the performance of these business segments based upon a measure of
gross profit since general and administrative costs are not allocated to each
segment.
The Company's reportable segments are strategic business units that offer
products and services to satisfy different customer needs. They are managed
separately because each segment requires focus and attention on its market and
distribution channel.
The following table summarizes the segment information:
Company
-------
Products Services Totals
-------- -------- ------
Year Ended June 30, 2001:
------------------------
Net sales $28,189,612 $11,688,793 $ 39,878,405
Cost of goods sold 10,633,956 5,869,106 16,503,062
---------- --------- ----------
Gross profit 17,555,656 5,819,687 23,375,343
Marketing and selling 5,302,634 2,450,658 7,753,292
General and administrative 4,648,999
Product development 2,502,169 2,502,169
-----------
Total operating expenses 14,904,460
Operating income 8,470,883
Other income (expense) 373,147
----------
Income from continuing operations
before income taxes 8,844,030
Provision for income taxes (3,318,845)
----------
Income from continuing operations 5,525,185
Income from discontinued operations,
net of applicable taxes of $438,065 737,280
Gain on disposal of business segment,
net of applicable taxes of $725,788 1,220,024
-----------
Net income $ 7,482,489
============
39
Year Ended June 30, 2000:
------------------------
Net sales $22,226,504 $ 5,891,909 $ 28,118,413
Cost of goods sold 8,033,867 2,974,456 11,008,323
----------- --------- ----------
Gross profit 14,192,637 2,917,453 17,110,090
Marketing and selling 4,432,756 1,733,161 6,165,917
General and administrative 3,132,125
Product development 1,270,819 1,270,819
-----------
Total operating expenses 10,568,861
Operating income 6,541,229
Other income (expense) 179,336
-------
Income from continuing operations
before income taxes 6,720,565
Provision for income taxes (2,418,823)
----------
Income from continuing operations 4,301,742
Income from discontinued operations,
net of applicable taxes of $253,778 426,591
------------
Net income $ 4,728,333
============
Year Ended June 30, 1999:
------------------------
Net sales $17,056,780 $ 3,211,322 $ 20,268,102
Cost of goods sold 6,670,149 2,237,605 8,907,754
--------- --------- -----------
Gross profit 10,386,631 973,717 11,360,348
Marketing and selling 3,337,424 976,215 4,313,639
General and administrative 2,544,665
Product development 1,194,686 1,194,686
-----------
Total operating expenses 8,052,990
Operating income 3,307,358
Other income (expense) (78,112)
-------
Income from continuing operations
before income taxes 3,229,246
Provision for income taxes (1,208,900)
----------
Income from continuing operations 2,020,346
Income from discontinued operations,
net of applicable taxes of $311,800 524,125
------------
Net income $ 2,544,471
============
16. Purchase of Business
In May 2000, the Company entered into an agreement to purchase substantially all
of the assets of ClearOne, Inc. ("ClearOne") for $3.4 million plus approximately
$300,000 in inventory, with a combination of cash and restricted stock. Under
the terms of the agreement, the Company issued 129,871 shares of common stock
valued at $15.40 and cash of $1,758,085. Goodwill resulting from the difference
between the purchase price plus acquisition costs and the net assets acquired,
including a non-compete agreement of $240,000, totaled approximately $2.8
million and is being amortized on a straight-line basis over fifteen years.
ClearOne was a privately held developer and manufacturer of multimedia group
communications products. On July 5, 2000, the acquisition was consummated and
was accounted for under the purchase method of accounting. Operations since that
date are included in the consolidated statement of income for the year ended
June 30, 2001.
The following pro forma combined financial information reflects operations as if
the acquisition of ClearOne had occurred as of July 1, 1999. The pro forma
combined financial information is presented for illustrative purposes only, does
40
not purport to be indicative of the Company's results of operations as of the
date hereof and is not indicative necessarily of what the Company's actual
results of operations would have been had the acquisition been consummated on
such date.
Fiscal year ended
June 30,
--------
2001 2000
---- ----
Net revenue............................................................. $39,878,405 $28,617,198
=========== ===========
Income from continuing operations....................................... 5,525,185 3,706,539
Income from discontinued operations..................................... 737,280 426,951
Gain on disposal of business segment.................................... 1,220,024 --
----------- -----------
Net income.............................................................. $7,482,489 $ 4,133,490
========== ===========
Net income per share from continuing operations - basic................. $ 0.64 $ 0.45
Net income per share from discontinued operations - basic............... 0.23 0.05
---- ----
Net income per share - basic ........................................... $ 0.87 $ 0.50
==== ====
Net income per share from continuing operations - diluted............... $ 0.61 $ 0.42
Net income per share from discontinued operations - diluted............. 0.22 0.05
---- ----
Net income per share - diluted.......................................... $ 0.83 $ 0.47
==== ====
17. Quarterly Results of Operations (Unaudited)
A summary of unaudited quarterly results of operations restated for discontinued
operations follows:
Fiscal 2001 Quarters Ended
--------------------------
Sept. 30 Dec. 31 Mar. 31 June 30
-------- ------- ------- -------
Net sales ........................................... $ 9,332,996 $ 9,680,383 $10,212,333 $10,652,693
Cost of goods sold .................................. (3,765,553) (3,971,158) (4,327,987) (4,438,364)
Operating expenses .................................. (3,488,055) (3,873,064) (3,786,278) (3,757,063)
Other income and expenses ........................... 64,079 118,727 69,277 121,064
----------- ----------- ----------- -----------
Income from continuing operations before income taxes 2,143,467 1,954,888 2,167,345 2,578,330
Provision for income taxes .......................... (799,513) (752,477) (808,313) (958,542)
----------- ----------- ----------- -----------
Income from continuing operations ................... 1,343,954 1,202,411 1,359,032 1,619,788
Income (loss) from discontinued operations .......... 185,724 337,451 241,981 (27,876)
Gain on disposal of business segment ................ -- -- -- 1,220,024
----------- ----------- ----------- -----------
Net income .......................................... $ 1,529,678 $ 1,539,862 $ 1,601,013 $ 2,811,936
=========== =========== =========== ===========
Basic earnings per share:
Continuing operations ........................... $ 0.16 $ 0.14 $ 0.16 $ 0.19
Discontinued operations ......................... 0.02 0.04 0.03 0.14
----------- ----------- ----------- -----------
Basic earnings per share ........................ $ 0.18 $ 0.18 $ 0.19 $ 0.33
=========== =========== =========== ===========
Diluted earnings per share:
Continuing operations ........................... $ 0.15 $ 0.13 $ 0.15 $ 0.18
Discontinued operations ......................... 0.02 0.04 0.03 0.13
----------- ----------- ----------- -----------
Diluted earnings per share ...................... $ 0.17 $ 0.17 $ 0.18 $ 0.31
=========== =========== =========== ===========
41
Fiscal 2000 Quarters Ended
--------------------------
Sept. 30 Dec. 31 Mar. 31 June 30
-------- ------- ------- -------
Net sales ..................................... $ 6,196,827 $ 6,868,553 $ 7,097,675 $ 7,955,358
Cost of goods sold ............................ (2,414,831) (2,753,666) (2,668,379) (3,171,447)
Operating expenses ............................ (2,362,839) (2,463,147) (2,763,369) (2,979,506)
Other income and expenses ..................... 31,933 31,776 41,090 74,537
----------- ----------- ----------- -----------
Income from continuing operations before income
taxes ....................................... 1,451,090 1,683,516 1,707,017 1,878,942
Provision for income taxes .................... (540,175) (628,145) (637,286) (613,217)
----------- ----------- ----------- -----------
Income from continuing operations ............. 910,915 1,055,371 1,069,731 1,265,725
Income (loss) from discontinued operations .... 169,481 (3,605) 170,524 90,191
----------- ----------- ----------- -----------
Net income .................................... $ 1,080,396 $ 1,051,766 $ 1,240,255 $ 1,355,916
=========== =========== =========== ===========
Basic earnings (loss) per share:
Continuing operations ..................... $ 0.11 $ 0.13 $ 0.13 $ 0.15
Discontinued operations ................... 0.02 (0.00) 0.02 0.01
----------- ----------- ----------- -----------
Basic earnings per share .................. $ 0.13 $ 0.13 $ 0.15 $ 0.16
=========== =========== =========== ===========
Diluted earnings (loss) per share:
Continuing operations ..................... $ 0.10 $ 0.12 $ 0.12 $ 0.14
Discontinued operations ................... 0.02 (0.00) 0.02 0.01
----------- ----------- ----------- -----------
Diluted earnings per share ................ $ 0.12 $ 0.12 $ 0.14 $ 0.15
=========== =========== =========== ===========
18. Stock Repurchase Program
During April 2001, the Company announced that its board of directors had
approved a stock repurchase program to purchase up to 500,000 shares of the
Company's common stock over the next six months on the open market or in private
transactions. During the fourth quarter of fiscal year 2001, the Company
repurchased 15,300 shares on the open market and subsequently retired those
shares.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None exist.
42
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Directors and Executive Officers
Directors
---------
The following individuals are currently directors of the Company:
Director
Name Age Principal Occupation Since
---- --- -------------------- -----
Edward Dallin Bagley 63 Attorney 1994
Brad R. Baldwin 46 Attorney and Commercial 1988
Real Estate Agent
Frances M. Flood 45 Chairman of the Board of 1998
Directors, Chief
Executive Officer and
President of the Company
Harry Spielberg 50 Director of Cosentini 2001
Information Technologies'
Audiovisual Group
Randall J. Wichinski 48 Senior Tax Officer of 1999
Ohio National Financial
Services
David Wiener 43 President and CEO of 2000
SoundTube Entertainment,
Inc.
Edward Dallin Bagley has been a Director of the Company since April 1994.
Previously, Mr. Bagley served as a Director of the Company from April 1987 to
July 1991. Mr. Bagley began practicing law in 1965. Mr. Bagley is currently a
director of Tunex International, NESCO, Inc., and Buyers Online.com. Mr. Bagley
received a Juris Doctorate in 1965 from the University of Utah College of Law.
Brad R. Baldwin has been a Director of the Company since 1988. He currently is
an attorney licensed in Utah and is engaged in the commercial real estate
business with Colliers Commerce CRG in Salt Lake City. From October 1, 1994 to
January 30, 2000, Mr. Baldwin served as President and Chief Executive Officer of
Bank One, Utah, a commercial bank headquartered in Salt Lake City, Utah. Mr.
Baldwin received a Juris Doctorate in 1980 from the University of Washington.
Frances M. Flood has been a Director of the Company since June of 1998. Ms.
Flood joined the Company in October 1996 as Vice-President of Sales and
Marketing. She was named President in December 1997, Chief Executive Officer in
June 1998 and Chairman of the Board in November 2000. Prior to joining the
Company, Ms. Flood was Area Director of Sales and Marketing for Ernst & Young,
LLP, an international accounting and consulting firm. Ms. Flood has over
twenty-five years experience in sales, marketing, change management,
international business and finance. Ms. Flood is currently a director of Mining
Services International and SoundTube Entertainment, Inc. Ms. Flood graduated
from Thomas Edison State College with a B.S./B.A. degree in Banking and Finance.
Harry Spielberg has been a Director of the Company since January 2001. Since
January 1996, Mr. Spielberg has been the Director of Cosentini Information
Technologies' Audiovisual Group, a division of the consulting engineering firm,
Cosentini Associates. Previously, Mr. Spielberg served as Vice President,
Engineering for Media Facilities Corp. and Barsky & Associates. Mr. Spielberg
received a Bachelor of Art degree in Psychology from the State University of New
York.
43
Randall J. Wichinski has been a Director of the Company since June 1999. He is
currently Senior Tax Officer of Ohio National Financial Services. From April
1983 to March 1999, Mr. Wichinski was employed at Ernst & Young LLP, an
international accounting and consulting firm, serving as a Tax Partner for ten
years. He received a bachelor's degree in 1977 and a Masters of Business
Administration degree in 1982 from the University of Wisconsin-Madison.
David Wiener has been a Director of the Company since January 2000. Mr. Wiener
has served as President and CEO of SoundTube Entertainment, Inc., a manufacturer
of innovative commercial and consumer audio speakers, since January 1995.
SoundTube Entertainment is a division of David Wiener Ventures, a product,
fashion and image development company founded by Mr. Wiener in 1982. Mr. Wiener
received his bachelor's degree in engineering, aerodynamics and art from
Hampshire College in Amherst, Massachusetts.
Director Compensation and Committees
------------------------------------
All directors serve until their successors are elected and have qualified. The
Company paid each director $650 per month for services provided as a director.
Employee directors receive no additional compensation for serving on the Board.
The Board of Directors has two committees: the Audit and Compensation
Committees. The Audit Committee is currently composed of Mr. Edward Dallin
Bagley, Mr. Brad R. Baldwin, Mr. Harry Spielberg, Mr. Randall J. Wichinski and
Mr. David Wiener. The Compensation Committee is currently composed of Mr. Edward
Dallin Bagley, Mr. Brad R. Baldwin, Mr. Harry Spielberg, Mr. Randall J.
Wichinski and Mr. David Wiener. The Audit Committee is authorized to review
proposals of the Company's auditors regarding annual audits and quarterly
reviews, recommend the engagement or discharge of the Company's auditors, review
recommendations of such auditors concerning accounting principles and the
adequacy of internal controls and accounting procedures and practices, to review
the scope of the annual audit and quarterly reviews, to approve or disapprove
each professional service or type of service other than standard auditing
services to be provided by the auditors, and to review and discuss the audited
financial statements with the auditors. The Compensation Committee makes
recommendations to the Board of Directors regarding remuneration of the
executive officers and directors of the Company and administers the incentive
plans for directors, officers and key employees.
Meetings of the Board of Directors and Committees
-------------------------------------------------
The Board of Directors held six meetings during the last fiscal year. The Audit
Committee held four formal meetings during the last fiscal year. The
Compensation Committee held four formal meetings during the last fiscal year.
Executive Officers
------------------
The executive officers of the Company as of June 30, 2001 are as follows:
Name Age Position
---- --- --------
Frances M. Flood 45 President and Chief Executive Officer
Tracy Bathurst 37 Vice President of Technology - Research
Curtis Hewitson 37 Vice President of Human Resources
Eugene W. Kuntz, Jr. 38 Vice President of Technology - Development
Susie S. Strohm 41 Vice President of Finance and Chief Financial
Officer
James A. Valeo 40 Vice President of Strategic Operations and General
Counsel
For the biography of Ms. Flood, see "Directors."
Tracy Bathurst was named Vice President of Technology - Research in April 2000.
He has been with Gentner since September 1988, serving in various roles in
engineering and engineering management. He is responsible for technology
development for the organization. Prior to joining the Company, Mr. Bathurst
worked in the cable television and telecommunications industries for over five
years. Mr. Bathurst holds a Bachelor of Science degree from Southern Utah
University.
Curtis Hewitson was named Vice President of Human Resources for Gentner
Communications in November 1998. He has been with Gentner since December 1994
serving in Human Resources. He is responsible for all aspects of Human Resources
and office administration. Prior to joining the Company, Mr. Hewitson worked in
the telecommunications industry for nine years. In 1989, Mr. Hewitson received a
Bachelor of Science degree from the University of Utah.
44
Eugene W. Kuntz, Jr. has been with Gentner Communications since November 1999.
Mr. Kuntz was named Vice President of Technology - Development in January 2001.
He is responsible for all engineering development projects and manufacturing
activities for the organization. From 1987 to November 1999, Mr. Kuntz was a
manager of research and development at Computer Sciences Corporation in
Clearfield, Utah. Mr. Kuntz holds a Bachelor of Science degree in Electrical
Engineering from Montana State University and a Masters of Business
Administration degree from Utah State University.
Susie S. Strohm became Vice President of Finance in 1997 and was named CFO
during 1998. In February 1996, Ms. Strohm joined the Company as its Controller.
She is responsible for all the Company's accounting, financial and tax planning,
financial and management reporting, and Securities and Exchange Commission
filings. Prior to joining the Company, Ms. Strohm was the Controller for
Newspaper Agency Corporation in Salt Lake City, Utah. She graduated from the
University of Utah with a Bachelor of Science degree in Accounting, and received
her Masters of Business Administration degree from Westminster College.
James A. Valeo joined Gentner Communications as its Vice President of Strategic
Operations and General Counsel in October 2000. Prior to joining the Company,
from 1996 to 2000 he practiced law with the law firm of Jones Waldo Holbrook &
McDonough in Salt Lake City, Utah, focusing on mergers and acquisitions,
corporate finance, and general corporate law. Earlier, Mr. Valeo worked for two
law firms in Washington, D.C. Mr. Valeo received a Bachelor of Arts degree from
New York University in 1982, and a Juris Doctorate degree from Boston University
in 1986.
Compliance with Section 16(a) of the Securities Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's directors and executive officers, and persons who own more than 10% of
a registered class of the Company's equity securities to file with the
Securities and Exchange Commission initial reports of ownership and reports of
changes of ownership of equity securities of the Company. Officers, directors
and greater than 10% shareholders are required to furnish the Company with
copies of all Section 16(a) forms they file.
Based solely on a review of the copies of such reports furnished to the Company
and written representations that no other reports were required, the persons
described above have filed all applicable Section 16(a) requirements during the
preceding fiscal year, except that the following Forms were filed late: Mr.
Valeo's Form 4 relating to a grant of stock options in November 2000 and Mr.
Bagley's Form 4 relating to an open market purchase of stock in October 2000.
Subsequent Event
On August 23, 2001, Randy Wichinski joined the Company as its Chief Financial
Officer. Mr. Wichinski will continue to serve on the Board of Directors.
Effective on August 23, 2001, Susie Strohm will continue as the Company's Vice
President of Finance and, in addition, will assume the responsibilities of
Controller.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation
The following table sets forth, for each of the Company's last three fiscal
years, the compensation of the Chief Executive Officer of the Company and the
other previously named executive officers of the Company whose total salary and
bonus for the year ended June 30, 2001 exceeded $100,000, for services rendered
in all capacities to the Company during such fiscal years.
45
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
------------------- ---------------------------------
Awards Payouts
------------------ --------------
Securities
Other Restric- Under- All
Annual ted lying Other
Compen- Stock Options LTIP Compen-
Name and Position Year Salary Bonus sation Awards /SARS Payouts sation(1)
----------------- ---- ------ ----- ------ ------ ----- ------- -------
Frances M. Flood Fiscal
CEO & President 2001 $160,000 $58,400 None None None None $2,056
Fiscal
2000 $160,333 $73,700 None None 50,000 None $1,802
Fiscal
1999 $104,912 $66,064 None None None None $2,022
Tracy Bathurst Fiscal
Vice President(2) 2001 $100,000 $18,500 None None None None $1,850
Fiscal
2000 $93,073 $5,000 None None 50,000 None $1,765
Curtis Hewitson Fiscal
Vice President 2001 $80,002 $13,600 None None None None $2,179
Fiscal
2000 $73,574 $31,400 None None 50,000 None $1,841
Fiscal
1999 $60,000 $10,278 None None None None $1,800
Eugene W. Kuntz, Jr. Fiscal
Vice President(3) 2001 $92,502 $9,500 None None 30,000 None None
Susie Strohm Fiscal
CFO & Vice President 2001 $110,000 $37,000 None None None None $2,316
Fiscal
2000 $100,167 $55,538 None None 50,000 None $1,976
Fiscal
1999 $72,716 $44,414 None None None None $1,721
1 These amounts reflect the Company's contributions to the deferred
compensation plan (401(k) plan).
2 Mr. Bathurst was not an executive officer until fiscal year 2000.
3 Mr. Kuntz was not an executive officer until fiscal year 2001.
Stock Options/SARS
The following table sets forth the stock option and SAR grants to the named
executive officers for the last fiscal year:
46
OPTION/SAR GRANTS IN FISCAL YEAR ENDED JUNE 30, 2001
(INDIVIDUAL GRANTS)
Number of Percent of
Securities Total Options
Underlying /SARs Granted Exercise
Options/SARs to Employees or Base Expiration
Name and Position Granted (#) in Fiscal Year Price ($/Sh) Date
----------------- ----------- -------------- ------------ ----
Eugene W. Kuntz, Jr. 30,000 6% $12.50 12/01/2010
The options will vest over five years based on earnings per share goals but
cliff vest after six years if earnings per share goals are not met.
Aggregated Stock Option/SAR Exercises
The following table sets forth the aggregated stock options and SARs exercised
by the named executive officers in fiscal 2001 and the year-end value
in-the-money of unexercised options and SARs:
AGGREGATED OPTION/SAR EXERCISES IN FISCAL YEAR ENDED JUNE 30, 2001
AND FISCAL YEAR-END OPTION/SAR VALUES
Number of
Securities Value of
Underlying Unexercised
Unexercised In-The-Money
Options/SARs Options/SARs
at FY-End (#) at FY-End ($)
Shares
Acquired Value Exercisable/ Exercisable/
Name and Position on Exercise (#) Realized ($) Unexercisable Unexercisable
----------------- --------------- ------------ --------------- -------------------
Frances M. Flood 0 $0 176,334/146,000 $1,655,344/$828,750
Tracy Bathurst 0 $0 19,750/80,250 $174,140/$182,085
Curtis Hewitson 0 $0 35,750/99,250 $294,619/$399,069
Eugene W. Kuntz, Jr. 0 $0 2,500/57,500 $0/$0
Susie Strohm 0 $0 99,464/119,000 $902,607/$564,724
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding ownership of the
Common Stock of the Company as of September 1, 2001 by (i) each person known to
the Company to be the beneficial owner of more than 5% of the outstanding Common
Stock of the Company, (ii) each director of the Company, (iii) the Chief
Executive Officer and each other executive officer of the Company whose salary
and bonus for the year ended June 30, 2001 exceeded $100,000, and (iv) all
executive officers and directors of the Company as a group. Each person has sole
investment and voting power with respect to the shares indicated, subject to
community property laws where applicable, except as otherwise indicated below.
The address for each beneficial owner is in care of the Company, 1825 Research
Way, Salt Lake City, Utah 84119.
47
Amount of Percentage
Names of Beneficial Owners Beneficial Ownership(1) of Class(2)
-------------------------- --------------------- ---------
Edward Dallin Bagley 1,738,668(3) 20.2%
Frances M. Flood 296,913(4) 3.4%
Susie Strohm 169,729(5) 2.0%
Brad R. Baldwin 102,666(6) 1.2%
Curtis Hewitson 70,224(7) 0.8%
Tracy Bathurst 39,730(8) 0.5%
David J. Wiener 18,500(9) 0.2%
Randall J. Wichinski 18,200(10) 0.2%
Eugene W. Kuntz, Jr. 15,813(11) 0.2%
Harry Spielberg 5,000(12) 0.1%
Directors and Executive Officers
as a Group (11 people) 2,500,5133(13) 29.0%
1 For each shareholder, the calculation of percentage of beneficial ownership
is based on 8,612,978 shares of Common Stock outstanding as of September 1,
2001 and shares of Common Stock subject to options held by the shareholder
that are currently exercisable or exercisable within 60 days of September
1, 2001.
2 The percentage ownership for any person is calculated assuming that all the
stock that could be acquired by that person within 60 days by option
exercise or otherwise, is in fact outstanding and that no other stockholder
has exercised a similar right to acquire additional shares.
3 Director. Includes: 1,321,285 shares owned directly; options to purchase
5,000 shares that are exercisable within 60 days; 100,000 shares owned by a
corporation controlled by Mr. Bagley; 50 shares owned by Mr. Bagley's wife
as custodian for one of Mr. Bagley's daughters; and 312,333 shares held in
the Bagley Family Revocable Trust, of which Mr. Bagley is co-trustee.
Excludes: 50 shares owned by another of Mr. Bagley's daughters who is not a
member of his household. Mr. Bagley disclaims beneficial ownership of such
50 shares and fifty percent of the shares owned by the Bagley Family
Revocable Trust.
4 President, CEO and Director. Includes: 54,579 shares owned directly;
options to purchase 242,334 shares that are exercisable within 60 days.
5 Vice President and CFO. Includes: 31,265 shares owned directly; options to
purchase 138,464 shares that are exercisable within 60 days.
6 Director. Includes: 67,666 shares owned directly; options to purchase
30,000 shares that are exercisable within 60 days; and 5,000 shares owned
by Mr. Baldwin's wife.
7 Vice President. Includes: 6,724 shares owned directly; options to purchase
63,500 shares that are exercisable within 60 days.
8 Vice President. Includes: 730 shares owned directly; options to purchase
39,000 shares that are exercisable within 60 days.
9 Director. Includes: 6,000 shares owned directly; options to purchase 12,500
shares that are exercisable within 60 days.
10 Director. Includes: 5,700 shares owned directly; options to purchase 12,500
shares that are exercisable within 60 days.
11 Vice President. Includes: 813 shares owned directly; options to purchase
15,000 shares that are exercisable within 60 days.
12 Director. Includes: 0 shares owned directly; options to purchase 5,000
shares that are exercisable within 60 days.
13 Includes: an additional 70 shares owned directly by one additional officer;
and options to purchase 25,000 shares that are exercisable within 60 days
by this officer.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Gentner Research Ltd. ("GRL"), is a related limited partnership, formed on
August 1985, in which the Company is the general partner and Edward Dallin
Bagley and, among other unrelated parties, certain members of his family, are
the limited partners. In 1987 and 1988, GRL sold to the Company proprietary
interests in the VRC-1000 (now VRC-2000), VRC-1000 Modem (now VRC-2000) and
Digital Hybrid in exchange for royalty payments. Royalty expense recognized by
the Company for the years ending June 30, 2001, 2000 and 1999 was $3,600,
$16,000 and $39,900, respectively. GRL was dissolved on February 20, 2001 after
consent to dissolution and liquidation was received by a majority of the
48
partners of GRL. The product line, which incorporated the proprietary interest,
was deemed no longer integral to the product segment of the Company's business.
The following directors and/or executive officers and members of their immediate
families have purchased the following interests in GRL:
Edward Dallin Bagley (Director)................... 10.42%
The Bagley Family Revocable Trust................. 5.21%
Robert O. Baldwin (father of Brad Baldwin)........ 10.42%
The Company has also formed a second related limited partnership, Gentner
Research II, Ltd. ("GR2L"), also in which it acts as general partner. In fiscal
year 1997, GR2L sold proprietary interest in the GSC3000 to the Company in
exchange for royalty payments. Royalty expense related to product sales with
GR2L for the years ending June 30, 2001, 2000 and 1999 was $90,793, $106,084 and
$82,989. GR2L was dissolved on May 21, 2001 after the completion of the sale of
the remote control portion of the RFM/Broadcast division to Burk Technology. The
Company paid $178,516 to GR2L in 2001, representing its royalty on the gain on
the sale of the remote control product line. This amount is included in the
determination of gain on sale in the statement of income. The following
directors and/or executive officers and members of their immediate families have
purchased the following interests in GR2L:
Brad R. Baldwin (Director)........................ 3.19%
Robert O. Baldwin (father of Brad Baldwin)........ 9.58%
Edward D. Bagley (Director)....................... 6.39%
The Bagley Family Revocable Trust................. 6.39%
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEUDLES, AND REPORTS ON FORM 8-K
Schedules not listed have been omitted because the information required to be
set forth therein is not applicable or is shown in the financial statements or
notes thereto.
Exhibits Required by Item 601 of Regulation S-K
EXHIBIT
NUMBER DESCRIPTION
-----------------------------
3.1 1,2 Articles of Incorporation and all amendments thereto through March
1, 1988. (Page 10) (incorporated by reference from the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1989)
3.2 1,2 Amendment to Articles of Incorporation, dated July 1, 1991. (Page
65) (incorporated by reference from the Company's Annual Report on
Form 10-K for the fiscal year ended June 30, 1991)
3.3 1,2 Bylaws, as amended on August 24, 1993. (Page 16) (incorporated by
reference from the Company's Annual Report on Form 10-KSB for the
fiscal year ended June 30, 1993)
10.1 1,2 VRC-1000 Purchase Agreement between Gentner Engineering Company,
Inc. (a former subsidiary of the Company which was merged into the
Company) and Gentner Research Ltd., dated January 1, 1987. (Page 71)
(incorporated by reference from the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1989)
10.2 1,2 Digital Hybrid Purchase Agreement between Gentner Engineering, Inc.
and Gentner Research, Ltd., dated September 8, 1988. (Page 74)
(incorporated by reference from the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1991)
10.3 1,2,3 1990 Incentive Plan, as amended August 7, 1996 (Page 40)
(incorporated by reference from the Company's Annual Report on Form
10-KSB for the fiscal year ended June 30, 1996)
10.4 1,2,3 1997 Employee Stock Purchase Plan (Page 37) (incorporated by
reference from the Company's Annual Report on Form 10-KSB for the
fiscal year ended June 30, 1997)
10.5 1,2 Lease between Company and Valley American Investment Company (Page
71) (incorporated by reference from the Company's Annual Report on
Form 10-KSB for the fiscal year ended June 30, 1997)
10.6 3 1998 Stock Option Plan and Form of Grant (incorporated by reference
from the Company's Annual Report on Form 10-KSB for the fiscal year
ended June 30, 1998)
10.7 Promissory Note, Loan Agreement, and Commercial Security Agreement
between Company and Bank One, Utah, N.A. dated as of January 5, 1999
(original aggregate amount of $5,000,000) (Page 15) (incorporated by
reference from the Company's Form 10-QSB for the quarter ended
December 31, 1998)
49
10.8 Asset Purchase Agreement and related documents between the Company
and ClearOne, Inc. dated as of July 5, 2000 (incorporated by
reference from the Company's Form 8-K/A filed on September 12, 2000)
10.9 Third Addendum to Lease between Company and Valley American
Investment Company dated as of September 18, 2000 (incorporated by
reference from the Company's Form 10-Q for the quarter ended
December 31, 2000)
10.10 Modification Agreement to Promissory Note, Loan Agreement, and
Commercial Security Agreement between Company and Bank One, Utah,
N.A. dated as of December 22, 2000 (original aggregate amount of
$5,000,000) (incorporated by reference from the Company's Form 10-Q
for the quarter ended December 31, 2000)
10.11 Asset Purchase Agreement and related documents between the Company
and Burk Technology, dated as of April 12, 2001 (incorporated by
reference from the Company's Form 8-K filed on April 26, 2001)
The following documents are filed as exhibits to this Form 10-K.
EXHIBIT
NUMBER DESCRIPTION
------ -----------
21 Subsidiary of the Company
23 Consent of Ernst & Young LLP, Independent Auditors
1 Denotes exhibits specifically incorporated into this Form 10-K by reference
to other filings pursuant to the provisions of Rule 12B-32 under the
Securities Exchange Act of 1934.
2 Denotes exhibits specifically incorporated into this Form 10-K by
reference, pursuant to Regulation S-K, Item 10(f)(2). These documents are
located under File No. 0-17219 and are located at the Securities and
Exchange Commission, Public Reference Branch, 450 South 5th St., N.W.,
Washington, DC 20549.
3 Identifies management or compensatory plans, contracts or arrangements.
Reports on Form 8-K
A report on Form 8-K was filed on April 26, 2001, to announce the sale of
substantially all of the assets of the remote control portion of the
RFM/Broadcast segment to Burk Technology.
50
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities 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
September 14, 2001 By: /s/ Frances M. Flood
---------------------
Frances M. Flood
Chief Executive Officer
POWER OF ATTORNEY
Know all men by these presents, that each person whose signature appears below
constitutes and appoints each of Frances M. Flood and Susie Strohm, jointly and
severally, his true and lawful attorney in fact and agent, with full power of
substitution for him and in his name, placed and stead, in any and all
capacities, to sign any or all amendments to this report on Form 10-K and to
file the same, with all exhibits thereto and other documents in connection
therewith with the Securities and Exchange Commission, hereby ratifying and
confirming all that each said attorney in fact or his substitute or substitutes
may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Frances M. Flood Director, President and September 14, 2001
--------------------- Chief Executive Officer
Frances M. Flood (Principal Executive Officer)
/s/ Susie Strohm Vice President - Finance September 14, 2001
----------------- (Principal Financial and
Susie Strohm Accounting Officer)
/s/ Edward Dallin Bagley Director September 14, 2001
------------------------
Edward Dallin Bagley
/s/ Brad R. Baldwin Director September 7, 2001
-------------------
Brad R. Baldwin
/s/ Harry Spielberg Director September 14, 2001
-------------------
Harry Spielberg
/s/ David Wiener Director September 14, 2001
----------------
David Wiener
/s/ Randall J. Wichinski Director September 10, 2001
------------------------
Randall J. Wichinski
51
EXHIBIT 21
SUBSIDIARY OF THE COMPANY
During October 2000, the Company established Gentner Communications EuMEA GmbH,
a wholly owned subsidiary headquartered in Nuremberg, Germany. The subsidiary
began operations during December 2000.
During March 2001, the Company established Gentner Ventures, Inc., a wholly
owned subsidiary headquartered in Salt Lake City, Utah. The subsidiary was
established to facilitate future acquisitions.
During June 2001, the Company and Gentner Ventures, Inc. formed Gentner Holdings
LLC, a Utah limited liability corporation, in order to create a better business
structure for potential future acquisitions.
EXHIBIT 23
Consent of Ernst & Young LLP, Independent Auditors
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements
(Form S-8) pertaining to the 1998 Stock Option Plan, 1997 Employee Stock
Purchase Plan, and the 1990 Incentive Plan of Gentner Communications Corporation
of our report dated July 27, 2001, with respect to the financial statements of
Gentner Communications Corporation included in the Annual Report (Form 10-K) for
the year ended June 30, 2001.
/s/ Ernst & Young LLP
Salt Lake City, Utah
September 25, 2001