UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended June 30, 2000
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Commission File Number 1-15397
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GENROCO, INC.
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(Exact name of registrant as specified in its charter)
Wisconsin 88-0230309
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(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
255 Info Highway, Slinger, Wisconsin 53086
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(Address of principal executive offices)
(262) 644-8700
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES -X- NO ---
Indicate the number of shares outstanding of each of the issuers' classes of
common stock as of the latest practicable date.
9,267,224 Shares, Common Stock, $.02 Par Value
(After consideration of July 3, 2000 2 for 1 forward stock split)
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GENROCO, INC.
FORM 10-QSB
For Quarter Ended June 30, 2000
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Condensed Balance Sheet 3 - 4
Consolidated Statement of Stockholders' Equity 5 - 6
Consolidated Statement of Operations 6 - 7
Consolidated Condensed Statements of Cash Flows 8 - 9
Notes to Unaudited Financial Statements 10 - 11
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 11 - 15
PART II - OTHER INFORMATION
Item 2 - Changes in Securities 16
Signature 16
Exhibit Index
27.0 Financial Data Schedule - Three Months Ended June 30, 2000
PART I - FINANCIAL INFORMATION
1. Financial Statements
GENROCO, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
ASSETS (Unaudited) (Audited)
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June 30, 2000 March 31, 2000
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<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents $ 701,212 $ 842,104
Accounts Receivable - Trade, Net of Allowances of
$3,000 at June 30 and March 31, 2000 134,052 274,677
Accounts Receivable from VideoPropulsion 76,279 72,604
Inventories 749,511 672,934
Prepaid Expenses 130,247 87,791
Employee Advances 35,015 64,868
Income Taxes Receivable 211,127 211,127
Net Assets of Discontinued Operations 47,842 56,554
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Total Current Assets 2,085,285 2,282,659
PROPERTY AND EQUIPMENT, at cost
Building 1,250,000 1,250,000
Building and Leasehold Improvements 90,419 90,419
Machinery and Equipment 855,584 795,096
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2,196,003 2,135,515
Less - Accumulated Depreciation and Amortization 478,202 423,265
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Net Property, Plant and Equipment 1,717,801 1,712,250
Other Assets 146,938 137,749
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Total Assets $3,950,024 $4,132,658
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LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts Payable $ 278,838 $ 412,679
Current Portion of Long-Term Debt 360,476 352,980
Accrued Payroll and Payroll Taxes 87,607 139,651
Other Accrued Liabilities 134,374 112,567
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Total current liabilities 861,295 1,017,877
LONG-TERM DEBT
Mortgage Payable 1,046,954 1,061,377
Payable to Banks 157,000 0
Capital Leases Payable 161,670 158,655
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Total liabilities 2,226,919 2,237,909
SHAREHOLDERS' INVESTMENT:
Common Stock, $.02 par value, 10,000,000 shares
authorized, 9,267,224 issued and outstanding
on June 30, 2000 and 8,724,624 issued
and outstanding on March 31, 2000 185,345 87,246
Additional paid-in capital 6,821,752 4,624,171
Retained Deficit (2,622,366) (1,618,107)
Unearned Compensation (2,661,626) (1,100,225)
Advance to ESOP 0 (98,336)
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Total shareholders' investment 1,723,105 1,894,749
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Total liabilities and shareholders' investment $3,950,024 $4,132,658
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</TABLE>
See accompanying notes.
GENROCO, INC.
CONSOLIDATED STATEMENT OF SHOCKHOLDER'S INVESTMENT
For the three months ended June 30, 2000
<TABLE>
Paid-in Retained Unearned Advance
Shares Capital Earnings Compensation To ESOP Total
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<S> <C> <C> <C> <C> <C> <C>
Balances,
March 31, 2000 4,362,312 $4,711,417 $(1,618,107) $(1,100,225) $(98,336) $1,894,749
Net Loss (1,004,259) (1,004,259)
Sale of stock:
To Investors 62,500 500,000 500,000
To Employees 196,000 1,685,600 (1,685,600) 0
Stock grants 12,800 110,080 110,080
Stock Split 4,633,612 0 0
Earned
Compensation 124,199 124,199
Advance to ESOP 98,336 98,336
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Balance,
June 30, 2000 9,267,224 $7,007,097 $(2,622,366) $(2,661,626) $ 0 $ 1,723,105
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</TABLE>
GENROCO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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Three Months Ended
June 30,
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2000 1999
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NET SALES $ 255,957 $ 938,170
COST OF GOODS SOLD 247,629 355,750
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Gross Profit 8,328 582,420
OPERATING EXPENSES:
Engineering 432,056 199,265
Selling and Administrative 434,833 386,966
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866,889 586,231
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Loss from Operations (858,561) (3,811)
Interest Expense 37,637 8,341
Interest Income 8,022 4,501
Other Non-Operating Expenses 7,370 6,502
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LOSS BEFORE TAXES (895,546) (14,153)
Income Tax Expense 0 7,000
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NET LOSS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (895,546) (21,153)
(Loss) / Earnings from Discontinuing Operations
(Less Applicable Tax provision of $0) (108,713) 32,002
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NET (LOSS) INCOME $(1,004,259) $ 10,849
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BASIC AND FULLY DILUTED (LOSS) EARNINGS PER SHARE $ (.11) $ .00
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Average number of
shares outstanding 8,905,490 7,669,980
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Average number of
shares - Assuming full dilution 9,249,242 7,668,980
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(After consideration of July 3, 2000 2 for 1 forward stock split)
See accompanying notes.
GENROCO, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
(Unaudited)
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Three Months Ended June 30,
2000 1999
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss from continuing operations $(895,546) $ (21,153)
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation, amortization and deferred income taxes 55,748 30,436
Compensation expense from forgiveness of notes receivable
from shareholders 234,279 73,829
(Loss) Earnings from discontinued operations (108,713) 32,002
Change in assets and liabilities:
Current assets, other than cash 59,419 381,633
Current liabilities, other than notes payable (167,014) (134,367)
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Net cash (used in) provided by operating activities (821,828) 362,380
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment, net of retirements (70,489) (103,964)
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Net cash used in investing activities (70,489) (103,964)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 211,255 116,924
Principle payments of long-term debt (58,166) (175,000)
Issuance of common stock:
Private placement 500,000 0
Purchase of Stock 0 (42,464)
Advance to ESOP 98,336 61,883
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Net cash provided by (used in) financing activities 751,425 (38,657)
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Net (decrease) increase in cash and cash equivalents (140,892) 219,759
Cash and cash equivalents at beginning of period 842,104 524,359
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Cash and cash equivalents at end of period $ 701,212 $ 744,118
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</TABLE>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
(Unaudited) June 30,
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2000 1999
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Cash paid during year for:
Interest $ 37,637 $ 8,341
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Income taxes $ 0 $ 0
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See accompanying notes.
GENROCO, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
JUNE 30, 2000
1. BASIS OF PRESENTATION
The consolidated condensed financial statements include GENROCO, Inc. and
its wholly owned subsidiaries, VideoPropulsion, Inc. and GENROCO
International, Inc. (collectively the "Company" or "GENROCO") and have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission.
The financial results of VideoPropulsion, Inc. for the quarter are included
herein as a discontinued operation because it was spun off to its
shareholders on July 10, 2000. The historical financial data for GENROCO
has been adjusted to reflect the impact of treating VideoPropulsion, Inc.
as a discontinued operation.
The share data in this report has been adjusted to reflect the effect of
the 2 for 1 forward stock split distributed on July 13, 2000 to
shareholders of record on July 3, 2000.
Certain information and footnote disclosures normally included in financial
statements, prepared in accordance with generally accepted accounting
principles, have been condensed or omitted pursuant to such rules and
regulations, and as such, the Company believes that the disclosures are
adequate to make the information presented not misleading. The results for
the quarter ended June 30, 2000 may not be indicative of the results for
the entire year. These statements should be read in conjunction with the
financial statements and the notes thereto included in the Company's Form
10-KSB for the Company's fiscal year ended March 31, 2000.
2. INVENTORIES
Cost of the Company's inventory is determined using the average cost first-
in, first-out (FIFO) inventory valuation method. The distribution between
major classes of inventories is as follows:
(Unaudited) (Audited)
June 30, 2000 March 31, 2000
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Raw material and work-in process $250,978 $480,018
Finished goods 498,533 192,916
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$749,511 $672,934
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3. DISTRIBUTION OF SUBSIDIARY
In August of 1999, the board of directors of GENROCO began contemplating
the spin-off and distribution of the Company's Digital Video Broadcast
(DVB) business as a separate company to be named VideoPropulsion, Inc. The
Company executed the distribution on July 10, 2000 by issuing one new share
of VideoPropulsion Inc. stock, for each share of Company stock held by
GENROCO shareholders of record, as of the close of business on June 30,
2000. The spin-off was recorded as a distribution as of July 10, 2000 and
served to reduce retained earnings by approximately $120,000.
4. STOCK SPLIT
In July 2000, GENROCO declared a 2 for 1 stock split as of July 3, 2000
with a distribution date of July 13, 2000. As a result, shareholders of
record as of July 3, 2000 received 4,633,612 additional shares to bring the
total outstanding amount to 9,267,224.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
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of Operations
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RESULTS OF OPERATIONS
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In October, 1999, the Company formed a wholly-owned subsidiary,
VideoPropulsion, Inc. ("VDOP") and contributed the assets and liabilities
relating to the digital video business to VDOP. The company made $300,000
in additional capital contributions to VDOP during the six months ended
June 30, 2000.
On July 10, 2000 the Company spun off its digital video business as a
separately traded company and issued one share of VDOP stock for each share
of GENROCO, Inc. stock outstanding on the scheduled record date of June 30,
2000. Complete details relating to this transaction have been set forth in
the SEC Form 10-SB filed with the Securities and Exchange commission.
Subsequent to the spin-off, the board of directors of VideoPropulsion Inc.
voted to do a 4 for 1 forward split for all VideoPropulsion shareholders of
record as of the close of business on July 3, 2000. As a result of this
decision, VDOP now has 18,534,448 shares outstanding. VideoPropulsion
shares are currently being publicly traded under the stock symbol VDOP.
The results of operation for VDOP are being reported as a discontinued
operation, and the net losses of VDOP for the quarter ended June 30, 2000
are included in the Consolidated Statements of Operations under Loss from
Operations of Discontinued Subsidiary. Revenues from such operations were
$246,703 and $196,744 for the quarters ended June 30, 2000 and 1999,
respectively. Results from discontinued operations were a loss of $108,712
versus a gain of $32,002 for the quarters ended June 30, 2000 and June 30,
1999, respectively.
Net sales for the continuing operations of the Company for the three months
ended June 30, 2000 ("2000"), after giving effect to the spin off, were
$255,957 compared to $938,170 for the three months ended June 30, 1999
("1999"). The 72.7% decline in revenue in 2000 can be attributed to the
Company's deliberate decision to focus its R&D and Marketing resources on
the development and deployment of new bridge and switch technologies which
have been designed to provide communication protocol conversion technology
between Gigabit Ethernet and Fibre Channel. The resulting products have
been used to demonstrate the Company's ability to provide seamless
interoperability between LAN's, WAN's and SAN's. More specifically, the
Company has developed the ability to connect Fibre Channel storage devices
to arbitrary networks, without the use of servers and it is this market
that the Company has chosen to address in the immediate future. The
Company has publicly demonstrated the technical feasibility of these
products and is now developing them for commercial sales. Work has also
commenced on developing the distribution channels necessary to deliver and
support the products on a global basis.
The Company's traditional NIC and HBA products, which have typically been
sold to major supercomputer and superserver platform vendors, are fast
becoming commodity products. Rather than working on cost reduction of
these highly competitive products, the Company chose to focus its efforts
to provide technological solutions for integrating storage with traditional
networks, which resulted in declined sales for its traditional product
lines. Consequently, future sales will likely depend upon the development
and acceptance of the new products by the market.
Cost of goods sold for the three months ended June 30, 2000 was $247,629,
which declined as a result of the reduced level of sales, compared to
$355,750 for the three months ended June 30, 1999. This expense, which was
comprised of parts and labor associated with production and testing of
circuit boards shipped to customers, decreased as sales dropped.
Gross profit for the three months ended June 30, 2000 was $8,328 compared
to $582,420 for the three months ended June 30, 1999. The resulting gross
margin percentages were 3.3%, and 62.1% of net sales for 2000 and 1999,
respectively. The decline in 2000 was due to a change in product mix,
together with reduced sales volume over which to spread fixed production
costs.
Research and development expenses for the three months ended June 30, 2000
were $432,056 compared to $199,265 for the three months ended June 30, 1999
or 168.8% and 21.2% of net sales for 2000 and 1999, respectively. No
research and development expense has been capitalized.
Selling, marketing, customer service and general and administrative
expenses for the three months ended June 30, 2000 were $434,833 compared to
$386,966 for the three months ended June 31, 1999 or 169.9% and 41.2% of
net sales for 2000 and 1999, respectively. The increases are primarily
associated with additional personnel costs related to the areas of sales
and marketing. The increase in expenses, as a percentage of revenue, is
due to the lower net sales.
Loss from continuing operations for the three months ended June 30, 2000
was $895,547 compared to a loss from continuing operations of $21,153 for
the three months ended June 30, 1999. The changes in earnings are the
direct result of lower sales and increased corporate overhead and research
expenses.
Loss from discontinued operations for the three months ended June 30, 2000
was $108,712 compared to a gain of $32,002 for the three months ended June
30 1999.
The Company had no net operating tax loss carry-back available for use
during this period. Accordingly, the Company had no benefit for income tax
expense for the three months ended June 30, 2000. The Company's provision
for income tax expense for the three months ended June 30, 1999 was $7,000.
The effective tax rate in 2000, and 1999 was 0% and 39.2% respectively,
versus the combined state and federal effective statutory rate of 39.2%.
Net operating loss carry-forwards available for future use totaled
approximately $1,600,000 as of June 30, 2000.
Net loss, including discontinued operations, for 2000 was $1,004,259 or
$.11 per share, compared to net income of $10,849 or $.00 per share in
1999.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash position at June 30, 2000 was $701,212, a decrease from
$842,104 at March 31, 2000. During the three months ended June 30, 2000,
net cash used in operating activities was $921,908 (principally due to
operating losses of $895,546) versus net cash provided by operations of
$362,380 (principally due to a reduction in accounts receivable) for the
three months ended June 30, 1999.
Cash flows from investing activities totaled $70,488 for the three months
ended June 30, 2000 versus $103,964 for the three months ended June 30,
1999, all related to additions of capital equipment.
Cash flows provided by financing activities totaled $751,425 for the three
months ended June 30, 2000, principally due to the sale of common stock to
a relative of an affiliate in the amount of $500,000. Cash flows used in
financing activities totaled $38,657 for the three months ended June 30,
1999.
Stockholders' equity decreased by $171,644 or 9.1% to $1,723,105 at June
30, 2000 from $1,894,749 at March 31, 1999. The decrease is primarily the
result of a net loss from operations totaling $1,004,259 which was offset
by the sale of common stock plus the impact of stock purchase transactions
between the Company and employees. The details related to this decrease
are set forth in the statement of shareholders' investment.
GENROCO's ratio of current assets to current liabilities (current ratio)
was 2.42 to 1 at June 30, 2000 versus 2.24 to 1 at March 31, 2000.
At June 30, 2000, the Company had $157,000 in outstanding bank debt,
relating to a revolving line of credit with a bank of up to $700,000, based
on eligible accounts receivable. The Company's borrowing limit, calculated
in accordance with the credit agreement as of June 30, 2000, was $157,000.
Funds borrowed under this agreement bear interest at the rate of LIBOR plus
2.50% (approximately 8.7% at June 30, 2000). This agreement terminates on
July 31, 2001 and has restrictive covenants including an obligation to
maintain tangible net worth in excess of $1,500,000 at March 31, 2001. The
Company was in compliance with the restrictive covenants as of June 30,
2000.
The Company continues to generate negative cash flows from operations.
Based upon current levels, we believe Compan the Company may be unable to
fund current operations beyond the third quarter of fiscal 2001 unless it
is able to raise additional capital. The Company is engaged in efforts to
raise additional working capital in the form of private placement equity
during the next few months. The Company is also discussing long-term
financing arrangements with institutional investors and venture capital
companies in an effort to possibly do an equity offering during fiscal
2001. These discussions are in the preliminary phase, and the Company has
no firm commitments from any potential investor to invest additional
capital in the Company. There can be no assurances that additional capital
will be raised, either through a private placement or by other means. In
the event that the Company is not successful in its efforts to raise
additional working capital, as contemplated above, it will be forced to cut
back on general overhead and product development expenses, which will serve
to delay the release of new products.
CAUTIONARY STATEMENT
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With the exception of historical facts, the statements contained in Item 2.
of this Form 10-Q may be forward looking statements. Statements in the
future tense and statements including the words "anticipate," "believe,"
continue," "estimate," "expect," "goal," "objective," "outlook," and other
similar expressions are intended to identify forward looking statements.
The forward looking statements in this 10-Q involve certain assumptions,
risks and uncertainties, many of which are beyond the Company's control,
that could cause our actual results and performance to differ. These
factors are not limited to, but certainly include: 1) cyclical downturns
affecting the markets for capital goods; 2) substantial increases in
interest rates that impact the cost of the Company's outstanding debt; 3)
the success of management in increasing sales and maintaining or improving
the operating margins of its businesses; 4) the availability of or material
increases in the costs of select raw materials or parts; and 5) actions
taken by competitors. Investors are directed to the Company's documents,
such as its Annual Report on Form 10-SB/A filed with the Securities and
Exchange Commission.
PART II
OTHER INFORMATION
Item 2. Change in Securities
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During the quarter ended June 30, 2000, the Company raised $500,000 by selling
62,500 shares (pre-split) of restricted common stock at $8.00 per share (with
attached warrants to purchase 31,250 shares at a $12.00 exercise price) to one
investor in a private placement. The Company believes the offer was exempt from
registration due to section rule 701 and 4(2) of the Securities Act of 1933.
During the quarter ended June 30, 2000, the company sold 196,000 shares (pre-
split) to employees at a price of $8.60 per share in pursuant to the terms of
stock purchase agreements and granted an additional 12,800 shares (pre-split) to
employees pursuant to their employment agreements. The Company believes the
offer was exempt from a registration due to rule 701 and section 4(2) of the
securities act of 1933.
SIGNATURE
Pursuant to the requirements 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.
GENROCO, INC.
(Registrant)
/s/ Carl A. Pick
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Carl A. Pick
Chairman, CEO and Director
/s/ Keith E. Brue
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Keith E. Brue
Chief Financial Officer, Secretary and Director
(Principal Accounting and Financial Officer)
DATE: June 14, 2000
