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 September 30, 2000
--------------------------------------------------------------------------------
Commission File Number 1-15397
--------------------------------------------------------------------------------
GENROCO, INC.
--------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Wisconsin 88-0230309
--------------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
255 Info Highway, Slinger, Wisconsin 53086
--------------------------------------------------------------------------------
(Address of principal executive offices)
(262) 644-8700
--------------------------------------------------------------------------------
(Issuer's telephone number)
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
State the number of shares outstanding of each of the issuers' classes of common
stock as of the latest practicable date.
9,327,224 Shares, Common Stock, $.02 Par Value as of September 30, 2000
--------------------------------------------------------------------------------
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
GENROCO, INC.
FORM 10-QSB
For Quarter Ended September 30, 2000
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Condensed Balance Sheets . . . . . . . . 3 - 4
Consolidated Statement of Stockholders' Investment. . 5
Consolidated Statements of Operations . . . . . . . 6
Consolidated Condensed Statements of Cash Flows . . . 7 - 8
Notes to Unaudited Financial Statements . . . . . . . 9 -10
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . 11 -14
PART II - OTHER INFORMATION
Item 2 - Changes in Securities . . . .. . . . . . . . . . . . . 15
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Data Schedule . . . . . . . . . . . . . . . . . . . . . . . . 16
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
GENROCO, INC. and Subsidiaries
CONSOLIDATED CONDENSED BALANCE SHEETS
ASSETS (Unaudited) (Audited)
------------- ---------
September 30, March 31,
2000 2000
------------- ---------
CURRENT ASSETS:
Cash and Cash Equivalents . . . . . . . $ 259,077 $ 842,104
Accounts Receivable - Trade, Net of
Allowances of $3,000 at September
30, 2000 and March 31, 2000. . . . . . 561,648 274,677
Accounts Receivable from
VideoPropulsion, Inc. . . . . . . . . 142,715 72,604
Inventories. . . . . . . . . . . . . . . 767,748 672,934
Prepaid Expenses . . . . . . . . . . . . 192,669 87,791
Employee Advances . . . . . . . . . . . 36,616 64,868
Income Taxes Receivable . . . . . . . . - 211,127
Net Assets of Discontinued Operations. . - 56,554
---------- ----------
Total Current Assets. . . . . . . . . 1,960,473 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 . . . . . . . 864,237 795,096
---------- ----------
2,204,656 2,135,515
Less - Accumulated Depreciation
and Amortization. . . . . . . . . . 533,418 423,265
---------- ----------
Net Property, Plant and Equipment . . 1,671,238 1,712,250
Other Assets . . . . . . . . . . . . . . . 154,871 137,749
---------- ----------
Total Assets. . . . . . . . . . . . . $3,786,582 $4,132,658
---------- ----------
---------- ----------
LIABILITIES AND STOCKHOLDERS' INVESTMENT
(Unaudited) (Audited)
------------- -------------
September 30, March 31,
2000 2000
------------- -------------
CURRENT LIABILITIES:
Accounts Payable . . . . . . . . . . . . . . $ 228,517 $ 412,679
Current Portion of Long-Term Debt . . . . . 342,833 352,980
Accrued Payroll and Payroll Taxes . . . . . 97,259 139,651
Notes Payable to Banks . . . . . . . . . . 389,000 -
Other Accrued Liabilities . . . . . . . . . 183,491 112,567
---------- ----------
Total Current Liabilities. . . . . . . 1,241,100 1,017,877
LONG-TERM DEBT
Mortgage Payable . . . . . . . . . . . . . 1,036,454 1,061,377
Capital Leases Payable . . . . . . . . . . . 130,329 158,655
---------- ----------
Total Liabilities. . . . . . . . . . . 2,407,883 2,237,909
STOCKHOLDERS' INVESTMENT:
Common Stock, $.02 Par Value, 10,000,000
Shares Authorized, 9,327,224 Issued and
Outstanding at September 30, 2000 and
8,724,624 Issued and Outstanding at
March 31, 2000 . . . . . . . . . . . . . 185,704 174,492
Additional Paid-in Capital . . . . . . . . . 6,967,293 4,536,925
Retained Deficit . . . . . . . . . . . . . (3,286,773) (1,618,107)
Unearned Compensation . . . . . . . . . . (2,467,923) (1,100,225)
Advance to ESOP . . . . . . . . . . . . . . (19,602) (98,336)
---------- ----------
Total Stockholders' Investment. . . . . . 1,378,699 1,894,749
---------- ----------
Total liabilities and Stockholders'
Investment. . . . . . . . . . . . . . . $3,786,582 $4,132,658
---------- ----------
---------- ----------
See accompanying notes.
GENROCO, INC. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' INVESTMENT (Unaudited)
For the Six Months Ended September 30, 2000
<TABLE>
Capital
Stock and
Additional
Paid-in Retained Unearned Advance
Shares Capital Deficit Compensation To ESOP Total
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balances,
March 31, 2000 8,724,624 $4,711,417 $(1,618,107) $(1,100,225) $ (98,336) $1,894,749
Net Loss (1,611,793) (1,611,793)
Sale of Stock
To Investors 143,000 572,000 572,000
Unearned
Compensation 434,000 1,759,500 (1,759,500) -
Amortization of
Unearned
Compensation 391,802 391,802
Stock Grants 25,600 110,080 110,080
Advance to ESOP 78,734 78,734
Spin-off of
Subsidiary (56,873) (56,873)
--------- ---------- ----------- ----------- --------- ----------
Balance,
Sept 30, 2000 9,327,224 $7,152,997 $(3,286,773) $(2,467,923) $( 19,602) $1,378,699
--------- ---------- ----------- ----------- --------- ----------
--------- ---------- ----------- ----------- --------- ----------
</TABLE>
GENROCO, INC. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
Three Months Ended Six Months Ended
September 30, September 30,
------------------------- -------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET SALES $ 678,045 $ 957,756 $ 934,002 $1,896,926
COST OF GOODS SOLD 348,353 408,378 595,982 764,128
--------- --------- ----------- ---------
Gross Profit 329,692 549,378 338,020 1,131,798
OPERATING EXPENSES:
Engineering 425,687 203,545 857,743 402,810
Selling and administrative 471,199 442,965 906,032 829,931
--------- --------- ----------- ---------
896,886 646,510 1,763,775 1,232,741
--------- --------- ----------- ---------
LOSS FROM OPERATIONS (567,194) ( 97,132) (1,425,755) (100,943)
Interest expense 36,217 10,123 73,854 18,464
Interest income 812 2,888 8,834 7,389
Other non-operating expenses 8,062 (9,910) 15,432 (3,408)
--------- --------- ----------- ---------
LOSS BEFORE TAXES (610,661) (94,457) (1,506,207) (108,610)
(Provision) Benefit - Income taxes (5,904) 25,000 (5,904) 18,000
--------- --------- ----------- ---------
LOSS FROM CONTINUING OPERATIONS (616,565) (69,457) (1,512,111) (90,610)
Gain (Loss) from
Discontinued Operations 9,031 30,664 (99,682) 62,667
--------- --------- ----------- ---------
NET LOSS $(607,534) $ (38,793) $(1,611,793) $ (27,943)
--------- --------- ----------- ---------
--------- --------- ----------- ---------
BASIC LOSS EARNINGS PER SHARE $ (.07) $ .00 $ (.18) $ .00
--------- --------- ----------- ---------
--------- --------- ----------- ---------
DILUTED LOSS
PER SHARE $ (.07) $ .00 $ (.17) $ .00
--------- --------- ----------- ---------
--------- --------- ----------- ---------
Average number of
shares outstanding 9,282,224 7,728,150 9,043,252 7,481,058
--------- --------- ----------- ---------
--------- --------- ----------- ---------
Average number of
shares - Assuming full dilution 9,874,901 7,728,150 9,635,930 7,481,058
--------- --------- ----------- ---------
--------- --------- ----------- ---------
</TABLE>
See accompanying notes.
GENROCO, INC. and Subsidiaries
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended September 30,
------------------------------
2000 1999
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss from continuing operations . . . . . $(1,512,111) $(90,610)
Adjustments to reconcile net income to net
cash (used in) provided by operating
activities:
Depreciation, amortization and
deferred income taxes . . . . . . . . . . 110,153 63,483
Compensation expense due to forgiveness of
notes receivable related to sale of stock
to employees. . . . . . . . . . . . . . . 391,802 154,815
(Loss) Earnings from discontinued operations . (99,682) 62,666
Change in assets and liabilities:
Current assets, other than cash . . . . . (154,645) (176,761)
Receivable from VideoPropulsion, Inc. . . (70,111) -
Current liabilities, other than
notes payable . . . . . . . . . . . . (155,630) 107,620
----------- ---------
Net cash (used in) provided by
operating activities . . . . . . . (1,490,224) 121,213
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment,
net of retirements . . . . . . . . . . . . . (69,141) (178,926)
----------- ---------
Net cash used in investing activities . . . (69,141) (178,926)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from lease financing and bank debt. . 680,244 783,049
Principal payments of lease financing
and bank debt . . . . . . . . . . . . . . . (354,640) (795,806)
Sale of common stock . . . . . . . . . . . . . 572,000 -
Purchase of common stock . . . . . . . . . . - (22,464)
Advance to ESOP . . . . . . . . . . . . . . . 78,734 61,883
----------- ---------
Net cash provided by financing activities . 976,338 26,662
----------- ---------
Net decrease in cash and cash equivalents . . . (583,027) (31,051)
Cash and cash equivalents at
beginning of period . . . . . . . . . . . . . 842,104 524,359
----------- ---------
Cash and cash equivalents at end of period. . . $ 259,077 $ 493,308
----------- ---------
----------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
(Unaudited) September 30,
-------------------------
2000 1999
---------- ----------
Cash paid during year for:
Interest. . . . . . . . . . . . . . . . . . $72,481 $ 18,464
------- --------
------- --------
Income taxes. . . . . . . . . . . . . . . . $ 0 $175,036
------- --------
------- --------
See accompanying notes.
GENROCO, INC. and Subsidiaries
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
1. BASIS OF PRESENTATION
The consolidated condensed financial statements include the accounts of
GENROCO, Inc. and its wholly owned subsidiaries, GENROCO International,
Inc. (currently dormant and in the process of liquidation) and
VideoPropulsion, Inc., up to July 10, 2000, the effective date of the spin-
off, (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. 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 three months and
six months ended September 30, 2000 may not be indicative of the results
for the entire year. It is suggested these statements be read in
conjunction with the financial statements and the notes thereto, included
in the Company's Form 10-KSB for its fiscal year ended March 31, 2000 which
was filed on June 19, 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)
September 30, 2000 March 31, 2000
------------------ --------------
Raw Material and Work-In Process $495,248 $480,018
Finished Goods 272,500 192,916
-------- --------
$767,748 $672,934
-------- --------
-------- --------
3. DISTRIBUTION OF SUBSIDIARY
In August 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 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 $56,873.
4. STOCK SPLIT
In July 2000, GENROCO declared a 2-for-1 stock split to shareholders of
record 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 on a
post-split basis. Subsequent to the split, the Company has issued an
additional 60,000 shares to bring the total outstanding amount to 9,327,224
as of September 30, 2000. All financial information has been restated for
the split.
5. EARNINGS PER SHARE
The impact of discontinued operations on basic and diluted earnings per
share as presented in the consolidated condensed statement of operations
is not material.
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
--------------------------------------------------------------------------------
of Operations
-------------
RESULTS OF OPERATIONS
---------------------
During GENROCO's second quarter of Fiscal Year 2001 ended September 30, 2000,
net sales were $678,000, up 165% from revenues of $256,000 in the previous
quarter ended June 30, 2000. Second quarter shipments were down 29.2% from sales
of $958,000 in the second quarter last year, ended September 30, 1999. For the
first half of the current year, ended September 30, 2000, net sales were
$934,000, down 50.8% from $1,897,000 for the six months ended September 30,
1999. The declines in second quarter and first half FY'00 revenue compared to
last year's quarterly and six month achievements were primarily due to sales of
the Company's traditional Fibre Channel and HIPPI products decreasing faster
than sales of new, high speed Gigabyte System Network (GSN) switches and adapter
cards manifested. The increase in Q2 revenue compared with Q1 is the result of
the Company's ability to begin booking and filling orders for these new
offerings.
GENROCO management believes that its new networking products provide higher
bandwidth to high performance computer systems than any competitive merchandise
on the market today. The Company continues to make investments in developing its
hardware and software, some of which is in beta test at partner and client
sites, and some of which has been shipped to customers for revenue. Management
is of the opinion that emerging technologies such as OC192, 10 Gigabit Ethernet
(10GE), and InfiniBand (IB), will not be ready for significant deployment for
several years, and that GENROCO has the opportunity to establish a dominant
position in the high speed network market during 2001 with its GSN solutions.
In the near term, the Company expects to provide migration for users of current
gigabit per second TCP/IP networks, including HIPPI, ATM, or Ethernet, to newer,
faster, gigabyte per second infrastructures, such as GSN. The Company plans to
leverage the foundation attained by current sales with future products
incorporating the emerging 10GE and IB technologies.
In the longer term, GENROCO is positioning itself to further exploit its
industry leading, "viSCSI" technology that allows Fibre Channel (FC) and SCSI
storage devices to connect directly to existing IP networks, without the need
for expensive, intermediate servers. During past quarter, the Company
demonstrated its ability to use its viSCSI hardware and software to run open
standard SAN software ("SANergy" from IBM's Tivoli subsidiary), thus creating
the worlds first Network Independent SAN. Beta versions of these products have
been delivered and it is expected that they will become commercially available
within the next six months.
The data management industry is now working to move from the traditional
"Client-Server" storage model to Storage Area Network (SAN) implementations
where all clients can have direct access to disks and tapes without servers.
Currently, SANs are only being implemented via FC, which requires an additional
network to buy and support, while being limited to short distances. Management
believes that the revolutionary concept, which has come to be known as "iSCSI",
will ultimately replace FC SANs as the dominant storage mechanism in the
computer world. GENROCO's viSCSI offerings will not only be among the first
such solutions to be deployed, but are also ready to be used with next
generation IB infrastructure.
The Company has been engaged in a series of worldwide demonstrations of the
viability of building platform, operating system, and network independent
Storage Area Networks (SAN), the most recent of which was at SC2000 in Dallas
the first week of November.
Gross profit in the third quarter ended September 30, 2000 decreased 40.0% to
$330,000 from $549,000 in the same period a year earlier. Gross profit for the
six months ended September 30, 2000 totaled $338,000, down 70.1% from $1,132,000
in the six months ended September 30, 1999. Decreased sales of the Company's
traditional products yielded the reduced gross profit.
Operating expenses in the third quarter ended September 30, 2000 increased 38.9%
to $897,000 from $647,000 in the same period a year earlier. Operating expenses
for the six months ended September 30, 2000 totaled $1,764,000, up 43.1% from
$1,233,000 for the six months ended September 30, 1999. The primary reasons for
the increases are due to product development, sales, and marketing expenses in
both periods.
Loss from operations for the Company was $567,000 for the second quarter ended
September 30, 2000, compared to a loss of $97,000 for the second quarter ended
September 30, 1999. For the six months ended September 30, 2000, losses from
operations totaled $1,426,000 compared to a loss of $101,000 from operations in
the six months ended September 30, 1999. Decreased sales of the Company's
traditional products yielded the reduced income from operations. These factors
combined, accounted for the decrease in both gross profit margins and operating
income in both the second quarter and six months ended September 30, 2000.
Interest expense in the second quarter ended September 30, 2000 was $ 36,000,
compared to $10,000 for the three month period ended September 30, 1999.
This is primarily due to a new facility mortgage entered into during the third
quarter ended December 31, 1999. For the six months ended September 30, 2000
interest expense has increased to $72,000 from $18,000 a year earlier.
The Company's net loss for the second quarter ended September 30, 1999 was
$608,000, or $.07 per share, compared to a loss of $39,000, or $.00 per share,
for the second quarter ended September 30, 1999. Losses for the six months
ended September 30, 2000 were $1,612,000 or $.18 per share, compared to a loss
of $28,000 or $.00 per share for the six months ended September 30, 1999.
Results were impacted as described above.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Working capital at September 30, 2000 was $719,000, down 43.2% from $1,265,000
at March 31, 2000. The decrease was largely due the impact of reclassifying
$389,000 in bank debt to current status as a result of the bank loan having a
termination date of July 31, 2001 and thus repayable within one year.
Cash flow used in operations for the six months ended September 30, 2000 was
$1,448,000 compared to cash provided by operations of $121,000 for the six
months ended September 30, 1999. Cash flow declined and was negative in the
first half of fiscal 2001, due to operational losses incurred related to lower
sales.
Outstanding debt at September 30, 2000 includes $1,248,000 borrowed to finance
the purchase of the Company's facility in Slinger, Wisconsin.
The Company maintains a $700,000 revolving credit facility. The amount of
borrowing availability is determined by eligible accounts receivable. As of
September 30, 2000 $389,000 at borrowing is outstanding and the amount of
unutilized borrowing capacity is $10,000.
During the six months ended September 30, 2000, the Company raised $500,000 by
selling 125,000 shares (adjusted for splits) of restricted common stock at $4.00
per share (with attached warrants to purchase 62,500 shares at a $6.00 exercise
price) to one investor in a private placement. The Company also issued 18,000
shares of restricted common stock at $4.00 per share to an investor relations
firm in exchange for services. The Company believes that both offers were
exempt from registration due to Rule 701 and Section 4(2) of the Securities Act
of 1933.
During the six months ended September 30, 2000, the company sold 459,600 shares
to employees at an average price of $4.07 per share in pursuant to the terms of
stock purchase agreements. The Company believes the offers were exempt from
registration due to Rule 701 and Section 4(2) of the Securities Act of 1933.
The Company believes that the combination of current existing cash (including
cash generated from the recent private placements), available borrowing capacity
and the Company's ability to obtain additional long-term indebtedness will not
be adequate to finance the Company's operations for the foreseeable future. As
a result, the Company has engaged an investment advisor to assist in the process
of raising an additional $1,500,000 in equity capital during the third quarter
of fiscal 2001. In addition to this planned round of financing, the Company, in
order to increase investment in the development of sales channels and
proprietary technology, is considering a secondary public offering or another
private placement to raise additional funds during the first half of fiscal
2002.
If the Company is not successful in raising additional capital, the Company will
not be able to continue its current operations and there is substantial doubt as
to the Company's ability to continue as a going concern. There can be no
assurance that the Company will be successful in raising such capital at all or
on terms commercially acceptable to the Company or shareholders.
In addition, the sale of equitable securities could result in the dilution to
the percentage ownership interests of existing shareholders and could also
adversely affect the market price of the company's common stock.
CAUTIONARY STATEMENT
--------------------
With the exception of historical facts, the statements contained in Item 2
of this Form 10-QSB 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-QSB 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-KSB filed with the Securities and
Exchange Commission.
PART II - OTHER INFORMATION
Item 2 - Change in Securities
--------------------
During the six months ended September 30, 2000, the Company raised $500,000 by
selling 125,000 shares (adjusted for splits) of restricted common stock at $4.00
per share (with attached warrants to purchase 62,500 shares at a $6.00 exercise
price) to one investor in a private placement. The Company also issued 18,000
shares of restricted common stock at $4.00 per share to an investor relations
firm in exchange for services. The Company believes that both offers were
exempt from registration due to Rule 701 and Section 4(2) of the Securities Act
of 1933.
During the six months ended September 30, 2000, the company sold 459,600 shares
to employees at an average price of $4.07 per share in pursuant to the terms of
stock purchase agreements. The Company believes the offers were exempt from
registration due to Rule 701 and Section 4(2) of the Securities Act of 1933.
SIGNATURE
In accordance with 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
----------------------------------
Carl A. Pick
Chairman, CEO and Director
/s/ Keith E. Brue
----------------------------------
Keith E. Brue
Chief Financial Officer, Secretary and Director
(Principal Accounting and Financial Officer)
DATE: November 14, 2000
