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 December 31, 1999
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Commission File Number 1-15397
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GENROCO, INC.
- ----------------------------------------------------------------------------
(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.
4,372,517 Shares, Common Stock, $.02 Par Value
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GENROCO, INC.
FORM 10-QSB
For Quarter Ended December 31, 1999
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Condensed Balance Sheets . . . . 3 - 4
Consolidated Statements of Operations . . . . 5
Consolidated Condensed Statements of Cash Flows 6 - 7
Notes to Unaudited Financial Statements . . . 8 - 9
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . 10 - 12
PART II - OTHER INFORMATION
Item 2 - Changes in Securities . . . .. . . . . . . . . . 13
Signature . . . . . . . . . . . . . . . . . . . . . . . 13
PART I - FINANCIAL INFORMATION
1. Financial Statements
GENROCO, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(In Thousands of Dollars)
ASSETS
(Unaudited) (Audited)
----------- ---------
Dec. 31, 1999 Mar. 31, 1999
-------------- --------------
CURRENT ASSETS:
Cash and cash equivalents................. $ 2,158 $ 524
Receivables, less reserves of $3
at December 31 and March 31,1999,
respectively............................ 210 904
Inventories............................... 679 459
Income taxes receivable................... 221 0
Other current assets...................... 237 104
---------- ----------
Total current assets................... 3,505 1,991
PROPERTY AND EQUIPMENT, at cost
Building and leasehold improvements.... 1,260 11
Machinery and equipment................ 775 577
Less - Accumulated depreciation
and amortization..................... 372 264
---------- ----------
Net property, plant and equipment . . . 1,663 324
Other noncurrent assets. . . . . . . . . . . 48 28
---------- ----------
Total assets. . . . . . . . . . . . . . $ 5,216 $ 2,343
========== ==========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts Payable . . . . . . . . . . . . . $ 451 $ 145
Federal and state income taxes . . . . . . 0 48
Other current liabilities. . . . . . . . . 430 352
---------- ----------
Total current liabilities. . . . . . 881 545
LONG-TERM DEBT
Building mortgage . . . . . . . . . . . 1,233 0
Capital Leases . . . . . . . . . . . . . 175 105
Line of credit . . . . . . . . . . . . . 0 425
Deferred Income Taxes. . . . . . . . . . . 35 35
---------- ----------
Total liabilities. . . . . . . . . . 2,324 1,110
SHAREHOLDERS' INVESTMENT:
Common Stock, $.02 par value, 5,000,000
Shares authorized, 4,372,517 issued and
Outstanding on December 31, 1999 and
3,847,086 issued and outstanding on
March 31, 1999 . . . . . .. . . . . . . 87 77
Additional paid-in capital . . . . . . . . 3,198 918
Retained earnings. . . . . . . . . . . . . (393) 238
---------- ----------
Total shareholders' investment. . . . . 2,892 1,233
---------- ----------
Total liabilities and shareholders'
investment. . $ 5,216 $ 2,343
========== ==========
See accompanying notes.
GENROCO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands of Dollars, Except Per Share Data)
<TABLE>
(Unaudited)
-------------------------------------------------
Three Months Ended Nine Months Ended
December 31, December 31,
----------------------- ---------------------
1999 1998 1999 1998
--------- -------- ------- ---------
<S> <C> <C> <C> <C>
NET SALES . . . . . . . . . . . . $ 351 $ 1,288 $ 2,637 $ 3,247
COST OF GOODS SOLD . . . . . . . 224 444 1,072 1,278
--------- -------- ------- ---------
Gross Profit . . . . . . . . . 127 844 1,565 1,969
OPERATING EXPENSES:
Engineering . . . . . . . . . . 363 329 910 833
Selling and administrative . . . 530 484 1,459 1,082
--------- -------- ------- --------
893 813 2,369 1,915
--------- -------- ------- ---------
(Loss)Income from operations . . . (766) 31 (804) 54
Interest expense. . . . . . . . . (38) (12) (55) (25)
Interest income . . . . . . . . . 0 3 6 10
Other non-operating expenses . . (10) (7) (7) (10)
--------- -------- ------- ---------
(LOSS) INCOME BEFORE TAXES. . . . . (814) 15 (860) 29
Benefit (Provision) - Income taxes. 211 (7) 229 (11)
--------- -------- ------- ---------
NET (LOSS) INCOME. . . . . . . . . $ (603) $ 8 $ (631) $ 18
========= ========= ========= =========
BASIC (LOSS) EARNINGS PER SHARE . $ (.14) $ .00 $ (.16) $ .01
========= ========= ========= =========
DILUTED (LOSS)EARNINGS
PER SHARE . . . . . . . . . . $ (.14) $ .00 $ (.16) $ .01
========= ========= ========= =========
Average number of
shares outstanding . . . . . . . . 4,179,717 3,864,075 4,030,313 3,740,529
========= ========= ========= =========
Average number of
shares - Assuming dilution . . . 4,312,530 3,864,075 4,163,126 3,740,529
========= ========= ========= =========
</TABLE>
See accompanying notes.
GENROCO, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
(Unaudited)
----------
Nine Months Ended Dec. 31,
1999 1998
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income. . . . . . . . . . . . . . . . .$ (631) $ 18
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Depreciation, amortization and deferred
income taxes . . . . . . . . . . . . . . . . . 108 78
Compensation epense from forgiveness of
notes receivable from shareholders . . . . . . 253 161
Change in assets and liabilities:
Current assets, other than cash. . . . . . . . 340 (156)
Current liabilities, other than
notes payable . . . . . . . . . . . . . . . 13 (71)
--------- ---------
Net cash provided by operating activities 83 30
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment,
net of retirements. . . . . . . . . . . . . . . (1,448) (69)
Other, net (18) (7)
--------- ---------
Net cash used in investing activities. . . . . (1,466) (76)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt. . . . . . . . . . . 1,592 792
Principle payments of long-term debt. . . . . . . (612) (899)
Sale (purchase)of common stock:
Private Placement. . . . . . . . . . . . . . . 2,125 0
Other. . . . . . . . . . . . . . . . . . . . . (61) 86
Advance to ESOP . . . . . . . . . . . . . . . . . (27) (185)
Net cash generated by (used) in
financing activities . . . . . . . . . . . . 3,017 (206)
--------- ---------
Net increase (decrease) in cash and
cash equivalents. . . . . . . . . . . . . . . . 1,634 (252)
Cash and cash equivalents at beginning of period. 524 506
--------- ---------
Cash and cash equivalents at end of period $ 2,158 $ 254
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
(Unaudited) December 31,
------------------------
1999 1998
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Cash paid during year for:
Interest $ 54 $ 25
========= =========
Income taxes $ 40 $ 179
========= =========
See accompanying notes.
GENROCO, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 1999
1. BASIS OF PRESENTATION
The consolidated condensed financial statements include the accounts of 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. 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 December 31, 1999 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-SB/A which was filed on October 14, 1999 and became effective
on January 11, 1999.
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)
March 31, 1999 December 31,1999
-------------- ----------------
Raw material and work-in
process $ 335,528 $ 420,521
Reserve for obsolescence (46,762) (74,805)
Finished goods 169,842 333,220
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$ 458,608 $ 678,936
========== ===========
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. Since that
time, the Company has been analyzing the implementation of such a plan.
4. BUSINESS SEGMENTS
The Company operates two strategic businesses that are reportable segments,
namely,the Digital Video Group and the Storage Area Network Group.
(In Thousands of Dollars)
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Digital Video Division Storage Area Network Division
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Three Months Nine Months Three Months Nine Months
Ended Ended Ended Ended
December 31, December 31, December 31, December 31,
1999 1998 1999 1998 1999 1998 1999 1998
---- ---- ---- ---- ---- ---- ---- ----
Net sales $ 66 $ 64 $ 457 $ 278 $ 285 $1,224 $ 2,180 $ 2,969
(Loss)
Income
from
operations $(110)$ (34) $ (49)$ (40) $ (656)$ 65 $ (754)$ (94)
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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During the Company's third quarter ended December 31, 1999, net sales were
$351,000, down 72.7% from net sales of $1,288,000 in the third quarter ended
December 31, 1998. For the nine months ended December 31, 1999, net sales were
$2,637,000, 18.8% below net sales of $ 3,247,000 for the nine months ended
December 31,1998. The reasons for the decline in revenue are primarily related
to the fact that sales of the Company's traditional Fibre Channel products have
declined faster than increasing sales of new products relating to Storage Area
Networks (switches, bridges and related adapter cards) have materialized. The
Company continues to make investments in developing these new products.
Competitors are offering comparable Fibre Channel products at lower prices and
GENROCO has lost sales and market share during the quarter. The lost sales have
impacted profitability.
The Company believes that it is generating increasing excitement with its
demonstrations of the viability of building platform, operating system, and
network independent storage area networks (san). Management believes that the
company has positioned itself to make significant contributions to the
continuing evolution of san technology and how it can be used in a wide variety
of existing and future high performance lan and wan environments. Several large
customers are already evaluating the Company's new products in their unique
applications. During the next year, the Company expects to show that servers
running unix from compaq, sun, ibm, & sgi, as well as a variety linux and
windows nt platforms can rapidly and efficiently communicate, interoperate, and
access shared storage directly over heterogeneous lans and wans using
traditional clustering and san software.
The Company further believes that the storage industry is moving from a client-
server model to san implementations where all clients can have direct access to
storage without going through an intermediary (the typical fibre channel san can
only provide this benefit to local clients with fibre channel enabled hosts).
The Company expects that as a result of its technology, it will soon be possible
to have gigabit ethernet, oc48, hippi, gsn, and other type network clients
access storage in san fashion either locally or remotely. Several large
customers are currently evaluating the possibilities of integrating the
company's san products into their individual applications.
Operating expenses in the third quarter ended December 31, 1999 increased 9.8%
to $893,000 from $813,000 in the same period a year earlier. Expenses during
the three months ended December 31, 1999 were favorably impacted by
approximately $350,000 due to the fact that selected members of senior
management voluntarily reduced their compensation levels for the three month
period. Operating expenses for the nine months ended December 31, 1999 totaled
$2,369,000, up 23.7% from $1,915,000 for the nine months ended December 31,
1998. The primary reasons for the increase are related to product development
and marketing/selling expenses in both periods.
Loss from operations for the Company was $766,000 for the third quarter ended
December 31, 1999, compared to income of $31,000 for the third quarter ended
December 31, 1998. For the nine months ended December 31, 1999, losses from
operations totaled $804,000 compared to income of $ 54,000 from operations in
the nine months ended December 31, 1998. Decreased sales of the Company's
traditional Fibre Channel products was the primary reason for the reduced income
from operations. These factors combined, accounted for the decrease in both
gross profit margins and operating income in both the third quarter and nine
months ended December 31, 1999.
The Company's results of operations, by business segment, are shown in Note 4 to
the accompanying financial statements. Storage Area Network Group sales in
third quarter ended December 31, 1999 were 76.7% below the comparable period
ended December 31, 1998. Storage Area Network Group sales for the nine months
ended December 31, 1999 were 26.6% down from the nine months ended December 31,
1998. The reasons for the lower sales, income from operations, and margins were
discussed above. The Digital Video Group sales in the third quarter ended
December 31, 1999 equaled sales for the third quarter ended December 31, 1998.
Nine month year-to-date Digital Video Group sales for the period ended December
31, 1999 were 64.4% higher than the comparable period ended December 31, 1998.
The Digital Video Group experienced losses from operations totaling $110,000 and
$34,000 for the third quarter ended December 31, 1999 and December 31, 1998,
respectively.
Interest expense in the third quarter ended December 31, 1999 was $ 38,000,
316.7% more than the $12,000 for the three month period ended December 31, 1998.
This is primarily due to a new facility mortgage entered into during the third
quarter ended December 31, 1999. For the nine months ended December 31, 1999
interest expense has increased 220.0% to $55,000 from $25,000 a year earlier.
The Company's net loss for the third quarter ended December 31, 1999 was
$603,000, or $.14 per share, compared to income of $8,000 for the third quarter
ended December 31, 1998. Losses for the nine months ended December 31, 1999
were $631,000 or $.16 per share, compared to income of $18,000 or $.01 per share
for the nine months ended December 31, 1998. Results were impacted as described
above.
Y2K UPDATE
- -----------
Through the first month of the year 2000, the Company's operations are fully
functioning and have not experienced any significant issues associated with the
Year 2000. Our customer-support operations continue to communicate to us that
our customers have not reported any consequential Year 2000 incidents. At our
facilities, we have not experienced any significant Year 2000-related issues
that would affect our ability to manufacture, ship, sell or service our
products. While we are encouraged by the success of our Year 2000 efforts and
that of our customers and partners, we will continue to offer Year 2000 support
to customers and monitor our own operations.
LIQUIDITY AND CAPITAL RESOURCES
- --------------------------------
Working capital at December 31, 1999 was $2,624,000, $1,178,000 (181.5%) higher
than $1,446,000 at March 31, 1999. The increase was due to a private placement
raising $2,125,000 for 265,625 shares of restricted common stock (at a price of
$8.00 per share with attached warrants for 132,813 shares at an exercise price
of $12.00 per share).
The Company's current ratio was 3.98:1 at December 31, 1999 compared to 3.65:1
at March 31, 1998.
Cash flow used in operations for the nine months ended December 31, 1999 was
$83,000 compared to $30,000 for the nine months ended December 31, 1998. Cash
flow declined in the third quarter due to losses incurred related to lower
sales.
Outstanding long-term debt at December 31, 1999 includes $1,232,816 borrowed to
finance the purchase of the Company's facility in Slinger, Wisconsin.
The Company maintains a $700,000 unsecured long-term revolving credit facility
(the "facility") under which all its outstanding borrowings have been made. At
december 31, 1999, the Company had $160,000 of available borrowing capacity.
The Company believes that the combination of existing cash (including cash
generated from the private placement), available borrowing capacity and the
company's ability to obtain additional long-term indebtedness is adequate to
finance the Company's operations for the foreseeable future. However, in order
to increase investment in the development of sales channels and proprietary
technology, the Company believes that it will need to consider a public offering
or private placement to raise additional funds during fiscal 2001. The company
is currently evaluating its options in areas of equity financing.
CAUTIONARY STATEMENT
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The following is a cautionary statement made under the Private Securities
Litigation Reform Act of 1995: With the exception of historical facts, the
statements contained in Item 2. of this Form 10-Q may be forward looking
statements. Actual results may differ materially from those contemplated.
Forward looking statements involve risks and uncertainties, including but not
limited to, the following risks: 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
--------------------
In December 1999, the Company raised $2,125,000 by selling 265,625 shares of
restricted common stock at $8.00 per share (with attached warrants to purchase
132,813 shares at a $12.00 exercise price) in a private placement to five
investors. In January 2000, additional funds of $125,000 were raised via a
private placement selling 15,625 shares of restricted common stock at $8.00 per
share (with attached warrants to purchase 7,813 shares at a $12.00 exercise
price) to two investors.
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
---------------------------
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: February 14, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-END> DEC-31-1999
<CASH> $2,158,000
<SECURITIES> $0
<RECEIVABLES> $210,000
<ALLOWANCES> $3,000
<INVENTORY> $678,000
<CURRENT-ASSETS> $3,284,000
<PP&E> $2,035,000
<DEPRECIATION> $372,000
<TOTAL-ASSETS> $4,955,000
<CURRENT-LIABILITIES> $660,000
<BONDS> $0
$0
$0
<COMMON> $2,892,000
<OTHER-SE> $0
<TOTAL-LIABILITY-AND-EQUITY> $4,955,000
<SALES> $2,637,000
<TOTAL-REVENUES> $2,637,000
<CGS> $1,072,000
<TOTAL-COSTS> $1,072,000
<OTHER-EXPENSES> $2,369,000
<LOSS-PROVISION> $0
<INTEREST-EXPENSE> $55,000
<INCOME-PRETAX> $(860,000)
<INCOME-TAX> $(229,000)
<INCOME-CONTINUING> $(631,000)
<DISCONTINUED> $0
<EXTRAORDINARY> $0
<CHANGES> $0
<NET-INCOME> $(631,000)
<EPS-BASIC> $(0.16)
<EPS-DILUTED> $(0.16)
</TABLE>
