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 Year Ended June 30, 2001
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Commission File Number 0-30652
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VIDEOPROPULSION, INC.
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(Exact name of small business issuer as specified in its charter)
Wisconsin 39-1976286
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(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
251 Info Highway, Slinger, Wisconsin 53086
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(Address of principal executive offices)
(262) 644-1000
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(Issuer's telephone number, including area code)
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(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.
18,055,368 Shares, Common Stock, $.01 Par Value as of June 30, 2001
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Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
VIDEOPROPULSION, INC.
FORM 10-QSB
For Year Ended June 30, 2001
INDEX
Page No.
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Balance Sheets . . . . . . . . . . . 3 - 4
Condensed Statements of Operations . . . . . . 5
Condensed Statements of Cash Flows . . . . . . 6 - 7
Notes to Unaudited Financial Statements . . . 8 - 10
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations. . . . . . 11 - 14
PART II - OTHER INFORMATION
Item 6 - Exhibits and Report on Form 8-K . . . . . . . . 15
Signature . . . . . . . . . . . . . . . . . . . . . . . . 15
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
VIDEOPROPULSION, INC.
CONDENSED BALANCE SHEETS
(Unaudited) (Audited)
-------------- ------------
June 30, December 31,
2001 2000
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ASSETS
CURRENT ASSETS:
Cash . . . . . . . . . . . . . . . . . . . . $ 3,949 $ 13,964
Accounts Receivable . . . . . . . . . . . . 64,710 11,495
Advances To Employees. . . . . . . . . . . . 28,966 -
Inventories. . . . . . . . . . . . . . . . . 76,427 132,177
Prepaid Expenses . . . . . . . . . . . . . . 4,935 6,167
Due from GENROCO, Inc. . . . . . . . . . . . - 155,792
-------- --------
Total Current Assets. . . . . . . . . . . 178,987 319,595
PROPERTY AND EQUIPMENT, at cost
Machinery and Equipment . . . . . . . . . . 17,526 12,511
Less - Accumulated Depreciation . . . . . . (3,436) (1,683)
-------- --------
Net Property and Equipment . . . . . . . 14,090 10,828
-------- --------
Total Assets. . . . . . . . . . . . . . . $193,077 $330,423
-------- --------
-------- --------
See accompanying notes.
VIDEOPROPULSION, INC.
CONDENSED BALANCE SHEETS
(Unaudited) (Audited)
-------------- ------------
June 30, December 31,
2001 2000
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LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts Payable - Trade . . . . . . . . . . $ 107,302 $ 63,051
Accrued Payroll and Payroll Taxes . . . . . 22,185 29,094
Other Accrued Liabilities . . . . . . . . . 41,909 56,792
Due to Shareholders . . . . . . . . . . . . 673,741 180,000
Due to GENROCO, Inc. . . . . . . . . . . . 72,935 344,324
---------- ----------
Total current liabilities. . . . . . . 918,072 673,261
Due to GENROCO, Inc. . . . . . . . . . . . . 8,727 345,361
---------- ----------
Total liabilities . . . . . . . . . . 926,799 1,018,622
SHAREHOLDERS' INVESTMENT:
Common Stock, $.01 par value, 24,900,000 shares
authorized, 18,055,368 issued and outstanding
on June 30, 2001 and 18,534,448 issued and
outstanding on December 31, 2000 . . . . . . 180,554 185,344
Additional paid-in capital . . . . . . . . . . 297,144 192,354
Unearned Compensation . . . . . . . . . . . . (81,662) (689,685)
Retained Deficit . . . . . . . . . . . . . . . (1,129,758) (376,212)
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Total shareholders' investment . . . . . (733,722) (688,199)
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Total liabilities and
shareholders' investment . . . . . . . $ 193,077 $ 330,423
---------- ----------
---------- ----------
See accompanying notes.
VIDEOPROPULSION, INC.
STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- ---------------------
2001 2000 2001 2000
-------- -------- -------- --------
NET SALES . . . . . . . . . $ 101,899 $ 246,703 $ 165,568 $ 370,778
COST OF GOODS SOLD . . . . 19,380 45,091 39,328 78,480
---------- ---------- ---------- ----------
Gross Profit . . . . . 82,519 201,612 126,240 292,298
OPERATING EXPENSES:
Engineering . . . . . . 118,597 121,961 248,450 216,158
Selling and
Administrative . . . . 499,466 187,962 622,122 383,108
---------- ---------- ---------- ----------
618,063 309,923 870,572 599,266
---------- ---------- ---------- ----------
Loss from Operations . . . (535,544) (108,311) (744,332) (306,968)
Interest Expense . . . 7,265 14 7,365 4,501
Interest Income . . . . (5) (317) (105) (1,106)
Other Non-Operating
Expenses . . . . . . 659 704 1,954 4,677
---------- ---------- ---------- ----------
LOSS BEFORE TAXES . . . . . (543,463) (108,712) (753,546) (315,040)
Benefit (Provision)-
Income Taxes . . . . - - - -
---------- ---------- ---------- ----------
NET LOSS . . . . . . . . . $ (543,463) $ (108,712) $ (753,546) $ (315,040)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
BASIC AND FULLY DILUTED
LOSS PER SHARE . . . . . $ (.03) $ (.01) $ (.04) $ (.02)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Average number of
shares outstanding . . . 17,670,669 18,534,448 17,670,669 18,544,448
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Average number of shares _
Assuming dilution . . . . 17,670,669 18,543,448 17,670,669 18,544,448
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
See accompanying notes.
VIDEOPROPULSION, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
-------------------------
Six Months Ended June 30,
2001 2000
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss from continuing operations . . . . . . . $(753,546) $(315,040)
Adjustments to reconcile net loss to net cash
Provided by (used in) operating activities:
Depreciation, amortization and
deferred income taxes . . . . . . . . . . . 1,753 432
Unearned compensation . . . . . . . . . . . . - (109,002)
Compensation expense due to forgiveness of
notes receivable related to sale of GENROCO,
Inc. stock to employees . . . . . . . . . 132,000 109,002
Reserve for receivable from GENROCO, Inc. . . 409,666 -
Change in assets and liabilities:
Current assets, other than cash . . . . . . . . (25,199) (82,412)
Current liabilities, other than notes payable . 22,459 225,065
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Net cash used in operating activities . . (212,867) (171,955)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment,
net of retirements. . . . . . . . . . . . . . (5,015) (12,511)
--------- ---------
Net cash used in investing activities . . . (5,015) (12,511)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Change in amounts due from/to
related parties, net . . . . . . . . . . . . 107,867 -
Issuance of common shares . . . . . . . . . . . 100,000 -
Capital contribution from parent. . . . . . . . - 300,000
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Net cash provided by financing activities . 207,867 300,000
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Net (decrease) increase in cash
and cash equivalents . . . . . . . . . . . . (10,015) 115,534
Cash and cash equivalents
at beginning of period . . . . . . . . . . . 13,964 9,947
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Cash and cash equivalents at end of period . . $ 3,949 $ 125,481
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See accompanying notes.
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
(Unaudited)
June 30,
------------------------
2001 2000
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Cash paid during year for:
Interest. . . . . . . . . . . . . . . . . . . . $ 129 $ 4,501
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Income taxes. . . . . . . . . . . . . . . . . . $ - $ -
-------- --------
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See accompanying notes.
VIDEOPROPULSION, INC.
NOTES TO UNAUDITED FINANCIAL STATEMENTS
June 30, 2001
1. BASIS OF PRESENTATION
The condensed financial statements include the accounts of VideoPropulsion, Inc.
(the "Company"), and have been prepared by the Company, without audit, pursuant
to the rules and regulations of the Securities and Exchange Commission.
The historical share data in this report has been adjusted to reflect the effect
of the 4-for-1 stock split 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 six
months ended June 30, 2001 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 December 31, 2000.
2. GOING CONCERN
The Company continues to generate negative cash flows from operations. Current
forecasts indicate that the Company may be unable to fund current plans beyond
the third quarter of fiscal 2001 unless it is able to raise additional capital.
During the quarter ended June 30, 2001, the Company assumed from GENROCO, Inc.,
a related party (see Note 4), approximately $182,000 in amounts due on demand to
shareholders. The Company has approximately $674,000 outstanding at June 30,
2001, due on demand to shareholders. During the quarter ended June 30, 2001,
the Company fully reserved for a $409,666 receivable from GENROCO, Inc., because
GENROCO, Inc. currently does not have the wherewithal to fund this obligation.
There can be no assurances that GENROCO, Inc. or existing shareholders will
continue to fund or have the resources to fund the Company's operations in this
manner.
The Company is considered a development stage company. A market for the
Company's products may not develop. The Company's growth will be limited if the
DVB (see Note 4) technology and solutions do not become widely accepted. The
Company's development efforts are focused on the DVB market, which has only
begun to develop and is rapidly evolving.
The Company believes that the combination of current existing cash and the
Company's ability to obtain additional long-term indebtedness is not adequate to
finance the Company's operations for the current activities and foreseeable
future. As a result, the Company does not have adequate cash to meet current
obligations and is currently delinquent in payments to its vendors and service
providers. Management is currently seeking to raise additional capital either
through a private placement or a stock offering. To date, no additional capital
has been raised and in light of economic conditions will be difficult.
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
assurances that the Company will be successful in raising such capital at all or
on terms commercially acceptable to the Company or shareholders. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
3. 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, 2001 December 31,2000
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Raw Materials and Work-in-Process . $32,896 $ 54,503
Finished Goods. . . . . . . . . . . 43,531 77,674
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$76,427 $132,177
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4. DISTRIBUTION OF SUBSIDIARY
In August of 1999, the board of directors of GENROCO, Inc. (the Company's former
parent corporation) began contemplating the spin-off and distribution of
GENROCO, Inc.' s Digital Video Broadcast (DVB) business as a separate company to
be named VideoPropulsion, Inc. GENROCO, Inc. executed the distribution on
July 10, 2000 by issuing one new share of VideoPropulsion, Inc. stock, for each
share of GENROCO, Inc. stock held by GENROCO, Inc. shareholders of record, as of
the close of business on June 30, 2000.
Complete details are available in the amended SEC Form 10SB/A for
VideoPropulsion, Inc., which was filed with the SEC on June 19, 2000 and mailed
to each shareholder, as an information statement, on June 20, 2000.
5. STOCK SPLIT/(SHAREHOLDERS' INVESTMENT)
In July 2000, the Company declared a 4-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 13,900,836 new shares to bring the total outstanding
amount to 18,534,448.
In March 2001, the Company acquired 190,400 common shares of treasury shares.
The treasury shares were immediately cancelled.
During the quarter ended June 30, 2001, the Company acquired 888,680 common
shares of treasury shares. The treasury shares were immediately cancelled.
The Company has $81,662 in notes due from employees at June 30, 2001. These
notes are classified as unearned compensation as the notes are forgiven over a
three year period providing the employees remain with the Company. The notes
originated while the employees were employed with GENROCO, Inc. in order to
purchase GENROCO, Inc. shares. Upon the spin-off the notes were transferred to
the Company. During the quarter, $446,985 of notes were cancelled and the
associated GENROCO, Inc. shares as well as the Company shares received in the
spin-off were returned to GENROCO, Inc. and the Company, respectively. These
treasury shares were immediately cancelled.
6. SUBSEQUENT EVENTS
The Company is currently in preliminary negotiations with GENROCO, Inc.
regarding the potential merger or restructuring of the two entities. To date no
written documents have been drafted but management believes it better to merge
or combine with GENROCO, Inc. and have the combined companies, each with
immediate cash needs, strive to raise capital. The Board has not yet met to
address the possible merger or reviewed any documents, but is in preliminary
discussions. There can be no assurances that the impact on the Company will be
sufficient to maintain operations. The Company is exploring ways of funding the
costs of combining the two entities.
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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Net sales for the Company for the three months ended June 30, 2001 ("2001"),
were $101,899 compared to $246,703 for the three months ended June 30, 2000
("2000"). Net sales for the Company for the six months ended June 30, 2001, were
$165,568 compared to $370,778 for the six months ended June 30, 2000. Net sales
decreased between periods due to a slowdown in the economy and technology
spending. The Company continues to rely on an existing customer base, most of
whom are engaged in their own unique product evaluation and development programs
for new products that they intend to sell into the digital video market. By
placing its hardware and software products with key players in the emerging
digital video industry, management believes the Company will garner significant
future sales opportunities as this technology becomes mainstream in the market
place.
Cost of goods sold for the three months ended June 30, 2001 were $19,380,
compared to $45,091 for the three months ended June 30, 2000. Cost of goods sold
for the six months ending June 30, 2001, was $39,328 compared to $78,480 for the
six months ending June 30, 2000. This expense, which was comprised of parts and
labor associated with the production and testing of circuit boards shipped to
customers, decreased as sales decreased.
Gross profit for the three months ended June 30, 2001 was $82,519 compared to
$201,612 for the three months ended June 30, 2000. Gross profit for the six
months ended June 30, 2001, was $126,240 compared to $292,298 for the six months
ended June 30, 2000. This decrease is directly related to the reduction in
sales.
The resulting gross margin percentages were 81.0% and 81.7% for the three months
ended June 30, 2001 and June 30, 2000, respectively. This is compared with gross
margin percentages of 76.2% and 78.8% for the six months ended June 30, 2001 and
June 30, 2000, respectively. These gross margin percentages may not be
indicative of future performance as anticipated price reductions due to
increased competition and volume discount pricing may affect future gross margin
percentages.
Research and development expenses for the three months ended June 30, 2001 were
$118,597 compared to $121,961 for the three months ended June 30, 2000, or
116.4% and 49.4% of net sales for 2001 and 2000, respectively. Research and
development expenses for the six months ended June 30, 2001 were $248,450
compared to $216,158 for the six months ended June 30, 2000, or 150% and 58.3%
of net sales for 2001 and 2000, respectively. The increases are primarily
associated with new product development and additional personnel costs.
Selling, marketing, customer service and general and administrative expenses for
the three months ended June 30, 2001 were $499,466 compared to $187,962 for the
three months ended June 30, 2000, or 490.1% and 76.2% of net sales for 2001 and
2000, respectively. Selling, marketing, customer service and general and
administrative expense for the six months ended June 30, 2001 were $622,122
compared to $383,108 for the six months ended June 30, 2000, or 376% and 103% of
net sales for 2001 and 2000, respectively. The increase for both periods is
primarily due to fully reserving for a $409,666 receivable from GENROCO, Inc.,
because GENROCO, Inc. currently does not have the wherewithal to fund this
obligation. Both GENROCO, Inc. and the Company have directors in common.
Operating loss for the three months ended June 30, 2001 was $535,544 compared to
a loss of $108,311 for the three months ended June 30, 2000. Loss from
operations for the six months ended June 30, 2001 was $744,332 compared with a
loss from operations of $306,968 for the six months ended June 30, 2000.
Net loss for the three months ended June 30, 2001 was $543,463 compared to a
loss of $108,712 for the three months ended June 30, 2000. Net loss for the six
months ended June 30, 2001 was $753,546 compared to a net loss of $315,040 for
the six month period ending June 30, 2000.
The Company has not recorded a deferred tax asset related to its net operating
losses.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash position at June 30, 2001 was $3,949, a decrease from $6,557
at March 31, 2001.
During the six months ended June 30, 2001, net cash used in operating activities
was $212,867 versus $171,955 for the six months ended June 30, 2000.
Cash flows used in investing activities for the six months ended June 30, 2001
was $5,015 relating to the acquisition of computer equipment versus $12,511 for
the six months ended June 30, 2000.
Cash flows provided by financing activities for the six months ended June 30,
2001 were $207,867 from loans from shareholders and interim funding from
GENROCO, Inc., versus $300,000 of capital contributions for the six months ended
June 30, 2000.
Stockholders' investment decreased by $45,523 to $(733,722) at June 30, 2001
from $(688,199) at December 31, 2000. The significant changes in stockholders'
investment for the period ended June 30, 2001 include an increase due to the
change in unearned compensation of approximately $608,000, an increase due to
the sale of common stock of $100,000 and a reduction due to a net loss of
approximately $(754,000).
The Company's ratio of current assets to current liabilities (current ratio) was
.19 to 1 at June 30, 2001 versus .47 to 1 at December 31, 2000. The Company has
been unable to remain current with short-term obligations due to cash flow
constraints. The Company has relied solely on funding made available from
GENROCO, Inc. or existing shareholders. The Company received a loan of $300,000
from a shareholder in February 2001 to cover short-term operational funding.
There can be no assurances that GENROCO, Inc. or existing shareholders will
continue to fund the Company's operations in this manner.
The Company continues to generate negative cash flows from operations. Current
forecasts indicate that the Company may be unable to fund current plans beyond
the third quarter of fiscal 2001 unless it is able to raise additional capital.
The Company is currently owed $409,666 from GENROCO, Inc., a related party, for
interim operational funding. GENROCO, Inc. currently does not have the
wherewithal to fund this obligation. During the quarter ended June 30, 2001,
the Company fully reserved for the receivable. During the quarter, the Company
assumed from GENROCO, Inc. approximately $182,000 in debt due on demand to
shareholders. The Company has approximately $674,000 outstanding at June 30,
2001, due on demand to shareholders. To date no terms have been established
except that the notes are not secured and bear interest at 6% per annum. There
can be no assurances that GENROCO, Inc. or existing shareholders will continue
to fund or have the resources to fund the Company's operations in this manner.
The Company is considered a development stage company. A market for the
Company's products may not develop. The Company's growth will be limited if the
DVB (see Note 4) technology and solutions do not become widely accepted. The
Company's development efforts are focused on the DVB market, which has only
begun to develop and is rapidly evolving.
The Company believes that the combination of current existing cash and the
Company's ability to obtain additional long-term indebtedness is not adequate to
finance the Company's operations for the current activities and foreseeable
future. As a result, the Company does not have adequate cash to meet current
obligations and is currently delinquent in payments to its vendors and service
providers. Management is currently seeking to raise additional capital either
through a private placement or an offering of stock. To date, no additional
capital has been raised and in light of economic conditions will be difficult.
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
assurances that the Company will be successful in raising such capital at all or
on terms commercially acceptable to the Company or shareholders. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
CAUTIONARY STATEMENT
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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; 5) ability to fund its operations and 6) actions taken by competitors.
Investors are directed to the Company's documents, such as its initial filing on
Form 10-SB/A filed with the Securities and Exchange Commission and the annual
reports on Form 10-KSB.
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K.
--------------------------------
(a) See Exhibit Index following the Signatures page which is incorporated
herein by reference.
(b) No current reports on Form 8-K were filed during the quarter ended June 30,
2001.
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.
VIDEOPROPULSION, INC.
(Small Business Issuer)
/s/ Carl A. Pick
------------------------------------
Carl A. Pick
Chairman and Director
/s/ Barbara R. Pick
------------------------------------
Barbara R. Pick
CEO and Director
DATE: August 15, 2001