-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, JUFDz/m2DOkn0k87CG2Mnzm8mTMPY0m8E3OSl1FNn5Uqvmhf2HGaw1H7JhioBqjA EMBFuzv/B8v+pFkYOUXxBw== 0000892569-95-000232.txt : 19950530 0000892569-95-000232.hdr.sgml : 19950530 ACCESSION NUMBER: 0000892569-95-000232 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950331 FILED AS OF DATE: 19950515 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: RAINBOW TECHNOLOGIES INC CENTRAL INDEX KEY: 0000819706 STANDARD INDUSTRIAL CLASSIFICATION: 3577 IRS NUMBER: 953745398 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-16641 FILM NUMBER: 95539193 BUSINESS ADDRESS: STREET 1: 9292 JERONIMO RD CITY: IRVINE STATE: CA ZIP: 92718 BUSINESS PHONE: 7144542100 MAIL ADDRESS: STREET 1: 9292 JERONIMO RD CITY: IRVINE STATE: CA ZIP: 92718 10-Q 1 RAINBOW TECHNOLOGIES, INC. -- FORM 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter ended MARCH 31, 1995 Commission file number: 0-16641
RAINBOW TECHNOLOGIES, INC. (Exact name of Registrant as specified in its charter) DELAWARE 95-3745398 (State of Incorporation) (I.R.S. Employer Identification No.) 9292 JERONIMO ROAD, IRVINE, CALIFORNIA 92718 (Address of principal executive offices) (Zip Code) (714) 454-2100
Indicate by check mark whether the Registrant (i) 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 (ii) has been subject to such filing requirements for the past 90 days. Yes X No . ----- ----- The number of shares of common stock, $.001 par value, outstanding as of March 31, 1995 was 5,602,816. 2 RAINBOW TECHNOLOGIES, INC. TABLE OF CONTENTS
PAGE PART I - FINANCIAL INFORMATION Item 1. Condensed Consolidated Balance Sheets at March 31, 1995 and December 31, 1994. 3 Condensed Consolidated Statements of Income for the Three Months ended March 31, 1995 and 1994. 4 Condensed Consolidated Statements of Cash Flows for the Three Months ended March 31, 1995 and 1994. 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8 PART II - OTHER INFORMATION Item 1 to 5 - Not applicable Item 6 Exhibits and Reports on Form 8-K 10 SIGNATURES 11
2 3 RAINBOW TECHNOLOGIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS A S S E T S
March 31, 1995 December 31, (unaudited) 1994 ----------- ----------- Current assets: Cash and cash equivalents....................................... $20,440,000 $19,077,000 Marketable securities available for sale........................ 7,493,000 3,592,000 Accounts receivable (less allowance for doubtful accounts of $347,000 and $368,000 in 1995 and 1994, respectively)...... 8,280,000 8,857,000 Note receivable................................................. 3,000,000 3,000,000 Inventories .................................................... 1,840,000 2,199,000 Prepaid expenses and other current assets....................... 1,552,000 1,553,000 ----------- ----------- Total current assets....................................... 42,605,000 38,278,000 Property, plant and equipment, at cost: Buildings....................................................... 9,816,000 8,889,000 Furniture....................................................... 805,000 750,000 Equipment....................................................... 2,791,000 2,642,000 Leasehold improvements.......................................... 494,000 494,000 ----------- ----------- 13,906,000 12,775,000 Less accumulated depreciation and amortization.................. 3,594,000 3,205,000 ----------- ----------- Net property, plant and equipment......................... . 10,312,000 9,570,000 Goodwill, net of accumulated amortization of $5,324,000 and $4,380,000 in 1995 and 1994, respectively....................... 7,745,000 7,425,000 Other assets, net of accumulated amortization of $890,000 and $627,000 in 1995 and 1994, respectively .................... 3,126,000 3,254,000 ----------- ----------- $63,788,000 $58,527,000 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable................................................ $ 1,164,000 $ 942,000 Accrued payroll and related expenses............................ 896,000 1,140,000 Other accrued liabilities....................................... 801,000 671,000 Income taxes payable............................................ 1,004,000 200,000 Long-term debt, due within one year............................ 324,000 333,000 ----------- ----------- Total current liabilities.................................. 4,189,000 3,286,000 Long-term debt, net of current portion............................ 2,919,000 2,695,000 Deferred income taxes ............................................ 2,480,000 1,441,000 Shareholders' equity: Common stock, $.001 par value, 20,000,000 shares authorized, 5,602,816 and 5,573,946 shares issued and outstanding in 1995 and 1994, respectively................................ 6,000 6,000 Additional paid-in capital...................................... 26,577,000 26,348,000 Cumulative translation adjustment............................... 864,000 (465,000) Retained earnings............................................. .. 26,753,000 25,216,000 ----------- ----------- Total shareholders' equity................................. 54,200,000 51,105,000 ----------- ----------- $63,788,000 $58,527,000 =========== ===========
See accompanying notes. 3 4 RAINBOW TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (unaudited)
Three months ended Three months ended March 31, 1995 March 31, 1994 ------------------ ------------------ Net sales...................................................... $10,662,000 $9,023,000 Cost of sales.................................................. 2,947,000 2,403,000 ----------- ---------- Gross profit................................................. 7,715,000 6,620,000 Operating expenses: Selling, general and administrative.......................... 3,332,000 2,594,000 Research and development..................................... 1,362,000 1,289,000 Goodwill amortization........................................ 440,000 397,000 ----------- ---------- Total operating expenses................................ 5,134,000 4,280,000 --------- ---------- Operating income............................................... 2,581,000 2,340,000 Interest income................................................ 300,000 126,000 Interest expense............................................... (94,000) (99,000) Foreign currency losses........................................ (246,000) (41,000) ---------- ---------- Income before provision for income taxes....................... 2,541,000 2,326,000 Provision for income taxes .................................... 1,004,000 931,000 ----------- ---------- Net income..................................................... $ 1,537,000 $1,395,000 =========== ========== Net income per common and common equivalent share ............................................ $0.27 $0.25 ===== ===== Weighted average common and common equivalent shares outstanding................................ 5,728,000 5,685,000 =========== ==========
See accompanying notes. 4 5 RAINBOW TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Three months ended Three months ended March 31, 1995 March 31, 1994 ------------------ ------------------ Cash flows from operating activities: Net income......................................................... $ 1,537,000 $ 1,395,000 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.................................... 855,000 779,000 Change in deferred income taxes.................................. 892,000 36,000 Allowance for doubtful accounts.................................. (33,000) 5,000 Changes in operating assets and liabilities: Accounts receivable............................................ 833,000 (337,000) Inventories.................................................... 429,000 (278,000) Prepaid expenses and other current assets...................... 42,000 157,000 Other assets................................................... (9,000) -- Accounts payable............................................... 159,000 590,000 Accrued liabilities............................................ (153,000) (365,000) Taxes based on income.......................................... 852,000 305,000 ----------- ----------- Net cash provided by operating activities.................... 5,404,000 2,287,000 Cash flows from investing activities: Purchase of marketable securities.................................. (3,979,000) (4,079,000) Sale of marketable securities...................................... 60,000 1,550,000 Purchases of property, plant, and equipment........................ (113,000) (115,000) Acquisition of AND Group, Inc...................................... -- (1,533,000) Other.............................................................. 2,000 1,000 ----------- ----------- Net cash provided by (used in) investing activities.......... (4,030,000) (4,176,000) Cash flows from financing activities: Exercise of common stock options................................... 229,000 146,000 Payment of long-term debt.......................................... (116,000) (121,000) ----------- ----------- Net cash (used in) provided by financing activities.......... (3,968,000) (4,248,000) Effect of exchange rate changes on cash.............................. (124,000) 168,000 ----------- ----------- Net increase in cash and cash equivalents............................ (2,718,000) (5,969,000) Cash and cash equivalents at beginning of year....................... 19,077,000 12,663,000 ----------- ----------- Cash and cash equivalents at end of year............................. $16,359,000 $ 6,694,000 =========== =========== Supplemental disclosure of cash flow information: Income taxes paid.................................................. $ 199,000 $ 647,000 Interest paid...................................................... 98,000 99,000
See accompanying notes 5 6 RAINBOW TECHNOLOGIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1995 (UNAUDITED) 1. BASIS OF PRESENTATION In the opinion of the Company's management, the accompanying condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial position at March 31, 1995 and results of operations for the three months ended March 31, 1995 and 1994, and cash flows for the three months ended March 31, 1995 and 1994. The condensed consolidated financial statements do not include footnotes and certain financial information normally presented annually under generally accepted accounting principles and, therefore, should be read in conjunction with the Company's December 31, 1994 Annual Report on Form 10-K. Results of operations for the three months ended March 31, 1995 are not necessarily indicative of results to be expected for the full year. Software development costs incurred subsequent to the determination of technical feasibility and marketability of a software product are capitalized. Amortization of capitalized software costs commences when the products are available for general release to customers. Amortization is computed on an individual product basis and is based on the product's estimated economic life. The Company has subsidiaries in the United Kingdom, Germany, France and Canada. The Company utilizes the currencies of the countries where its foreign subsidiaries operate as the functional currency. In accordance with Statement of Financial Accounting Standards No. 52, the balance sheets of the Company's foreign subsidiaries are translated into U.S. dollars at the exchange rates at the respective dates. The income statements of those subsidiaries are translated into U.S. dollars at the weighted average exchange rates for the respective periods presented. The accompanying financial statements consolidate the accounts of the Company and its subsidiaries. All significant inter-company accounts and transactions have been eliminated. 2. EARNINGS PER SHARE Earnings per share are based on the weighted average number of common and common equivalent shares outstanding during each period. Common equivalent shares include the potential dilution from the exercise of stock options. 3. INVENTORIES Inventories are stated at the lower of cost (first-in, first-out) or market and consist of the following:
March 31, 1995 December 31, 1994 -------------- ------------------ Raw materials $ 500,000 $ 492,000 Work in process 285,000 318,000 Finished goods 1,055,000 1,389,000 ---------- ---------- $1,840,000 $2,199,000 ========== ==========
6 7 4. ACQUISITIONS On January 26, 1995, the Company and Mykotronx, Inc. announced an agreement to merge the two companies. Mykotronx, a California corporation with headquarters in Torrance, California, designs, develops and manufactures information security products to provide privacy and security for voice communication and data transmission. The merger is subject to shareholder approval. The agreement provides that, upon consummation of the merger, shareholders of Mykotronx will receive 2.64 shares of Rainbow Technologies, Inc. common stock for each share of issued and outstanding Mykotronx common stock, and Mykotronx will become a wholly owned subsidiary of Rainbow Technologies, Inc. The Company expects to issue approximately 1,800,000 shares of Rainbow Technologies, Inc. common stock. The merger will be accounted for as a pooling of interests. Expenses associated with the merger of approximately $180,000 were included in the results of operation for the quarter ended March 31, 1995. Supplemental unaudited proforma statement of income information assuming the merger had occurred on January 1, 1994 is a follows (in thousands except earnings per share):
Quarters ended March 31, -------------------------------- (unaudited) 1995 1994 ---- ---- Net sales $15,754,000 $12,755,000 Operating income 3,613,000 2,779,000 Income before provision for income taxes 3,573,000 2,765,000 Net income 2,157,000 1,659,000 Net income per share $ 0.29 $ 0.22
The above supplemental unaudited statement of income information includes Mykotronx information for the quarter ended March 31, 1995 and 1994. Expenses associated with the merger of approximately $180,000 have been reflected in the combined results of operations for the quarter ended March 31, 1995. In January 1994, the Company purchased the assets of the AND Group Inc., a Canadian corporation, in exchange for the sum of $1.5 million U.S. As a result, the Company acquired all of the intellectual property rights to a software product, and extinguished all previously existing obligations to pay royalties to the AND Group, Inc. The acquisition was accounted for as a purchase. Results of operations for the AND Group, Inc. are included in the statements of income from the date of acquisition. 7 8 RAINBOW TECHNOLOGIES, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SALES Net sales for the three months ended March 31, 1995 increased 18% to $10,662,000 when compared to the corresponding 1994 period. The increase for the period was primarily due to higher sales in Europe and North America. Net sales for the three months ended March 31, 1995 increased 8% in the United States and increased 33% internationally, when compared to the corresponding 1994 period. The average selling price per product decreased by approximately 6% worldwide for the three months ended March 31, 1995, when compared to the same period in 1994. This was primarily due to the Company's efforts to increase its market share. Unit volume for the three months ended March 31, 1995 was up 26% when compared to the corresponding 1994 period. GROSS PROFIT Gross profit for the three months ended March 31, 1995, was 72% compared with 73% experienced in the corresponding 1994 period. The decrease in gross margin for the three months ended March 31, 1995 was primarily due to lower average selling prices as discussed above. SELLING, GENERAL AND ADMINISTRATIVE Selling, general and administrative expenses for the three months ended March 31, 1995, increased by 28% when compared to the corresponding 1994 period. The increase during the three months ended March 31, 1995 was due to acquisition expenses ($180,000) incurred in connection with Mykotronx, higher expenses in Europe when translated in devalued dollars, additional staffing, increased professional expenses and higher sales compensation due to increased sales. RESEARCH AND DEVELOPMENT Total research and development expenses for the three months ended March 31, 1995 increased 6% when compared to the corresponding 1994 period. The increase was primarily due to the addition of engineering staff. Current research and development activities are focused on additional Application Specific Integrated Circuits development for future products and adaptation of the Company's products to additional software operating environments and computer platforms. OTHER INCOME (EXPENSE) Interest income for the year ended March 31, 1995 increased by 138% to $300,000 because of a general rise in interest rates and higher investment balances. During the quarter ended March 31, 1995, the Company incurred predominately unrealized foreign currency losses of $246,000, primarily due to dollar denominated deposit accounts maintained in Europe. During the quarter ended March 31, 1994, the Company recognized foreign currency losses of $41,000, also primarily due to dollar denominated deposit accounts maintained in Europe. 8 9 Such foreign currency gains and losses result from the movement of the value of the U.S. dollar against the functional currencies used by the Company's foreign subsidiaries. PROVISION FOR INCOME TAXES The provision for income taxes as a percentage of income before the provision for income taxes for the three months ended March 31, 1995 and March 31, 1994 was 40%, respectively. LIQUIDITY AND CAPITAL RESOURCES The Company's principal sources of operating funds have been from operations and proceeds from sales of the Company's equity securities. The Company's cash flow from operations for the three months ended March 31, 1995 and 1994 was $5,404,000 and $2,287,000, respectively. Management believes the Company's current working capital of $38,416,000 and anticipated working capital to be generated by future operations will be sufficient to support the Company's requirements for at least the next twelve months. The Company's uses of cash include purchases of property, plant and equipment and repayment of long-term debt. The Company intends to use its capital resources to expand its product line and for the acquisition of additional products and technologies. In January, 1995, the Company negotiated a definitive agreement to acquire all the outstanding shares of Mykotronx, Inc., a provider of information security products and services, subject to shareholder approval. The Company's subsidiaries in France carry $4.4 million in interest earning deposits which may result in foreign exchange gains or losses due to the fact that the functional currency in those subsidiaries is not the U.S. dollar. 9 10 PART II OTHER INFORMATION ITEM 6 Exhibits and Reports on Form 8-K (a) Exhibits 27 Financial Data Schedule. (b) Reports on Form 8-K. None 10 11 SIGNATURES 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 thereto duly authorized. Dated: May 12, 1995 RAINBOW TECHNOLOGIES, INC. By: /s/ PATRICK FEVERY ---------------------------- Patrick Fevery Chief Financial Officer
11 EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 U.S. DOLLARS 3-MOS DEC-31-1995 JAN-01-1995 MAR-31-1995 1 20,440 7,493 8,627 347 1,840 42,605 13,906 3,594 63,788 4,189 0 6 0 0 54,194 63,788 10,662 10,662 2,947 8,081 340 14 94 2,541 1,004 1,537 0 0 0 1,537 .27 .27
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