-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VrpSzU8D6iHywrofGU9DW0XHtSlUPXdPOmlKIn9d4XFhr+Q+OI+kZ9v3rehH2gVv Fvf9NL3Ck/mf9ru56oRcyw== 0000912057-96-017564.txt : 19960814 0000912057-96-017564.hdr.sgml : 19960814 ACCESSION NUMBER: 0000912057-96-017564 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960813 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: RIMAGE CORP CENTRAL INDEX KEY: 0000892482 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 411577970 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20728 FILM NUMBER: 96611157 BUSINESS ADDRESS: STREET 1: 7725 WASHINGTON AVE S CITY: EDINA STATE: MN ZIP: 55439 BUSINESS PHONE: 6129448144 MAIL ADDRESS: STREET 1: 7725 WASHINGTON AVENUE SOUTH CITY: EDINA STATE: MN ZIP: 55439 10-Q 1 10-Q CONFORMED UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarterly Period Ended June 30, 1996 Commission File No. 0-20728 RIMAGE CORPORATION -------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) Minnesota 41-1577970 --------------------------------- ------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 7725 Washington Avenue South, Edina, MN 55439 ------------------------------------------------- (Address of principal executive offices) 612-944-8144 ------------------------------------------------- (Registrant's telephone number, including area code) NA ---------------------------------------------------------------- (Former name, former address, and former fiscal year, if changed since last report.) Common Stock outstanding at August 12, 1996 -- 3,084,500 shares of $.01 par value Common Stock. 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 ---- ---- RIMAGE CORPORATION FORM 10-Q TABLE OF CONTENTS FOR THE SIX MONTHS ENDED June 30, 1996 Description Page ----------- ---- PART I FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets as of June 30, 1996 (unaudited) and December 31, 1995 3 Consolidated Statements of Operations (unaudited) for the Three Months and Six Months Ended June 30, 1996 and 1995 4 Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30, 1996 and 1995 5 Condensed Notes to Consolidated Financial Statements 6-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10-13 PART II OTHER INFORMATION 14-15 Item 1. Legal Proceedings 14 Item 4. Submission of Matters to a Vote of Security Holders 14 Item 6. Exhibits 15 -2- RIMAGE CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
ASSETS June 30 December 31, 1996 1995 ----------- ----------- (unaudited) Current assets: Cash................................................................. $ 266,092 $ 230,014 Trade accounts receivable, net of allowance for doubtful accounts and sales returns of $526,625 and $644,576, respectively...... 5,544,926 9,493,142 Inventories (note 2)................................................. 4,295,177 4,690,326 Income tax receivable................................................ 240,735 250,012 Prepaid expenses and other current assets............................ 1,124,415 330,975 Deferred income tax asset ........................................... 1,279,388 1,196,000 Current installments of investment in sales-type leases ............ 222,905 260,188 ----------- ----------- Total current assets....................................... 12,973,638 16,450,657 ----------- ----------- Property, plant, and equipment, net...................................... 4,973,843 4,883,766 Investment in sales-type leases, net of current installments ............................................... 204,590 307,120 Goodwill ................................................................ 969,763 1,010,120 Other assets............................................................. 1,001,438 1,132,547 ----------- ----------- Total assets............................................... $20,123,272 $23,784,210 ----------- ----------- ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of notes payable (note 6).............................. $ 4,562,800 $ 4,725,400 Current installments of capital lease obligations ..................... 47,063 35,750 Trade accounts payable................................................. 2,580,431 5,761,742 Accrued expenses ...................................................... 1,526,819 1,354,241 Deferred income and customer deposits.................................. 1,181,857 765,777 ----------- ----------- Total current liabilities........................................ 9,898,970 12,642,910 Notes payable, less current portion (note 6)............................. 957 167,524 Deferred tax liability .................................................. 131,000 131,000 Capital lease obligations, less current installments .................... 1,562,984 1,582,504 ----------- ----------- Total liabilities................................................ 11,593,911 14,523,938 ----------- ----------- Minority interest in inactive subsidiary................................. 57,907 57,907 Stockholders' equity (note 4): Common stock........................................................... 30,845 30,510 Additional paid-in capital............................................. 10,447,798 10,301,883 Accumulated Deficit (note 4)........................................... (2,001,165) (1,151,280) Equity adjustment from foreign currency translation.................... (6,024) 21,252 ----------- ----------- Total stockholders' equity....................................... 8,471,454 9,202,365 Commitments and contingencies ........................................... -- -- ----------- ----------- Total Liabilities and Stockholders' Equity........................... $20,123,272 $23,784,210 ----------- ----------- ----------- -----------
See accompanying notes to consolidated financial statements -3- RIMAGE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Three Months Ended Six months Ended June 30, June 30, 1996 1995 1996 1995 ---------- ----------- ----------- ----------- Revenues......................................... $9,899,902 $10,003,296 $20,950,408 $22,537,182 Cost of revenues................................. 7,725,934 7,244,025 15,607,931 16,534,459 ---------- ----------- ----------- ----------- Gross Profit............................... 2,173,968 2,759,271 5,342,477 6,002,723 ---------- ----------- ----------- ----------- Operating expenses: Engineering and development................... 690,281 856,444 1,467,129 1,655,422 Selling, general and administrative........... 2,270,396 2,193,572 4,481,282 4,362,575 ---------- ----------- ----------- ----------- Total operating expenses................... 2,960,677 3,050,016 5,948,411 6,017,997 ---------- ----------- ----------- ----------- Operating loss............................. (786,709) (290,745) (605,934) (15,274) ---------- ----------- ----------- ----------- Other income (expense) Interest...................................... (132,047) (137,132) (271,494) (256,036) Gain(loss) on currency exchange............... (16,700) (12,862) (11,607) 106,430 Other, net.................................... 14,097 (23,152) 39,151 (10,513) ---------- ----------- ----------- ----------- Total other income (expenses) net.......... (134,650) (173,146) (243,950) (160,119) ---------- ----------- ----------- ----------- Net loss before income taxes............... (921,359) (463,891) (849,884) (175,393) Income taxes............................... (24,000) (111,999) 0 (24,990) ---------- ----------- ----------- ----------- Historical net loss........................ ($897,359) ($351,892) ($849,884) ($150,403) Historical net loss........................ ($897,359) ($351,892) ($849,884) ($150,403) Proforma income tax benefit................ 0 (93,117) 0 (64,727) ---------- ----------- ----------- ----------- Proforma net loss.......................... ($897,359) ($258,775) ($849,884) ($85,676) ---------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- Proforma net loss per common and common equivalent share.............. ($0.29) ($0.08) ($0.27) ($0.03) ---------- ----------- ----------- ----------- ---------- ----------- ----------- ----------- Weighted average shares and share equivalents outstanding.................. 3,092,961 3,068,677 3,108,120 3,070,778 ---------- ----------- ----------- ----------- ---------- ----------- ----------- -----------
See accompanying condensed notes to the consolidated financial statements -4- RIMAGE CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Six months ended June 30, 1996 1995 ------------ ------------- Cash flows from operating activities: Net loss.............................................................. $ (849,884) $ (150,403) Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation and amortization........................................ 718,739 734,189 Change in reserve for excess and obsolete inventories................ (50,000) (121,937) Change in reserve for doubtful accounts.............................. (117,951) (7,284) Gain on sale of property, plant, and equipment....................... (1,408) 0 Deferred income tax.................................................. (83,388) 8,000 Increase in investment in sales-type leases.......................... 0 (180,258) Changes in operating assets and liabilities: Trade accounts receivable............................................ 4,066,167 (604,881) Inventories.......................................................... 445,149 (380,273) Prepaid expenses and other current assets............................ (793,440) (48,820) Income tax receivable................................................ 9,277 (27,521) Accounts payable..................................................... (3,181,308) (717,803) Accrued expenses..................................................... 172,578 406,314 Deferred income and customer deposits................................ 416,080 255,524 Net cash provided by (used in) operating activities.......... 750,611 (835,153) Cash flows from investing activities: Purchase of property, plant, and equipment............................. (780,205) (933,578) Proceeds from the sale of property and equipment 13,150 0 Other assets........................................................... 131,109 (56,557) Payments on investment in sales-type leases............................ 139,813 84,930 Net cash used in investing activities................................ (496,133) (905,205) Cash flows from financing activities: Payment of registration fees........................................... 0 (18,400) Proceeds from stock option exercise.................................... 146,250 0 Principal payments on capital lease obligation......................... (8,207) (7,527) Proceeds from other notes payable...................................... 6,591,000 1,970,000 Repayment of other notes payable....................................... (6,920,167) (1,071,475) Subchapter-S dividends paid............................................ 0 (210,503) Net cash (used in) provided by financing activities.................. (191,124) 662,095 Effect of exchange rate changes on cash................................... (27,276) 20,058 Net increase (decrease) in cash........................................... 36,078 (1,058,205) Cash, beginning of period................................................. 230,014 1,283,794 Cash, end of period....................................................... $ 266,092 $ 225,589
See accompanying notes to the consolidated financial statements. -5- RIMAGE CORPORATION AND SUBSIDIARIES CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) BASIS OF PRESENTATION The consolidated financial statements include the accounts of Rimage Corporation, Rimage Europe Gmbh, Rimage Singapore, A/G Systems Inc. d/b/a Duplication Technology Inc. (Duplication Technology), ALF Products Inc. d/b/a ALF/Rimage (ALF Products) and Knowledge Access Inc. (Knowledge Access), collectively hereinafter referred to as the Company or Rimage. All material intercompany accounts and transactions have been eliminated upon consolidation. Effective September 29, 1995, Rimage Corporation and Dunhill Software Services Inc. (Dunhill) completed a merger. Dunhill, who had been a significant customer of Rimage, is engaged in diskette duplication and production services. For financial reporting purposes, the merger was recorded using the pooling-of interests method of accounting under generally accepted accounting principles. Accordingly, the historical financial statements of Rimage presented for the three and six month periods ended June 30, 1995 were restated to include the historical accounts and results of operations of Dunhill. As a result of this merger, Rimage operates in two segments. The Rimage Systems segment consists of substantially all of the former Rimage Companies, plus the newly formed optical systems division. The Rimage Services segment consists of the former Dunhill operation in addition to the service business at Duplication Technology. Rimage Systems develops, manufactures and distributes diskette, tape and CD-Recordable duplication equipment and CD-ROM replication equipment, and related software products. Rimage Services provides diskette duplication and production services to software developers and manufacturers and information publishers. The Company extends unsecured credit to its customers, of which, the majority are computer hardware, software and service companies, software developers and manufacturers, and information publishers. The consolidated financial statements included herein 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, although Rimage believes that the disclosures are adequate to make the information presented not misleading. In the opinion of the Company, all adjustments, consisting of only normal recurring adjustments, necessary to present fairly the consolidated financial position of the Company as of the dates and for the periods presented, have been made. The results of operations for such interim periods are not necessarily indicative of the results to be expected for the entire year. -6- (continued) (2) INVENTORIES Inventories consist of the following:
June 30, December 31, 1996 1995 ------------ -------------- (unaudited) Finished goods and demonstration equipment $999,593 $1,297,788 Work-in-process 759,822 670,264 Purchased parts and subassemblies 3,220,762 3,457,274 ---------- ---------- 4,980,177 5,425,326 Less reserve for excess inventories 685,000 735,000 ---------- ---------- Total inventories $4,295,177 $4,690,326 ---------- ---------- ---------- ----------
(3) SEGMENT REPORTING (IN THOUSANDS)
Six Months Ended June 30, 1996 1995 ---------- ---------- Revenues from unaffiliated customers: (unaudited) (unaudited) Systems $10,962 $7,685 Services 9,988 14,852 Operating earnings (loss): Systems (578) (850) Service (28) 835 June 30, December 31, 1996 1995 Net Identifiable Assets: ----------- ------------ (unaudited) Systems 11,886 11,781 Service 8,569 12,003
(4) STOCKHOLDERS' EQUITY STOCK ISSUED IN ACQUISITION On September 29, 1995, in connection with the merger between Rimage and Dunhill Software Services, Inc., 1,100,000 shares of Rimage common stock were issued. (see note 5.) -7- (continued) TERMINATION OF DUNHILL'S S-CORPORATION STATUS On September 29, 1995, Dunhill Software Services, Inc. terminated its S-Corporation election. Under SEC rules, Dunhill's accumulated retained earnings of $2,611,979 as of the termination of the S-Corporation election was reclassified against additional paid-in-capital. STOCK OPTIONS Rimage adopted a stock option plan on September 24, 1992 which allows for the granting of options to purchase up to 250,000 shares of common stock to certain key administrative, managerial and executive employees. Options under this plan may be either incentive stock options or non-qualified options. In 1993, the Rimage board of directors increased the number of allowable shares to 500,000. Pursuant to this plan, options to purchase 290,453 shares are currently issued and outstanding. (5) 1995 ACQUISITION Effective at the close of business on September 29, 1995, and pursuant to the Agreement and Plan of Reorganization (the Merger Agreement) dated June 6, 1995 by and between Rimage Corporation (Rimage), and Dunhill Software Services Inc. (Dunhill), Rimage issued 1,100,000 shares of stock to the former Dunhill shareholders and Dunhill was merged into Rimage. Dunhill provides diskette duplication and production services to software developers and manufacturers and information publishers, and historically was one of Rimage's largest customers. Rimage intends to continue such business for the foreseeable future. This merger was recorded using the pooling-of-interests method of accounting. Accordingly the historical financial statements of Rimage presented for the three and six month periods ended June 30, 1995 were restated to include the historical accounts and results of operations of Dunhill. (6) NOTES PAYABLE TO BANK On October 13, 1995, the Company signed a new Credit Agreement which consolidated and redefined all previously outstanding Rimage and Dunhill debt. This credit agreement covers all of the term and revolving notes discussed below. The Company is required to maintain certain financial ratios as a part of the agreement. The Company obtained waivers (and forbearance through June 30, 1996) from the bank regarding the tangible capital base and working capital ratios which were not in compliance as of and for the periods ended June 30, 1996 and December 31, 1995. The Company has a term note agreement with a bank. Borrowings under the agreement are secured by substantially all Company assets, accrue interest at the bank's reference rate plus 1/2 percent and are payable in 36 equal monthly installments that commenced May 31, 1994. The interest rate was 8.75% on June 30, 1996. The outstanding amount as of June 30, 1996 was $165,800. The Company has another term note which expires on January 1, 1997. The term note bears interest at 3/4% over the bank's reference rate and is secured by substantially all Company assets. The interest rate was 9% on June 30, 1996. The outstanding balance under this note on June 30, 1996 was $700,000. -8- (continued) The Company also has a revolving line of credit agreement with a bank that expired on June 30, 1996 and was extended through August 15, 1996. The line of credit provides for borrowing up to $5,000,000. Borrowings under this agreement are secured by substantially all Company assets and accrue interest at the bank's reference rate plus one-half percent. Borrowings outstanding under this line were $3,697,000 on June 30, 1996. (7) STATEMENTS OF CASH FLOWS The following is additional information regarding cash flows and non-cash investing and financing activities: During the six months ended June 30, 1996 and 1995, cash paid for interest was $275,640 and $239,821, respectively. During the six months ended June 30, 1996 and 1995, cash received for income taxes was $5,889 and $4,951, respectively. On September 29, 1995 Rimage issued 1,100,000 shares of its common stock in connection with the merger with Dunhill Software Services, Inc. -9- Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, selected items from the Company's consolidated statements of operations, shown in thousands.
Three months ended Six months ended June 30, June 30, ----------------------- ----------------------- 1996 1995 1996 1995 -------- ------- -------- ------- Revenues to unaffiliated customers: Systems.......................................................... $6,234 $3,496 $10,962 $7,685 Services......................................................... 3,666 6,507 9,988 14,852 -------- ------- -------- ------- Total Revenues................................................. 9,900 10,003 20,950 22,537 Cost of Revenues: Systems.......................................................... 4,345 1,858 7,050 4,097 Service.......................................................... 3,381 5,386 8,558 12,437 -------- ------- -------- ------- Total Cost of Revenues......................................... 7,726 7,244 15,608 16,534 Operating Expenses: Systems.......................................................... 2,362 2,289 4,490 4,438 Service.......................................................... 599 761 1,458 1,580 -------- ------- -------- ------- Total Operating Expenses....................................... 2,961 3,050 5,948 6,018 Operating Earnings (Loss): Systems.......................................................... (473) (651) (578) (850) Service.......................................................... (314) 360 (28) 835 -------- ------- -------- ------- Total Operating Loss........................................... $ (787) $ (291) $ (606) $ (15) -------- ------- -------- ------- -------- ------- -------- -------
This Report contains forward-looking statements that involve risks and uncertainties. The Company's actual results could differ significantly from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, changes in media or method used for distribution of software, technological changes in products offered by the Company or its competitors and changes in general conditions in the computer market. -10- RESULTS OF OPERATIONS Rimage designs, manufactures and sells computer media duplication, replication, and printing systems, and also provides media duplication services. The Company's revenues decreased by 1.0% and 7.0% in the three months and six months ended June 30, 1996 when compared to corresponding 1995 revenues. Consolidated net loss for the three and six month periods ended June 30, 1996 was $897,359 and $849,884 compared to corresponding 1995 net loss of $258,775 and $85,676. SYSTEMS SEGMENT - THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995 Systems revenues (which include equipment sold from Rimage Systems - Minneapolis, Rimage Europe, Duplication Technology, and Knowledge Access International) for the three and six months ended June 30, 1995 increased by $2,737,806 and $3,276,935 respectively, when compared to the same periods of 1995. These increases were a result of the Company's transition to new products, specifically away from diskette equipment and into CD-Recordable ("CDR") and CD-ROM equipment. The Company expects continued declines from historic levels of diskette revenues, and increasing growth from optical equipment revenues. Gross profit in the first three and six months of 1996 as a percentage of revenues, decreased to 30% and 36% respectively, from 47% during both the 1995 periods. These decreases result from two main reasons; The prevalence in the diskette equipment industry of discounting sales prices for equipment which has resulted from soft demand caused by the shift to optical media. And, sales mix changes resulting from the CD-ROM equipment that the Company started shipping in the second quarter of 1996, that is higher volume and lower margin in nature. Operating expenses for three and six months ended June 30, 1996 increased by $72,728 and $52,728 compared to the expenses in the same periods of 1995. These increases are attributable to approximately $390,000 of expense incurred by the Company's new CD-ROM equipment sales division. Operating expenses, as a percentage of revenues decreased in the three and six months ended June 30, 1996 to 38% and 41% respectively, from 65% and 58% in the same periods of 1995 Operating loss for the three and six months ended June 30, 1996 improved to $472,379 and $577,601 respectively, from $650,680 and $849,890 during the same periods of 1995. This improvement was due to the aforementioned revenue increases, but was offset by the gross profit deterioration, and operating expense increases. SERVICE SEGMENT - THREE AND SIX MONTHS ENDED JUNE 30, 1995 AND 1994 Service revenues (which include the revenues of the Rimage Service Group, formerly "Dunhill", as well as the service business of Duplication Technology) for the three and six months ended June 30, 1996 decreased by $2,841,201 and $4,863,709 compared to the same periods of 1995. These decreases resulted from the trend from diskette to optical media, and also from the decreased revenues associated with one large 1995 software release that did not recur in 1996 and the reduced 1996 revenues from one other significant customer. The Company had two significant customers that accounted for 24.9% and 27.9%, respectively of service revenues in the first half of 1996. The Company is in the process of adding CD-ROM optical capacity to transition into the optical service business.. -11- Gross profit for the three and six months ended June 30, 1996, as a percentage of revenues, decreased to 8% and 14% respectively, from 17% and 16% during the same periods of 1995. These decreases are mainly attributable to the lower revenues and the fixed nature of some manufacturing costs. Operating expenses for the three and six months ended June 30, 1996 decreased by $162,065 and $122,312 respectively, over operating expenses for the same periods of 1995, but increased as a percentage of revenues to 16% and 15% in 1995 from 12% and 11% in 1994. Operating expenses were relatively fixed when compared to the lower revenues. Operating earnings (loss) for the three and six months ended June 30, 1996 declined substantially to ($314,330) and ($28,333) respectively, from $359,935 and $834,616 for the same periods of 1995. The declines result from the aforementioned revenue reductions compared to cost of sales and operating expenses that did not fall proportionally. CONSOLIDATED THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995 Revenues for the three and six months ended June 30, 1996 decreased by $103,395 and $1,586,774 when compared to the same periods of 1995. These decreases were a result of the reduced service revenues and were partially offset by the increase in systems revenues. The Company had two significant customers which totaled 11.9 and 13.3 percent, respectively, of revenues during the six months ended June 30, 1996. Gross profit for the three and six months ended June 30, 1996 as a percentage of revenues, decreased to 22% and 26% respectively, from 28% and 27% during same periods of 1995. These decreases are mainly due to the change in revenue mix (new CD-ROM revenues which is lower margin business), the sales discounting prevalent on diskette systems revenues, and the lower service revenues on relatively stable fixed manufacturing costs. Operating expenses for the three and six months ended June 30, 1996 decreased by $89,339 and $69,586 compared to the same periods of 1995. Operating expenses, as a percentage of sales in the three and six months ended June 30, 1996 were 30% and 29% respectively, compared to 30% and 27% in the same periods of 1995. There were similar fixed operating costs when compared to the lower revenues, and also new expenses incurred in the CD-ROM equipment sales division. Net other expenses were approximately $38,000 lower and $84,000 higher in the first three and six months of 1996 when compared to the same periods of 1995, primarily due to first quarter currency exchange fluctuations. The Company has not booked any income tax benefit related to the 1996 losses. Prior to the merger on September 30, 1995, Dunhill Software was a Subchapter-S Corporation and thus was not subject to federal income taxes. Net loss was ($897,359) and ($849,884) respectively, for the three and six month periods ended June 30, 1996 versus ($258,775) and ($85,676) for the same periods of 1995. Net loss per share was ($.29) and ($.27) respectively, for the three and six months ended June 30, 1996 versus ($.08) and ($.03) for the same periods of 1995. The increases in both loss and loss per share are attributable to the gross margin deterioration, the unrecorded tax benefit in 1996, and the relatively stable fixed operating costs incurred on similar revenues. -12- LIQUIDITY AND CAPITAL RESOURCES Net cash provided by (used in) operating activities was $750,611 and ($835,153) in the first six months of 1996 and 1995. The 1996 increase resulted primarily from the reduction in accounts receivable of $4,066,167 and inventories of $445,149, and was partially offset by the decrease in accounts payables of $3,181,309 and the increase in prepaid expenses of $793,440, which was primarily due to down payments made by the Company on CD-ROM equipment purchases. The cash used in investing activities was $496,133 and $905,205 during the first six months of 1996 and 1995. At June 30, 1996 the Company has committed to purchase approximately $3,080,000 of equipment related to adding CD-ROM pressing capacity for its service business. At June 30, 1996, the Company's working capital was approximately $3,075,000 compared to $3,808,000 at December 31, 1995. The net cash provided by (used in) financing activities was ($191,124) and $662,095 for the six months ended June 30, 1996 and 1995, respectively. The Company paid down approximately $330,000 of net bank debt during the first six months of 1996. The Company has a line of credit agreement totaling $5,000,000 with a bank, which expired on June 30, 1996 and has been extended to August 15, 1996. Advances under this line of credit are secured by substantially all the Company's assets, are subject to borrowing base requirements, are due on demand and bear interest at the bank's reference rate plus 1/2 percent. At June 30, 1996, the Company had borrowings under this line totaling $3,697,000. The Company also has term note agreements totaling $866,757 under various terms that are secured by substantially all the Company's assets, and bear interest varying from the bank's reference rate plus 1/2 percent to plus 3/4 percent. The Company obtained waivers (and forbearance through June 30, 1996) from the bank for any financial ratios on which it is out of compliance at June 30, 1996 and December 31, 1995. The Company is currently negotiating a new credit agreement with this bank. The Company is also currently negotiating lease financing for its CD-ROM equipment purchases. The Company believes its banking relationship is good and that satisfactory financing will be available on terms acceptable to the Company for the foreseeable future. -13- PART II -- OTHER INFORMATION Item 1. LEGAL PROCEEDINGS On May 29, 1996 Trace Products, Inc. of San Jose, and the Company, announced that they have amicably settled litigation in the United States District Court for the Northern District of California involving Trace's U.S. Patent No. 5,402,270. Item 2. CHANGES IN SECURITIES Not Applicable. Item 3. DEFAULTS UPON SENIOR SECURITIES Not Applicable. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company's Annual Meeting of Stockholders was held on June 20, 1996. The following members were elected to the Company's Board of Directors to hold office for the ensuing year: Nominee In Favor Withheld ------- -------- -------- David Suden 2,985,532 6,825 Ronald Fletcher 2,985,532 6,825 Richard McNamara 2,985,532 6,825 Robert Hoffman 2,985,532 6,825 George Kline 2,985,532 6,825 The results of the voting on the following additional items were as follows: (a) Ratification of the selection of KPMG Peat Marwick LLP as independent accountants to audit the consolidated financial statements of Rimage Corporation for the year ending December 31, 1996. The votes of the stockholders on this amendment were as follows: In Favor Opposed Abstained Broker Non-Vote -------- ------- --------- --------------- 2,987,947 2,300 2,100 0 -14- Item 5. OTHER INFORMATION Not Applicable. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: Exhibit No. 11. Calculation of Earnings Per Share. Exhibit No. 27. Financial Data Schedule. (b) Reports on Form 8-K: Not Applicable. -15- SIGNATURES In accordance with the Exchange Act, this report has been signed below by following persons on behalf of the registrant and on the dates indicated. RIMAGE CORPORATION ------------------ Registrant Date: August 12, 1996 By: /s/ Ronald R. Fletcher ----------------- ---------------------- Ronald R. Fletcher Chairman of the Board Chief Executive Officer (Principal Executive Officer) Date: August 12, 1996 By: /s/ Jon D. Wylie ----------------- ---------------- Jon D. Wylie Chief Financial Officer (Principal Financial Officer) (Principal Accounting Officer) -16- EX-11 2 EXHIBIT 11 EXHIBIT 11 RIMAGE CORPORATION COMPUTATION OF NET EARNINGS PER SHARE OF COMMON STOCK Net earnings per common share is determined by dividing the net earnings by the weighted average number of shares of common stock and common share equivalents outstanding. The following is a summary of the weighted average common shares outstanding and common share equivalents:
Three months ended Six months ended June 30, June 30, 1996 1995 1996 1995 ---------- ---------- ---------- ----------- Shares Outstanding at beginning of period 3,069,000 1,950,000 3,051,000 1,950,000 Common stock issued in merger with Dunhill Software Services 0 1,100,000 0 1,100,000 Shares Outstanding at beginning of period 3,069,000 3,050,000 3,051,000 3,050,000 ---------- ---------- ---------- ----------- ---------- ---------- ---------- ----------- Common stock issued in stock option exercise 15,500 0 33,500 0 Shares Outstanding at end of period 3,084,500 3,050,000 3,084,500 3,050,000 ---------- ---------- ---------- ----------- ---------- ---------- ---------- ----------- Weighted average shares of common stock outstanding 3,073,253 3,050,000 3,064,937 3,050,000 ---------- ---------- ---------- ----------- ---------- ---------- ---------- ----------- **Common stock equivalents 397,453 846,455 397,453 846,455 Weighted average shares of common stock equivalents 19,708 18,677 43,183 20,778 ---------- ---------- ---------- ----------- ---------- ---------- ---------- ----------- Weighted average shares of common stock and stock equivalents 3,092,961 3,068,677 3,108,120 3,070,778 ---------- ---------- ---------- ----------- ---------- ---------- ---------- ----------- Net Earnings (loss) ($897,359) ($258,775) ($849,884) ($85,676) ---------- ---------- ---------- ----------- ---------- ---------- ---------- ----------- Net earnings (loss) per share ($0.29) ($0.08) ($0.27) ($0.03) ---------- ---------- ---------- ----------- ---------- ---------- ---------- -----------
** Included as common stock equivalents are 540,000 warrants which expired on July 20, 1995 EX-27 3 EXHIBIT 27 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 266 0 6072 527 4295 12974 10220 5247 20123 9899 0 0 0 31 8441 20123 20950 20950 15608 5948 244 0 271 (850) 0 (850) 0 0 0 (850) (.27) (.27)
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