10-Q 1 c62432e10-q.txt QUARTERLY REPORT DATED 3/31/01 1 CONFORMED ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001; OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO . ------------------ --------------------------------- COMMISSION FILE NUMBER: 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 incorporation or organization) Identification No.) 7725 Washington Avenue South, Edina, MN 55439 --------------------------------------------- (Address of principal executive offices) 952-944-8144 ---------------------------------------------------- (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 May 3, 2001 - 8,724,890 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 ---- ---- ================================================================================ 2 RIMAGE CORPORATION FORM 10-Q TABLE OF CONTENTS FOR THE QUARTER ENDED MARCH 31, 2001
Description Page ----------- ---- PART I FINANCIAL INFORMATION Item 1. Unaudited Financial Statements Consolidated Balance Sheets as of March 31, 2001 and December 31, 2000 ........................ 3 Consolidated Statements of Operations for the Three Months Ended March 31, 2001 and 2000 ..................................... 4 Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2001 and 2000 ..................................... 5 Condensed Notes to Consolidated Financial Statements ........................................ 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ............... 8-10 PART II OTHER INFORMATION .................................................... 11-12 Item 1-5. None Item 6. Exhibits SIGNATURES .......................................................................... 13
2 3 RIMAGE CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets March 31, 2001 and December 31, 2000 (Unaudited)
March 31, December 31, 2001 2000 ----------- ------------ Assets Current assets: Cash and cash equivalents $23,545,602 $21,023,233 Trade accounts receivable, net of allowance for doubtful accounts and sales returns of $539,000 6,735,055 9,013,207 Inventories 3,812,526 2,936,119 Interest receivable 124,848 202,219 Prepaid expenses and other current assets 213,094 212,566 Prepaid income taxes 956,749 1,418,498 Deferred income taxes-current 938,592 938,592 ----------- ----------- Total current assets 36,326,466 35,744,434 ----------- ----------- Property and equipment, net 669,227 651,569 Deferred income taxes-noncurrent 145,935 145,935 Other noncurrent assets 8,495 13,526 ----------- ----------- Total assets $37,150,123 $36,555,464 =========== =========== Liabilities and Stockholders' Equity Current liabilities: Trade accounts payable $ 2,169,688 $ 2,288,789 Accrued compensation 995,968 1,446,127 Accrued other 944,622 852,652 Deferred income and customer deposits 958,999 1,006,957 ----------- ----------- Total current liabilities 5,069,277 5,594,525 =========== =========== Stockholders' equity: Common stock, $.01 par value, authorized 10,000,000 shares, issued and outstanding 8,724,790 and 8,653,285, respectively 87,248 86,533 Additional paid-in capital 16,439,490 16,319,613 Retained earnings 15,912,112 14,861,224 Accumulated other comprehensive loss - foreign currency translation adjustment (358,004) (306,431) ----------- ----------- Total stockholders' equity 32,080,846 30,960,939 ----------- ----------- Commitments and contingencies Total liabilities and stockholders' equiy $37,150,123 $36,555,464 =========== ===========
See accompanying condensed notes to consolidated financial statements 3 4 RIMAGE CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations (Unaudited)
Three Months Ended March 31, ----------------------------- 2001 2000 ------------ ------------ Revenues $ 10,196,132 $ 13,157,219 Cost of revenues 4,858,784 6,020,498 ------------ ------------ Gross profit 5,337,348 7,136,721 ------------ ------------ Operating expenses: Research and development 1,273,089 724,899 Selling, general and administrative 2,464,878 2,499,920 Merger -- 541,396 ------------ ------------ Total operating expenses 3,737,967 3,766,215 ------------ ------------ Operating income 1,599,381 3,370,506 ------------ ------------ Other income (expense): Interest 330,314 201,892 Loss on currency exchange (221,423) (104,910) Other, net (13,291) 6,878 ------------ ------------ Total other income, net 95,600 103,860 ------------ ------------ Income before income taxes 1,694,981 3,474,366 Income tax expense 644,093 1,320,259 ------------ ------------ Net income 1,050,888 2,154,107 ============ ============ Net income per basic share $ 0.12 $ 0.26 ============ ============ Net income per diluted share $ 0.11 $ 0.22 ============ ============ Basic weighted average shares outstanding 8,698,469 8,158,228 ============ ============ Diluted weighted average shares and assumed conversion shares 9,575,619 9,614,157 ============ ============
See accompanying condensed notes to the consolidated financial statements 4 5 RIMAGE CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (unaudited)
Three months ended March 31, ------------------------------- 2001 2000 ------------ ------------ Cash flows from operating activities: Net income $ 1,050,888 $ 2,154,107 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 93,885 180,759 Change in reserve for excess and obsolete inventories (101) (102) Change in allowance for doubtful accounts and sales returns -- (993) Loss on sale of property and equipment 22,434 -- Changes in operating assets and liabilities: Trade accounts receivable 2,278,152 (2,734,004) Inventories (876,306) (31,364) Interest receivable 77,371 (860) Prepaid expenses and other current assets (528) 6,937 Prepaid income taxes 461,749 -- Trade accounts payable (119,101) 341,395 Income taxes payable -- 893,904 Accrued compensation (450,159) (147,419) Accrued other 91,970 99,482 Deferred income and customer deposits (47,958) 134,977 ------------ ------------ Net cash provided by operating activities 2,582,296 896,819 ------------ ------------ Cash flows from investing activities: Purchase of property and equipment (128,945) (70,221) Other noncurrent assets (20,667) 38,379 ------------ ------------ Net cash used in investing activities (149,612) (31,842) ------------ ------------ Cash flows from financing activities- Proceeds from stock option/warrant exercise 120,592 681,818 Effect of exchange rate changes on cash (30,907) (16,281) ------------ ------------ Net increase in cash 2,522,369 1,530,514 Cash and cash equivalents, beginning of period 21,023,233 13,539,297 ------------ ------------ Cash and cash equivalents, end of period $ 23,545,602 $ 15,069,811 ============ ============ Supplemental disclosures of net cash paid during the period for: Income taxes $ 135,413 $ 240,447
See accompanying condensed notes to the consolidated financial statements 5 6 RIMAGE CORPORATION AND SUBSIDIARIES CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) BASIS OF PRESENTATION AND NATURE OF BUSINESS Rimage Corporation (the Company) develops, manufactures and distributes high performance CD-Recordable (CD-R) and DVD-Recordable (DVD-R) publishing and duplication systems, and continues to support its long-term involvement in diskette duplication and publishing equipment. The accompanying unaudited consolidated financial statements of the Company have been prepared pursuant to the rules of the Securities and Exchange Commission. These financial statements should be read in conjunction with the more detailed financial statements and notes thereto included in the Company's most recent annual report on Form 10-K. The Company extends unsecured credit to its customers as well as credit to a limited number of authorized distributor wholesalers, who in turn provide warehousing, distribution, and credit to a network of authorized value added resellers. These distributors and value added resellers sell and service a variety of hardware and software products. In the opinion of management, the accompanying consolidated financial statements reflect all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the financial position and results of operations and cash flows of the Company for the periods presented. Certain previously reported amounts have been reclassified to conform with the current presentation. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (Continued) 6 7 RIMAGE CORPORATION AND SUBSIDIARIES CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (2) ACQUISITION On March 1, 2000, the Company issued 497,496 shares of its common stock in exchange for all outstanding stock of Cedar Technologies, Inc. ("Cedar"), a manufacturer of CD-R desktop publishing and duplication equipment. The Company also assumed the obligations to issue 224,064 shares of its common stock upon exercise of outstanding options of Cedar and 177,894 shares of its common stock upon exercise of outstanding warrants of Cedar. The business combination was accounted for as a pooling-of-interests combination, and accordingly, the consolidated financial statements for periods prior to the combination have been restated to include the accounts and results of operations of Cedar. (3) INVENTORIES Inventories consist of the following as of:
March 31, December 31, 2001 2000 ----------- ------------- Finished goods and demonstration equipment $ 1,692,190 $ 1,239,034 Work-in-process 404,083 323,785 Purchased parts and subassemblies 1,716,253 1,373,300 ----------- ----------- $ 3,812,526 $ 2,936,119 =========== ===========
(4) COMPREHENSIVE INCOME The Company's only item of other comprehensive income relates to foreign currency translation adjustments, and is presented separately on the balance sheet as required. If presented on the statement of operations for the three months ended March 31, 2001 and 2000, comprehensive income would be $51,573 less than reported net income and $22,098 more than reported net income, respectively, due to foreign currency translation adjustments. (5) NEW ACCOUNTING PRONOUNCEMENTS Statement of Financial Accounting Standard No. 133 "Accounting for Derivative Instruments and Hedging Activities" as amended establishes new standards for recognizing all derivatives as either assets or liabilities, and measuring those instruments at fair value. The Company adopted SFAS No. 133 as of January 1, 2001. Adoption did not have a material impact on the Company's financial position or results of operations. 7 8 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.
Percentage (%) Percentage (%) of Revenues Increase/(Decrease) Three Months Ended March 31, Between Periods ---------------------------- ------------------- 2001 2000 2001 vs. 2000 ------ ------ ------------- Revenues 100.0 100.0 (22.5) Cost of revenues (47.6) (45.8) (19.3) ----- ----- ----- Gross profit 52.4 54.2 (25.2) Operating expenses: Research and development (12.5) (5.5) 75.6 Selling, general and administrative (24.2) (19.0) (1.4) Merger -- (4.1) N/A ----- ----- ----- Operating income 15.7 25.6 (52.5) Other income, net 0.9 0.8 (8.0) ----- ----- ----- Income before income taxes 16.6 26.4 (51.2) Income tax expense (6.3) (10.0) (51.2) ----- ----- ----- Net income 10.3 16.4 (51.2) ===== ===== =====
RESULTS OF OPERATIONS 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. REVENUES. Revenues decreased 22.5% from $13.2 million during the first quarter of 2000 to $10.2 million during the first quarter of 2001. The decrease in revenues was due to the absence of sales within the music fulfillment industry during the first quarter of 2001. The decrease was also due to the negative impact of the continued strengthening of the U.S. dollar on our European operations. As of and for the three months ended March 31, 2001, foreign revenues from unaffiliated customers, operating income, and net identifiable assets were $3,282,000, $112,000 and $4,016,000, respectively. As of and for the three months ended March 31, 2000, foreign revenues from unaffiliated customers, operating income, and net identifiable assets were $2,756,000, $94,000 and $2,955,000, respectively. The revenue growth is due to increasing penetration of CD-R products in the European markets. 8 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) GROSS PROFIT. Gross profit as a percent of revenues was 52.4% during the first quarter of 2001 compared to 54.2% of revenues during the same period of 2000. The decrease was primarily due to the lower sales volume during the first quarter of 2001 coupled with moderately lower gross profits on the Desktop line of products reflecting the introduction and start-up manufacturing expenses of this new product line. OPERATING EXPENSES. Operating expenses during the first quarter of 2001 were $3.7 million or 36.7% of revenues compared to $3.8 million or 28.6% of revenues during the same prior year period. The increase in percent was primarily a result of reduced sales volume and higher research and development expenses due to aggressive product development initiatives during the first quarter of 2001. Research and development expense during the first quarter of 2001 was $1.3 million, or 12.5% of revenues, compared to $725,000, or 5.5% of revenues, during the first quarter of 2000. The increase in operating expenses as a percent of revenues was offset by $541,000 of merger expenses incurred during the first quarter of 2000 from the acquisition of Cedar Technologies, Inc. OTHER INCOME (EXPENSE). The Company recognized net interest income on cash investments of $330,000 during the first quarter of 2001 compared to $202,000 during the first quarter of 2000. Other income was negatively impacted by foreign currency transaction losses during the first quarter of both 2001 and 2000. INCOME BEFORE INCOME TAXES. Income before income taxes decreased 51.2% to $1.7 million for the first quarter of 2001 from $3.5 million for the same prior year period. This decrease is the result of the absence of CD-R related product sales into the music-on-demand audio segment of the audio market combined with higher than normal research and development expenditures. INCOME TAXES. The provision for income taxes represents federal, state, and foreign income taxes on income before income taxes. Income tax expense for the first quarter of 2001 and 2000 amounted to $644,000 and $1.3 million, respectively or 38% of income before income taxes. LIQUIDITY AND CAPITAL RESOURCES The Company expects to fund its anticipated cash requirements (including the anticipated cash requirements of its capital expenditures) with internally generated funds and, if required, from the Company's existing credit agreement. Current assets are $36.3 million as of March 31, 2001 as compared to $35.7 million as of December 31, 2000. The allowance for doubtful accounts as a percentage of receivables was 7% and 6% as of March 31, 2001 and December 31, 2000, respectively. This increase is due to lower revenues during the latter part of the first quarter of 2001 compared to revenues during the same period of 2000. Current liabilities decreased approximately 9% to $5.1 million as of March 31, 2001 from $5.6 million as of December 31, 2000, primarily reflecting the payment of bonuses during the first quarter of 2001 that were accrued as of December 31, 2000. 9 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Net cash provided by operating activities was $2.6 million and $897,000 for the three months ended March 31, 2001 and 2000, respectively. This increase was primarily the result of timing of collection of trade accounts receivables. Net cash used in investing activities was $150,000 and $32,000 for the three months ended March 31, 2001 and 2000, respectively. Both amounts primarily reflect purchases of capital equipment for manufacturing. At March 31, 2001, the Company had commitments to purchase additional capital equipment totaling approximately $700,000 and $300,000 during calendar years 2001 and 2002, respectively. Net cash provided by financing activities of $121,000 and $682,000 during the three months ended March 31, 2001 and 2000, respectively reflected proceeds from stock option and warrant exercises. The Company believes that inflation has not had a material impact on its operations or liquidity to date. NEW EUROPEAN CURRENCY On January 1, 1999, eleven of the fifteen member countries of the European Union established fixed conversion rates between their existing currencies and the euro, a new European currency, and adopted the euro as their common legal currency (the "Euro Conversion"). Either the euro or a participating country's present currency will be accepted as legal tender from January 1, 1999 to January 1, 2002, from which date forward only the euro will be accepted. The Company has customers located in European Union countries participating in the Euro Conversion. Such customers will likely have to upgrade or modify their computer systems and software to comply with the euro requirements. The amount of money the Company anticipates spending in connection with product development related to the Euro Conversion is not expected to have a material adverse effect on the Company's results of operations or financial condition. The Euro Conversion may also have competitive implications for the Company's pricing and marketing strategies, which could be material in nature; however, any such impact is not known at this time. The Company has also modified its internal systems (such as payroll, accounting and financial reporting) to deal with the Euro Conversion. There is no assurance, however, that all problems related to the Euro Conversion will be foreseen and corrected, or that no material disruptions of the Company's business will occur. MARKET RISK DISCLOSURE The Company does not invest in any derivative financial instruments. See the Company's most recent annual report filed on form 10K (Item 7A.). There has been no material change in this information. 10 11 PART II -- OTHER INFORMATION Item 1. Legal Proceedings Not Applicable. 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 Not Applicable. Item 5. Other Information Not Applicable. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits: Exhibit No. 11.1 Calculation of Income Per Share. (b) Reports on Form 8-K: Not Applicable. 11 12 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: May 11, 2001 By: /s/ Bernard P. Aldrich -------------------- ------------------------------------ Bernard P. Aldrich Director, Chief Executive Officer, and President (Principal Executive Officer) (Principal Financial Officer) Date: May 11, 2001 By: /s/ Robert M. Wolf -------------------- ------------------------------------ Robert M. Wolf Treasurer (Principal Accounting Officer) 12