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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 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 QUARTER ENDED JUNE 30, 1997.
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 0-20933
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RASTER GRAPHICS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 94-3046090
(State of Incorporation) (I.R.S. Employer Identification Number)
3025 ORCHARD PARKWAY
SAN JOSE, CA 95134
(Address of principal executive office)
(408) 232-4000
(Registrant's telephone number)
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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 [ ]
As of August 1, 1997, there were 9,442,090 shares of Common Stock
outstanding.
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INDEX
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Balance Sheets as of June 30, 1997
and December 31, 1996 3
Condensed Consolidated Statements of Operations for the three
and six month periods ended June 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows for the six
month periods ended June 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 13
Item 5. Other Items 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURE 14
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
RASTER GRAPHICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
June 30, December 31,
1997 1996
------------ ------------
(Unaudited) (Restated,
Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 2,211 $ 2,963
Short-term investments 7,025 13,100
Accounts receivable, net of allowance
for doubtful accounts of $671 in 1997 15,393 10,070
and $606 in 1996
Inventories 10,597 6,705
Prepaid expenses 695 506
------------ ------------
Total current assets 35,921 33,344
Property and equipment, net 3,381 2,547
Deposits and other assets 463 687
------------ ------------
Total assets $ 39,765 $ 36,578
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,724 $ 4,953
Accrued payroll and related expenses 588 1,089
Accrued warranty 929 331
Other accrued liabilities 1,513 1,635
Deferred revenue 1,347 1,162
Current portion of long-term debt 150 303
------------ ------------
Total current liabilities 10,251 9,473
Long-term debt, less current portion 147 178
------------ ------------
Total liabilities 10,398 9,651
------------ ------------
Stockholders' equity:
Common stock 10 10
Additional paid in capital 43,065 42,746
Accumulated deficit (13,128) (15,417)
Deferred compensation (340) (392)
Notes receivable from stockholder -- (20)
Cumulative translation adjustment (240) --
------------ ------------
Total stockholders' equity 29,367 26,927
------------ ------------
Total liabilities and stockholders' equity $ 39,765 $ 36,578
------------ ------------
See accompanying notes to condensed consolidated financial statements.
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RASTER GRAPHICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- -------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
(Unaudited) (Restated, (Unaudited) (Restated,
Unaudited) Unaudited)
Net revenues $ 14,114 $ 10,205 $ 26,701 $ 19,527
Cost of revenues 8,184 6,040 15,401 11,854
----------- ----------- ----------- -----------
Gross profit 5,930 4,165 11,300 7,673
----------- ----------- ----------- -----------
Operating expenses:
Research and development 1,181 1,310 2,745 2,244
Sales and marketing 2,595 1,642 4,614 3,224
General and administrative 779 473 1,495 918
Merger expenses -- -- 139 --
----------- ----------- ----------- -----------
Total operating expenses 4,555 3,425 8,993 6,386
----------- ----------- ----------- -----------
Operating income 1,375 740 2,307 1,287
Other income, net 108 6 265 3
----------- ----------- ----------- -----------
Income before provision for income 1,483 746 2,572 1,290
taxes
Provision for income taxes 163 66 283 158
----------- ----------- ----------- -----------
Net income $ 1,320 $ 680 $ 2,289 $ 1,132
----------- ----------- ----------- -----------
Net income per share $ 0.13 $ 0.09 $ 0.23 $ 0.15
----------- ----------- ----------- -----------
Shares used in computing net income
per share 10,073 7,650 10,115 7,632
----------- ----------- ----------- -----------
See accompanying notes to condensed consolidated financial statements.
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RASTER GRAPHICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Six Months Ended
June 30,
--------------------------
1997 1996
------------ ------------
(Unaudited) (Restated,
Unaudited)
OPERATING ACTIVITIES
Net Income $ 2,289 $ 1,132
Adjustments to reconcile net income to net cash used
in operating activities:
Deferred revenue 185 88
Depreciation and amortization 602 464
Amortization of deferred compensation 52 --
Changes in operating assets and liabilities:
Accounts receivable (5,323) (1,086)
Inventories (3,892) (1,999)
Prepaid expenses and other assets 10 (385)
Accounts payable 771 2,238
Accrued payroll and related expenses (501) 186
Accrued warranty 598 119
Other accrued liabilities (122) (109)
------------ ------------
Net cash provided by (used in) operating activities (5,331) 648
------------ ------------
INVESTING ACTIVITIES
Capital expenditures (1,411) (581)
Net decrease in short-term investments 6,075 --
------------ ------------
Net cash provided by (used in) investing activities 4,664 (581)
------------ ------------
FINANCING ACTIVITIES
Proceeds from bank line of credit -- 250
Repayment of term loan (184) (180)
Repayment of note from shareholder 20 --
Proceeds from issuance of common stock 319 88
------------ ------------
Net cash provided by (used in) financing activities 155 158
------------ ------------
Effect of exchange rate changes on cash and
cash equivalents (240) --
------------ ------------
Net increase (decrease) in cash and cash equivalents (752) 225
Cash and cash equivalents at beginning of period 2,963 1,550
------------ ------------
Cash and cash equivalents at end of period $ 2,211 $ 1,775
------------ ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest $ 56 $ 37
Cash paid for taxes $ 67 $ 80
See accompanying notes to condensed consolidated financial statements.
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RASTER GRAPHICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared by Raster Graphics, Inc. (the "Company" or "Raster Graphics")
pursuant to the rules and regulations of the Securities and Exchange Commission
regarding interim financial reporting. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements and should be read in conjunction
with the audited financial statements included in the Company's Annual Report
and Form 10-K for the fiscal year ended December 31, 1996.
In the opinion of management the accompanying unaudited condensed
consolidated financial statements have been prepared on the same basis as the
audited financial statements and include all recurring adjustments necessary for
a fair presentation of the interim periods presented. The operating results for
the six months ended June 30, 1997 are not necessarily indicative of the results
for any other interim period or the full fiscal year ending December 31, 1997.
The unaudited condensed consolidated financial statements also include
adjustments that eliminated all significant intercompany transactions and
balances between the Company and ColourPass, which was merged into the Company's
wholly owned subsidiary, Raster Graphics Systems Limited effective March 18,
1997, for relevant periods prior to the merger (see Note 6). All periods
presented have been restated to reflect the merger which has been accounted for
as a pooling of interests.
2. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent 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.
3. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
For financial statement purposes, the Company considers all highly
liquid debt instruments with original maturities of ninety days or less and with
insignificant interest rate risk to be cash equivalents.
The Company classifies all of its investments as "available-for-sale" in
accordance with the provisions of Financial Accounting Standards Board Statement
No. 115 "Accounting for Certain Investments in Debt and Equity Securities."
Accordingly, the Company states its investments at estimated fair value, with
material unrealized gains and losses reported in stockholders' equity. The cost
of securities sold is based on the specific identification method. Such
securities are anticipated to be used for current operations and are, therefore,
classified as current assets, even though maturities may extend beyond one year.
As of June 30, 1997, the Company has $7.0 million of investments in
state and municipal bonds. These state and municipal bonds bear interest at a
rate that automatically resets to the prevailing market interest rate at
approximately 35-day intervals. At June 30, 1997, substantially all the
available-for-sale securities have principal maturity dates of over ten years.
The gross unrealized gains and gross unrealized losses at June 30, 1997 were
immaterial to the Company and, therefore, no amounts were recorded to
stockholders' equity.
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4. INVENTORIES
Inventories are stated at the lower of cost (first in, first out) or
fair market value and consist of the following (in thousands):
June 30, 1997 December 31, 1996
---------------- ------------------
Raw materials $ 3,105 $ 956
Work-in-progress 1,919 1,708
Finished goods 5,573 4,041
---------------- ------------------
$ 10,597 $ 6,705
---------------- ------------------
5. NET INCOME PER SHARE
Net Income per share is computed using the weighted average number of
shares of common stock and dilutive common equivalent shares from convertible
preferred stock (using the if-converted method) and from stock options and
warrants (using the modified treasury stock method). Pursuant to the Securities
and Exchange Commission Staff Accounting Bulletins, common stock and common
equivalent shares issued by the Company at prices below the initial public
offering price during the twelve month period prior to the Company's initial
public offering have been included in the calculation as if they were
outstanding for all periods presented regardless of whether they are dilutive
(using the modified treasury stock method).
In February 1997, the Financial Accounting Standards Board issued
Statement Number 128, "Earnings per Share" (FAS 128), which is required to be
adopted on December 31, 1997. At that time, the Company will be required to
change the method currently used to compute earnings per share and to restate
all prior periods. Under the requirements of FAS 128, entities will be required
to report "basic" and "diluted" earnings per share.
Basic earnings per share is calculated by dividing the net income for
each period by the weighted average number of common stock outstanding during
the period. Basic earnings per share and the number of shares used in the
calculation are set forth in the following table for the periods indicated.
Three months ended Six months ended
--------------------- ---------------------
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
--------------------- ---------------------
Basic earnings per share $ 0.14 $ 1.02 $ 0.25 $ 1.79
Shares used in computing
basic earnings per share 9,392 664 9,338 632
The basic earnings per share calculation for the three and six months
ended June 1996 excludes, among others, 5.4 million shares of convertible
preferred stock that converted to common stock in August 1996 upon the
completion of the Company's initial public offering. The Company does not expect
the new diluted earnings per share calculation to be materially different from
net income per share as reported.
6. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement
Number 130, "Reporting of Comprehensive Income". This Statement requires that
all items that are to be required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. This Statement
is effective for fiscal years beginning after December 15, 1997, and will be
adopted by the Company for the year ended December 31, 1998.
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In addition, during June 1997, the Financial Accounting Standards Board
issued Statement Number 131, "Disclosures About Segments of an Enterprise and
Related Information". This Statement replaces Statement Number 14 and changes
the way public companies report segment information. This Statement is effective
for fiscal years beginning after December 15, 1997 and will be adopted by the
Company for the year ended December 31, 1998.
7. MERGER
On March 18, 1997, the Company completed a merger with ColourPass, a
business in the United Kingdom, in which ColourPass was merged into Raster
Graphics System Limited, a wholly owned subsidiary of the Company.
The combination was accounted for as a pooling of interests.
Accordingly, the condensed consolidated statements of operations for the three
and six months ended June 30, 1997, and June 30, 1996, respectively, the balance
sheets as of June 30, 1997 and December 31, 1996, respectively, and all related
footnotes presented herein have been restated to include the accounts of Raster
Graphics, Inc. and ColourPass.
The table below sets forth the composition of combined revenues and net
income (loss) for the periods indicated. Merger related expenses of $105,000 and
$34,000 were included in the Raster Graphics, Inc. and ColourPass net income,
respectively.
Three months ended Six months ended
-------------------------- --------------------------
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
-------------------------- --------------------------
Revenues
Raster Graphics, Inc $ 13,215 $ 9,560 $ 24,780 $ 18,151
ColourPass 899 645 1,921 1,376
----------- ----------- ----------- -----------
Combined $ 14,114 $ 10,205 $ 26,701 $ 19,527
----------- ----------- ----------- -----------
Net Income (loss)
Raster Graphics, Inc $ 1,131 $ 712 $ 1,906 $ 1,201
ColourPass 189 (32) 383 (69)
----------- ----------- ----------- -----------
Combined $ 1,320 $ 680 $ 2,289 $ 1,132
----------- ----------- ----------- -----------
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following should be read in conjunction with the unaudited condensed
consolidated financial statements and notes thereto included in Part I -- Item 1
of this Quarterly Report and the audited financial statements and notes thereto
and Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in the Company's Annual Report and Form 10-K for the fiscal
year ended December 31, 1996.
OVERVIEW
Raster Graphics was established in 1987 initially to develop low-cost
electrostatic raster printers for the computer-aided design ("CAD") market.
Raster Graphics commenced shipments of its first printer, a 22-inch printer, in
1989, followed by a 24-inch printer in 1990 and a 36-inch printer in 1992.
In 1993, the Company identified the on-demand production large format
digital printing ("LFDP") market as a new opportunity to develop a product based
on its proprietary high-speed printhead technology. As a result, in 1993 the
Company shifted its product focus and began to develop the DCS 5400, an
electrostatic printer, specifically for the LFDP market. The Company began
shipping the DCS 5400 in July 1994. The Company began commercial production of
the DCS 5442 in January 1996 as a second generation to the DCS 5400. By
September 1996, the DCS 5442 substantially replaced the DCS 5400. In December
1996, the Company introduced the PiezoPrintTM 1000, an inkjet printer
manufactured by a third party, that is targeted at the lower priced entry level
production market. In March 1997, the Company introduced the PiezoPrintTM 5000
as a mid-range, price/performance inkjet printer to complement the affordable
PiezoPrintTM 1000 inkjet printer and the high production DCS 5442. Although the
Company has no current plans to replace any printer in its current line of
products, the future success of the Company will likely depend on its ability to
continue to develop market leading products for the production segment of the
LFDP market.
In order to provide a complete digital printing solution to its
customers, the Company began shipping Onyx's image processing software with its
digital printers in July 1994. Onyx develops and markets image processing
software for the Company's digital printers as well as printers manufactured by
companies such as CalComp, Encad, Hewlett-Packard and ColorgrafX. In August
1995, the Company acquired Onyx. Onyx supplies its software to Raster Graphics
and also sells its software products to OEMs, VARs, systems integrators and
other printer manufacturers. Onyx's current image processing software product,
PosterShop, was introduced in April 1996 as a replacement for Onyx's Imagez
image processing software product, which Onyx had been shipping since May 1991.
Although the Company has no current plans to replace its PosterShop product, the
Company will likely introduce new versions of its image processing software in
the future.
Raster Graphics also sells related consumables, including specialized
inks and papers that it acquires from third party suppliers and resells under
the Raster Graphics name for use in the Company's digital printers. The sale of
consumables generates recurring revenues, which the Company believes will
continue to increase to the extent that the installed base of printing systems
expands. As the Company develops new printers, it may need to develop new
consumables to be used by its new printer products.
In the United States, Raster Graphics also derives revenues from
maintenance contracts on installed systems and printers, including the Company's
installed base of 22-inch, 24-inch and 36-inch printers. Revenue is also
generated from the sale of spare parts.
Raster Graphics' end-user customers, OEMs, VARs, and international
distributors submit purchase orders that generally require product shipment
within two to eight weeks from receipt of order. Accordingly, the Company does
not use order backlog as a primary basis for management planning for longer
periods. Revenues are recognized upon shipment if there are no contingencies. If
contingencies exist, revenues are recognized only when such contingencies are
removed by the customer.
The Company is in the process of setting up a customer finance program,
Raster Graphics Financial Services (RGFS), a division of Raster Graphics Inc.,
to provide customers with financing options for Raster Graphics printing
systems. The program is expected to be fully operational by October 1997. RGFS
third party financial partners will take title of the equipment and manage the
financial portfolio.
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The Company has a limited operating history upon which an evaluation of
the Company and its prospects can be based. The Company's prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in the early stages of development, particularly
companies in new and rapidly evolving markets. To address these risks, the
Company must, among other things, respond to competitive developments, attract,
retain and motivate qualified persons, and continue to upgrade its technologies
and commercialize products and services incorporating such technologies. There
can be no assurance that the Company will be successful in addressing these
risks. As of June 30, 1997, the Company had an accumulated deficit of $13.1
million. Although the Company was marginally profitable in 1995 and 1996, there
can be no assurance that the Company will be profitable in the future.
RESULTS OF OPERATIONS
ColourPass merged into Raster Graphics Systems Limited, a wholly owned
subsidiary of the Company, on March 18, 1997. The merger has been accounted for
as a pooling of interest, and accordingly, the financial results presented have
been restated to include ColourPass.
The following table sets forth certain consolidated statements of income
data as a percentage of net sales for the periods indicated.
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
1997 1996 1997 1996
----- ----- ----- -----
Net revenues 100.0% 100.0% 100.0% 100.0%
Cost of revenues 58.0 59.2 57.7 60.7
Gross profit 42.0 40.8 42.3 39.3
Operating expenses:
Research and development 8.4 12.8 10.3 11.5
Sales and marketing 18.4 16.1 17.3 16.5
General and administrative 5.5 4.6 5.6 4.7
Merger expenses -- -- 0.5 --
Total operating expenses 32.3 33.5 33.7 32.7
Operating income 9.7 7.3 8.6 6.6
Other income, net 0.8 -- 1.0 --
Income before provision for income 10.5 7.3 9.6 6.6
taxes
Provision for income taxes 1.2 0.6 1.0 0.8
Net income 9.3 6.7 8.6 5.8
Net Revenues. Net revenues for the three and six months ended June 30,
1997 were $14.1 million and $26.7 million, respectively, an increase of 38.3%
and 36.7%, respectively, over the comparable periods of fiscal 1996. The
increase can be attributed to the growth in sales of printer systems following
the introduction of the PiezoPrintTM 1000 in December 1996, and the PiezoPrintTM
5000 in March 1997, increased sales by the Company's United Kingdom and German
subsidiaries, and the increase in sales of consumables.
Future revenue growth will depend on a number of factors, including the
Company's ability to develop, manufacture, market and sell innovative and
reliable new products, customer satisfaction, market growth, competitive
developments, product mix, vendor performance and the Company's ability to
manage growth, if any.
International sales, which include export sales and direct sales of the
Company's German and United Kingdom operations, were $8.6 million and $16.0
million for the three and six months ended June 30, 1997, respectively, an
increase of 50.5% and 44.3%, respectively, over the comparable periods of fiscal
1996. These sales represented 61.1% and 59.8% of net revenue for the three and
six months ended June 30, 1997, respectively, increasing from 56.2% and 56.7%
for the comparable periods of fiscal 1996, respectively. The increase in
international sales was a result of increased international customer acceptance
of the Company's printer systems, and increased sales made by the
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Company's German and United Kingdom subsidiaries. Sales made by the Company's
German and United Kingdom subsidiaries are denominated in local currencies. The
Company is subject to transaction exposure that arises from foreign exchange
movements between the dates foreign currency sales are recorded and the dates
cash is received in the foreign currency. To date, the Company has not found it
appropriate to hedge the risks of foreign sales subject to fluctuations in
exchange rates.
Future international revenues will depend on the factors set forth
above, and will be subject to unexpected changes in regulatory requirements and
tariffs, longer customer payment cycles, fluctuation in currency exchange rates,
seasonal factors and risks associated with managing business operations in
geographically distant locations. No assurance can be given that international
revenues will continue to grow at current rates, or at all.
Gross Profit. The Company's gross profit for the three and six months
ended June 30, 1997 was $5.9 million and $11.3 million, respectively, an
increase of 42.4% and 47.3%, respectively, over the comparable periods of fiscal
1996. The increase in gross profit was primarily the result of increased net
revenues. Gross profit represented 42.0% and 42.3% of net revenue for the three
and six months ended June 30, 1997, respectively, increasing from 40.8% and
39.3% for the comparable periods of fiscal 1996, respectively. The improvement
in gross profit as a percentage of net revenues was primarily due to the
allocation of fixed costs over a larger number of units sold and increased sales
to end-user customers in the United Kingdom.
The Company's future level of gross profit will depend on a number of
factors, including its ability to manage product mix, control variable expenses
relative to revenue levels, maintain a revenue base over which to allocate fixed
costs, and continue to develop, manufacture, market and sell innovative and
reliable new products.
Research and Development. Research and development expenses for the
three months ended June 30, 1997 were $1.2 million, a decrease of 9.8% in
comparison to the three months ended June 30, 1996. This decrease is attributed
to a significant level of material purchases for prototype development of the
PiezoPrintTM products during the second quarter of fiscal 1996. Research and
development expenses for the six months ended June 30, 1997 were $2.7 million,
an increase of 22.3% in comparison to the six months ended June 30, 1996. This
increase in research and development expenses for the first six months was
primarily due to product development expenses associated with the launch of the
new PiezoPrintTM 5000 inkjet printer during the first quarter of fiscal 1997.
The Company intends to continue to dedicate substantial resources to research
and development activities to maintain its leadership in the LFDP market. The
Company intends to expand its product lines, including printers, to achieve
lower price points and higher image quality, and to enhance its PosterShop image
processing software. Accordingly, the Company believes that research and
development expenses will continue to increase in the future.
Sales and Marketing. Sales and marketing expenses for the three months
ended June 30, 1997 were $2.6 million, an increase of 58.0% in comparison to the
three months ended June 30, 1996. Sales and marketing expenses for the six
months ended June 30, 1997 were $4.6 million, an increase of 43.1% in comparison
to the six months ended June 30, 1996. As a percentage of net revenues, sales
and marketing expenses were 18.4% and 17.3% for the three and six months ended
June 30, 1997, respectively, as compared to 16.1% and 16.5% for the comparable
period of fiscal 1996. The increase in sales and marketing expenses was
primarily a result of tradeshow expenses associated with the promotion of the
new PiezoPrintTM products and the expansion of the Company's domestic and
international sales force. The Company expects to continue to increase its sales
and marketing expenses in an effort to expand domestic and international
markets, introduce new products, and establish and expand new distribution
channels.
General and Administrative. General and administrative expenses for the
three months ended June 30, 1997 were $779,000, an increase of 64.7% in
comparison to the three months ended June 30, 1996. General and administrative
expenses for the six months ended June 30, 1997 were $1.5 million, an increase
of 62.9% in comparison to the six months ended June 30, 1996. As a percentage of
net revenues, general and administrative expenses remained relatively flat at
5.5% and 5.6% for the three and six months ended June 30, 1997, respectively, as
compared to 4.6% and 4.7% for the three and six months ended June 30, 1996. The
increase in absolute dollars reflected the increased cost of operating as a
public company and an increase in staffing. The Company believes that its
general and administrative expenses will increase as the Company continues to
build its infrastructure.
Merger Expenses. On March 18, 1997, the Company completed a merger with
ColourPass, a business in the United Kingdom. Approximately $139,000 of expense
was incurred in connection with this transaction.
As part of its business strategy, the Company expects to make
acquisitions of businesses that offer complementary products, services and
technologies. Future acquisitions will be accompanied by the risks commonly
encountered in acquisitions of businesses. Such risks include, among other
things, the difficulty of assimilating the operations and personnel of the
acquired businesses, the potential disruption of the Company's ongoing business,
the inability of management to maximize the financial and strategic position of
the Company, the maintenance of uniform standards, controls, procedures and
policies and the impairment of relationships with employees and clients as a
result of any integration of new management personnel. These factors could have
a material adverse effect on the Company's business, results of operations of
financial condition. Consideration paid for future acquisitions, if any, could
be in the form of cash, stock, rights to purchase stock or a combination
thereof. Dilution to existing stockholders and to earnings per share may result
to the extent that the shares of stock or other rights to purchase stock are
issued in connection with any such future acquisitions.
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Provision for Income Taxes. The Company has recorded a provision for
income taxes in the three and six months ended June 30, 1997 utilizing the
anticipated annual effective income tax rate of 11.0%. For three and six months
ended June 30, 1996 income taxes have been provided based upon estimated
effective tax rates of 8.8% and 12.2%, respectively, applied to earnings for the
period. The provisions for income taxes for the three and six month periods
ended June 30, 1997 and 1996 differ from the statutory federal income tax rate
primarily due to the tax benefit of utilizing net operating loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily
through its initial public offering of common stock, private sales of preferred
stock and common stock, issuance of convertible debt, bank loans, equipment
lease financing and private loans. At June 30, 1997, the Company had $9.2
million of cash, cash equivalents and short-term investments, a decrease of $6.9
million from the December 31, 1996 balance of $16.1 million. Working capital
increased to $25.7 million at June 30, 1997 from $23.9 million at December 31,
1996. The Company also has available a $5.0 million bank line of credit that
expires on December 14, 1997, which is secured by the tangible assets of the
Company. At June 30, 1997, there were no borrowings outstanding under the bank
line of credit.
Net cash used in operating activities during the first six months of
fiscal 1997 was $5.3 million due primarily to increases in accounts receivable
of $5.3 million and inventory of $3.9 million. Accounts receivable increased
because of the high volume of shipments made towards the end of the quarter and
extended payment terms granted to customers as the Company continues to expand
its presence in international markets. Inventory levels, specifically
consumables and finished goods, were increased to support the potential shift in
product mix following the introduction of the PiezoPrintTM 1000 in December 1996
and the PiezoPrintTM 5000 in March 1997.
During the six month period ended June 30, 1997 the Company paid
approximately $1.4 million for capital expenditures compared to $581,000 for the
same period of the prior year.
To finance the working capital needs and the purchase of capital
equipment, the Company reduced its short-term investments. Other financing
activities principally consisted of cash received from the exercises of
incentive stock options and employee stock purchase plan in the amount of
$319,000 offset by the repayment of term loans in the amount of $184,000 for the
six months ended June 30, 1997.
The Company believes that the existing financial resources will be
sufficient to finance its capital requirements through at least the next 12
months. Thereafter, the Company may require additional funds to support its
working capital requirements or for other purposes and may seek to raise such
additional funds through bank borrowings and public or private sales of its
securities, including equity and debt securities. The Company's future capital
requirements, however, depend on numerous factors, including, without
limitation, the success of marketing, sales and distribution efforts; the
progress of its research and development programs; the costs involved in
preparing, filing, prosecuting, defending and enforcing intellectual property
rights; competition; competing technological and market developments; and the
effectiveness of product commercialization activities and arrangements. There
can be no assurance that additional funds, if required, will be available to the
Company on favorable terms or at all.
FORWARD LOOKING STATEMENTS
The Company notes that certain of the foregoing statements in this
report are forward-looking, the accuracy of which is necessarily subject to
risks and uncertainties. Actual results may differ materially from the
statements made due to a variety of factors including, but not limited to, (i)
fluctuations in quarterly results, (ii) risks related to international
operations, (iii) competitive products and technologies, (iv) ability of the
Company to upgrade its technologies and commercialize products, and (v) other
risk factors described in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996, and such other documents that are filed from time to
time with the Securities and Exchange Commission.
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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
1. The 1997 Annual Meeting of Stockholders of the Company was held pursuant
to notice at 1:30 p.m., Pacific time on June 3, 1997 at the Company's offices in
San Jose, California. There were present at the meeting, in person or
represented by the proxy, the holders of 6,620,244 shares of Common Stock. The
matters voted on at the meeting and the votes cast are as follows:
(a) As listed below, all the Management's nominees for Class I Directors
were elected at the meeting:
No. of Common No. of Common
Name of Nominee Votes in Favor Votes Withheld
--------------- -------------- --------------
Rakesh Kumar 6,600,944 19,300
Delbert W. Yocam 6,600,889 19,355
(b) The appointment of Ernst & Young LLP as independent public
accountants of the company for the fiscal year ending December 31, 1997 was
ratified and approved with 6,610,635 Common shares voting in favor, 2,600 Common
shares voting against and 7,009 Common shares abstaining.
ITEM 5. OTHER ITEMS
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: See exhibit index on page 15
(b) Reports on Form 8-K: None
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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.
RASTER GRAPHICS, INC.
By: /s/ Dennis Mahoney
--------------------------------------
Dennis Mahoney
Chief Financial Officer
Date: August 12, 1997
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EXHIBIT INDEX
EXHIBITS
--------
10.14 Assignment of Lease, dated June 27, 1997, by and between Kaman
Music Corporation, Coast Wholesale Music Division, and the
Registrant
11.1 Statement of Computation of net income per share
27.1 Financial Data Statement
15