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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 SEPTEMBER 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
================================================================================
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)
================================================================================
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 November 1, 1997, there were 9,560,385 shares of Common Stock outstanding.
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INDEX
Page
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Balance Sheets as of September 30, 1997
and December 31, 1996 3
Condensed Consolidated Statements of Income for the three
and nine month periods ended September 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows for the nine
month periods ended September 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 2. Changes in Securities and Use of Proceeds 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURE 15
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
RASTER GRAPHICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
September 30, December 31,
1997 1996
-------- --------
(Restated)
ASSETS
Current assets:
Cash and cash equivalents $ 3,559 $ 2,963
Short-term investments 4,681 13,100
Accounts receivable, net of
allowance for doubtful accounts
of $835 in 1997 and $606 in 1996 18,709 10,070
Inventories 11,066 6,705
Prepaid expenses 725 506
-------- --------
Total current assets 38,740 33,344
Property and equipment, net 4,162 2,547
Intangible assets 1,484 102
Deposits and other assets 403 585
-------- --------
Total assets $ 44,789 $ 36,578
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,579 $ 4,953
Accrued payroll and related expenses 1,098 1,089
Accrued warranty 728 331
Other accrued liabilities 3,464 1,635
Deferred revenue 1,330 1,162
Borrowings under bank line of credit 2,000 --
Current portion of long-term debt 180 303
-------- --------
Total current liabilities 14,379 9,473
Long-term debt, less current portion 38 178
Stockholders' equity:
Common stock 10 10
Additional paid in capital 43,181 42,746
Accumulated deficit (12,239) (15,417)
Deferred compensation (313) (392)
Notes receivable from stockholder -- (20)
Cumulative translation adjustment (267) --
-------- --------
Total stockholders' equity 30,372 26,927
-------- --------
Total liabilities and stockholders' equity $ 44,789 $ 36,578
======== ========
See accompanying notes to condensed consolidated financial statements.
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RASTER GRAPHICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1997 1996 1997 1996
------- ------- ------- -------
(Restated) (Restated)
Net revenues $14,330 $10,960 $41,031 $30,487
Cost of revenues 8,473 6,461 23,874 18,315
------- ------- ------- -------
Gross profit 5,857 4,499 17,157 12,172
------- ------- ------- -------
Operating expenses:
Research and development 1,524 1,082 4,269 3,326
Sales and marketing 2,543 1,868 7,157 5,092
General and administrative 885 598 2,380 1,516
Merger expenses -- -- 139 --
------- ------- ------- -------
Total operating expenses 4,952 3,548 13,945 9,934
------- ------- ------- -------
Operating income 905 951 3,212 2,238
Other income, net 93 110 358 113
------- ------- ------- -------
Income before provision for
income taxes 998 1,061 3,570 2,351
Provision for income taxes 109 124 392 282
------- ------- ------- -------
Net income $ 889 $ 937 $ 3,178 $ 2,069
======= ======= ======= =======
Net income per share $ 0.09 $ 0.10 $ 0.31 $ 0.25
======= ======= ======= =======
Shares used in computing net
income per share 10,132 9,170 10,115 8,146
======= ======= ======= =======
See accompanying notes to condensed consolidated financial statements.
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RASTER GRAPHICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Nine Months Ended
September 30,
----------------------
1997 1996
-------- --------
(Restated)
OPERATING ACTIVITIES
Net income $ 3,178 $ 2,069
Adjustments to reconcile net income to
net cash used in operating activities:
Deferred revenue 168 14
Depreciation and amortization 968 704
Amortization of deferred compensation 79 --
Changes in operating assets and liabilities:
Accounts receivable (8,189) (2,289)
Inventories (4,021) (2,081)
Prepaid expenses and other assets 98 (373)
Accounts payable (309) 967
Accrued payroll and related expenses (91) 126
Accrued warranty 397 39
Other accrued liabilities 229 632
-------- --------
Net cash used in operating activities (7,493) (192)
-------- --------
INVESTING ACTIVITIES
Capital expenditures (2,245) (1,160)
Net decrease in short-term investments 8,419 --
Datagraph acquisition, net of cash acquired (10) --
-------- --------
Net cash provided by (used in) investing activities 6,164 (1,160)
-------- --------
FINANCING ACTIVITIES
Proceeds from bank line of credit 2,000 --
Repayment of term loan (263) (263)
Repayment of note from shareholder 20 --
Proceeds from issuance of common stock 435 17,077
-------- --------
Net cash provided by financing activities 2,192 16,814
-------- --------
Effect of exchange rate changes on cash and
cash equivalents (267) --
-------- --------
Net increase (decrease) in cash and cash equivalents 596 15,462
Cash and cash equivalents at beginning of period 2,963 1,550
-------- --------
Cash and cash equivalents at end of period $ 3,559 $ 17,012
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest $ 69 $ 58
Cash paid for taxes $ 84 $ 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. All intercompany
transactions have been eliminated.
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 nine months ended September 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 with the Company
on March 18, 1997 for relevant periods prior to the merger. All periods
presented have been restated to reflect the merger which has been accounted for
as a pooling of interests (see Note 7).
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 short-term 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 September 30, 1997, the Company had $4.7 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 September 30, 1997, substantially all
available-for-sale securities had principal maturity dates of over ten years.
The gross unrealized gains and gross unrealized losses at September 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):
September 30, 1997 December 31, 1996
------- -------
Raw materials $ 3,306 $ 956
Work-in-progress 1,257 1,708
Finished goods 6,503 4,041
------- -------
$11,066 $ 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 shares 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 Nine months ended
----------------------- ------------------------
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
------ ------ ------ ---------
Basic earnings per share $ 0.09 $ 0.17 $ 0.34 $ 0.90
====== ====== ====== =========
Shares used in computing
basic earnings per share
(in thousands) 9,490 5,609 9,384 2,291
====== ====== ====== =========
The basic earnings per share calculation for the three and nine months
ended September 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 currently 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, in 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. BUSINESS COMBINATIONS
On March 18, 1997, the Company completed a merger with ColourPass, a
business in the United Kingdom, in which ColourPass was merged with 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 nine months
ended September 30, 1997 and September 30, 1996, respectively, the balance
sheets as of September 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. Pursuant to the terms of the merger, the
Company filed a Form S-3 registration statement on November 3, 1997 to allow for
the resale of 73,475 shares of the Company's Common Stock.
The table below sets forth the composition of combined revenues and net
income (loss) for the periods indicated (in thousands). Merger related expenses
of $105,000 and $34,000 incurred in the first quarter of 1997 were included in
the Raster Graphics, Inc. and ColourPass net income, respectively.
Three months ended Nine months ended
-------------------------- --------------------------
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
-------- -------- -------- --------
Revenues
Raster Graphics, Inc $ 13,803 $ 10,212 $ 38,583 $ 28,363
ColourPass 527 748 2,448 2,124
-------- -------- -------- --------
Combined $ 14,330 $ 10,960 $ 41,031 $ 30,487
======== ======== ======== ========
Net Income (loss)
Raster Graphics, Inc $ 982 $ 964 $ 2,888 $ 2,165
ColourPass (93) (27) 290 (96)
-------- -------- -------- --------
Combined $ 889 $ 937 $ 3,178 $ 2,069
======== ======== ======== ========
On September 30, 1997, Raster Graphics acquired Datagraph, a
French-based distributor of large-format digital imaging systems. In exchange
for the outstanding stock of Datagraph, the Company agreed to pay approximately
$1,100,000 in a series of payments through September 30, 1998. The acquisition
was accounted for as a purchase. Including acquisition costs, the transaction
resulted in an intangible asset of $1,420,000, which is being amortized over
five years. The operating results of Datagraph prior to the acquisition are not
material in relation to the Company.
SUBSEQUENT EVENTS
Effective October 20, 1997, Dennis Mahoney, Vice President and Chief
Financial Officer, left the Company to pursue other interests.
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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, 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. 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 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 image processing software, purchased from
Onyx Graphics, Inc. ("Onyx"), with its digital printers in July 1994. In August
1995, the Company acquired Onyx. As well as sales to Raster Graphics, Onyx sells
its software products to OEMs, VARs, systems integrators and other printer
manufacturers such as CalComp, Encad, Hewlett-Packard, ColorgrafX and Laser
Master. Onyx's current image processing software product, PosterShopTM, was
introduced in April 1996 as a replacement for Onyx's Imagez image processing
software product. 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.
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.
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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 September 30, 1997, the Company had an accumulated deficit of $12.2
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 with 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
operations data as a percentage of net revenues for the periods indicated.
Three Months Ended Nine Months Ended
September 30, September 30,
---------------- ----------------
1997 1996 1997 1996
----- ----- ----- -----
Net revenues 100.0% 100.0% 100.0% 100.0%
Cost of revenues 59.1 59.0 58.2 60.1
----- ----- ----- -----
Gross profit 40.9 41.0 41.8 39.9
----- ----- ----- -----
Operating expenses:
Research and development 10.6 9.9 10.4 10.9
Sales and marketing 17.7 17.0 17.5 16.7
General and administrative 6.2 5.5 5.8 5.0
Merger expenses -- -- 0.3 --
----- ----- ----- -----
Total operating expenses 34.5 32.4 34.0 32.6
----- ----- ----- -----
Operating income 6.4 8.6 7.8 7.3
Other income, net 0.6 1.0 0.9 0.4
----- ----- ----- -----
Income before provision for income taxes 7.0 9.6 8.7 7.7
Provision for income taxes 0.8 1.1 1.0 0.9
----- ----- ----- -----
Net income 6.2 8.5 7.7 6.8
===== ===== ===== =====
Net Revenues. Net revenues for the three and nine months ended September
30, 1997 were $14.3 million and $41.0 million, respectively, an increase of
30.7% and 34.6%, respectively, over the comparable periods of fiscal 1996. The
increase is primarily attributable to growth in sales of consumables as the
Company continues to expand its family of inks and papers for the newer
PiezoPrintTM 5000 printer. Sales of printer systems, specifically the
PiezoPrintTM 1000 and PiezoPrintTM 5000 products, also contributed to the
increase in revenue.
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, United Kingdom and French operations, were $7.5 million and
$23.4 million for the three and nine months ended September 30, 1997,
respectively, an increase of 6.1% and 29.5%, respectively, over the comparable
periods of fiscal 1996. These sales represented 52.0% and 57.1% of net revenue
for the three and nine months ended September 30, 1997, respectively, decreasing
from 64.1% and 59.3% for the comparable periods of fiscal 1996, respectively.
While international customer acceptance of the Company's printer systems
continues to grow, the Company's German and United Kingdom subsidiaries
experienced a reduction in sales of software and printer systems during the
quarter
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which contributed to the decrease in international sales as a percentage of net
revenues. The Company believes that the quarter's percentage decline in
international sales is temporary and anticipates that international sales will
return to historical percentages. Sales made by the Company's German, United
Kingdom and French 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. All international sales made by the Company's domestic
operations are denominated in United States Dollars and are not subject to
foreign exchange movements.
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 nine months
ended September 30, 1997 was $5.9 million and $17.2 million, respectively, an
increase of 30.2% and 41.0%, respectively, over the comparable periods of fiscal
1996. The increase in gross profit was primarily the result of increased net
revenues. Gross profit represented 40.9% and 41.0% of net revenues for the three
months ended September 30, 1997 and 1996, respectively. For the nine months
ended September 30, 1997 and 1996, respectively, gross profit represented 41.8%
and 39.9% of net revenues. The slight decrease in gross profit as a percentage
of net revenues during the quarter was primarily due to the decline of sales to
end-user customers in the United Kingdom which have a higher gross margin. The
increase in gross profit for the year to date is attributed to the allocation of
fixed costs over a larger volume of units sold.
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 September 30, 1997 were $1.5 million, an increase of 40.9% in
comparison to the three months ended September 30, 1996. Research and
development expenses for the nine months ended September 30, 1997 were $4.3
million, an increase of 28.4% in comparison to the nine months ended September
30, 1996. This increase is attributed to an increase in staffing and related
benefits, including recruiting and relocation expenses, and consultant fees
associated with development of new products. 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 faster speed and higher image
quality, and to enhance its PosterShop image processing software.
Sales and Marketing. Sales and marketing expenses for the three months
ended September 30, 1997 were $2.5 million, an increase of 36.1% in comparison
to the three months ended September 30, 1996. Sales and marketing expenses for
the nine months ended September 30, 1997 were $7.2 million, an increase of 40.6%
in comparison to the nine months ended September 30, 1996. The increase in sales
and marketing expenses was primarily a result of increased staffing and related
benefits, tradeshow expenses associated with the promotion of the new PiezoPrint
products and increased selling costs related to higher revenues. 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 September 30, 1997 were $885,000, an increase of 48.0% in
comparison to the three months ended September 30, 1996. General and
administrative expenses for the nine months ended September 30, 1997 were $2.4
million, an increase of 57.0% in comparison to the nine months ended September
30, 1996. The increase reflected the increased cost of operating as a public
company and an increase in staffing and related benefits. The Company believes
that its general and administrative expenses will increase as the Company
continues to build its infrastructure.
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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.
On September 30, 1997, the Company acquired Datagraph, a French-based
distributor of large-format digital imaging systems. The acquisition was
accounted for as a purchase. Including acquisition costs, the transaction
resulted in an intangible asset of $1,420,000, which is being amortized over
five years.
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 or
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 shares of stock or other rights to purchase stock are issued
in connection with any such future acquisitions.
Provision for Income Taxes. The Company has recorded a provision for
income taxes in the nine months ended September 30, 1997 utilizing the
anticipated annual effective income tax rate of 11.0%. For the nine months ended
September 30, 1996 the estimated effective tax rate was 12.0%. The provisions
for income taxes for the nine month periods ended September 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 September 30, 1997, the Company had $8.2
million of cash, cash equivalents and short-term investments, a decrease of $7.9
million from the December 31, 1996 balance of $16.1 million. Working capital
increased to $24.4 million at September 30, 1997, from $23.9 million at December
31, 1996. The Company also has available a $5.0 million bank line of credit that
is secured by the tangible assets of the Company. The credit facility expires on
December 14, 1997, and management currently expects to renew the facility under
similar terms and conditions. At September 30, 1997, $2.0 million was
outstanding under the bank line of credit.
Net cash used in operating activities during the first nine months of
fiscal 1997 was $7.5 million due primarily to increases in accounts receivable
of $8.2 million and inventory of $4.0 million. The increase in accounts
receivable reflects increased sales levels and payment terms granted under
distributor programs designed to stimulate sales of the recently introduced
PiezoPrintTM 5000. Inventory levels increased due to several reasons, including
an increase of demonstration equipment to support an increased number of
tradeshows, an increase in consumables related to the introduction of media
products for the PiezoPrintTM 5000, and an increase in finished goods due to
lower than anticipated printer system revenues.
During the nine month period ended September 30, 1997, the Company paid
approximately $2.2 million for capital expenditures compared to $1.2 million 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 borrowing against the bank line of credit in
the amount of $2.0 million and cash received from the exercises of incentive
stock options and employee stock purchase plan in the amount of $435,000 for the
nine months ended September 30, 1997.
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The Company has implemented a program under which customers are
introduced to financing institutions through a third party broker by the
Company. Through this program, customers are able to obtain lease financing for
their purchases with the Company receiving the associated payment directly from
the financial institution. There is no recourse against the Company.
On June 25, 1997, the Company loaned $90,000 to Dennis Mahoney, Vice
President and Chief Financial Officer of the Company. The loan is secured by
shares of the Company's stock and a second deed of trust. Principal and accrued
interest, at the rate of 6.8% per annum, is due and payable to the Company upon
the termination of Mr. Mahoney's consulting relationship with the Company.
Effective October 20, 1997, Mr. Mahoney left his position as Vice President and
Chief Financial Officer of the Company to pursue other interests.
The Company believes that the existing financial resources will be
sufficient to finance its capital requirements through the foreseeable future.
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 and 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 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In connection with its initial public offering in 1996, the Company
filed a Registration Statement on Form S-1, SEC File No. 333-06617 (the
"Registration Statement"), which was declared effective by the Commission on
August 8, 1996. Pursuant to the Registration Statement, the Company registered
3,000,000 shares of its Common Stock, $0.001 par value per share. The offering
commenced on August 13, 1996 and did not terminate until all of the registered
shares had been sold. The aggregate offering price of the registered shares was
$24,000,000. The managing underwriters of the offering were Hambrecht & Quist
and Prudential Securities Incorporated.
From August 8, 1996 to September 30, 1997, the Company incurred the
following expenses in connection with the offering:
Underwriting discounts and commissions $1,932,000
Other expenses 838,000
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Total Expenses $2,716,000
All such expenses were direct or indirect payments to others.
The net offering proceeds to the Company after deducting the total
expenses above were $16,900,000. From August 8, 1996, to September 30, 1997, the
Company used such net offering proceeds, in direct or indirect payments to
others, as follows:
Purchase and installment of machinery and equipment $ 2,956,000
Working capital 8,061,000
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Total $11,017,000
Each of such amounts is a reasonable estimate of the application of the
net offering proceeds. This use of proceeds does not represent a material change
in the use of proceeds described in the prospectus of the Registration
Statement.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: See exhibit index on page 16
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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/ Rak Kumar
-----------------------------------
Rak Kumar
President and CEO
Date: November 14, 1997
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EXHIBIT INDEX
EXHIBITS
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10.15 Secured Loan Agreement, dated June 25, 1997, by and between
Dennis R. Mahoney and the Registrant
11.1 Statements of Computation of Net Income Per Share
27.1 Financial Data Statement
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