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, 2000; 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
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RIMAGE CORPORATION
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(Exact name of Registrant as specified in its charter)
Minnesota 41-1577970
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7725 Washington Avenue South, Edina, MN 55439
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(Address of principal executive offices)
952-944-8144
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(Registrant's telephone number, including area code)
NA
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(Former name, former address, and former fiscal year,
if changed since last report.)
Common Stock outstanding at May 5, 2000 - 8,423,169 shares \
of $.01 par value Common Stock.
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes __X__ No _____
RIMAGE CORPORATION
FORM 10-Q
TABLE OF CONTENTS
FOR THE QUARTER ENDED MARCH 31, 1999
Description Page
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PART I FINANCIAL INFORMATION
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Item 1. Financial Statements
Consolidated Balance Sheets as of
March 31, 2000 (unaudited) and
December 31, 1999.............................. 3-4
Consolidated Statements of Operations
(unaudited) for the Three Months
Ended March 31, 2000 and 1999.................. 5
Consolidated Statements of Cash Flows
(unaudited) for the Three Months
Ended March 31, 2000 and 1999.................. 6
Condensed Notes to Consolidated
Financial Statements (unaudited)............... 7-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-13
PART II OTHER INFORMATION....................................... 14-15
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Item 1-5. None
Item 6. Exhibits
SIGNATURES................................................................ 16
2
RIMAGE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 2000 and December 31, 1999
March 31, December 31,
Assets 2000 1999
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(unaudited)
Current assets:
Cash and cash equivalents $ 15,069,811 13,539,297
Trade accounts receivable, net of allowance for doubtful
accounts and sales returns of $320,000 and $321,000,
respectively 8,922,571 6,189,774
Inventories 2,675,976 2,644,510
Interest receivable 125,714 124,854
Prepaid expenses and other current assets 192,802 197,539
Deferred income taxes-current 637,000 637,000
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Total current assets 27,623,874 23,332,974
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Property and equipment, net 831,829 901,657
Deferred income taxes-noncurrent 237,437 237,437
Other noncurrent assets 110,307 151,017
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Total assets $ 28,803,447 24,623,085
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See accompanying condensed notes to consolidated financial statements
3
March 31, December 31,
Liabilities and Stockholders' Equity 2000 1999
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(unaudited)
Current liabilities:
Trade accounts payable 3,039,535 2,698,140
Income taxes payable 1,206,058 312,154
Accrued compensation 873,907 1,021,326
Accrued other 820,978 721,496
Deferred income and customer deposits 927,737 792,760
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Total current liabilities 6,868,215 5,545,876
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Stockholders' equity:
Common stock, $.01 par value, authorized 10,000,000 shares, issued and
outstanding 8,259,113 and 8,154,717, respectively 82,591 79,624
Additional paid-in capital 13,290,551 12,611,700
Retained earnings 8,765,891 6,611,784
Accumulated other comprehensive income - foreign
currency translation adjustment (203,801) (225,899)
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Total stockholders' equity 21,935,232 19,077,209
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Total liabilities and stockholders' equity $ 28,803,447 24,623,085
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4
RIMAGE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
Three Months Ended
March 31,
2000 1999
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Revenues $ 13,157,219 $ 8,641,233
Cost of revenues 6,020,498 4,184,442
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Gross profit 7,136,721 4,456,791
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Operating expenses:
Research and development 724,899 822,142
Selling, general and administrative 2,415,246 2,040,501
Merger 541,396 -
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Total operating expenses 3,681,541 2,862,643
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Operating income from continuing operations 3,455,180 1,594,148
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Other income (expense):
Interest, net 201,892 49,124
Loss on currency exchange (104,910) (70,618)
Other, net (77,796) 23,569
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Total other income, net 19,186 2,075
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Income from continuing operations
before income taxes 3,474,366 1,596,223
Income tax expense 1,320,259 611,935
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Income from continuing operations 2,154,107 984,288
Discontinued operations:
Income from operations of discontinued
Services Division, net of applicable income taxes - 110,670
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Net income $ 2,154,107 $ 1,094,958
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Income per basic share:
Continuing operations $ 0.26 $ 0.13
Discontinued operations - 0.01
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Net income per basic share $ 0.26 $ 0.14
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Income per diluted share:
Continuing operations $ 0.22 $ 0.11
Discontinued operations - 0.01
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Net income per diluted share $ 0.22 $ 0.12
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Basic weighted average shares outstanding 8,158,228 7,816,746
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Diluted weighted average shares and
assumed conversion shares 9,614,157 9,283,299
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See accompanying condensed notes to the consolidated financial statements
5
RIMAGE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
Three months ended
March 31,
2000 1999
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Cash flows from operating activities:
Net income $ 2,154,107 $ 1,094,958
Adjustments to reconcile net income to net cash
provided by operating activities:
(Income) loss from discontinued operations - (110,669)
Depreciation and amortization 180,759 116,545
Change in reserve for excess and obsolete inventories (102) 90,517
Change in allowance for doubtful accounts and sales returns (993) (22,283)
Gain on sale of property and equipment - (27,489)
Changes in operating assets and liabilities:
Trade accounts receivable (2,734,004) 256,093
Inventories (31,364) (287,771)
Interest receivable (860) (40,255)
Prepaid expenses and other current assets 6,937 (96,279)
Trade accounts payable 341,395 (4,276)
Income taxes payable 893,904 492,437
Accrued expenses (47,937) (221,045)
Deferred income and customer deposits 134,977 10,791
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Net cash provided by operating activities 896,819 1,251,274
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Cash flows from investing activities:
Purchase of property and equipment (70,221) (224,770)
Proceeds from the sale of property, plant, equipment and intangibles - 27,489
Other noncurrent assets 38,379 (294,598)
Receipts from sales-type leases - 7,217
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Net cash used in investing activities (31,842) (484,662)
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Cash flows from financing activities-
Proceeds from stock option exercise 681,818 339,902
Cash provided by discontinued operations - 266,883
Effect of exchange rate changes on cash (16,281) (46,830)
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Net increase in cash 1,530,514 1,326,567
Cash and cash equivalents, beginning of period 13,539,297 7,488,450
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Cash and cash equivalents, end of period $ 15,069,811 $ 8,815,017
======================================================================================================================
Supplemental disclosures of net cash paid during the period for:
Income taxes $ 240,447 $ 52,030
See accompanying condensed notes to the consolidated financial statements
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
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
generally accepted accounting principles 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)
7
RIMAGE CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(2) DISCONTINUED OPERATIONS
On June 30, 1999, the Company completed the sale of the
inventory, fixed assets and intangible assets of its
Boulder, Colorado based Services Division to a third
party. Accordingly, the consolidated financial
statements of the Company report separately the
operating results of this discontinued division.
Revenues of the Services Division were $1,135,000 for
the three months ended March 31, 1999.
(3) ACQUISITION
On March 1, 2000, the Company issued 331,664 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. Such
shares were restricted as of March 31, 2000, pursuant to
future registrations. The Company also assumed the
obligations to issue 149,376 shares of its common stock
upon exercise of outstanding options of Cedar and
118,596 shares of its common stock upon exercise of
outstanding warrants of Cedar. The business combination
has been 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.
The results of operations previously reported by the
separate enterprises and the combined amounts presented
in the accompanying consolidated financial statements
are summarized below.
Three Months Ended March 31, Years Ended
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2000 1999 1999 1998
(in '000s) (unaudited) (unaudited)
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Revenues:
Rimage 11,586 7,516 36,313 28,530
Cedar 1,571 1,125 5,041 2,836
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Combined 13,157 8,641 41,354 31,366
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Income (loss) from continuing operations:
Rimage 2,078 985 5,854 5,594
Cedar 76 (1) 108 199
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Combined 2,154 984 5,962 5,793
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(Continued)
8
RIMAGE CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(4) INVENTORIES
Inventories consist of the following as of:
March 31, December 31,
2000 1999
(unaudited)
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Finished goods and demonstration equipment $ 1,239,241 $ 1,196,706
Work-in-process 187,308 102,585
Purchased parts and subassemblies 1,249,427 1,345,219
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$ 2,675,976 $ 2,644,510
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(5) 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, 2000 and 1999,
comprehensive income would be $22,098 more than reported
net income and $141,428 less than reported net income,
respectively, due to foreign currency translation
adjustments.
(6) STOCK SPLIT
On April 7, 2000, the Company effected a 3 for 2 stock
split in the form of a 50% dividend. All references in
the financial statements and related notes to per share
information, stock options, weighted average number of
shares, as well as the number of common shares
outstanding for all prior years presented, have been
retroactively adjusted to reflect this stock split.
9
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated,
selected items from the Company's consolidated statements of
operations, shown in thousands.
Three months ended
March 31,
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%
2000 1999 Change
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Revenues $13,157 $8,641 52.3%
Cost of Revenues 6,020 4,184 43.9
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Gross Margin 7,137 4,457 60.1
Operating Expenses 3,682 2,863 28.6
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Operating Income 3,455 1,594 116.8
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.
As discussed in Note 2 of the Condensed Notes of the Consolidated
Financial Statements, the Company divested of its Services Division
during the second quarter of 1999. The comments that follow pertain to
the Company's continuing operations which also includes its Cedar
operations as discussed in Note 3 of the Condensed Notes of the
Consolidated Financial Statements.
REVENUE. Revenue from continuing operations increased 52.3% from $8.6
million during the first quarter of 1999 to $13.2 million during the
first quarter of 2000. The increase in revenues was due to continued
growth within the music fulfillment industry, utilizing both kiosk and
internet fulfillment applications. The increase was also due to the
continued growth of the Company's Rimage Perfect Partner Channel
program. The Company added 20 new channel partners to its program
during the first quarter of 2000.
As of and for the three months ended March 31, 2000, foreign revenues
from unaffiliated customers, operating earnings, and net identifiable
assets were $2,756,000, $94,000 and $2,955,000, respectively. As of and
for the three months ended March 31, 1999, foreign revenues from
unaffiliated customers, operating income, and net identifiable assets
were $2,522,000, $425,000 and $2,917,000, respectively. The revenue
growth is due to increasing penetration of CD-R products in the
European markets.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
GROSS PROFIT. Gross profit as a percent of revenues was 54.2% during
the first quarter of 2000 compared to 51.6% of revenues from continuing
operations during the same period of 1999. The increase was a result of
cost control measures and efficiencies recognized in the Company's
manufacturing process coupled with increased sales of newly released
higher margin products.
OPERATING EXPENSE. Operating expense during the first quarter of 2000
was $3.7 million, or 28.0% of revenues, compared to $2.9 million, or
33.1% of revenues from continuing operations, during the first quarter
of 1999. The increase in expense was primarily a result of merger
expenses incurred from the acquisition of Cedar. Research and
development expense during the first quarter of 2000 was $725,000, or
5.5% of revenues, compared to $822,000, or 9.5% of revenues from
continuing operations, during the first quarter of 1999. These
decreases were a result of timing differences of the Company's
engineering projects.
OTHER INCOME/(EXPENSE). The Company recognized net interest income of
$202,000 during the first quarter of 2000 compared to $49,000 during
the first quarter of 1999 on cash investments from continuing
operations. Other income was negatively impacted by foreign currency
transaction losses during the first quarter of both 2000 and 1999.
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES. The significant
increase in revenue derived from CD-R related product sales combined
with only marginal increases in operating expense to support those
revenues, caused income from continuing operations before income taxes
to increase from $1.6 million during the first quarter of 1999 to $3.5
million during the first quarter of 2000.
INCOME TAXES. The provision for income taxes represents federal, state,
and foreign income taxes on earnings before income taxes. Income tax
expense for the first quarter of 2000 amounted to $1,320,000 or 38% of
income from continuing operations 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 $27,624,000 as of March 31, 2000 as compared to
$23,333,000 as of December 31, 1999. The allowance for doubtful
accounts as a percentage of receivables was 3% and 5% as of March 31,
2000 and December 31, 1999, respectively. This decrease is due to sales
returns remaining relatively constant compared to increasing revenues.
Current liabilities increased approximately 24% to $6,868,000 as of
March 31, 2000 from $5,546,000 as of December 31, 1999, reflecting an
increase in income taxes payable and accounts payable.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Net cash provided by operating activities was $897,000 and $1,251,000
for the three months ended March 31, 2000 and 1999, respectively. This
decrease was primarily the result of timing of collection of trade
accounts receivables. Net cash used in investing activities was $32,000
for the three months ended March 31, 2000 compared to $485,000 for the
three months ended March 31, 1999. The Company made capital investments
to begin producing its color thermal ribbon during the first quarter of
1999. At March 31, 2000, the Company had no significant commitments to
purchase additional capital equipment. Net cash provided by financing
activities of $682,000 and $340,000 during the three months ended March
31, 2000 and 1999, respectively reflected stock option proceeds.
The Company believes that inflation has not had a material impact on
its operations or liquidity to date.
YEAR 2000 READINESS
To date, we have experienced no significant systems or other year 2000
problems in connection with the transition to the year 2000. We will
continue to monitor for any year 2000 issues.
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.
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS
In June of 1999, the FASB issued Statement of Financial Accounting
Standard No. 137 "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133"
which delays the effective date of Statement No. 133 until fiscal years
beginning after June 15, 2000. Statement No. 133 establishes new
standards for recognizing all derivatives as either assets or
liabilities, and measuring those instruments at fair value. At the
present time, the Company does not anticipate that SFAS No. 133 will
have a material impact on its financial position or results of
operations.
In December 1999, the Securities and Exchange Commission (SEC) released
Staff Accounting Bulletin (SAB) No. 101, "Revenue Recognition in
Financial Statements". This bulletin summarizes certain interpretations
and practices followed by the SEC in administering the disclosure
requirements of the Federal securities laws in applying generally
accepted accounting principles to revenue recognition in financial
statements. The Company does not believe adoption of this bulletin will
have a material impact on our consolidated financial position, results
of operations or cash flows.
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.
13
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 Earnings
Per Share.
Exhibit No. 27.1 Financial Data Schedule
(b) Reports on Form 8-K:
Not Applicable.
14
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
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Registrant
Date: May 12, 2000 By : /s/ Bernard P. Aldrich
-------------------- ----------------------
Bernard P. Aldrich
Director, Chief Executive Officer,
and President
(Principal Executive Officer)
(Principal Financial Officer)
Date: May 12, 2000 By: /s/ Robert M. Wolf
-------------------- -------------------
Robert M. Wolf
Treasurer
(Principal Accounting Officer)