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CONFORMED
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
MARCH 31, 2001; OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
TO . ------------------
---------------------------------
COMMISSION FILE NUMBER: 0-20728
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RIMAGE CORPORATION
--------------------------------------
(Exact name of Registrant as specified
in its charter)
Minnesota 41-1577970
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7725 Washington Avenue South, Edina, MN 55439
---------------------------------------------
(Address of principal executive offices)
952-944-8144
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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 3, 2001 - 8,724,890
shares of $.01 par value Common Stock.
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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RIMAGE CORPORATION
FORM 10-Q
TABLE OF CONTENTS
FOR THE QUARTER ENDED MARCH 31, 2001
Description Page
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PART I FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements
Consolidated Balance Sheets as of
March 31, 2001 and December 31, 2000 ........................ 3
Consolidated Statements of Operations
for the Three Months Ended
March 31, 2001 and 2000 ..................................... 4
Consolidated Statements of Cash Flows
for the Three Months Ended
March 31, 2001 and 2000 ..................................... 5
Condensed Notes to Consolidated
Financial Statements ........................................ 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ............... 8-10
PART II OTHER INFORMATION .................................................... 11-12
Item 1-5. None
Item 6. Exhibits
SIGNATURES .......................................................................... 13
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RIMAGE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
March 31, 2001 and December 31, 2000
(Unaudited)
March 31, December 31,
2001 2000
----------- ------------
Assets
Current assets:
Cash and cash equivalents $23,545,602 $21,023,233
Trade accounts receivable, net of allowance for
doubtful accounts and sales returns of $539,000 6,735,055 9,013,207
Inventories 3,812,526 2,936,119
Interest receivable 124,848 202,219
Prepaid expenses and other current assets 213,094 212,566
Prepaid income taxes 956,749 1,418,498
Deferred income taxes-current 938,592 938,592
----------- -----------
Total current assets 36,326,466 35,744,434
----------- -----------
Property and equipment, net 669,227 651,569
Deferred income taxes-noncurrent 145,935 145,935
Other noncurrent assets 8,495 13,526
----------- -----------
Total assets $37,150,123 $36,555,464
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Trade accounts payable $ 2,169,688 $ 2,288,789
Accrued compensation 995,968 1,446,127
Accrued other 944,622 852,652
Deferred income and customer deposits 958,999 1,006,957
----------- -----------
Total current liabilities 5,069,277 5,594,525
=========== ===========
Stockholders' equity:
Common stock, $.01 par value, authorized 10,000,000 shares,
issued and outstanding 8,724,790 and 8,653,285,
respectively 87,248 86,533
Additional paid-in capital 16,439,490 16,319,613
Retained earnings 15,912,112 14,861,224
Accumulated other comprehensive loss - foreign
currency translation adjustment (358,004) (306,431)
----------- -----------
Total stockholders' equity 32,080,846 30,960,939
----------- -----------
Commitments and contingencies
Total liabilities and stockholders' equiy $37,150,123 $36,555,464
=========== ===========
See accompanying condensed notes to consolidated financial statements
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RIMAGE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
Three Months Ended
March 31,
-----------------------------
2001 2000
------------ ------------
Revenues $ 10,196,132 $ 13,157,219
Cost of revenues 4,858,784 6,020,498
------------ ------------
Gross profit 5,337,348 7,136,721
------------ ------------
Operating expenses:
Research and development 1,273,089 724,899
Selling, general and administrative 2,464,878 2,499,920
Merger -- 541,396
------------ ------------
Total operating expenses 3,737,967 3,766,215
------------ ------------
Operating income 1,599,381 3,370,506
------------ ------------
Other income (expense):
Interest 330,314 201,892
Loss on currency exchange (221,423) (104,910)
Other, net (13,291) 6,878
------------ ------------
Total other income, net 95,600 103,860
------------ ------------
Income before income taxes 1,694,981 3,474,366
Income tax expense 644,093 1,320,259
------------ ------------
Net income 1,050,888 2,154,107
============ ============
Net income per basic share $ 0.12 $ 0.26
============ ============
Net income per diluted share $ 0.11 $ 0.22
============ ============
Basic weighted average shares outstanding 8,698,469 8,158,228
============ ============
Diluted weighted average shares and
assumed conversion shares 9,575,619 9,614,157
============ ============
See accompanying condensed notes to the consolidated financial statements
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RIMAGE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
Three months ended
March 31,
-------------------------------
2001 2000
------------ ------------
Cash flows from operating activities:
Net income $ 1,050,888 $ 2,154,107
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 93,885 180,759
Change in reserve for excess and obsolete inventories (101) (102)
Change in allowance for doubtful accounts and sales returns -- (993)
Loss on sale of property and equipment 22,434 --
Changes in operating assets and liabilities:
Trade accounts receivable 2,278,152 (2,734,004)
Inventories (876,306) (31,364)
Interest receivable 77,371 (860)
Prepaid expenses and other current assets (528) 6,937
Prepaid income taxes 461,749 --
Trade accounts payable (119,101) 341,395
Income taxes payable -- 893,904
Accrued compensation (450,159) (147,419)
Accrued other 91,970 99,482
Deferred income and customer deposits (47,958) 134,977
------------ ------------
Net cash provided by operating activities 2,582,296 896,819
------------ ------------
Cash flows from investing activities:
Purchase of property and equipment (128,945) (70,221)
Other noncurrent assets (20,667) 38,379
------------ ------------
Net cash used in investing activities (149,612) (31,842)
------------ ------------
Cash flows from financing activities-
Proceeds from stock option/warrant exercise 120,592 681,818
Effect of exchange rate changes on cash (30,907) (16,281)
------------ ------------
Net increase in cash 2,522,369 1,530,514
Cash and cash equivalents, beginning of period 21,023,233 13,539,297
------------ ------------
Cash and cash equivalents, end of period $ 23,545,602 $ 15,069,811
============ ============
Supplemental disclosures of net cash paid during the period for:
Income taxes $ 135,413 $ 240,447
See accompanying condensed notes to the consolidated financial statements
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RIMAGE CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) BASIS OF PRESENTATION AND NATURE OF BUSINESS
Rimage Corporation (the Company) develops, manufactures and
distributes high performance CD-Recordable (CD-R) and
DVD-Recordable (DVD-R) publishing and duplication systems,
and continues to support its long-term involvement in
diskette duplication and publishing equipment.
The accompanying unaudited consolidated financial statements of
the Company have been prepared pursuant to the rules of the
Securities and Exchange Commission. These financial
statements should be read in conjunction with the more
detailed financial statements and notes thereto included in
the Company's most recent annual report on Form 10-K.
The Company extends unsecured credit to its customers as well as
credit to a limited number of authorized distributor
wholesalers, who in turn provide warehousing, distribution,
and credit to a network of authorized value added resellers.
These distributors and value added resellers sell and service
a variety of hardware and software products.
In the opinion of management, the accompanying consolidated
financial statements reflect all adjustments, consisting of
only normal recurring adjustments, necessary for a fair
presentation of the financial position and results of
operations and cash flows of the Company for the periods
presented. Certain previously reported amounts have been
reclassified to conform with the current presentation.
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
of America requires management to make estimates and
assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
(Continued)
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RIMAGE CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(2) ACQUISITION
On March 1, 2000, the Company issued 497,496 shares of its
common stock in exchange for all outstanding stock of Cedar
Technologies, Inc. ("Cedar"), a manufacturer of CD-R desktop
publishing and duplication equipment. The Company also
assumed the obligations to issue 224,064 shares of its common
stock upon exercise of outstanding options of Cedar and
177,894 shares of its common stock upon exercise of
outstanding warrants of Cedar. The business combination was
accounted for as a pooling-of-interests combination, and
accordingly, the consolidated financial statements for
periods prior to the combination have been restated to
include the accounts and results of operations of Cedar.
(3) INVENTORIES
Inventories consist of the following as of:
March 31, December 31,
2001 2000
----------- -------------
Finished goods and demonstration equipment $ 1,692,190 $ 1,239,034
Work-in-process 404,083 323,785
Purchased parts and subassemblies 1,716,253 1,373,300
----------- -----------
$ 3,812,526 $ 2,936,119
=========== ===========
(4) COMPREHENSIVE INCOME
The Company's only item of other comprehensive income relates to
foreign currency translation adjustments, and is presented
separately on the balance sheet as required. If presented on
the statement of operations for the three months ended March
31, 2001 and 2000, comprehensive income would be $51,573 less
than reported net income and $22,098 more than reported net
income, respectively, due to foreign currency translation
adjustments.
(5) NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standard No. 133 "Accounting
for Derivative Instruments and Hedging Activities" as amended
establishes new standards for recognizing all derivatives as
either assets or liabilities, and measuring those instruments
at fair value. The Company adopted SFAS No. 133 as of January
1, 2001. Adoption did not have a material impact on the
Company's financial position or results of operations.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following table sets forth, for the periods indicated,
selected items from the Company's consolidated statements of operations.
Percentage (%)
Percentage (%) of Revenues Increase/(Decrease)
Three Months Ended March 31, Between Periods
---------------------------- -------------------
2001 2000 2001 vs. 2000
------ ------ -------------
Revenues 100.0 100.0 (22.5)
Cost of revenues (47.6) (45.8) (19.3)
----- ----- -----
Gross profit 52.4 54.2 (25.2)
Operating expenses:
Research and development (12.5) (5.5) 75.6
Selling, general and administrative (24.2) (19.0) (1.4)
Merger -- (4.1) N/A
----- ----- -----
Operating income 15.7 25.6 (52.5)
Other income, net 0.9 0.8 (8.0)
----- ----- -----
Income before income taxes 16.6 26.4 (51.2)
Income tax expense (6.3) (10.0) (51.2)
----- ----- -----
Net income 10.3 16.4 (51.2)
===== ===== =====
RESULTS OF OPERATIONS
This report contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ significantly
from those discussed in the forward-looking statements. Factors that
could cause or contribute to such differences include, but are not
limited to, changes in media or method used for distribution of
software, technological changes in products offered by the Company or
its competitors and changes in general conditions in the computer
market.
REVENUES. Revenues decreased 22.5% from $13.2 million during the first
quarter of 2000 to $10.2 million during the first quarter of 2001. The
decrease in revenues was due to the absence of sales within the music
fulfillment industry during the first quarter of 2001. The decrease was
also due to the negative impact of the continued strengthening of the
U.S. dollar on our European operations.
As of and for the three months ended March 31, 2001, foreign revenues
from unaffiliated customers, operating income, and net identifiable
assets were $3,282,000, $112,000 and $4,016,000, respectively. As of and
for the three months ended March 31, 2000, foreign revenues from
unaffiliated customers, operating income, and net identifiable assets
were $2,756,000, $94,000 and $2,955,000, respectively. The revenue
growth is due to increasing penetration of CD-R products in the European
markets.
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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 52.4% during the
first quarter of 2001 compared to 54.2% of revenues during the same
period of 2000. The decrease was primarily due to the lower sales volume
during the first quarter of 2001 coupled with moderately lower gross
profits on the Desktop line of products reflecting the introduction and
start-up manufacturing expenses of this new product line.
OPERATING EXPENSES. Operating expenses during the first quarter of 2001
were $3.7 million or 36.7% of revenues compared to $3.8 million or 28.6%
of revenues during the same prior year period. The increase in percent
was primarily a result of reduced sales volume and higher research and
development expenses due to aggressive product development initiatives
during the first quarter of 2001. Research and development expense
during the first quarter of 2001 was $1.3 million, or 12.5% of revenues,
compared to $725,000, or 5.5% of revenues, during the first quarter of
2000. The increase in operating expenses as a percent of revenues was
offset by $541,000 of merger expenses incurred during the first quarter
of 2000 from the acquisition of Cedar Technologies, Inc.
OTHER INCOME (EXPENSE). The Company recognized net interest income on
cash investments of $330,000 during the first quarter of 2001 compared
to $202,000 during the first quarter of 2000. Other income was
negatively impacted by foreign currency transaction losses during the
first quarter of both 2001 and 2000.
INCOME BEFORE INCOME TAXES. Income before income taxes decreased 51.2%
to $1.7 million for the first quarter of 2001 from $3.5 million for the
same prior year period. This decrease is the result of the absence of
CD-R related product sales into the music-on-demand audio segment of the
audio market combined with higher than normal research and development
expenditures.
INCOME TAXES. The provision for income taxes represents federal, state,
and foreign income taxes on income before income taxes. Income tax
expense for the first quarter of 2001 and 2000 amounted to $644,000 and
$1.3 million, respectively or 38% of income before income taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company expects to fund its anticipated cash requirements (including
the anticipated cash requirements of its capital expenditures) with
internally generated funds and, if required, from the Company's existing
credit agreement.
Current assets are $36.3 million as of March 31, 2001 as compared to
$35.7 million as of December 31, 2000. The allowance for doubtful
accounts as a percentage of receivables was 7% and 6% as of March 31,
2001 and December 31, 2000, respectively. This increase is due to lower
revenues during the latter part of the first quarter of 2001 compared to
revenues during the same period of 2000. Current liabilities decreased
approximately 9% to $5.1 million as of March 31, 2001 from $5.6 million
as of December 31, 2000, primarily reflecting the payment of bonuses
during the first quarter of 2001 that were accrued as of December 31,
2000.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Net cash provided by operating activities was $2.6 million and $897,000
for the three months ended March 31, 2001 and 2000, respectively. This
increase was primarily the result of timing of collection of trade
accounts receivables. Net cash used in investing activities was $150,000
and $32,000 for the three months ended March 31, 2001 and 2000,
respectively. Both amounts primarily reflect purchases of capital
equipment for manufacturing. At March 31, 2001, the Company had
commitments to purchase additional capital equipment totaling
approximately $700,000 and $300,000 during calendar years 2001 and 2002,
respectively. Net cash provided by financing activities of $121,000 and
$682,000 during the three months ended March 31, 2001 and 2000,
respectively reflected proceeds from stock option and warrant exercises.
The Company believes that inflation has not had a material impact on its
operations or liquidity to date.
NEW EUROPEAN CURRENCY
On January 1, 1999, eleven of the fifteen member countries of the
European Union established fixed conversion rates between their existing
currencies and the euro, a new European currency, and adopted the euro
as their common legal currency (the "Euro Conversion"). Either the euro
or a participating country's present currency will be accepted as legal
tender from January 1, 1999 to January 1, 2002, from which date forward
only the euro will be accepted.
The Company has customers located in European Union countries
participating in the Euro Conversion. Such customers will likely have to
upgrade or modify their computer systems and software to comply with the
euro requirements. The amount of money the Company anticipates spending
in connection with product development related to the Euro Conversion is
not expected to have a material adverse effect on the Company's results
of operations or financial condition. The Euro Conversion may also have
competitive implications for the Company's pricing and marketing
strategies, which could be material in nature; however, any such impact
is not known at this time.
The Company has also modified its internal systems (such as payroll,
accounting and financial reporting) to deal with the Euro Conversion.
There is no assurance, however, that all problems related to the Euro
Conversion will be foreseen and corrected, or that no material
disruptions of the Company's business will occur.
MARKET RISK DISCLOSURE
The Company does not invest in any derivative financial instruments. See
the Company's most recent annual report filed on form 10K (Item 7A.).
There has been no material change in this information.
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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
Not Applicable.
Item 5. Other Information
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit No. 11.1 Calculation of Income Per Share.
(b) Reports on Form 8-K:
Not Applicable.
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SIGNATURES
In accordance with the Exchange Act, this report has been signed below by
following persons on behalf of the registrant and on the dates indicated.
RIMAGE CORPORATION
Registrant
Date: May 11, 2001 By: /s/ Bernard P. Aldrich
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Bernard P. Aldrich
Director, Chief Executive Officer,
and President
(Principal Executive Officer)
(Principal Financial Officer)
Date: May 11, 2001 By: /s/ Robert M. Wolf
-------------------- ------------------------------------
Robert M. Wolf
Treasurer
(Principal Accounting Officer)
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