UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT
QUARTERLY REPORT UNDER SECTION 13 or 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1996
Commission File Number 0-28426
ZOMAX OPTICAL MEDIA, INC.
(Name of small business issuer in its charter)
Minnesota 41-1833089
(state or other juris- (I.R.S. Employer
diction of incorporation) Identification No.)
5353 Nathan Lane, Plymouth, MN 55442
(Address of principal executive offices)(zip code)
Registrant's telephone number, including area code:
(612) 553-9300
Check whether the issuer (1) 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 6, 1996, the Registrant had 4,385,000 shares of Common Stock, no
par value, outstanding.
Transitional Small Business Disclosure Format (check one): Yes No x
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ZOMAX OPTICAL MEDIA, INC.
(Successor to Zomax Optical Media Limited Partnership)
Balance Sheets
<TABLE>
<CAPTION>
ASSETS
(Predecessor The Company
Partnership) June 30,
December 31, 1996
1995 (Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 936,662 $ 8,893,478
Accounts receivable, net of allowance for
doubtful accounts ($110,000 and $280,000) 3,019,333 2,750,649
Inventories 787,198 904,190
Prepaid expenses 102,234 58,374
----------- -----------
Total current assets 4,845,427 12,606,691
Property and Equipment, net of
accumulated depreciation
($938,904 and $1,386,777) 4,662,406 5,398,249
Other Assets:
Restricted cash 391,406 386,783
Organization costs, net 5,167 4,167
----------- -----------
$ 9,904,406 $18,395,890
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of notes payable $ 1,216,375 $ 1,478,711
Accounts payable 1,767,262 1,184,385
Accrued expenses 719,065 937,771
Income taxes payable 66,000
Preferential distribution to partners 123,229
----------- ----------
Total current liabilities 3,825,931 3,666,867
Notes payable, net of current portion 2,589,218 2,483,275
Deferred income taxes payable 19,000
Shareholders' Equity:
Undesignated stock, no par value, 10,000,000
authorized shares; no shares issued and
outstanding
Common stock, no par value, 15,000,000
authorized shares, 4,385,000 shares issued and
outstanding at June 30, 1996 12,136,441
Retained earnings -- 90,309
----------- -----------
Total shareholders' equity -- 12,226,748
Partners Capital 3,489,257
----------- -----------
$ 9,904,406 $18,395,890
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
- 2 -
<PAGE>
ZOMAX OPTICAL MEDIA, INC.
(Successor to Zomax Optical Media Limited Partnership)
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
(Predecessor (Predecessor
Partnership) Partnership) (The Company)
Three Months Period From Period From
Ended April 1 Thru May 11 Thru
June 30, 1995 May 10, 1996 June 30, 1996
<S> <C> <C> <C>
Sales $ 2,578,702 $ 1,892,612 $ 1,904,996
Cost of sales 2,104,536 1,388,958 1,389,913
----------- ----------- -----------
Gross profit 474,166 503,654 515,083
Selling, general and
administrative expenses 412,271 271,371 347,841
----------- ----------- -----------
Operating income 61,895 232,283 167,242
Interest expense (50,107) (47,007) (48,164)
Interest income 12,775 8,779 56,229
----------- ----------- -----------
Income before provision for
income taxes 24,563 194,055 175,307
Provision for income taxes 85,000
-----------
Net income $ 90,307
===========
Net income per common share $ 0.02
===========
Weighted average shares
outstanding 4,247,175
===========
Proforma:
Provision for income taxes 9,580 74,000
----------- -----------
Net income $ 14,983 $ 120,055
=========== ===========
Net income per common share $ 0.01 $ 0.04
=========== ===========
Weighted average shares
outstanding 2,800,000 2,800,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
- 3 -
<PAGE>
ZOMAX OPTICAL MEDIA, INC.
(Successor to Zomax Optical Media Limited Partnership)
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
(Predecessor (Predecessor
Partnership) Partnership) (The Company)
Six Months Period From Period From
Ended January 1 Thru May 11 Thru
June 30, 1995 May 10, 1996 June 30, 1996
<S> <C> <C> <C>
Sales $ 4,956,521 $ 5,660,746 $ 1,904,996
Cost of sales 3,718,737 4,089,721 1,389,913
----------- ----------- -----------
Gross profit 1,237,784 1,571,025 515,083
Selling, general and
administrative expenses 949,005 956,239 347,841
----------- ----------- -----------
Operating income 288,779 614,786 167,242
Interest expense (118,533) (135,900) (48,164)
Interest income 32,429 23,011 56,229
----------- ----------- -----------
Income before provision for
income taxes 202,675 501,897 175,307
Provision for income taxes 85,000
-----------
Net income $ 90,307
===========
Net income per common share $ 0.02
===========
Weighted average shares
outstanding 4,247,175
===========
Proforma:
Provision for income taxes 79,043 195,000
----------- -----------
Net income $ 123,632 $ 306,897
=========== ===========
Net income per common share $ 0.04 $ 0.11
=========== ===========
Weighted average shares
outstanding 2,800,000 2,800,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
- 4 -
<PAGE>
ZOMAX OPTICAL MEDIA, INC.
(Successor to Zomax Optical Media Limited Partnership)
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
(Predecessor (Predecessor
Partnership) Partnership) (The Company)
Six Months Period From Period From
Ended January 1 Thru May 11 Thru
June 30, 1995 May 10, 1996 June 30, 1996
------------- ------------ -------------
<S> <C> <C> <C>
Operating Activities:
Net income $ 202,675 $ 501,897 $ 90,307
Adjustments to reconcile net
income to net cash from
operating activities--
Depreciation and amortization 218,056 326,876 122,001
Changes in operating assets
and liabilities:
Trade accounts receivable (941,197) 227,468 41,216
Inventories (398,351) 58,741 (175,733)
Prepaid expenses (110,881) (15,042) 58,902
Accounts payable 811,011 (330,068) (252,809)
Accrued expenses (457,608) (66,738) 162,267
Income taxes payable 85,000
----------- ----------- -----------
Net cash provided by (used in)
operating activities (676,295) 703,134 131,151
----------- ----------- -----------
Investing Activities:
Purchase of property and equipment (339,726) (1,089,227) (94,493)
Sale of financial instruments 265,749
Purchase of financial instruments (4,672) (259,000) (2,126)
----------- ----------- -----------
Net cash used in investing
activities (344,398) (1,082,478) (96,619)
----------- ----------- -----------
Financing Activities:
Sales of common stock, net of
issuance costs 9,254,637
Capital contributions 1,125,000
Proceeds from notes payable 207,341 790,500
Repayment of notes payable (573,979) (413,577) (220,530)
Bank borrowing 300,000
Repayment of bank borrowing (300,000)
Distributions to partners (129,855) (1,109,402)
----------- ----------- ----------
Net cash provided by (used in)
investing activities 628,507 (432,479) 8,734,107
----------- ----------- -----------
Net increase (decrease) in cash (392,186) (811,823) 8,768,639
Cash and Cash Equivalents:
Beginning of period 1,116,687 936,662 124,839
----------- ----------- -----------
End of period $ 724,501 $ 124,839 $ 8,893,478
=========== =========== ===========
Supplemental Cash Flow Disclosure:
Cash paid for interest $ 118,533 $ 135,900 $ 48,184
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
- 5 -
<PAGE>
ZOMAX OPTICAL MEDIA, INC.
(Successor to Zomax Optical Media Limited Partnership)
Notes to Financial Statements
(Unaudited)
1. Basis of Presentation:
The accompanying interim financial statements of the Company are
unaudited; however, in the opinion of management, all adjustments necessary for
a fair presentation (consisting of only normal recurring adjustments) have been
reflected in the interim periods presented. Due principally to the seasonal
nature of some of the Company's business, results may not be indicative of
results for a full year. The accompanying financial statements should be read in
conjunction with the Company's Registration Statement on Form S-1, effective May
7, 1996.
The Company was incorporated on February 22, 1996, and, except for
organizational matters and activities undertaken in connection with the initial
public offering of its common stock (the "Offering"), was inactive through the
closing of the Offering on May 10, 1996. In connection with the Offering, the
Company received all of the operating assets, liabilities and debt of Zomax
Optical Media Limited Partnership in exchange for 2,800,000 shares of its common
stock. Since the exchange created a new reporting entity, the financial
statements of the Partnership prior to the Offering have been captioned
Predecessor.
2. Initial Public Stock Offering:
On May 10, 1996, the Company completed the sale of 1,400,000 shares of
common stock in an initial public stock offering. Subsequently, on June 12,
1996, the underwriter exercised an overallotment option and purchased an
additional 185,000 shares. The Company received proceeds from the Offering, net
of issuance costs, of approximately $9,254,000. The underwriter also purchased,
for a nominal purchase price, warrants to purchase 158,500 shares of common
stock at a price of $8.10 per share. The warrants are exercisable for a period
of five years, commencing one year from the offering date.
3. Income Taxes:
Components of the provision for income taxes for the period from May
11, 1996, through June 30, 1996 are as follows:
Current:
Federal $ 59,000
State 7,000
-------
Total current 66,000
Deferred 19,000
Total provision $ 85,000
=======
The deferred tax provision represents establishment of deferred taxes
at inception of the Company.
- 6 -
<PAGE>
Deferred tax assets and liabilities reflect differences between the
amounts reported for financial reporting and income tax purposes, primarily
relating to long-lived assets. Components of the net deferred tax liability as
of June 30, 1996 are as follows:
Allowance for doubtful accounts $ (92,000)
Accrued liabilities (140,000)
Long-lived assets 251,000
----------
$ 19,000
==========
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
General
The Company is a full-service, turnkey provider of compact discs,
cassettes, diskettes and related services. The Company services the multimedia
needs of a wide variety of customers including software publishers, computer
manufacturers, recording studios, book publishers, marketing groups, data base
suppliers and other producers of multimedia products for retail distribution.
Results of Operations
The following table sets forth on a combined basis for the Company and
its predecessor Partnership certain operating data as a percentage of sales for
the periods presented:
Three Months Ended Six Months Ended
June 30 June 30
--------- --------
1995 1996 1995 1996
---- ---- ---- ----
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 81.6 73.2 75.0 72.4
----- ----- ----- -----
Gross profit 18.4 26.8 25.0 27.6
Selling, general and
administrative expenses 16.0 16.3 19.2 17.3
----- ----- ----- -----
Operating income 2.4% 10.5% 5.8% 10.3%
===== ===== ===== =====
Sales increased 47.3% to $3,797,608 for the quarter ended June 30, 1996
from $2,578,702 for the quarter ended June 30, 1995. Sales for the first six
months ended June 30, 1996 were $7,565,742, an increase of 52.6% over sales of
$4,956,521 for the first six months of 1995. The higher sales resulted from a
significant increase in sales of CD-ROM units partially offset by lower selling
prices which resulted from an increase in the number of CD manufacturers and
higher production capacity for existing manufacturers.
Cost of sales as a percentage of sales was 73.2% and 72.4% for the
three and six month periods ended June 30, 1996 compared to 81.6% and 75.0%,
respectively, for the same periods in 1995. The Company was able to reduce its
cost of sales percentage through increased production capacity and improved
plant efficiency. The Company "outsourced" very little of its CD manufacturing
during the first six months of 1996 compared to the same period in 1995. The
cost for "outsourced" production is significantly higher than the cost of CDs
produced by the Company. The Company expects that "outsourced" production for
the second half of 1996 will continue to be greatly reduced compared to the same
period in 1995.
- 7 -
<PAGE>
Selling, general and administrative (SG&A) expense as a percentage of
sales was 16.3% and 17.3%, respectively, for the three and six month periods
ended June 30, 1996 compared to 16.0% and 19.2%, respectively, for the same
periods in 1995. The Company increased its allowance for doubtful accounts in
the second quarter of 1996 which offset the impact of higher sales on SG&A
expense as a percentage of sales. The Company believes that SG&A expense as a
percentage of sales during the second half of 1996 should be lower than in 1995.
Interest expense increased to $184,064 during the first six months of
1996 from $118,533 during the same period in 1995 as the result of increased
borrowings in late 1995 and early 1996 to finance the purchase of manufacturing
equipment.
Interest income increased to $79,240 during the first six months of
1996 from $32,429 during the same period in 1995 as the result of investing
proceeds from the Company's May 1996 initial public stock offering.
Liquidity and Capital Resources
The Company's cash and cash equivalents increased to $8,893,478 at June
30, 1996 from $936,662 at December 31, 1995 as a result of investing the net
proceeds of approximately $9.2 million from its intial public stock offering.
During July of 1996, the Company committed to the purchase of
approximately $1.6 million of new manufacturing equipment. The Company plans to
pay for the equipment with cash. The Company plans to purchase additional CD
manufacturing equipment and $3.5 million of mastering equipment later in 1996
and intends to pay for the equipment with its cash and available capital term
loan facility.
The Company has a revolving line-of-credit facility for up to $1.5
million of borrowings limited to an amount based on a formula using eligible
accounts receivable and inventories and a $3 million capital expenditure term
loan facility with its bank. There were no borrowings under the revolving
line-of-credit facility and $750,000 of borrowings under the capital term loan
facility at June 30, 1996.
The Company believes that it has sufficient liquidity and capital
resources to meet its operating needs and capital expenditure requirements for
the foreseeable future.
Seasonality
The demand for CDs and other multimedia consumer products is seasonal,
with increases in the fall reflecting increased demand relative to the new
school year and holiday season purchases. This seasonality could result in
significant quarterly variations in financial results, with the third and fourth
quarters generally being the strongest.
Forward-Looking Statements
Forward-looking statements herein are made pursuant to the safe harbor
provisions of the Private Securities Reform Act of 1995. There are certain
important factors that could cause results to differ materially from those
anticipated by some of the statements made herein. Investors are cautioned that
all forward-looking statements involve risks and uncertainty. Among the factors
that could cause actual results to differ materially are the following: strength
of the CD market, pricing strategies of competitors, manufacturing capacity and
efficiency, overall economic conditions, including inflation and consumer
confidence and other risks identified in filings with the Securities and
Exchange Commission from time to time.
- 8 -
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits. The following exhibit is included with this Form 10-QSB:
Exhibit 27 Financial Data Schedule (included in electronic
version only)
(b) Reports on Form 8-K. No reports on Form 8-K were filed for the
quarter ended June 30, 1996.
- 9 -
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ZOMAX OPTICAL MEDIA, INC.
Date: August 9, 1996 By /s/ James T. Anderson
James T. Anderson, President and
Chief Executive Officer (principal
executive officer)
By /s/ Stephan P. Jones
Stephan P. Jones, Chief Financial Officer
(principal financial and accounting officer)
- 10 -
<PAGE>
Zomax Optical Media, Inc.
Form 10-QSB Quarterly Report
For the Quarter Ended June 30, 1996
EXHIBIT INDEX
Exhibit
Number Item
27 Financial Data Schedule (included in electronic version only)
- 11 -
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> MAY-11-1996<F1>
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 8,893,478
<SECURITIES> 0
<RECEIVABLES> 3,030,649
<ALLOWANCES> 280,000
<INVENTORY> 904,190
<CURRENT-ASSETS> 12,606,691
<PP&E> 6,785,028
<DEPRECIATION> 1,386,777
<TOTAL-ASSETS> 5,398,251
<CURRENT-LIABILITIES> 3,666,867
<BONDS> 0
0
0
<COMMON> 12,136,441
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 18,395,890
<SALES> 1,904,996
<TOTAL-REVENUES> 1,961,225
<CGS> 1,389,913
<TOTAL-COSTS> 1,737,754
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 48,164
<INCOME-PRETAX> 175,307
<INCOME-TAX> 85,000
<INCOME-CONTINUING> 90,307
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 90,307
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
<FN>
<F1>Information for the period from April 1, 1996 to May 10, 1996 relating to
the Predecessor Partnership is included in the Report on Form 10-QSB but is not
included in the Financial Data Schedule.
</FN>
</TABLE>
