UNITED STATES
SECURITIES AND EXCHANGE COMMISSSION
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 quarterly period ended June 30, 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: 0-28822
ROCKSHOX, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0396555
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1610 Garden of the Gods Road, Colorado Springs, CO 80907
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (719) 278-7469
Change of address from 401 Charcot Avenue, San Jose, California 95131
---------------------------------------------------------------------
(Former name, former address and former fiscal year if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES [X] NO [ ]
As of August 11, 2000 there were 13,761,147 shares of the registrant's common
stock outstanding.
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INDEX
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Part I: Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of June 30, 2000 and
March 31, 2000 . . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations for the three
months ended June 30, 2000 and 1999 . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows
for the three months ended June 30, 2000 and 1999 . . . . . . 5
Notes to Condensed Consolidated Financial Statements . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . 7
Item 3. Quantitative and Qualitative Disclosures About Market Risk 8
Part II: Other Information
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . 9
Item 2. Changes in Securities and Use of Proceeds . . . . . . . . . . 9
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . 9
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 9
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2
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Part I: Item 1.
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ROCKSHOX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, 2000 March 31, 2000
--------------- ----------------
(Unaudited) (Audited)
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Current assets:
Cash and cash equivalents . . . . . . . . $ 1,146 $ 2,832
Accounts receivable, net of allowance
of $1,132. . . . . . . . . . . . . . . 8,724 12,623
Inventories . . . . . . . . . . . . . . . 8,132 5,614
Prepaid expenses and other current assets 413 330
Income tax receivable . . . . . . . . . . 8 50
Income taxes recoverable. . . . . . . . . 1,400 1,400
--------------- ----------------
Total current assets. . . . . . . . . 19,823 22,849
Property, plant and equipment, net 12,211 12,567
Other assets, net 389 388
--------------- ----------------
Total assets. . . . . . . . . . . . . . . $ 32,423 $ 35,804
=============== ================
Current liabilities:
Accounts payable. . . . . . . . . . . . . $ 6,600 $ 6,207
Other accrued liabilities . . . . . . . . 5,488 5,995
--------------- ----------------
Total current liabilities . . . . . . 12,088 12,202
Stockholders' equity
Common stock. . . . . . . . . . . . . . . 138 138
Additional paid-in capital. . . . . . . . 65,928 65,928
Distributions in excess of net book value (45,422) (45,422)
Retained earnings . . . . . . . . . . . . (309) 2,958
--------------- ----------------
Total stockholders' equity. . . . . . . 20,335 23,602
--------------- ----------------
Total liabilities and stockholders'
equity. . . . . . . . . . . . . . . $ 32,423 $ 35,804
=============== ================
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The accompanying notes are an integral part of these
condensed consolidated financial statements.
3
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Part I: Item 1.
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ROCKSHOX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended
June 30, 2000 June 30, 1999
-------------------- ---------------
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Net sales. . . . . . . . . . . . . . . . . . . . . . . . . $ 12,202 $ 9,524
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . 10,899 10,501
-------------------- ---------------
Gross profit (loss). . . . . . . . . . . . . . . . . . . 1,303 (977)
Selling, general and administrative expenses . . . . . . . 2,827 5,024
Research, development and engineering expenses . . . . . . 813 888
Relocation expenses . 950 --
-------------------- ---------------
Operating expenses . . . . . . . . . . . . . . . . . . . . 4,590 5,912
-------------------- ---------------
Loss from operations . . . . . . . . . . . . . . . . (3,287) (6,889)
Interest income. . . . . . . . . . . . . . . . . . . . . . 20 63
-------------------- ---------------
Loss before taxes. . . . . . . . . . . . . . . . . . (3,267) (6,826)
.
Income tax expense (benefit) . . . . . . . . . . . . . . . -- (1,873)
-------------------- ---------------
Net loss . . . . . . . . . . . . . . . . . . . . . . . ($3,267) $ (4,953)
==================== ===============
Net loss per share-basic and diluted . . . . . . . . . $ (0.24) $ (0.36)
==================== ==============
Shares used in per share calculations - basic and diluted 13,761 13,761
==================== ===============
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The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
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Part I: Item 1.
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ROCKSHOX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
June 30, June 30,
2000 1999
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Cash flows from operating activities:
Net loss . . . . . . . . . . . . . . . . . . . $(3,267) $(4,953)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization. . . . . . . . . 1,252 1,169
Loss on disposal of fixed assets . . . . . . . 12 --
Provision for excess and obsolete inventories. 16 (89)
Changes in operating assets and liabilities:
Accounts receivable. . . . . . . . . . . . . . 3,899 10,667
Inventories. . . . . . . . . . . . . . . . . . (2,534) (511)
Prepaid expenses and other assets. . . . . . . (42) (2,341)
Accounts payable and accrued liabilities . . . (114) (851)
-------- --------
Net cash (used in) provided by operating
activities . . . . . . . . . . . . . . . . . . (778) 3,091
-------- --------
Cash flows from investing activities:
Purchases of property and equipment. . . . . . (908) (873)
-------- --------
Net cash used in investing activities. . . . . (908) (873)
-------- --------
Cash flows from financing activities: None
Net increase (decrease) in cash and
cash equivalents . . . . . . . . . . . . . . . (1,686) 2,218
Cash and cash equivalents, beginning of period . 2,832 3,755
-------- --------
Cash and cash equivalents, end of period . . . . $ 1,146 $ 5,973
======== ========
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The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
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Part I: Item 1.
ROCKSHOX, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
ROCKSHOX, INC. have been prepared in accordance with generally accepted
accounting principles for interim financial information and with instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. Certain
amounts in the fiscal 2000 financial statements have been reclassified to
conform with fiscal 2001 presentation. Operating results for the three-month
period ended June 30, 2000 are not necessarily indicative of the results that
may be expected for the year ending March 31, 2001. The unaudited condensed
consolidated interim financial statements contained herein should be read in
conjunction with the audited consolidated financial statements and footnotes for
the year ended March 31, 2000 included in our Annual Report on Form 10-K. The
balance sheet at March 31, 2000 was derived from audited financial statements,
but does not include all disclosures required by accounting principles generally
accepted in the United States. Unless the context indicates otherwise, when we
refer to "we," "us," the "Company" or "RockShox" in this Quarterly Report on
Form 10-Q, we are referring to ROCKSHOX, INC.
2. INVENTORIES
The components of inventory are as follows (in thousands):
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June 30, 2000 March 31, 2000
-------------- ---------------
Raw materials. $ 6,107 $ 3,779
Finished goods 2,025 1,835
-------------- ---------------
$ 8,132 $ 5,614
============== ===============
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3. DEFERRED INCOME TAXES
Management evaluates on a quarterly basis the recoverability of the
deferred tax assets. At such time as it is determined that it is more likely
than not that the deferred tax assets are not realizable, a valuation allowance
will be provided. During the quarter ended December 31, 1999, a valuation
allowance of $2.7 million was recorded against the deferred tax assets balance
of $4.1 million, thus retaining $1.4 million of the Company's planned carryback
benefit, which is reflected as Income Taxes Recoverable. The Company has ceased
to recognize the current tax benefit of its operating losses because realization
is not assured as required by SFAS No. 109.
4. NOTE PAYABLE
On June 29, 2000, the Company entered into a revised credit agreement
providing for borrowing up to $5.0 million. The credit facility expires on
December 10, 2001. Any outstanding amounts under the facility are
collateralized by our accounts receivables, inventory, equipment and
intangibles. There were no outstanding borrowings against the new credit
facility as of June 30, 2000, although the availability of the credit line was
reduced by a $1 million letter of credit granted as security for the new
Colorado Springs facility.
6
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Part I: Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations:
In general, sales for the first quarter were driven by our new product line
and efforts to better serve both our Original Equipment Manufacturers and
dealer/distributor customers. We are beginning to see improvements in operating
expenses as the result of our restructuring, which has focused on
across-the-board cost reductions in every element of our business.
Net sales. Net sales for the quarter ended June 30, 2000 increased by 28%
to $12.2 million from $9.5 million for the corresponding period of the prior
year. For the quarter ended June 30, 2000, OEM sales increased by 58% to $9.0
million compared to $5.7 million in the corresponding period of the prior year.
Sales to the retail accessory market in the quarter ended June 30, 2000 dropped
by 16.0% to $3.2 million compared to $3.8 million in the corresponding period of
the prior year.
Gross profit. Gross profit for the quarter ended June 30, 2000 was
$1,303,000, or 10.7% of net sales, compared to a loss of $977,000, or -10.3% of
net sales, for the corresponding period of the prior year. The increase in
gross profit principally resulted from an increase in revenues coupled with
reduced fixed overhead costs.
Selling, general and administrative expense. Selling, general and
administrative ("SG&A") expense for the quarter ended June 30, 2000 was $2.8
million, or approximately 23.2% of net sales, compared to $5.0 million, or
approximately 52.8% of net sales, in the corresponding period of the prior year.
For fiscal 2000, this decrease can be attributed to a $720,000 severance accrual
resulting from certain organizational changes made during the quarter ended June
30, 1999. In fiscal 2001, other reduced labor-related costs of $824,000 and
decreased marketing and promotional costs of approximately $507,000.
Research, development and engineering expense. Research, development and
engineering ("R&D") expense for the quarter ended June 30, 2000 was $813,000 or
approximately 6.7% of net sales, compared to $888,000, or approximately 9.3% of
net sales in the corresponding quarter of the prior year.
Relocation expenses. One-time relocation expenses incurred for moving the
company's non-manufacturing components to Colorado Springs, Colorado were
$950,000 in the June 30, 2000 quarter. Relocation expenses will continue to be
recorded in the following quarter as the move is completed. We expect the total
relocation expenses associated with the relocation of our non-manufacturing
departments to be approximately $2 million. The timetable and related cost
estimates connected with moving the remaining manufacturing operations have not
yet been finalized.
Interest income. For the quarter ended June 30, 2000 we recognized
interest income of $20,000 compared to $63,000 in the corresponding period of
the prior year. The decrease was principally due to lower cash balances.
Income tax benefit. Our effective tax rate, before valuation allowance,
for the first quarter of fiscal 2000 was a benefit of 28%. However, for the
quarter ended June 30, 2000, we did not recognize any additional tax benefit of
our operating losses because realization is not assured as required by SFAS No.
109, and thus a valuation allowance was established for all operating losses
generated during the period.
7
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Liquidity and Capital Resources:
For the three months ended June 30, 2000, net cash used in operating
activities was $778,000, which consisted of net loss of $3.3 million, offset by
non-cash charges for depreciation, amortization and loss on disposal of fixed
assets of $1.3 million and a net increase of $1.2 million related to the change
in operating assets and liabilities. Net cash used in investing activities
was $908,000 for the three months ended June 30, 2000, which consisted
principally of acquisitions of property and equipment.
During the first fiscal quarter of 2001, the Company entered into a revised
credit agreement providing for borrowing up to $5.0 million. The credit
facility expires on December 10, 2001. Any outstanding amounts under the
facility are collateralized by our accounts receivables, inventory, equipment
and intangibles. There were no outstanding borrowings against the new credit
facility as of June 30, 2000, although a $1 million letter of credit, granted as
security for the new Colorado Springs facility, reduced borrowing capacity by
that same amount.
At June 30, 2000, we had cash and cash equivalents of $1.1 million and
working capital of $7.7 million. We believe that our current working capital
and available financing sources will be sufficient to provide operating
liquidity for at least the next twelve months.
Forward-Looking Statements
Certain statements made in this document constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other facts that may cause our actual results, performance or
achievements, or industry results, to be materially different from any future
results, performance or achievements expressed or implied by such
forward-looking statements. Such factors are discussed in detail in our Annual
Report on Form 10-K. Given these uncertainties, prospective and current
investors are cautioned not to place undue reliance on such forward-looking
statements. We disclaim any obligation to update any such factors or to
publicly announce the result of any revisions to any of the forward-looking
statements contained in the Annual Report on Form 10-K or this document.
Item 3. Quantitative and Qualitative Disclosures About Market Risks
We considered the provision of Financial Reporting Release No. 48, "Disclosure
of Accounting Policies for Derivative Financial Instruments and Derivative
Commodity Instruments, and Disclosure of Quantitative and Qualitative
Information about Market Risk Inherent in Derivative Financial Instruments,
Other Financial Instruments and Derivative Commodity Instruments". We had no
holdings of derivative financial or commodity instruments at June 30, 2000. We
are exposed to financial market risks, including changes in interest rates and
foreign currency exchange rates. An increase in interest rates would not
significantly affect our net loss. All of our revenue and capital spending is
transacted in U.S. dollars.
8
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Part II: Other Information
Item 1. Legal Proceedings
We are involved in certain legal matters in the ordinary course of
business. No provision for any liability that may result upon the resolution of
these matters has been made in the accompanying financial statements nor is the
amount or range of possible loss, if any, reasonably estimable.
Item 2. Changes in Securities and Use of Proceeds
Under our revised credit agreement, we will not declare or pay any
dividends (other than dividends payable solely in stock of the Borrower) on any
class of its stock or make any payment on account of the purchase, redemption or
other retirement of any shares of such stock or make any distribution in respect
thereof, either directly or indirectly.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
We have received notice from the Nasdaq Stock Market that, since our
minimum bid price per share has recently been below $1 for over 30 consecutive
days, we are not in compliance with the Nasdaq National Market listing standards
regarding minimum bid price. We have until August 28, 2000 to demonstrate
compliance with this requirement (by having the bid price on our stock equal or
exceeding $1 for a minimum of ten consecutive trading days). If we are unable
to meet this requirement or receive a waiver from Nasdaq, our stock will be
delisted and maybe traded on the bulletin board.
On June 30, 2000 we entered into a lease with Cherokee Equities, LLC for a
new office and industrial facility at 1610 Garden of the Gods Road in Colorado
Springs, Colorado. The lease term is for 130 months, and expires April 30,
2011. Monthly rents range from $9,687.50 for July 2000 for 15,000 square feet
to $69,025.00 for April 2011 for 82,500 square feet.
On June 29, 2000 we signed a new line of credit agreement with Wells Fargo
Business Credit, which replaced our previous line of credit with the same
institution. It provides for borrowings up to $5.0 million at an interest rate
at a base rate (currently 9.5%) plus .375% and expires in December 2001. Any
outstanding amounts under the facility are collateralized by our accounts
receivable, inventory, equipment and intangibles. There were no outstanding
borrowings against the new credit facility as of June 30, 2000. However, our
available borrowing base is reduced by the amount of a $1 million letter of
credit required under our new Colorado Springs office lease as security for the
lease obligation.
Item 6. Exhibits on and Reports on Form 8-K
(a) Exhibits
10.26 Credit Agreement, dated June 29, 2000, between ROCKSHOX,
INC. and Wells Fargo Business Credit
10.27 Office and Industrial Building Lease dated June 30,
2000 by and between Cherokee Equities, LLC and RockShox,
Inc.
9
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(b) Reports on Form 8-K:
None.
10
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SIGNATURES
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.
ROCKSHOX, INC.
Dated: August 11, 2000 /s/ Chris Birkett
-------------------
Chris Birkett
Chief Financial Officer and
Duly Authorized Officer
11
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