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 quarterly period ended September 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
--------------------------------------------------------------------------------
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 9, 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 September 30, 2000 (unaudited)
and March 31, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of Operations for the three- and six-
month periods ended September 30, 2000 and 1999 (unaudited). . . . . . . 4
Condensed Consolidated Statements of Cash Flows for the six months ended
September 30, 2000 and 1999 (unaudited). . . . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . . . . . 10
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Part I: Item 1.
ROCKSHOX, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
September 30, 2000 March 31, 2000
-------------------- ----------------
(Unaudited)
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Current assets:
Cash and cash equivalents. . . . . . . . . $ 568 $ 2,832
Accounts receivable, net of allowance
of $1,132 . . . . . . . . . . . . . . . 17,988 12,623
Inventories (Note 2) . . . . . . . . . . . 10,440 5,614
Prepaid expenses and other current assets. 771 380
Income taxes recoverable (Note 3). . . . . - 1,400
-------------------- ----------------
Total current assets . . . . . . . . . 29,767 22,849
Property, plant and equipment, net 11,712 12,567
Loan to related party 200 200
Other assets, net 183 188
-------------------- ----------------
Total assets . . . . . . . . . . . . . . . $ 41,862 $ 35,804
==================== ================
Current liabilities:
Accounts payable . . . . . . . . . . . . . $ 10,913 $ 6,207
Other accrued liabilities. . . . . . . . . 6,692 5,995
Line of credit . . . . . . . . . . . . . . 3,745 -
-------------------- ----------------
Total current liabilities. . . . . . . 21,350 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 (deficit). . . . . . . . (132) 2,958
-------------------- ----------------
Total stockholders' equity . . . . . . . 20,512 23,602
-------------------- ----------------
Total liabilities and stockholders'
equity . . . . . . . . . . . . . . . $ 41,862 $ 35,804
==================== ================
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The accompanying notes are an integral part of these condensed consolidated
financial statements.
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Part I: Item 1.
ROCKSHOX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
---------------------------------- ----------------------------------
Sept. 30, 2000 Sept. 30, 1999 Sept. 30, 2000 Sept. 30, 1999
---------------- ---------------- ---------------- ----------------
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Net sales. . . . . . . . . . . . . $ 23,429 $ 15,961 $ 35,631 $ 25,484
Cost of sales. . . . . . . . . . . 18,283 13,074 29,138 23,576
---------------- ---------------- ---------------- ----------------
Gross profit . . . . . . . . . . 5,146 2,887 6,493 1,908
Selling, general and
administrative expense. . . . . . 3,221 3,184 6,170 8,206
Research, development and
engineering expense . . . . . . . 438 870 1,172 1,759
Relocation expenses. . . . . . . . 764 -- 1,714 --
---------------- ---------------- ---------------- ----------------
Operating expenses . . . . . . 4,423 4,054 9,056 9,965
---------------- ---------------- ---------------- ----------------
Income (loss) from
operations . . . . . . . . . 723 (1,167) (2,563) (8,057)
Interest income (expense). . . . . (51) 44 (32) 106
---------------- ---------------- ---------------- ----------------
Income (loss) before taxes. . . 672 (1,123) (2,595) (7,951)
Income tax (expense) benefit . . . (495) -- (495) (1,873)
---------------- ---------------- ---------------- ----------------
Net income (loss). . . . . $ 177 $ (1,123) $ (3,090) $ (6,078)
================ ================ ================ ================
Net income (loss) per share--
basic . . . . . . . . . . . . . . $ 0.01 $ 0.08 $ (0.22) $ 0.44
================ ================ ================ ================
Shares used in per share
calculations-basic and diluted. 13,761 13,761 13,761 13,761
================ ================ ================ ================
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The accompanying notes are an integral part of these condensed consolidated
financial statements.
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Part I: Item 1.
ROCKSHOX, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
September 30, 2000 September 30, 1999
-------------------- --------------------
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Cash flows from operating activities:
Net loss. . . . . . . . . . . . . . . . . . . . . . . . $ (3,090) $ (6,078)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization . . . . . . . . . . . 2,443 2,419
Loss on disposal of fixed assets. . . . . . . . . . 12 (10)
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . (5,365) 3,387
Inventories . . . . . . . . . . . . . . . . . . . (4,826) (4,940)
Prepaid expenses and other assets . . . . . . . . (386) (1,148)
Income Taxes Recoverable. . . . . . . . . . . . . 1,400 --
Accounts payable and accrued liabilities 5,403 3,438
-------------------- --------------------
Net cash used in operating activities. . . . (4,409) (2,932)
-------------------- --------------------
Cash flows from investing activities:
Purchases of property and equipment . . . . . . . . . . (1,600) (1,391)
-------------------- --------------------
Net cash used in investing activities . . . . (1,600) (1,391)
-------------------- --------------------
Cash flows from financing activities:
Proceeds from short term borrowings . . . . . . . . . . 3,745 4,000
-------------------- --------------------
Net cash provided by financing activities . . 3,745 4,000
-------------------- --------------------
Net decrease in cash and cash equivalents . . . . . . . . (2,264) (323)
Cash and cash equivalents, beginning of period. . . . . . 2,832 3,755
-------------------- --------------------
Cash and cash equivalents, end of period. . . . . . . . . $ 568 $ 3,432
==================== ====================
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The accompanying notes are an integral part of these condensed consolidated
financial statements.
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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 six-month
period ended September 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):
September 30, 2000 March 31, 2000
------------------- ---------------
Raw materials. . . . . $ 7,513 $ 3,779
Finished goods . . . . 2,927 1,835
------------------- ---------------
$ 10,440 $ 5,614
=================== ===============
3. INCOME TAXES RECOVERABLE
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. The tax refund of approximately $1.4 million amount of this asset was
received in September 2000. The Company has ceased to recognize the current tax
benefit of any additional operating losses because realization is not assured as
required by SFAS No. 109.
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Part I: Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations:
Net sales. Net sales for the quarter ended September 30, 2000 increased by
46.3% to $23.4 million from $16.0 million for the corresponding period of the
prior year. For the six months ended September 30, 2000, net sales increased by
39.8% to $35.6 million from $25.5 million for the corresponding period of the
prior year. For the quarter ended September 30, 2000, OEM sales increased by
51.1% to $19.0 million compared to $12.6 million in the corresponding period of
the prior year, and increased by 52.5% to $27.9 million from $18.3 million for
the related six months of operations. The year-to-date revenue increase was due
to the prior year's delay in the start-up of many OEM customers' 2000 model
year. Sales to the retail accessory market in the quarter ended September 30,
2000 increased by 29.4% to $4.4 million compared to $3.4 million in the
corresponding period of the prior year. This increase reflects an earlier
launch for the 2001 product into the aftermarket channel. For the six months
ended September 30, 2000, sales to the retail accessory market increased by
$526,000, or 7.3%, to $7.7 million compared to $7.2 million in the corresponding
period of the prior year.
Gross margin. Gross margin (gross profit as a percentage of net sales) for
the quarter ended September 30, 2000 increased to 22.0% compared to 18.2% for
the corresponding period of the prior year. For the first six months of this
year, gross margin increased to 18.1% of sales compared to 7.5% for the
corresponding period of the prior year. The improved gross margin can be
attributed to increased revenue resulting in greater absorption of fixed
overhead costs. Included within the current period's gross margin is a $2
million warranty charge associated with the recent product recall of certain
model 2001 forks primarily produced in Taiwan (see Part II, Item 5 following).
Partially offsetting this charge was the reversal of certain warranty reserves
related to products whose warranty period had lapsed, totaling $500,000.
Selling, general and administrative expense. Selling, general and
administrative ("SG&A") expense for the quarter ended September 30, 2000 was
$3.2 million, or approximately 13.7% of net sales, compared to $3.2 million, or
approximately 19.9% of net sales, in the corresponding period of the prior year.
Reductions in compensation and travel for the current quarter were partially
offset by additional expenses in the foreign sales activity and the timing of
certain marketing costs. For the six-month period ended September 30, 2000,
SG&A expenses were $6.2 million, versus $8.2 million in the prior year.
Approximately $727,000 of this difference in the year-to-date was a result of
headcount and other compensation reductions, and $720,000 was due to a severance
accrual resulting from certain organizational changes made during the quarter
ended June 30, 1999. These savings were supplemented by reductions in travel,
professional and consulting fees, and marketing expenditures.
Research, development and engineering expense. Research, development and
engineering ("R&D") expense for the quarter ended September 30, 2000 was
$438,000 or approximately 1.9% of net sales, compared to $870,000, or
approximately 5.4% of net sales in the corresponding quarter of the prior year.
R&D expense decreased approximately 50% from the 1999 second quarter to the 2000
second quarter. For the six months ended September 30, 2000, R&D expenses were
reduced by 33% to $1.2 million, or 3.3% of net sales, versus $1.8 million, or
6.9% of net sales for the same period in the prior year. These cost reductions
were largely the result of reduced headcount and prototype expenditure achieved
through the consolidation of the Research and Development and Engineering
departments in Colorado. These departments previously existed separately in two
locations in San Jose.
Relocation expenses. One-time relocation expenses incurred for moving the
Company's non-manufacturing components to Colorado Springs, Colorado were
$764,000 in the September 30, 2000 quarter, for a total of $1.7 million for the
fiscal year to date. This annual figure incorporates all known costs to date of
the relocation of the non-manufacturing departments. The timetable and related
cost estimates connected with moving the remaining manufacturing operations in
early 2001 have not yet been finalized.
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Interest income and expense. For the quarter ended September 30, 2000 we
recognized interest expense of $51,000 compared to interest income of $44,000 in
the corresponding period of the prior year. For the six months ended September
30, 2000, we recognized interest expense of $32,000 compared to interest income
of $106,000 in the corresponding period of the prior year. Lower cash balances
and higher borrowings account for this differential.
Income tax expense. The income tax expense recorded for the current period
relates to our estimated taxes payable for the domestic Taiwan operations, the
effective rate being 25%. Our Taiwan subsidiary began operations in February
2000. For the quarter ended September 30, 2000, we did not recognize any
additional tax benefit of our consolidated operating losses because realization
is not assured as required by SFAS No. 109.
Liquidity and Capital Resources:
For the six months ended September 30, 2000, net cash used in operating
activities was approximately $4.4 million, which consisted of a net loss of $3.0
million, non-cash charges for depreciation and amortization of $2.4 million and
a net decrease of $3.8 million related to the change in operating assets and
liabilities. Net cash used in investing activities was $1.6 million for the six
months ended September 30, 2000, which consisted of acquisitions of property and
equipment. Short-term borrowings provided $3.7 million in cash flow for the
year to date.
At September 30, 2000, we had cash and cash equivalents of $568,000 and
working capital of $8.4 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, 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 September 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. The majority of our revenue and capital
spending is transacted in U.S. dollars, with the exception of the sale of
domestic Taiwan product, which is transacted in New Taiwan Dollars (NTD). At
September 30, 2000 our net foreign currency exposure to NTD was approximately
$2.5 million. Currently we do not hedge against fluctuations in NTD.
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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 our stock, 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
On August 22, 2000, the Company held its annual meeting of the stockholders
(the "Annual Meeting"). At the Annual Meeting, the Company's stockholders
elected the Company's Board of Directors as proposed and there was no
solicitation in opposition of any of the existing Board members.
With respect to the election of directors, the following directors received
the following number of votes and were therefore elected to the Board of
Directors. No broker non-votes were received on this proposal.
For Withheld
--------- ---------
Stephen W. Simons 9,908,661 2,196,395
Bryan L. Kelln 9,908,661 2,196,395
John W. Jordan II 9,908,661 2,196,395
Adam E. Max 9,908,661 2,196,395
Michael R. Gaulke 9,908,661 2,196,395
Edward T. Post 9,908,661 2,196,395
The Company's stockholders ratified an amendment to the ROCKSHOX, INC.
1998 Stock Option Plan (the "Amendment to the Stock Option Plan") to increase
the number of shares of Common Stock available for issuance from 300,000 shares
of Common Stock outstanding at any one time to 1,298,000 shares, in order to
help attract and retain the best available personnel. With respect to the
Amendment to the Stock Option Plan, a total of 6,061,061 votes were cast in
favor, 289,073 were cast against, 3,135,840 votes abstained, and 2,619,082
broker non-votes were received.
Also at the Annual Meeting, the Company's stockholders ratified the
selection of Ernst & Young (the "Ratification of Accountants") as the Company's
independent accountants for the fiscal year ending March 31, 2001. With respect
to the Ratification of Accountants, a total of 10,017,081 votes were cast in
favor, 17,105 were cast against, and 2,070,870 votes abstained. No broker non-
votes were received.
Item 5. Other Information
On October 5, 2000, we issued a stop sell notice for 2001 Judy TT, Judy TT
Special, Jett and Metro front suspension forks. Working with the Consumer
Product Safety Commission, we subsequently implemented a recall for these forks.
Although these products passed every internal and industry test, they
nonetheless do, in unusual circumstances, represent a safety risk to consumers.
We are quickly moving to remedy the situation, and are in the process of
resuming production with newly designed components. The cost of this recall is
estimated to total $2.0 million and has been included in the results of
operations for the second quarter of fiscal 2001. New testing procedures have
already been implemented in our internal processes.
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On October 30, 2000, we received notice from the Nasdaq Stock Market that
our stock would be delisted and would be automatically eligible to be traded on
the OTC Bulletin Board effective October 31, 2000. Our minimum bid price per
share had recently been below $1.00 for over 30 consecutive days, and we were
not able to evidence reasonably certain ongoing compliance with the Nasdaq
National Market listing standards requirement regarding minimum bid price.
Item 6. Exhibits on and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule.
(b) Reports on Form 8-K:
None.
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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: November 13, 2000 /s/ Chris Birkett
-------------------
Chris Birkett
Chief Financial Officer and
Duly Authorized Officer
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