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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 QUARTER ENDED SEPTEMBER 30, 1996.
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 0-20933
RASTER GRAPHICS, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 94-3046090
(State of Incorporation) (I.R.S. Employer Identification Number)
3025 ORCHARD PARKWAY
SAN JOSE, CA 95134
(Address of principal executive office)
(408) 232-4000
(Registrant's telephone number)
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 1, 1996, there were 8,896,781 shares of Common Stock
outstanding.
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INDEX
<TABLE>
<CAPTION>
Page
PART I. FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Condensed Consolidated Balance Sheets as of September 30, 1996
and December 31, 1995 3
Condensed Consolidated Statements of Operations for the three and
nine month periods ended September 30, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows for the nine
month periods ended September 30, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Items 14
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURE 16
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
RASTER GRAPHICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
-------- --------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 16,969 $ 1,550
Accounts receivable, net of allowance for
doubtful accounts of $589 in 1996 and $467 in
1995 8,335 5,567
Inventories 5,204 3,248
Prepaid expenses 332 132
-------- --------
Total current assets 30,840 10,497
Property and equipment, net 1,808 1,452
Deposits and other assets 246 136
Intangible assets related to the acquisition of Onyx
Graphics Corporation 115 258
-------- --------
Total assets $ 33,009 $ 12,343
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,753 $ 1,817
Accrued payroll and related expenses 718 583
Accrued warranty 326 287
Other accrued liabilities 1,593 970
Deferred revenue 1,128 1,114
Current portion of long-term debt 361 355
-------- --------
Total current liabilities 6,879 5,126
Long-term debt 235 504
Stockholders' equity:
Preferred stock -- 24,769
Common stock 42,153 367
Accumulated deficit (16,258) (18,423)
-------- --------
Total stockholders' equity 25,895 6,713
-------- --------
Total liabilities and stockholders' equity $ 33,009 $ 12,343
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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RASTER GRAPHICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA; UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues $ 10,212 $ 6,835 $ 28,363 $ 18,487
Cost of revenues 6,023 4,315 17,009 12,016
----------- ----------- ----------- -----------
Gross profit 4,189 2,520 11,354 6,471
Operating expenses:
Research and development 1,082 948 3,326 2,375
Sales and marketing 1,580 975 4,315 2,350
General and administrative 566 408 1,430 1,008
Acquired in-process research
and development -- 889 -- 889
----------- ----------- ----------- -----------
Total operating expenses 3,228 3,220 9,071 6,622
----------- ----------- ----------- -----------
Operating income (loss) 961 (700) 2,283 (151)
Interest income, net 110 16 113 38
----------- ----------- ------------ ------------
Income (loss) before provision for
income taxes 1,071 (684) 2,396 (113)
Provision for (benefits from)
income taxes 107 (355) 231 (58)
----------- ----------- ----------- -----------
Net income (loss) $ 964 $ (329) $ 2,165 $ (55)
=========== =========== =========== ===========
Net income (loss) per share $ 0.11 $ (0.33) $ 0.27 $ (0.05)
=========== =========== =========== ===========
Shares used in computing net
income (loss) per share 8,949,278 1,009,772 7,924,746 1,005,900
=========== =========== =========== ===========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
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RASTER GRAPHICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS; UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------
1996 1995
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income (loss) $ 2,165 $ (55)
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Deferred revenue from related parties -- (151)
Other deferred revenue 14 (1,031)
Depreciation and amortization 832 676
Acquired in-process research and development -- 889
Changes in operating assets and liabilities:
Accounts receivable (2,768) (1,050)
Inventories (1,956) (960)
Prepaid expenses and other assets (310) 262
Accounts payable 936 928
Accrued payroll and related expenses 135 20
Other accrued liabilities 662 (23)
-------- --------
Net cash used in operating activities (290) (495)
INVESTING ACTIVITIES
Capital expenditures (1,045) (803)
Cash acquired in acquisition -- 55
-------- --------
Net cash used in investing activities (1,045) (748)
FINANCING ACTIVITIES
Repayment of note (263) (384)
Payments on capital leases -- (5)
Proceeds from issuance of common stock 17,017 4
Proceeds from issuance of Series C preferred stock -- 1,467
-------- --------
Net cash provided by financing activities 16,754 1,082
-------- --------
Net increase (decrease) in cash and cash equivalents 15,419 (161)
Cash and cash equivalents at beginning of period 1,550 1,607
======== ========
Cash and cash equivalents at end of period $ 16,969 $ 1,446
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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RASTER GRAPHICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements of Raster
Graphics, Inc. (the "Company" or "Raster Graphics") include all adjustments
(consisting only of normal recurring adjustments) which the Company considers
necessary for a fair presentation of the financial position at such date and the
operating results and cash flows for those periods.
The financial statements should be read in conjunction with the
financial statements and notes thereto included in the Company's Registration
Statement on Form S-1, as amended (File No. 333-06617), which became effective
on August 8, 1996, and the related prospectus contained therein. The
accompanying condensed consolidated balance sheet at December 31, 1995 is
derived from audited financial statements at that date.
Results for any interim period are not necessarily indicative of
results for any other interim period or for the entire year.
2. INITIAL PUBLIC OFFERING
In August 1996, the Company completed its initial offering and issued
2,450,000 shares of its common stock to the public at a price of $8.00 per
share. The Company received approximately $16.9 million of cash, net of
underwriting discounts, commissions, and other offering costs incurred to date.
Upon completion of the offering, all outstanding shares of Series A, Series B
and Series C Preferred Stock (a total of approximately 5,892,716 shares) were
converted into shares of Common Stock on a one-for-one basis.
3. INVENTORIES
Inventories are stated at the lower of cost (first in, first out) or
fair market value and consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
Raw materials $ 696 $ 784
Work-in-progress 1,167 588
Finished goods 3,341 1,876
------------- ------------
5,204 3,248
============= ============
</TABLE>
4. NET INCOME (LOSS) PER SHARE
Net Income (loss) per share is computed using the weighted average
number of shares of common stock and dilutive common equivalent shares from
convertible preferred stock (using the if-converted method) and from stock
options and warrants (using the modified treasury stock method). Pursuant to the
Securities and Exchange Commission Staff Accounting Bulletins, common stock and
common equivalent shares issued by the Company at prices below the initial
public offering price during the twelve month period prior to the Company's
initial public offering have been included in the
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calculation as if they were outstanding for all periods presented regardless of
whether they are dilutive (using the modified treasury stock method). The pro
forma calculation of net income (loss) per share presented below has been
computed as described but also gives retroactive effect from the date of
issuance for the conversion of the convertible preferred stock which were
automatically converted to common stock upon closing of the Company's initial
public offering in August 1996.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
--------- --------- ------------- -------------
<S> <C> <C> <C> <C>
Pro forma net income (loss) per
share $ 0.11 $ (0.05) $ 0.27 ($ 0.01)
========= ========= ============= =============
Shares used in computing net income
(loss) per share 8,949,278 6,459,128 7,924,746 6,389,104
========= ========= ============= =============
</TABLE>
5. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These assumptions affect the reported amounts of assets and
liabilities, the disclosure of contingent 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.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following should be read in conjunction with the unaudited
financial statements and notes thereto included in Part I -- Item 1 of this
Quarterly Report and the audited financial statements and notes thereto and
Management's Discussion and Analysis of Financial Condition and Results of
Operations contained in the Company's Registration Statement of Form S-1, as
amended (Registration Statement No. 333-06617) which became effective on August
8, 1996, and the related prospectus contained therein.
OVERVIEW
Raster Graphics was established in 1987 initially to develop low-cost
electrostatic raster printers for the computer-aided design ("CAD") market.
Raster Graphics commenced shipments of its first printer, a 22-inch printer, in
1989, followed by a 24-inch printer in 1990 and a 36-inch printer in 1992.
In 1993, the Company identified the on-demand production large format
digital printer ("LFDP") market as a new opportunity to develop a product based
on its proprietary high-speed print head technology. As a result, in 1993 the
Company shifted its product focus and began to develop the DCS 5400 specifically
for the LFDP market. The Company began shipping the DCS 5400 in July 1994. In
January 1996, the Company began commercial production of the DCS 5442 as a
second generation to the DCS 5400. Since its introduction, the DCS 5442 has
represented an increasing percentage of the Company's product shipments and, by
September 1996, has substantially replaced the DCS 5400. Although the Company
has no current plans to replace the DCS 5442, the future success of the Company
will likely depend on its ability to develop and market new products that
provide superior performance at acceptable prices within the production segment
of the LFDP market and to introduce lower-cost products aimed at a broader
segment of the LFDP market.
In order to provide a complete digital printing solution to its
customers, the Company began shipping Onyx Graphics, Inc.'s ("Onyx") image
processing software with its DCS 5400 printer in July 1994. Onyx develops and
markets image processing software for digital printers such as the Company's DCS
5400 and 5442 printers as well as printers manufactured by companies such as
CalComp Technology, Inc., Encad, Inc., Hewlett-Packard Company and ColorgrafX.
In August 1995, the Company acquired Onyx. Onyx supplies its software to Raster
Graphics and also sells its software products to OEMs, VARs, system integrators
and other printer manufacturers. Onyx's current image processing software
product, PosterShop(TM), was introduced in April 1996 as a replacement for
Onyx's Imagez(TM) image processing software product, which Onyx has been
shipping since May 1991. Although the Company has no current plans to replace
its PosterShop product, the Company will likely introduce new versions of its
image processing software in the future.
Raster Graphics also sells related consumables, including specialized
inks and papers which it acquires from third party suppliers and resells under
the Raster Graphics name for use in the Company's DCS printers. The sale of
consumables generates recurring revenues which the Company believes will
continue to increase to the extent that the installed base of DCS printing
systems expands. As the Company develops new printers, it may need to develop
new consumables to be used by its new printer products.
In the United States, Raster Graphics also derives revenues from
maintenance contracts of installed DCS systems and printers, as well as the
Company's installed base of 22-inch, 24-inch and 36-inch printers. Revenue is
also generated from the sale of spare parts.
Raster Graphic's end user customers, OEMs, VARs, and international
distributors submit purchase orders that generally require product shipment
within two to eight weeks from receipt of order. Accordingly, the Company does
not use order backlog as a primary basis for management planning for longer
periods. Revenues are recognized upon shipment if there are no contingencies. If
contingencies exist, revenues are recognized only when such contingencies are
removed by the customer.
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Cost of revenues includes materials, labor, overhead and software
royalties. Cost of revenues as a percentage varies depending upon the revenue
mix generated through end user, OEM, VAR and distributor revenues, and the
revenue mix generated from Onyx software license fees, DCS printing systems
sales, consumables sales and service fees.
Raster Graphics expenses research and development costs as incurred.
Research and development expenses have increased from year to year, and Raster
Graphics expects further increases in research and development expenses in the
future due to the development of new products.
Raster Graphics' sales and marketing expenses and general and
administrative expenses have also increased to support the revenue growth of the
Company. The Company's strategy is to distribute its products through a direct
sales force and independent representatives in selected markets (currently the
United States and Germany), as well as through OEMs, VARs and distributors.
Raster Graphics also incurs sales and marketing expenses in connection with
product promotional activities. The Company intends to expand its domestic and
international sales and marketing organizations. As a result, the Company
believes that sales and marketing expenses will continue to increase in absolute
dollar amounts and may increase as a percentage of revenue.
The Company has a limited operating history upon which an evaluation of
the Company and its prospects can be based. The Company's prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in the early stages of development, particularly
companies in new and rapidly evolving markets. To address these risks, the
Company must, among other things, respond to competitive developments, attract,
retain and motivate qualified persons, and continue to upgrade its technologies
and commercialize products and services incorporating such technologies. There
can be no assurance that the Company will be successful in addressing these
risks. As of September 30, 1996, the Company has an accumulated deficit of
$16.3 million. Although the Company was profitable in 1995 and the nine months
ended September 30, 1996, there can be no assurance that the Company will be
profitable in the future.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Net Revenues. Net revenues increased 49.4% to $10.2 million in the
three month period ended September 30, 1996, as compared to $6.8 million for the
comparable period of 1995. The increase was primarily due to increased sales of
printer systems following introduction of the DCS 5442 printing system in
January 1996, consolidation of sales following the acquisition of Onyx, sales by
the Company's German subsidiary and increased sales of consumables.
International sales, which include export sales and sales shipped by
the Company's German and United Kingdom subsidiaries, were $6.3 million and $3.5
million for the three months ended September 30, 1996 and 1995, respectively.
These sales represented 61.5% and 50.9% of net revenues in the respective
periods. The increases in international sales were a result of the increased
international customer acceptance of the DCS printer systems, the establishment
of new distribution arrangements and sales by the Company's German and United
Kingdom subsidiaries. Sales made by the Company's German and United Kingdom
subsidiaries are denominated in local currencies. The Company is subject to
transaction exposure that arises from foreign exchange movements between the
dates foreign currency sales are recorded and the dates cash is received in the
foreign currency. To date, the Company has not found it appropriate to hedge the
risks associated with fluctuations in exchange rates.
For the three month periods ended September 30, 1996, one customer
accounted for 12.1% of net revenues.
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Gross Profit. Gross profit was $4.2 million, or 41.0% of net revenues,
for the three month period ended September 30, 1996, compared to gross profit of
$2.5 million, or 36.8% of net revenues, for the third quarter of 1995. The
increase in gross profit was primarily the result of increased net revenues. The
improvement in gross profit as a percentage of net revenues was due to several
reasons including: the allocation of fixed costs over a larger number of units
sold; increased sales of higher margin software products and consumables; and
improvements in manufacturing efficiency.
Research and Development. Research and development expenses were
$1,082,000, or 10.6% of net revenues for the third quarter of 1996 as compared
to $948,000, or 13.9% of net revenues for the comparable quarter in 1995. The
increase in research and development expenses was primarily the result of new
product development activities.
Sales and Marketing. Sales and marketing expenses were $1,580,000 and
$975,000 for the third quarter of 1996 and 1995, respectively. As a percentage
of net revenues, sales and marketing expenses increased to 15.5% for the third
quarter of 1996 as compared to 14.3% for the third quarter of 1995, due
primarily to the personnel and related costs associated with increased sales
activities.
General and Administrative. General and administrative expenses were
$566,000 and $408,000 for the third quarter of 1996 and 1995, respectively. As a
percentage of net revenues, general and administrative expenses remained
relatively constant at approximately 6.0% of net revenues.
Provision for (Benefits from) Income Taxes. For the three month periods
ended September 30, 1996 and September 30, 1995, income taxes have been provided
based upon estimated effective tax rates of 10.0% and 51.9%, respectively,
applied to the earnings for the period. The provisions for income taxes for the
three months ended September 30, 1996 reflect the tax benefits of utilizing net
operating loss carryforwards. The income tax benefits for the three months ended
September 30, 1995 reflect unbenefited foreign losses and the tax benefits of
utilizing net operating loss carryforwards.
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
Net Revenues. Net revenues increased 53.4% to $28.4 million in the nine
months ended September 30, 1996, as compared to $18.5 million for the comparable
period of 1995. The increase was primarily due to a continued growth in sales of
DCS printing systems and increased sales of consumables, the consolidation of
net revenues from Onyx after August 10, 1995 and higher sales of spare parts.
Future revenue growth will depend on a number of factors, including the
Company's ability to develop, manufacture, market and sell innovative and
reliable new products, customer satisfaction, market growth, competitive
developments, product mix, vendor performance and the Company's ability to
handle growth. There can be no assurance that the Company's revenues will
continue to grow at current rates, or at all.
International sales, which include export sales and sales shipped by
the Company's German and United Kingdom subsidiaries, were $16 million and $10
million for the nine months ended September 30, 1996 and 1995, respectively.
These sales represented 56.4% and 53.9% of net revenues in the respective
periods. The increases in international sales were a result of the increased
international customer acceptance of the DCS printer systems, the establishment
of new distribution arrangements and sales by the Company's German and United
Kingdom subsidiaries. Sales made by the Company's German and United Kingdom
subsidiaries are denominated in local currencies. The Company is subject to
transaction exposure that arises from foreign exchange movements between the
dates foreign currency sales are recorded and the dates cash is received in the
foreign currency. To date, the Company has not found it appropriate to hedge the
risks associated with fluctuations in exchange rates. Future international
revenues will depend on the factors set forth above, and will be subject to
unexpected changes in regulatory requirements and tariffs, longer customer
payment cycles, fluctuation in currency exchange rates, seasonal factors and
risks associated with managing business operations in geographically distant
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locations. No assurance can be given that international revenues will continue
to grow at current rates, or at all.
For the nine month period ended September 30, 1995, one customer
accounted for 13.1% of net revenue.
Gross Profit. Gross profit was $11.4 million, or 40.0% of net revenues,
for the nine months ended September 30, 1996, compared to gross profit of $6.5
million, or 35.0% of revenues, for the comparable period of 1995. The increase
in gross profit was primarily the result of increased net revenues. The
improvement in gross profit as a percentage of net revenues was due to several
reasons including: the allocation of fixed costs over a larger number of units
sold; increased sales of higher margin software products and consumables; and
improvements in manufacturing efficiency. The Company's future level of gross
profit will depend on a number of factors, including product mix and its
abilities to control variable expenses relative to revenue levels, maintain a
revenue base over which to allocate fixed costs and continue to develop,
manufacture, market and sell innovative and reliable new products.
Research and Development. Research and development expenses were $3.3
million, or 11.7% of net revenues, for the first nine months of 1996 as compared
to research and development expenses of $2.4 million, or 12.8% of net revenues
for the comparable period in 1995. The absolute dollar increase from 1995 to
1996 was primarily due to increased payroll and related expenses, including the
Onyx engineering staff; and to a lesser degree increased engineering material
expenditures and increased facility costs related to the Company's new facility.
The Company intends to continue to dedicate substantial resources to research
and development activities. Accordingly, the Company believes that research and
development expenses generally will continue to increase in dollar amounts, and
may increase as a percentage of revenues, in the future.
Sales and Marketing. Sales and marketing expenses were $4.3 million and
$2.4 million for the first nine months of 1996 and 1995, respectively. As a
percentage of net revenues, sales and marketing expenses increased to 15.2% for
the first nine months of 1996 as compared to 12.7% for the comparable period of
1995, due primarily to increases in payroll and payroll-related expenses, and to
a lesser degree, travel-related expenses. Spending also increased in 1995 due to
increased sales activities and the opening of sales offices in Germany and the
United Kingdom to support increased sales activities in Europe. The Company
believes that sales and marketing expenses will continue to increase in dollar
amounts, and may increase as a percentage of revenues, in the future.
General and Administrative. General and administrative expenses were
$1.4 million, or 5.0% of net revenues for the first nine months of 1996 as
compared to $1 million, or 5.5% of net revenues for the comparable period in
1995. The increase in 1996 was primarily related to increased costs related to
the Company's new facility and increased payroll and payroll-related expenses.
The Company believes that general and administrative expenses will continue to
increase in dollar amounts, and may increase as a percentage of revenues, in the
future.
Provision for (Benefits from) Income Taxes. For the nine-month periods
ended September 30, 1996 and September 30, 1995, income taxes have been provided
based upon estimated annualized effective tax rates of 9.6% and 51.3%,
respectively, applied to the earnings for the period. The provisions for income
taxes for the nine months ended September 30, 1996 reflect the tax benefits of
utilizing net operating loss carryforwards. The income tax benefits for the nine
months ended September 30, 1995 reflect unbenefited foreign losses and the tax
benefits of utilizing net operating loss carryforwards.
As of December 31, 1995, the Company had federal and state net
operating loss carryforwards of approximately $13.4 million and $4.7 million,
respectively. The Company also has federal and California research and
development tax credit carryforwards of approximately $760,000 and $325,000,
respectively.
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The net operating loss and credit carryforwards will expire, if not utilized, at
various dates beginning in 1996 through 2010.
Utilization of the net operating losses and credits may be subject to
an annual limitation due to the ownership change limitations provided by the
Internal Revenue Code of 1986, as amended (the "Code") and similar state
provisions. The annual limitation may result in the expiration of net operating
losses and credits before utilization.
Under Statement of Financial Accounting Standards No. 109, deferred tax
assets and liabilities are determined based on the difference between financial
reporting and tax bases of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse. Based on the weight of available evidence, which includes
the Company's historical operating performance, the reported loss in 1994, only
marginal profitability in 1995, and the uncertainties regarding future results
of operations, the Company has provided a full valuation allowance against its
net deferred tax assets of $7.3 million at December 31, 1995, as it is more
likely than not that the deferred tax assets will not be realized.
Acquired In-Process Research and Development. In August 1995, the
Company acquired Onyx for stock and other consideration valued at $1.5 million.
The assets acquired included tangible assets valued at $889,000, intangible
assets of $454,000, less liabilities assumed of $570,000 and software in the
development stage valued at approximately $750,000 which was expensed in the
September 1995 quarter as it had not yet reached technological feasibility and
did not have alternative future uses. In addition, the Company wrote off
$139,000 in the September 1995 quarter for redundant PostScript(TM) licenses
that the Company had purchased for the Company's development of a similar image
processing software product.
Interest Income (Expense). Net interest income was $113,000 and $38,000
for the nine months ended September 30, 1996 and September 30, 1995,
respectively. The increase was attributed to interest earned on the cash raised
by the Company through its initial public offering in August 1996.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily
through private sales of preferred stock and common stock of $24.2 million, its
initial public offering of common stocks, issuance of convertible debt, bank
loans, equipment lease financing and private loans. The Company completed an
initial public offering of its Common Stock in August 1996, of which it
realized net proceeds (after underwriting discounts and expenses) of $16.9
million. For the nine months ended September 30, 1996 and for the same period
in 1995, $290,000 and $495,000 of cash was used in operations, respectively.
Net cash used in operations was due primarily to increases in inventories and
accounts receivables associated with higher net revenues, which were partially
offset by an increase in accounts payable.
Net cash used in investing activities was $1,045,000 and $748,000 for
the nine months ended September 30, 1996 and 1995, respectively, due primarily
to the purchase of capital equipment.
Financing activities provided net cash of $16.8 million and $1.1
million for the nine months ended September 30, 1996 and 1995, respectively. In
August 1996, the Company successfully completed its initial public offering of
securities which yielded net proceeds of $16.9 million. In fiscal 1995, $1.5
million was raised by issuing Series C preferred stock. The proceeds from the
sale of these equity securities were partially offset by payments on notes and
capital lease obligations.
To date, the Company has not invested in derivative securities or any
other financial instrument that involves a high level of complexity or risk.
Management expects that, in the future, cash in excess of current requirements
will be invested in investment grade, interest-bearing securities.
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At September 30, 1996, the Company had $17.0 million of cash and cash
equivalents. The Company also has available a $2.0 million bank line of credit
agreement that expires on December 15, 1996, which is secured by the tangible
assets of the Company. At September 30, 1996, there were no borrowings
outstanding under the bank line of credit.
The Company believes that existing financial resources will be
sufficient to finance its capital requirements through at least the end of
fiscal 1997. Thereafter, the Company may require additional funds to support its
working capital requirements or for other purposes and may seek to raise such
additional funds through bank borrowings and public or private sales of its
securities, including equity and debt securities. The Company's future capital
requirements, however, depend on numerous factors, including, without
limitation, the success of marketing, sales and distribution efforts; the
progress of its research and development programs; the costs involved in
preparing, filing, prosecuting, defending and enforcing intellectual property
rights; competition; competing technological and market developments; and the
effectiveness of product commercialization activities and arrangements. There
can be no assurance that additional funds, if required, will be available to the
Company on favorable terms or at all.
FORWARD LOOKING STATEMENTS
The Company notes that certain of the foregoing statements in this
report are forward-looking, the accuracy of which is necessarily subject to
risks and uncertainties. Actual results may differ materially from the
statements made due to a variety of factors including, but not limited to, (i)
fluctuations in quarterly results, (ii) competitive products and technologies,
(iii) ability of the Company to upgrade its technologies and commercialize
products, and (iv) other risk factors described in the Company's Registration
Statement of Form S-1 as currently filed with the Securities and Exchange
Commission.
13
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES
In August 1996, the Company effected a reincorporation from California
to Delaware and effected a 1-for-5 reverse stock split of the Company's common
and preferred stock. On August 8, 1996, the Company's Registration Statement on
Form S-1, as amended, with respect to the Company's initial public offering of
3,000,000 shares of the Company's common stock was declared effective by the
Securities and Exchange Commission. These shares carry the same voting rights
as previously issued shares of common stock of the Company. Effective upon the
closing of the Company's initial public offering, all outstanding shares of
preferred stock were automatically converted into shares of the Company's
common stock, and on such date, the Company amended its Certificate of
Incorporation to delete reference to such preferred stock.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On August 1, 1996, the Company solicited shareholder approval to
approve the following matters:
<TABLE>
<CAPTION>
SHARES SHARES SHARES
FOR AGAINST ABSTAIN
---------- ------- -----------
<S> <C> <C> <C>
Approved:
1996 Stock Plan 25,872,663 8,934 5,825,335
(80,000 shares reserved)
1996 Employee Stock Purchase Plan 25,878,669 2,666 5,825,335
(400,000 shares reserved)
1996 Director's Stock Option Plan 25,878,669 2,666 5,825,335
(150,000 shares reserved)
1-for-5 Reverse Stock Split 25,871,663 9,672 5,825,335
Reincorporation into Delaware 25,871,663 9,672 5,825,335
Amended and Restated Certificate of
Incorporation 25,871,663 9,672 5,825,335
Reincorporation does not Trigger
Liquidation Distribution 25,871,663 9,672 5,825,335
</TABLE>
ITEM 5. OTHER ITEMS
Not applicable
14
<PAGE> 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: See exhibit index on page 17
(b) Reports on Form 8-K: None
15
<PAGE> 16
SIGNATURE
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.
RASTER GRAPHICS, INC.
By: /s/ Dennis Mahoney
-------------------------
Dennis Mahoney
Chief Financial Officer
Date: November 12, 1996
--
<PAGE> 17
EXHIBIT INDEX
EXHIBITS PAGE NUMBER
11.1 Statement of Computation of net income
(loss) per share 18
27.1 Financial Data Statement Filed via Edgar
17
<PAGE> 1
Exhibit 11.1
Registrant: Raster Graphics, Inc.
Statement of Computation of Income (Loss) Per Share
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------- ---------------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
HISTORICAL:
Net income (loss) $ 964 $ (329) $ 2,165 $ (55)
======= ======= ======= =======
Weighted average common
shares outstanding 5,388 207 2,070 203
Common equivalent shares from
stock options, convertible
preferred stock and warrants 3,561 -- 5,320 --
Shares related to SAB Nos. 55, 64,
and 83 -- 802 535 802
------- ------- ------- -------
Shares used in computing net
income (loss) per share 8,949 1,009 7,925 1,005
======= ======= ======= =======
Net income (loss) per share $ 0.11 $ (0.33) $ 0.27 $ (0.05)
======= ======= ======= =======
PROFORMA:
Net income (loss) $ 964 $ (329) $ 2,165 $ (55)
======= ======= ======= =======
Weighted average common
shares outstanding 5,388 207 2,070 203
Common equivalent shares from
stock options, convertible
preferred stock and warrants 3,561 5,449 5,320 5,383
Shares related to SAB Nos. 55, 64,
and 83 -- 802 535 802
------- ------- ------- -------
Shares used in computing net
income (loss) per share 8,948 6,458 7,925 6,388
======= ======= ======= =======
Net income (loss) per share $ 0.11 $ (0.05) $ 0.27 $ (0.01)
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 16,969
<SECURITIES> 0
<RECEIVABLES> 8,924
<ALLOWANCES> 589
<INVENTORY> 5,204
<CURRENT-ASSETS> 30,840
<PP&E> 5,379
<DEPRECIATION> 3,571
<TOTAL-ASSETS> 33,009
<CURRENT-LIABILITIES> 6,879
<BONDS> 235
0
0
<COMMON> 43,153
<OTHER-SE> (16,258)
<TOTAL-LIABILITY-AND-EQUITY> 33,009
<SALES> 28,363
<TOTAL-REVENUES> 28,363
<CGS> 17,009
<TOTAL-COSTS> 17,009
<OTHER-EXPENSES> 9,071
<LOSS-PROVISION> 128
<INTEREST-EXPENSE> 54
<INCOME-PRETAX> 2,396
<INCOME-TAX> 231
<INCOME-CONTINUING> 2,165
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,165
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
</TABLE>
