<PAGE> 1
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, 1997.
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, 1997, there were 9,560,385 shares of Common Stock outstanding.
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
Page
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Balance Sheets as of September 30, 1997
and December 31, 1996 3
Condensed Consolidated Statements of Income for the three
and nine month periods ended September 30, 1997 and 1996 4
Condensed Consolidated Statements of Cash Flows for the nine
month periods ended September 30, 1997 and 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURE 15
</TABLE>
2
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PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
RASTER GRAPHICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
-------- --------
<S> <C> <C>
(Restated)
ASSETS
Current assets:
Cash and cash equivalents $ 3,559 $ 2,963
Short-term investments 4,681 13,100
Accounts receivable, net of
allowance for doubtful accounts
of $835 in 1997 and $606 in 1996 18,709 10,070
Inventories 11,066 6,705
Prepaid expenses 725 506
-------- --------
Total current assets 38,740 33,344
Property and equipment, net 4,162 2,547
Intangible assets 1,484 102
Deposits and other assets 403 585
-------- --------
Total assets $ 44,789 $ 36,578
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,579 $ 4,953
Accrued payroll and related expenses 1,098 1,089
Accrued warranty 728 331
Other accrued liabilities 3,464 1,635
Deferred revenue 1,330 1,162
Borrowings under bank line of credit 2,000 --
Current portion of long-term debt 180 303
-------- --------
Total current liabilities 14,379 9,473
Long-term debt, less current portion 38 178
Stockholders' equity:
Common stock 10 10
Additional paid in capital 43,181 42,746
Accumulated deficit (12,239) (15,417)
Deferred compensation (313) (392)
Notes receivable from stockholder -- (20)
Cumulative translation adjustment (267) --
-------- --------
Total stockholders' equity 30,372 26,927
-------- --------
Total liabilities and stockholders' equity $ 44,789 $ 36,578
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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RASTER GRAPHICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
(Restated) (Restated)
Net revenues $14,330 $10,960 $41,031 $30,487
Cost of revenues 8,473 6,461 23,874 18,315
------- ------- ------- -------
Gross profit 5,857 4,499 17,157 12,172
------- ------- ------- -------
Operating expenses:
Research and development 1,524 1,082 4,269 3,326
Sales and marketing 2,543 1,868 7,157 5,092
General and administrative 885 598 2,380 1,516
Merger expenses -- -- 139 --
------- ------- ------- -------
Total operating expenses 4,952 3,548 13,945 9,934
------- ------- ------- -------
Operating income 905 951 3,212 2,238
Other income, net 93 110 358 113
------- ------- ------- -------
Income before provision for
income taxes 998 1,061 3,570 2,351
Provision for income taxes 109 124 392 282
------- ------- ------- -------
Net income $ 889 $ 937 $ 3,178 $ 2,069
======= ======= ======= =======
Net income per share $ 0.09 $ 0.10 $ 0.31 $ 0.25
======= ======= ======= =======
Shares used in computing net
income per share 10,132 9,170 10,115 8,146
======= ======= ======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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RASTER GRAPHICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------
1997 1996
-------- --------
<S> <C> <C>
(Restated)
OPERATING ACTIVITIES
Net income $ 3,178 $ 2,069
Adjustments to reconcile net income to
net cash used in operating activities:
Deferred revenue 168 14
Depreciation and amortization 968 704
Amortization of deferred compensation 79 --
Changes in operating assets and liabilities:
Accounts receivable (8,189) (2,289)
Inventories (4,021) (2,081)
Prepaid expenses and other assets 98 (373)
Accounts payable (309) 967
Accrued payroll and related expenses (91) 126
Accrued warranty 397 39
Other accrued liabilities 229 632
-------- --------
Net cash used in operating activities (7,493) (192)
-------- --------
INVESTING ACTIVITIES
Capital expenditures (2,245) (1,160)
Net decrease in short-term investments 8,419 --
Datagraph acquisition, net of cash acquired (10) --
-------- --------
Net cash provided by (used in) investing activities 6,164 (1,160)
-------- --------
FINANCING ACTIVITIES
Proceeds from bank line of credit 2,000 --
Repayment of term loan (263) (263)
Repayment of note from shareholder 20 --
Proceeds from issuance of common stock 435 17,077
-------- --------
Net cash provided by financing activities 2,192 16,814
-------- --------
Effect of exchange rate changes on cash and
cash equivalents (267) --
-------- --------
Net increase (decrease) in cash and cash equivalents 596 15,462
Cash and cash equivalents at beginning of period 2,963 1,550
-------- --------
Cash and cash equivalents at end of period $ 3,559 $ 17,012
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest $ 69 $ 58
Cash paid for taxes $ 84 $ 80
</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 consolidated financial statements
have been prepared by Raster Graphics, Inc. (the "Company" or "Raster Graphics")
pursuant to the rules and regulations of the Securities and Exchange Commission
regarding interim financial reporting. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements and should be read in conjunction
with the audited financial statements included in the Company's Annual Report
and Form 10-K for the fiscal year ended December 31, 1996. All intercompany
transactions have been eliminated.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements have been prepared on the same basis as the
audited financial statements and include all recurring adjustments necessary for
a fair presentation of the interim periods presented. The operating results for
the nine months ended September 30, 1997 are not necessarily indicative of the
results for any other interim period or the full fiscal year ending December 31,
1997.
The unaudited condensed consolidated financial statements also include
adjustments that eliminated all significant intercompany transactions and
balances between the Company and ColourPass, which was merged with the Company
on March 18, 1997 for relevant periods prior to the merger. All periods
presented have been restated to reflect the merger which has been accounted for
as a pooling of interests (see Note 7).
2. 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.
3. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
For financial statement purposes, the Company considers all highly
liquid debt instruments with original maturities of ninety days or less and with
insignificant interest rate risk to be cash equivalents.
The Company classifies all of its short-term investments as
"available-for-sale" in accordance with the provisions of Financial Accounting
Standards Board Statement No. 115 "Accounting for Certain Investments in Debt
and Equity Securities." Accordingly, the Company states its investments at
estimated fair value, with material unrealized gains and losses reported in
stockholders' equity. The cost of securities sold is based on the specific
identification method. Such securities are anticipated to be used for current
operations and are, therefore, classified as current assets, even though
maturities may extend beyond one year.
As of September 30, 1997, the Company had $4.7 million of investments in
state and municipal bonds. These state and municipal bonds bear interest at a
rate that automatically resets to the prevailing market interest rate at
approximately 35-day intervals. At September 30, 1997, substantially all
available-for-sale securities had principal maturity dates of over ten years.
The gross unrealized gains and gross unrealized losses at September 30, 1997
were immaterial to the Company and, therefore, no amounts were recorded to
stockholders' equity.
6
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4. 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, 1997 December 31, 1996
------- -------
<S> <C> <C>
Raw materials $ 3,306 $ 956
Work-in-progress 1,257 1,708
Finished goods 6,503 4,041
------- -------
$11,066 $ 6,705
======= =======
</TABLE>
5. NET INCOME PER SHARE
Net income 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 calculation as if they were
outstanding for all periods presented regardless of whether they are dilutive
(using the modified treasury stock method).
In February 1997, the Financial Accounting Standards Board issued
Statement Number 128, "Earnings per Share" ("FAS 128"), which is required to be
adopted on December 31, 1997. At that time, the Company will be required to
change the method currently used to compute earnings per share and to restate
all prior periods. Under the requirements of FAS 128, entities will be required
to report "basic" and "diluted" earnings per share.
Basic earnings per share is calculated by dividing the net income for
each period by the weighted average number of shares of common stock outstanding
during the period. Basic earnings per share and the number of shares used in the
calculation are set forth in the following table for the periods indicated.
<TABLE>
<CAPTION>
Three months ended Nine months ended
----------------------- ------------------------
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
------ ------ ------ ---------
<S> <C> <C> <C> <C>
Basic earnings per share $ 0.09 $ 0.17 $ 0.34 $ 0.90
====== ====== ====== =========
Shares used in computing
basic earnings per share
(in thousands) 9,490 5,609 9,384 2,291
====== ====== ====== =========
</TABLE>
The basic earnings per share calculation for the three and nine months
ended September 1996 excludes, among others, 5.4 million shares of convertible
preferred stock that converted to common stock in August 1996 upon the
completion of the Company's initial public offering. The Company does not expect
the new diluted earnings per share calculation to be materially different from
net income per share as currently reported.
6. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement
Number 130, "Reporting of Comprehensive Income". This Statement requires that
all items that are to be required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. This Statement
is effective for fiscal years beginning after December 15, 1997, and will be
adopted by the Company for the year ended December 31, 1998.
7
<PAGE> 8
In addition, in June 1997, the Financial Accounting Standards Board
issued Statement Number 131, "Disclosures About Segments of an Enterprise and
Related Information". This Statement replaces Statement Number 14 and changes
the way public companies report segment information. This Statement is effective
for fiscal years beginning after December 15, 1997 and will be adopted by the
Company for the year ended December 31, 1998.
7. BUSINESS COMBINATIONS
On March 18, 1997, the Company completed a merger with ColourPass, a
business in the United Kingdom, in which ColourPass was merged with Raster
Graphics System Limited, a wholly owned subsidiary of the Company. The
combination was accounted for as a pooling of interests. Accordingly, the
condensed consolidated statements of operations for the three and nine months
ended September 30, 1997 and September 30, 1996, respectively, the balance
sheets as of September 30, 1997 and December 31, 1996, respectively, and all
related footnotes presented herein have been restated to include the accounts of
Raster Graphics, Inc. and ColourPass. Pursuant to the terms of the merger, the
Company filed a Form S-3 registration statement on November 3, 1997 to allow for
the resale of 73,475 shares of the Company's Common Stock.
The table below sets forth the composition of combined revenues and net
income (loss) for the periods indicated (in thousands). Merger related expenses
of $105,000 and $34,000 incurred in the first quarter of 1997 were included in
the Raster Graphics, Inc. and ColourPass net income, respectively.
<TABLE>
<CAPTION>
Three months ended Nine months ended
-------------------------- --------------------------
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues
Raster Graphics, Inc $ 13,803 $ 10,212 $ 38,583 $ 28,363
ColourPass 527 748 2,448 2,124
-------- -------- -------- --------
Combined $ 14,330 $ 10,960 $ 41,031 $ 30,487
======== ======== ======== ========
Net Income (loss)
Raster Graphics, Inc $ 982 $ 964 $ 2,888 $ 2,165
ColourPass (93) (27) 290 (96)
-------- -------- -------- --------
Combined $ 889 $ 937 $ 3,178 $ 2,069
======== ======== ======== ========
</TABLE>
On September 30, 1997, Raster Graphics acquired Datagraph, a
French-based distributor of large-format digital imaging systems. In exchange
for the outstanding stock of Datagraph, the Company agreed to pay approximately
$1,100,000 in a series of payments through September 30, 1998. The acquisition
was accounted for as a purchase. Including acquisition costs, the transaction
resulted in an intangible asset of $1,420,000, which is being amortized over
five years. The operating results of Datagraph prior to the acquisition are not
material in relation to the Company.
SUBSEQUENT EVENTS
Effective October 20, 1997, Dennis Mahoney, Vice President and Chief
Financial Officer, left the Company to pursue other interests.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following should be read in conjunction with the unaudited condensed
consolidated 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 Annual Report and Form 10-K for the fiscal
year ended December 31, 1996.
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 printing ("LFDP") market as a new opportunity to develop a product based
on its proprietary high-speed printhead technology. As a result, the Company
shifted its product focus and began to develop the DCS 5400, an electrostatic
printer, specifically for the LFDP market. The Company began shipping the DCS
5400 in July 1994. The Company began commercial production of the DCS 5442 in
January 1996 as a second generation to the DCS 5400. In December 1996, the
Company introduced the PiezoPrintTM 1000, an inkjet printer manufactured by a
third party, that is targeted at the lower priced entry level production market.
In March 1997, the Company introduced the PiezoPrintTM 5000 as a mid-range,
price/performance inkjet printer to complement the PiezoPrintTM 1000 inkjet
printer and the high production DCS 5442. Although the Company has no current
plans to replace any printer in its current line of products, the future success
of the Company will likely depend on its ability to continue to develop market
leading products for the production segment of the LFDP market.
In order to provide a complete digital printing solution to its
customers, the Company began shipping image processing software, purchased from
Onyx Graphics, Inc. ("Onyx"), with its digital printers in July 1994. In August
1995, the Company acquired Onyx. As well as sales to Raster Graphics, Onyx sells
its software products to OEMs, VARs, systems integrators and other printer
manufacturers such as CalComp, Encad, Hewlett-Packard, ColorgrafX and Laser
Master. Onyx's current image processing software product, PosterShopTM, was
introduced in April 1996 as a replacement for Onyx's Imagez image processing
software product. 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 that it acquires from third party suppliers and resells under
the Raster Graphics name for use in the Company's digital printers. The sale of
consumables generates recurring revenues, which the Company believes will
continue to increase to the extent that the installed base of printing systems
expands. As the Company develops new printers, it may need to develop new
consumables to be used by its new printer products.
Raster Graphics also derives revenues from maintenance contracts on
installed systems and printers, including 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 Graphics' 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.
9
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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, 1997, the Company had an accumulated deficit of $12.2
million. Although the Company was marginally profitable in 1995 and 1996, there
can be no assurance that the Company will be profitable in the future.
RESULTS OF OPERATIONS
ColourPass merged with the Company, on March 18, 1997. The merger has
been accounted for as a pooling of interest, and accordingly, the financial
results presented have been restated to include ColourPass.
The following table sets forth certain consolidated statements of
operations data as a percentage of net revenues for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------- ----------------
1997 1996 1997 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net revenues 100.0% 100.0% 100.0% 100.0%
Cost of revenues 59.1 59.0 58.2 60.1
----- ----- ----- -----
Gross profit 40.9 41.0 41.8 39.9
----- ----- ----- -----
Operating expenses:
Research and development 10.6 9.9 10.4 10.9
Sales and marketing 17.7 17.0 17.5 16.7
General and administrative 6.2 5.5 5.8 5.0
Merger expenses -- -- 0.3 --
----- ----- ----- -----
Total operating expenses 34.5 32.4 34.0 32.6
----- ----- ----- -----
Operating income 6.4 8.6 7.8 7.3
Other income, net 0.6 1.0 0.9 0.4
----- ----- ----- -----
Income before provision for income taxes 7.0 9.6 8.7 7.7
Provision for income taxes 0.8 1.1 1.0 0.9
----- ----- ----- -----
Net income 6.2 8.5 7.7 6.8
===== ===== ===== =====
</TABLE>
Net Revenues. Net revenues for the three and nine months ended September
30, 1997 were $14.3 million and $41.0 million, respectively, an increase of
30.7% and 34.6%, respectively, over the comparable periods of fiscal 1996. The
increase is primarily attributable to growth in sales of consumables as the
Company continues to expand its family of inks and papers for the newer
PiezoPrintTM 5000 printer. Sales of printer systems, specifically the
PiezoPrintTM 1000 and PiezoPrintTM 5000 products, also contributed to the
increase in revenue.
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
manage growth, if any.
International sales, which include export sales and direct sales of the
Company's German, United Kingdom and French operations, were $7.5 million and
$23.4 million for the three and nine months ended September 30, 1997,
respectively, an increase of 6.1% and 29.5%, respectively, over the comparable
periods of fiscal 1996. These sales represented 52.0% and 57.1% of net revenue
for the three and nine months ended September 30, 1997, respectively, decreasing
from 64.1% and 59.3% for the comparable periods of fiscal 1996, respectively.
While international customer acceptance of the Company's printer systems
continues to grow, the Company's German and United Kingdom subsidiaries
experienced a reduction in sales of software and printer systems during the
quarter
10
<PAGE> 11
which contributed to the decrease in international sales as a percentage of net
revenues. The Company believes that the quarter's percentage decline in
international sales is temporary and anticipates that international sales will
return to historical percentages. Sales made by the Company's German, United
Kingdom and French 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 of foreign sales subject to fluctuations in
exchange rates. All international sales made by the Company's domestic
operations are denominated in United States Dollars and are not subject to
foreign exchange movements.
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 locations. No assurance can be given that international
revenues will continue to grow at current rates, or at all.
Gross Profit. The Company's gross profit for the three and nine months
ended September 30, 1997 was $5.9 million and $17.2 million, respectively, an
increase of 30.2% and 41.0%, respectively, over the comparable periods of fiscal
1996. The increase in gross profit was primarily the result of increased net
revenues. Gross profit represented 40.9% and 41.0% of net revenues for the three
months ended September 30, 1997 and 1996, respectively. For the nine months
ended September 30, 1997 and 1996, respectively, gross profit represented 41.8%
and 39.9% of net revenues. The slight decrease in gross profit as a percentage
of net revenues during the quarter was primarily due to the decline of sales to
end-user customers in the United Kingdom which have a higher gross margin. The
increase in gross profit for the year to date is attributed to the allocation of
fixed costs over a larger volume of units sold.
The Company's future level of gross profit will depend on a number of
factors, including its ability to manage product mix, 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 for the
three months ended September 30, 1997 were $1.5 million, an increase of 40.9% in
comparison to the three months ended September 30, 1996. Research and
development expenses for the nine months ended September 30, 1997 were $4.3
million, an increase of 28.4% in comparison to the nine months ended September
30, 1996. This increase is attributed to an increase in staffing and related
benefits, including recruiting and relocation expenses, and consultant fees
associated with development of new products. The Company intends to continue to
dedicate substantial resources to research and development activities to
maintain its leadership in the LFDP market. The Company intends to expand its
product lines, including printers, to achieve faster speed and higher image
quality, and to enhance its PosterShop image processing software.
Sales and Marketing. Sales and marketing expenses for the three months
ended September 30, 1997 were $2.5 million, an increase of 36.1% in comparison
to the three months ended September 30, 1996. Sales and marketing expenses for
the nine months ended September 30, 1997 were $7.2 million, an increase of 40.6%
in comparison to the nine months ended September 30, 1996. The increase in sales
and marketing expenses was primarily a result of increased staffing and related
benefits, tradeshow expenses associated with the promotion of the new PiezoPrint
products and increased selling costs related to higher revenues. The Company
expects to continue to increase its sales and marketing expenses in an effort to
expand domestic and international markets, introduce new products, and establish
and expand new distribution channels.
General and Administrative. General and administrative expenses for the
three months ended September 30, 1997 were $885,000, an increase of 48.0% in
comparison to the three months ended September 30, 1996. General and
administrative expenses for the nine months ended September 30, 1997 were $2.4
million, an increase of 57.0% in comparison to the nine months ended September
30, 1996. The increase reflected the increased cost of operating as a public
company and an increase in staffing and related benefits. The Company believes
that its general and administrative expenses will increase as the Company
continues to build its infrastructure.
11
<PAGE> 12
Merger Expenses. On March 18, 1997, the Company completed a merger with
ColourPass, a business in the United Kingdom. Approximately $139,000 of expense
was incurred in connection with this transaction.
On September 30, 1997, the Company acquired Datagraph, a French-based
distributor of large-format digital imaging systems. The acquisition was
accounted for as a purchase. Including acquisition costs, the transaction
resulted in an intangible asset of $1,420,000, which is being amortized over
five years.
As part of its business strategy, the Company expects to make
acquisitions of businesses that offer complementary products, services and
technologies. Future acquisitions will be accompanied by the risks commonly
encountered in acquisitions of businesses. Such risks include, among other
things, the difficulty of assimilating the operations and personnel of the
acquired businesses, the potential disruption of the Company's ongoing business,
the inability of management to maximize the financial and strategic position of
the Company, the maintenance of uniform standards, controls, procedures and
policies and the impairment of relationships with employees and clients as a
result of any integration of new management personnel. These factors could have
a material adverse effect on the Company's business, results of operations or
financial condition. Consideration paid for future acquisitions, if any, could
be in the form of cash, stock, rights to purchase stock or a combination
thereof. Dilution to existing stockholders and to earnings per share may result
to the extent that shares of stock or other rights to purchase stock are issued
in connection with any such future acquisitions.
Provision for Income Taxes. The Company has recorded a provision for
income taxes in the nine months ended September 30, 1997 utilizing the
anticipated annual effective income tax rate of 11.0%. For the nine months ended
September 30, 1996 the estimated effective tax rate was 12.0%. The provisions
for income taxes for the nine month periods ended September 30, 1997 and 1996
differ from the statutory federal income tax rate primarily due to the tax
benefit of utilizing net operating loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, the Company has financed its operations primarily
through its initial public offering of common stock, private sales of preferred
stock and common stock, issuance of convertible debt, bank loans, equipment
lease financing and private loans. At September 30, 1997, the Company had $8.2
million of cash, cash equivalents and short-term investments, a decrease of $7.9
million from the December 31, 1996 balance of $16.1 million. Working capital
increased to $24.4 million at September 30, 1997, from $23.9 million at December
31, 1996. The Company also has available a $5.0 million bank line of credit that
is secured by the tangible assets of the Company. The credit facility expires on
December 14, 1997, and management currently expects to renew the facility under
similar terms and conditions. At September 30, 1997, $2.0 million was
outstanding under the bank line of credit.
Net cash used in operating activities during the first nine months of
fiscal 1997 was $7.5 million due primarily to increases in accounts receivable
of $8.2 million and inventory of $4.0 million. The increase in accounts
receivable reflects increased sales levels and payment terms granted under
distributor programs designed to stimulate sales of the recently introduced
PiezoPrintTM 5000. Inventory levels increased due to several reasons, including
an increase of demonstration equipment to support an increased number of
tradeshows, an increase in consumables related to the introduction of media
products for the PiezoPrintTM 5000, and an increase in finished goods due to
lower than anticipated printer system revenues.
During the nine month period ended September 30, 1997, the Company paid
approximately $2.2 million for capital expenditures compared to $1.2 million for
the same period of the prior year.
To finance the working capital needs and the purchase of capital
equipment, the Company reduced its short-term investments. Other financing
activities principally consisted of borrowing against the bank line of credit in
the amount of $2.0 million and cash received from the exercises of incentive
stock options and employee stock purchase plan in the amount of $435,000 for the
nine months ended September 30, 1997.
12
<PAGE> 13
The Company has implemented a program under which customers are
introduced to financing institutions through a third party broker by the
Company. Through this program, customers are able to obtain lease financing for
their purchases with the Company receiving the associated payment directly from
the financial institution. There is no recourse against the Company.
On June 25, 1997, the Company loaned $90,000 to Dennis Mahoney, Vice
President and Chief Financial Officer of the Company. The loan is secured by
shares of the Company's stock and a second deed of trust. Principal and accrued
interest, at the rate of 6.8% per annum, is due and payable to the Company upon
the termination of Mr. Mahoney's consulting relationship with the Company.
Effective October 20, 1997, Mr. Mahoney left his position as Vice President and
Chief Financial Officer of the Company to pursue other interests.
The Company believes that the existing financial resources will be
sufficient to finance its capital requirements through the foreseeable future.
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) risks related to international
operations, (iii) competitive products and technologies, (iv) ability of the
Company to upgrade its technologies and commercialize products, and (v) other
risk factors described in the Company's Annual Report and Form 10-K for the year
ended December 31, 1996, and such other documents that are filed from time to
time with the Securities and Exchange Commission.
13
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In connection with its initial public offering in 1996, the Company
filed a Registration Statement on Form S-1, SEC File No. 333-06617 (the
"Registration Statement"), which was declared effective by the Commission on
August 8, 1996. Pursuant to the Registration Statement, the Company registered
3,000,000 shares of its Common Stock, $0.001 par value per share. The offering
commenced on August 13, 1996 and did not terminate until all of the registered
shares had been sold. The aggregate offering price of the registered shares was
$24,000,000. The managing underwriters of the offering were Hambrecht & Quist
and Prudential Securities Incorporated.
From August 8, 1996 to September 30, 1997, the Company incurred the
following expenses in connection with the offering:
<TABLE>
<S> <C>
Underwriting discounts and commissions $1,932,000
Other expenses 838,000
----------
Total Expenses $2,716,000
</TABLE>
All such expenses were direct or indirect payments to others.
The net offering proceeds to the Company after deducting the total
expenses above were $16,900,000. From August 8, 1996, to September 30, 1997, the
Company used such net offering proceeds, in direct or indirect payments to
others, as follows:
<TABLE>
<S> <C>
Purchase and installment of machinery and equipment $ 2,956,000
Working capital 8,061,000
-----------
Total $11,017,000
</TABLE>
Each of such amounts is a reasonable estimate of the application of the
net offering proceeds. This use of proceeds does not represent a material change
in the use of proceeds described in the prospectus of the Registration
Statement.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: See exhibit index on page 16
14
<PAGE> 15
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/ Rak Kumar
-----------------------------------
Rak Kumar
President and CEO
Date: November 14, 1997
15
<PAGE> 16
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS
--------
<S> <C>
10.15 Secured Loan Agreement, dated June 25, 1997, by and between
Dennis R. Mahoney and the Registrant
11.1 Statements of Computation of Net Income Per Share
27.1 Financial Data Statement
</TABLE>
16
<PAGE> 1
EXHIBIT 10.15
RASTER GRAPHICS, INC.
SECURED LOAN AGREEMENT
This Secured Loan Agreement is made as of June 25, 1997 by and between
Raster Graphics, Inc., a Delaware corporation (the "Company") and Dennis R.
Mahoney ("Borrower").
RECITALS
Borrower desires to borrow and the Company desires to lend to Borrower
up to an aggregate of $90,000 (the "Borrowed Amount"). The parties desire that
such loan shall be secured pursuant to a Security Agreement of even date
herewith (the "Security Agreement") by (i) a deed of trust on Borrower's
principal residence on the terms and conditions contained herein and in the
Security Agreement and (ii) up to an aggregate of 40,000 shares of the Company's
Common Stock (as adjusted for subsequent stock splits, reverse stock splits and
recapitalization) acquired by Borrower while any Borrowed Amount is outstanding,
except for shares of the Company's Common Stock acquired pursuant to the
Company's 1996 Employee Stock Purchase Plan (the "Shares").
AGREEMENT
In consideration of the foregoing, and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties agree as
follows:
1. AGREEMENT TO LEND. Subject to the terms and conditions contained in
this Agreement and upon execution of this Agreement, the Company agrees to issue
to Borrower a check or other readily available funds in the Borrowed Amount upon
the date of this Agreement.
2. PROMISSORY NOTE. In consideration of the Company's delivery of the
Borrowed Amount, Borrower will execute a secured promissory note in the form
attached hereto as Exhibit A (the "Note"), in the principal amount of such
Borrowed Amount and bearing interest at a rate of 6.80% per annum, compounded
annually.
3. SECURITY AGREEMENT. Borrower will additionally execute the Security
Agreement in the form attached hereto as Exhibit B as security for Borrower's
obligation to repay the Borrowed Amount, and will deliver, or cause to be
delivered, as soon as practicable (i) a second deed of trust on Borrower's
principal residence, executed by Borrower, to be recorded by the Company (if it
so elects) with the official records of the county in which such residence is
located in accordance with the terms of the Security Agreement, (ii) all
certificates representing Shares to the Company or its designee as pledgeholder
of the Shares (subject to certain exceptions) and (iii) such other documents of
assignment and other documents as may be
<PAGE> 2
reasonably requested by the Company. The Shares will be held by the Company or
its designee as pledgeholder and shall be released in accordance with the terms
of the Security Agreement.
4. NO EMPLOYMENT RIGHTS. Nothing in this Agreement or the Note is
intended or shall be construed to confer upon Borrower any right to employment
or continued employment with the Company, or shall alter in any way the nature
of Borrower's employment with the Company.
5. MISCELLANEOUS.
(a) SUCCESSORS AND ASSIGNS. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
(b) GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
(c) NOTICES. Any notice required or permitted by this Agreement
shall be in writing and shall be deemed sufficient upon receipt, when delivered
personally or by a nationally-recognized delivery service (such as Federal
Express or UPS) or confirmed facsimile, or forty-eight (48) hours after being
deposited in the U.S. mail as certified or registered mail with postage prepaid,
if such notice is addressed to the party to be notified at such party's address
or facsimile number as set forth below, or as subsequently modified by written
notice.
(d) SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(e) ADVICE OF LEGAL COUNSEL. Each party acknowledges and
represents that, in executing this Agreement, it has had the opportunity to seek
advice as to its legal rights from legal counsel and that the person signing on
its behalf has read and understood all of the terms and provisions of this
Agreement. This Agreement shall not be construed against any party by reason of
the drafting or preparation thereof.
[Signature Page Follows]
<PAGE> 3
The parties hereto have executed this Secured Loan Agreement as of the
day and year first above written.
DENNIS R. MAHONEY
/s/ Dennis R. Mahoney
------------------------------------
(Signature)
Address: 1025 Cadillac Way #302
Burlingame, CA 94010
RASTER GRAPHICS, INC.
By: /s/ Rak Kumar
---------------------------------
Title: President and CEO
------------------------------
Address: 3025 Orchard Parkway
San Jose, CA 95134
<PAGE> 4
EXHIBIT A
SECURED PROMISSORY NOTE
$90,000 San Jose, California
June 25, 1997
FOR VALUE RECEIVED, Dennis R. Mahoney ("Borrower") promises to pay to
Raster Graphics, Inc., a Delaware corporation (the "Company"), the principal sum
of Ninety Thousand Dollars ($90,000) together with interest on the unpaid
principal hereof from the date hereof at the rate of 6.80% per annum, compounded
annually.
All principal and accrued interest shall be due and payable in full on
the earliest of (a) June 26, 2001 or (b) the termination of Borrower's
employment or consulting relationship with the Company for any reason (or for no
reason). Payments of principal and interest shall be made in lawful money of the
United States of America and shall be credited first to the accrued interest,
with the remainder applied to principal.
Borrower may at any time prepay all or any portion of the principal or
interest owing hereunder.
This Note is subject to the terms of a Secured Loan Agreement, dated as
of the date hereof, by and between the Company and Borrower, and is secured by
(i) a pledge of up to an aggregate of 40,000 shares of the Company's Common
Stock (as adjusted for subsequent stock splits, reverse stock splits and
recapitalization) acquired by Borrower while any Borrowed Amount is outstanding,
except for shares of the Company's Common Stock acquired pursuant to the
Company's 1996 Employee Stock Purchase Plan, and (ii) a second deed of trust on
Borrower's principal residence under the terms of a Security Agreement dated as
of the date hereof and is subject to all the provisions thereof.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by
Borrower.
The holder of this Note shall have full recourse against Borrower, and
shall not be required to proceed against the collateral securing this Note in
the event of default.
/s/ Dennis R. Mahoney
----------------------------
DENNIS R. MAHONEY
<PAGE> 5
EXHIBIT B
SECURITY AGREEMENT
This Security Agreement is made as of June 25, 1997 by and between
Raster Graphics, Inc., a Delaware corporation (the "Company"), and Dennis R.
Mahoney ("Borrower").
RECITALS
The Company has loaned or will loan to Borrower, and Borrower has
borrowed or will borrow from the Company, up to an aggregate of $90,000, which
loan is or shall be evidenced by a promissory note (the "Note") and is to be
secured by (i) a second deed of trust (the "Deed of Trust") on the principal
residence of Borrower and (ii) a pledge of up to 40,000 shares of Company's
Common Stock (as adjusted for subsequent stock splits, reverse stock splits and
recapitalization) held or hereafter acquired by Borrower, except for shares of
the Company's Common Stock acquired pursuant to the Company's 1996 Employee
Stock Purchase Plan (the "Shares"). The form of Note and the obligations
thereunder are as set forth in Exhibit A to the Secured Loan Agreement between
the Company and Borrower, dated the date hereof.
AGREEMENT
In consideration of the foregoing, and for other good and valuable
consideration, the receipt of which is hereby acknowledged, the parties to this
Agreement agree as follows:
1. DEED OF TRUST. In consideration of the loan to Borrower under the
Secured Loan Agreement, and to secure the Borrowed Amount, Borrower shall
deliver as soon as practicable the Deed of Trust in form and substance approved
by the Company and duly executed by Borrower and properly notarized. The Company
may, if the Company so elects, but without obligation to do so, at any time
record the Deed of Trust against Borrower's principal residence (the "Current
Residence") in the official records of the county in which the Current Residence
is located. If the Company so elects, Borrower shall furnish evidence reasonably
satisfactory to the Company that (i) Borrower holds good and marketable title to
the Current Residence and (ii) there is no loan, deed of trust, mortgage or
encumbrance against the Current Residence other than a first deed of trust in an
amount previously disclosed to the Company. Upon the sale, conveyance,
assignment, alienation or any other form of transfer of the Residence, the Note
shall be secured by a deed of trust in form and substance acceptable to the
Company (the "New Deed of Trust") given by Borrower to the Company with respect
to Borrower's new residence (the "New Residence"). If the New Residence provides
insufficient security or collateral to the Company for purposes of securing the
Note, as determined by the Company in its sole discretion, Borrower shall
provide additional collateral as requested by the Company to secure the Note. If
Borrower is unable to provide such additional collateral, the Note shall be
immediately due in full.
<PAGE> 6
2. CREATION AND DESCRIPTION OF SECURITY INTEREST; TRANSFERABILITY;
ESCROW.
(a) In consideration of the loan to Borrower, Borrower, pursuant
to the Commercial Code of the State of California, hereby pledges the Shares
represented by (i) the certificates delivered herewith and (ii) the certificates
issuable to Borrower upon exercise of Borrower's outstanding options to purchase
Common Stock of the Company, each as duly endorsed in blank or with executed
stock powers, to the Secretary of Company (the "Pledgeholder"), who shall hold
said certificates subject to the terms and conditions of this Security
Agreement. The pledged stock shall be deemed to specifically exclude shares of
the Company's Common stock issued to Borrower pursuant to the Company's 1996
Employee Stock Purchase Plan.
(b) The pledged stock (together with an executed blank stock
assignment for use in transferring all or a portion of the Shares to Company if,
as and when required pursuant to this Security Agreement) shall be held by the
Pledgeholder as security for the repayment of the Note, and any extensions or
renewals thereof, to be executed by Borrower pursuant to the terms of the
Secured Loan Agreement.
(c) Except as required to enable Company to exercise its rights
as a secured party, none of the Shares pledged under this Section 2 may be sold,
transferred, pledged, hypothecated or otherwise disposed of by Borrower.
(d) To ensure the ability of Company to exercise its rights as a
secured party hereunder, Borrower shall, upon execution of this Agreement,
deliver and deposit with the Secretary of Company, or such other person
designated by Company, the share certificates representing the Shares, together
with a stock power, duly endorsed in blank, in the form attached hereto as
Exhibit B-1. The Shares and stock power(s) shall be held by Company in escrow,
until such time as the Note shall have been paid in full.
3. BORROWER'S REPRESENTATIONS, WARRANTIES AND COVENANTS. To induce the
Company to enter into this Security Agreement, Borrower represents, warrants and
covenants to the Company, its successors and assigns, as follows:
(a) PAYMENT OF INDEBTEDNESS. Borrower will pay the principal sum
of the Note secured hereby, together with interest thereon, at the time and in
the manner provided in the Note.
(b) ENCUMBRANCES. Borrower has or will have good and marketable
title to the Current Residence free and clear of all security interests, liens,
encumbrances and rights of others other than a deed of trust constituting a
first lien against the Current Residence in favor of the primary lender (the
"First Deed of Trust") and the Deed of Trust. The Deed of Trust will
-2-
<PAGE> 7
constitute a valid, perfected security interest in the Current Residence, prior
to all monetary liens or encumbrances other than the First Deed of Trust.
(c) The consent of no other party or entity is required to grant
the security interest in the Current Residence as provided for in this
Agreement. The creation of the security interest referenced herein, and
performance of the obligations of Borrower hereunder, will not violate or cause
a conflict with any other agreement to which Borrower is a party, or to which
the Current Residence is subject. Borrower will perform all obligations of
Borrower in connection with the First Deed of Trust (and related documents), and
a default thereunder will constitute a default hereunder.
(d) Other than the First Deed of Trust, there are no (or there
will be no) security interests or liens on the Current Residence that could be
perfected or obtained by filing a financing statement or notice with any state
filing office.
(e) There are no actions, proceedings, claims or disputes pending
or, to Borrower's knowledge, threatened against or affecting Borrower or the
Current Residence except as disclosed to the Company in writing prior to the
date of this Agreement.
(f) Upon the sale, conveyance, assignment, alienation or any
other form of transfer of the Current Residence, all of the representations,
warranties and covenants contained in this Section 2 with respect to Deed of
Trust and the Current Residence shall be true with respect to the New Deed of
Trust and the New Residence, respectively.
(g) Borrower shall not sell, convey, assign, alienate, further
encumber, or otherwise transfer the Current Residence or the New Residence, or
enter into any contract or other agreement to sell, convey, assign, alienate or
otherwise transfer the Current Residence or the New Residence or any interest
therein without giving prior notice thereof to the Company.
(h) All Shares now or hereafter pledged under this Agreement are
and shall be free of all other encumbrances, defenses and liens, and Borrower
will not further encumber the Shares without the prior written consent of
Company.
4. VOTING RIGHTS. During the term of this pledge and so long as all
payments of principal and interest are made as they become due under the terms
of the Note, Borrower shall have the right to vote all of the Shares pledged
hereunder.
5. STOCK ADJUSTMENTS. In the event that during the term of the pledge
any stock dividend, reclassification, readjustment or other changes declared or
made in the capital structure of Company, all new, substituted and additional
shares or other securities issued by reason of any such change shall be
delivered to and held by the Pledgeholder under the terms of this Security
Agreement in the same manner as the Shares originally pledged hereunder. In the
event of substitution of such securities, Borrower, Company and Pledgeholder
shall cooperate and
-3-
<PAGE> 8
execute such documents as are reasonable so as to provide for the substitution
of such Shares and, upon such substitution, references to "Shares" in this
Security Agreement shall include the substituted shares of capital stock of
Company held by Borrower as a result thereof.
6. WARRANTS AND RIGHTS. In the event that, during the term of this
pledge, subscription warrants or other rights or options shall be issued in
connection with the pledged Shares, such rights, warrants and options shall be
the property of Borrower and, if exercised by Borrower, all new stock or other
securities so acquired by Borrower as it relates to the pledged Shares then held
by Pledgeholder shall be immediately delivered to Pledgeholder, to be held under
the terms of this Security Agreement in the same manner as the Shares pledged.
7. WITHDRAWAL OR SUBSTITUTION OF SHARES. Borrower shall not sell,
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Shares without the prior written consent of Company.
8. TERM. The pledge of the Shares shall continue until the payment of
all indebtedness secured hereby, at which time the remaining pledged stock shall
be promptly delivered to Borrower.
9. DEFAULT. Borrower shall be deemed to be in default of the Note and of
this Security Agreement in the event:
(a) Payment of principal or interest on the Note shall be
delinquent for a period of 10 days or more; or
(b) Borrower fails to perform any of the covenants contained in
this Security Agreement for a period of 10 days after written notice thereof
from the Company; or
(c) Borrower's representations and warranties to the Company
contained in this Agreement or the Deed of Trust were untrue or incorrect as of
the date of funding of the Loan Agreement or Borrower's representations and
warranties to the Company contained in this Agreement or the New Deed of Trust
were untrue or incorrect as of the date of the substitution of the Deed of Trust
for the New Deed of Trust .
10. REMEDIES IN THE EVENT OF DEFAULT. In the case of an event of
default, as set forth above, the Company shall have the right to accelerate
payment of the Note upon notice to Borrower, and shall thereafter be entitled to
pursue any or all of its remedies under applicable law, including, without
limitation, (a) offsetting from Borrower's salary, bonuses, vacation pay or
other amounts due to Borrower from the Company, any amount due and payable by
Borrower under the Note, (b) proceeding against the Current Residence or the New
Residence under the Deed of Trust or the New Deed of Trust and/or (c) proceeding
against the Shares in accordance with the California Commercial Code.
-4-
<PAGE> 9
11. INSOLVENCY. Borrower agrees that if a bankruptcy or insolvency
proceeding is instituted by or against Borrower, or if a receiver is appointed
for the property of Borrower, or if Borrower makes an assignment for the benefit
of creditors, the entire amount unpaid on the Note shall become immediately due
and payable, and the Company may proceed as provided in the case of default.
12. PLEDGEHOLDER LIABILITY. In the absence of willful or gross
negligence, Pledgeholder shall not be liable to any party for any of his acts,
or omissions to act, as Pledgeholder.
13. MISCELLANEOUS.
(a) SUCCESSORS AND ASSIGNS. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
(b) GOVERNING LAW. This Agreement and all acts and transactions
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.
(c) NOTICES. Any notice required or permitted by this Agreement
shall be in writing and shall be deemed sufficient upon receipt, when delivered
personally or by a nationally-recognized delivery service (such as Federal
Express or UPS) or confirmed facsimile, or forty-eight (48) hours after being
deposited in the U.S. mail as certified or registered mail with postage prepaid,
if such notice is addressed to the party to be notified at such party's address
or facsimile number as set forth below, or as subsequently modified by written
notice.
(d) SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, the parties agree to renegotiate
such provision in good faith. In the event that the parties cannot reach a
mutually agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(e) ADVICE OF LEGAL COUNSEL. Each party acknowledges and
represents that, in executing this Agreement, it has had the opportunity to seek
advice as to its legal rights from legal counsel and that the person signing on
its behalf has read and understood all of the terms and provisions of this
Agreement. This Agreement shall not be construed against any party by reason of
the drafting or preparation thereof.
-5-
<PAGE> 10
The parties hereto have executed this Security Agreement as of the day
and year first above written.
DENNIS R. MAHONEY
/s/ Dennis R. Mahoney
------------------------------------
(Signature)
Address: 1025 Cadillac Way #302
Burlingame, CA 94010
RASTER GRAPHICS, INC.
By: /s/ Rak Kumar
--------------------------------
Title: President and CEO
------------------------------
Address: 3025 Orchard Parkway
San Jose, CA 95134
-6-
<PAGE> 11
EXHIBIT B-1
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED I hereby sell, assign and transfer unto Raster
Graphics, Inc., a Delaware Corporation, (the "Company") (______) shares of the
Company's Common Stock standing in my name on the books of said corporation and
represented by Certificate No(s)._____________________________________________
herewith and do hereby irrevocably constitute and appoint the Secretary of the
Company to transfer said stock on the books of the within-named corporation with
full power of substitution in the premises.
Dated: June 25, 1997
Signature:
/s/ Dennis R. Mahoney
-----------------------------
DENNIS R. MAHONEY
This Assignment Separate from Certificate was executed in conjunction with the
terms of a Security Agreement between the above assignor and the Company dated
June 25, 1997.
<PAGE> 1
Exhibit 11.1
Registrant: Raster Graphics, Inc.
Statements of Computation of Net Income Per Share
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1997 1996 1997 1996
------- ------- ------- -------
(Restated) (Restated)
<S> <C> <C> <C> <C>
Net income $ 889 $ 937 $ 3,178 $ 2,069
------- ------- ------- -------
Weighted average common shares outstanding 9,490 5,609 9,384 2,291
Common equivalent shares from convertible preferred stocks 642 1,127 731 2,886
Common equivalent shares from stock options and warrants -- 2,434 -- 2,434
Shares related to SAB Nos. 55, 64 and 83 -- -- -- 535
------- ------- ------- -------
Shares used in computing net income per share 10,132 9,170 10,115 8,146
======= ======= ======= =======
Net income per share $ 0.09 $ 0.10 $ 0.31 $ 0.25
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 3,559
<SECURITIES> 4,681
<RECEIVABLES> 19,544
<ALLOWANCES> 835
<INVENTORY> 11,066
<CURRENT-ASSETS> 38,740
<PP&E> 9,103
<DEPRECIATION> 4,941
<TOTAL-ASSETS> 44,789
<CURRENT-LIABILITIES> 14,379
<BONDS> 38
0
0
<COMMON> 43,191
<OTHER-SE> (12,819)
<TOTAL-LIABILITY-AND-EQUITY> 44,789
<SALES> 14,330
<TOTAL-REVENUES> 14,330
<CGS> 8,473
<TOTAL-COSTS> 8,473
<OTHER-EXPENSES> 4,952
<LOSS-PROVISION> 164
<INTEREST-EXPENSE> 25
<INCOME-PRETAX> 998
<INCOME-TAX> 109
<INCOME-CONTINUING> 889
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 889
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
</TABLE>
