<PAGE>
CONFORMED
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 1996
Commission File No. 0-20728
RIMAGE CORPORATION
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(Exact name of Registrant as specified in its charter)
Minnesota 41-1577970
--------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
7725 Washington Avenue South, Edina, MN 55439
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(Address of principal executive offices)
612-944-8144
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(Registrant's telephone number, including area code)
NA
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(Former name, former address, and former fiscal year, if changed since last
report.)
Common Stock outstanding at August 12, 1996 -- 3,084,500 shares
of $.01 par value Common Stock.
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
---- ----
<PAGE>
RIMAGE CORPORATION
FORM 10-Q
TABLE OF CONTENTS
FOR THE SIX MONTHS ENDED June 30, 1996
Description Page
----------- ----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
June 30, 1996 (unaudited) and
December 31, 1995 3
Consolidated Statements of Operations
(unaudited) for the Three Months and
Six Months Ended June 30, 1996 and 1995 4
Consolidated Statements of Cash Flows
(unaudited) for the Six Months
Ended June 30, 1996 and 1995 5
Condensed Notes to Consolidated
Financial Statements 6-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10-13
PART II OTHER INFORMATION 14-15
Item 1. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits 15
-2-
<PAGE>
RIMAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS June 30 December 31,
1996 1995
----------- -----------
(unaudited)
<S> <C> <C>
Current assets:
Cash................................................................. $ 266,092 $ 230,014
Trade accounts receivable, net of allowance for doubtful accounts
and sales returns of $526,625 and $644,576, respectively...... 5,544,926 9,493,142
Inventories (note 2)................................................. 4,295,177 4,690,326
Income tax receivable................................................ 240,735 250,012
Prepaid expenses and other current assets............................ 1,124,415 330,975
Deferred income tax asset ........................................... 1,279,388 1,196,000
Current installments of investment in sales-type leases ............ 222,905 260,188
----------- -----------
Total current assets....................................... 12,973,638 16,450,657
----------- -----------
Property, plant, and equipment, net...................................... 4,973,843 4,883,766
Investment in sales-type leases, net of
current installments ............................................... 204,590 307,120
Goodwill ................................................................ 969,763 1,010,120
Other assets............................................................. 1,001,438 1,132,547
----------- -----------
Total assets............................................... $20,123,272 $23,784,210
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of notes payable (note 6).............................. $ 4,562,800 $ 4,725,400
Current installments of capital lease obligations ..................... 47,063 35,750
Trade accounts payable................................................. 2,580,431 5,761,742
Accrued expenses ...................................................... 1,526,819 1,354,241
Deferred income and customer deposits.................................. 1,181,857 765,777
----------- -----------
Total current liabilities........................................ 9,898,970 12,642,910
Notes payable, less current portion (note 6)............................. 957 167,524
Deferred tax liability .................................................. 131,000 131,000
Capital lease obligations, less current installments .................... 1,562,984 1,582,504
----------- -----------
Total liabilities................................................ 11,593,911 14,523,938
----------- -----------
Minority interest in inactive subsidiary................................. 57,907 57,907
Stockholders' equity (note 4):
Common stock........................................................... 30,845 30,510
Additional paid-in capital............................................. 10,447,798 10,301,883
Accumulated Deficit (note 4)........................................... (2,001,165) (1,151,280)
Equity adjustment from foreign currency translation.................... (6,024) 21,252
----------- -----------
Total stockholders' equity....................................... 8,471,454 9,202,365
Commitments and contingencies ........................................... -- --
----------- -----------
Total Liabilities and Stockholders' Equity........................... $20,123,272 $23,784,210
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements
-3-
<PAGE>
RIMAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six months Ended
June 30, June 30,
1996 1995 1996 1995
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues......................................... $9,899,902 $10,003,296 $20,950,408 $22,537,182
Cost of revenues................................. 7,725,934 7,244,025 15,607,931 16,534,459
---------- ----------- ----------- -----------
Gross Profit............................... 2,173,968 2,759,271 5,342,477 6,002,723
---------- ----------- ----------- -----------
Operating expenses:
Engineering and development................... 690,281 856,444 1,467,129 1,655,422
Selling, general and administrative........... 2,270,396 2,193,572 4,481,282 4,362,575
---------- ----------- ----------- -----------
Total operating expenses................... 2,960,677 3,050,016 5,948,411 6,017,997
---------- ----------- ----------- -----------
Operating loss............................. (786,709) (290,745) (605,934) (15,274)
---------- ----------- ----------- -----------
Other income (expense)
Interest...................................... (132,047) (137,132) (271,494) (256,036)
Gain(loss) on currency exchange............... (16,700) (12,862) (11,607) 106,430
Other, net.................................... 14,097 (23,152) 39,151 (10,513)
---------- ----------- ----------- -----------
Total other income (expenses) net.......... (134,650) (173,146) (243,950) (160,119)
---------- ----------- ----------- -----------
Net loss before income taxes............... (921,359) (463,891) (849,884) (175,393)
Income taxes............................... (24,000) (111,999) 0 (24,990)
---------- ----------- ----------- -----------
Historical net loss........................ ($897,359) ($351,892) ($849,884) ($150,403)
Historical net loss........................ ($897,359) ($351,892) ($849,884) ($150,403)
Proforma income tax benefit................ 0 (93,117) 0 (64,727)
---------- ----------- ----------- -----------
Proforma net loss.......................... ($897,359) ($258,775) ($849,884) ($85,676)
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
Proforma net loss per common
and common equivalent share.............. ($0.29) ($0.08) ($0.27) ($0.03)
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
Weighted average shares and share
equivalents outstanding.................. 3,092,961 3,068,677 3,108,120 3,070,778
---------- ----------- ----------- -----------
---------- ----------- ----------- -----------
</TABLE>
See accompanying condensed notes to the consolidated financial statements
-4-
<PAGE>
RIMAGE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
1996 1995
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss.............................................................. $ (849,884) $ (150,403)
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization........................................ 718,739 734,189
Change in reserve for excess and obsolete inventories................ (50,000) (121,937)
Change in reserve for doubtful accounts.............................. (117,951) (7,284)
Gain on sale of property, plant, and equipment....................... (1,408) 0
Deferred income tax.................................................. (83,388) 8,000
Increase in investment in sales-type leases.......................... 0 (180,258)
Changes in operating assets and liabilities:
Trade accounts receivable............................................ 4,066,167 (604,881)
Inventories.......................................................... 445,149 (380,273)
Prepaid expenses and other current assets............................ (793,440) (48,820)
Income tax receivable................................................ 9,277 (27,521)
Accounts payable..................................................... (3,181,308) (717,803)
Accrued expenses..................................................... 172,578 406,314
Deferred income and customer deposits................................ 416,080 255,524
Net cash provided by (used in) operating activities.......... 750,611 (835,153)
Cash flows from investing activities:
Purchase of property, plant, and equipment............................. (780,205) (933,578)
Proceeds from the sale of property and equipment 13,150 0
Other assets........................................................... 131,109 (56,557)
Payments on investment in sales-type leases............................ 139,813 84,930
Net cash used in investing activities................................ (496,133) (905,205)
Cash flows from financing activities:
Payment of registration fees........................................... 0 (18,400)
Proceeds from stock option exercise.................................... 146,250 0
Principal payments on capital lease obligation......................... (8,207) (7,527)
Proceeds from other notes payable...................................... 6,591,000 1,970,000
Repayment of other notes payable....................................... (6,920,167) (1,071,475)
Subchapter-S dividends paid............................................ 0 (210,503)
Net cash (used in) provided by financing activities.................. (191,124) 662,095
Effect of exchange rate changes on cash................................... (27,276) 20,058
Net increase (decrease) in cash........................................... 36,078 (1,058,205)
Cash, beginning of period................................................. 230,014 1,283,794
Cash, end of period....................................................... $ 266,092 $ 225,589
</TABLE>
See accompanying notes to the consolidated financial statements.
-5-
<PAGE>
RIMAGE CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Rimage
Corporation, Rimage Europe Gmbh, Rimage Singapore, A/G Systems Inc. d/b/a
Duplication Technology Inc. (Duplication Technology), ALF Products Inc.
d/b/a ALF/Rimage (ALF Products) and Knowledge Access Inc. (Knowledge
Access), collectively hereinafter referred to as the Company or Rimage.
All material intercompany accounts and transactions have been eliminated
upon consolidation.
Effective September 29, 1995, Rimage Corporation and Dunhill Software
Services Inc. (Dunhill) completed a merger. Dunhill, who had been a
significant customer of Rimage, is engaged in diskette duplication and
production services. For financial reporting purposes, the merger was
recorded using the pooling-of interests method of accounting under
generally accepted accounting principles. Accordingly, the historical
financial statements of Rimage presented for the three and six month
periods ended June 30, 1995 were restated to include the historical
accounts and results of operations of Dunhill.
As a result of this merger, Rimage operates in two segments. The Rimage
Systems segment consists of substantially all of the former Rimage
Companies, plus the newly formed optical systems division. The Rimage
Services segment consists of the former Dunhill operation in addition to
the service business at Duplication Technology.
Rimage Systems develops, manufactures and distributes diskette, tape and
CD-Recordable duplication equipment and CD-ROM replication equipment, and
related software products. Rimage Services provides diskette duplication
and production services to software developers and manufacturers and
information publishers.
The Company extends unsecured credit to its customers, of which, the
majority are computer hardware, software and service companies, software
developers and manufacturers, and information publishers.
The consolidated financial statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although
Rimage believes that the disclosures are adequate to make the information
presented not misleading.
In the opinion of the Company, all adjustments, consisting of only normal
recurring adjustments, necessary to present fairly the consolidated
financial position of the Company as of the dates and for
the periods presented, have been made. The results of operations for such
interim periods are not necessarily indicative of the results to be
expected for the entire year.
-6- (continued)
<PAGE>
(2) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ --------------
<S> <C> <C>
(unaudited)
Finished goods and demonstration
equipment $999,593 $1,297,788
Work-in-process 759,822 670,264
Purchased parts and subassemblies 3,220,762 3,457,274
---------- ----------
4,980,177 5,425,326
Less reserve for excess inventories 685,000 735,000
---------- ----------
Total inventories $4,295,177 $4,690,326
---------- ----------
---------- ----------
</TABLE>
(3) SEGMENT REPORTING (IN THOUSANDS)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
---------- ----------
<S> <C> <C>
Revenues from unaffiliated customers: (unaudited) (unaudited)
Systems $10,962 $7,685
Services 9,988 14,852
Operating earnings (loss):
Systems (578) (850)
Service (28) 835
June 30, December 31,
1996 1995
Net Identifiable Assets: ----------- ------------
(unaudited)
Systems 11,886 11,781
Service 8,569 12,003
</TABLE>
(4) STOCKHOLDERS' EQUITY
STOCK ISSUED IN ACQUISITION
On September 29, 1995, in connection with the merger between Rimage and
Dunhill Software Services, Inc., 1,100,000 shares of Rimage common stock
were issued. (see note 5.)
-7- (continued)
<PAGE>
TERMINATION OF DUNHILL'S S-CORPORATION STATUS
On September 29, 1995, Dunhill Software Services, Inc. terminated its
S-Corporation election. Under SEC rules, Dunhill's accumulated retained
earnings of $2,611,979 as of the termination of the S-Corporation election
was reclassified against additional paid-in-capital.
STOCK OPTIONS
Rimage adopted a stock option plan on September 24, 1992 which allows for
the granting of options to purchase up to 250,000 shares of common stock to
certain key administrative, managerial and executive employees. Options
under this plan may be either incentive stock options or non-qualified
options. In 1993, the Rimage board of directors increased the number of
allowable shares to 500,000. Pursuant to this plan, options to purchase
290,453 shares are currently issued and outstanding.
(5) 1995 ACQUISITION
Effective at the close of business on September 29, 1995, and pursuant to
the Agreement and Plan of Reorganization (the Merger Agreement) dated June
6, 1995 by and between Rimage Corporation (Rimage), and Dunhill Software
Services Inc. (Dunhill), Rimage issued 1,100,000 shares of stock to the
former Dunhill shareholders and Dunhill was merged into Rimage. Dunhill
provides diskette duplication and production services to software
developers and manufacturers and information publishers, and historically
was one of Rimage's largest customers. Rimage intends to continue such
business for the foreseeable future. This merger was recorded using the
pooling-of-interests method of accounting. Accordingly the historical
financial statements of Rimage presented for the three and six month
periods ended June 30, 1995 were restated to include the historical
accounts and results of operations of Dunhill.
(6) NOTES PAYABLE TO BANK
On October 13, 1995, the Company signed a new Credit Agreement which
consolidated and redefined all previously outstanding Rimage and Dunhill
debt. This credit agreement covers all of the term and revolving notes
discussed below. The Company is required to maintain certain financial
ratios as a part of the agreement. The Company obtained waivers (and
forbearance through June 30, 1996) from the bank regarding the tangible
capital base and working capital ratios which were not in compliance as of
and for the periods ended June 30, 1996 and December 31, 1995.
The Company has a term note agreement with a bank. Borrowings under the
agreement are secured by substantially all Company assets, accrue interest
at the bank's reference rate plus 1/2 percent and are payable in 36 equal
monthly installments that commenced May 31, 1994. The interest rate was
8.75% on June 30, 1996. The outstanding amount as of June 30, 1996 was
$165,800.
The Company has another term note which expires on January 1, 1997. The
term note bears interest at 3/4% over the bank's reference rate and is
secured by substantially all Company assets. The interest rate was 9% on
June 30, 1996. The outstanding balance under this note on June 30, 1996
was $700,000.
-8- (continued)
<PAGE>
The Company also has a revolving line of credit agreement with a bank that
expired on June 30, 1996 and was extended through August 15, 1996. The line
of credit provides for borrowing up to $5,000,000. Borrowings under this
agreement are secured by substantially all Company assets and accrue
interest at the bank's reference rate plus one-half percent. Borrowings
outstanding under this line were $3,697,000 on June 30, 1996.
(7) STATEMENTS OF CASH FLOWS
The following is additional information regarding cash flows and non-cash
investing and financing activities:
During the six months ended June 30, 1996 and 1995, cash paid for interest
was $275,640 and $239,821, respectively.
During the six months ended June 30, 1996 and 1995, cash received for
income taxes was $5,889 and $4,951, respectively.
On September 29, 1995 Rimage issued 1,100,000 shares of its common stock in
connection with the merger with Dunhill Software Services, Inc.
-9-
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following table sets forth, for the periods indicated, selected items
from the Company's consolidated statements of operations, shown in thousands.
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
----------------------- -----------------------
1996 1995 1996 1995
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Revenues to unaffiliated customers:
Systems.......................................................... $6,234 $3,496 $10,962 $7,685
Services......................................................... 3,666 6,507 9,988 14,852
-------- ------- -------- -------
Total Revenues................................................. 9,900 10,003 20,950 22,537
Cost of Revenues:
Systems.......................................................... 4,345 1,858 7,050 4,097
Service.......................................................... 3,381 5,386 8,558 12,437
-------- ------- -------- -------
Total Cost of Revenues......................................... 7,726 7,244 15,608 16,534
Operating Expenses:
Systems.......................................................... 2,362 2,289 4,490 4,438
Service.......................................................... 599 761 1,458 1,580
-------- ------- -------- -------
Total Operating Expenses....................................... 2,961 3,050 5,948 6,018
Operating Earnings (Loss):
Systems.......................................................... (473) (651) (578) (850)
Service.......................................................... (314) 360 (28) 835
-------- ------- -------- -------
Total Operating Loss........................................... $ (787) $ (291) $ (606) $ (15)
-------- ------- -------- -------
-------- ------- -------- -------
</TABLE>
This Report contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ significantly from
those discussed in the forward-looking statements. Factors that could cause
or contribute to such differences include, but are not limited to, changes in
media or method used for distribution of software, technological changes in
products offered by the Company or its competitors and changes in general
conditions in the computer market.
-10-
<PAGE>
RESULTS OF OPERATIONS
Rimage designs, manufactures and sells computer media duplication,
replication, and printing systems, and also provides media duplication
services. The Company's revenues decreased by 1.0% and 7.0% in the three
months and six months ended June 30, 1996 when compared to corresponding 1995
revenues. Consolidated net loss for the three and six month periods ended
June 30, 1996 was $897,359 and $849,884 compared to corresponding 1995 net
loss of $258,775 and $85,676.
SYSTEMS SEGMENT - THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Systems revenues (which include equipment sold from Rimage
Systems - Minneapolis, Rimage Europe, Duplication Technology, and Knowledge
Access International) for the three and six months ended June 30, 1995
increased by $2,737,806 and $3,276,935 respectively, when compared to the same
periods of 1995. These increases were a result of the Company's transition to
new products, specifically away from diskette equipment and into CD-Recordable
("CDR") and CD-ROM equipment. The Company expects continued declines from
historic levels of diskette revenues, and increasing growth from optical
equipment revenues.
Gross profit in the first three and six months of 1996 as a percentage of
revenues, decreased to 30% and 36% respectively, from 47% during both the
1995 periods. These decreases result from two main reasons; The prevalence
in the diskette equipment industry of discounting sales prices for equipment
which has resulted from soft demand caused by the shift to optical media.
And, sales mix changes resulting from the CD-ROM equipment that the Company
started shipping in the second quarter of 1996, that is higher volume and
lower margin in nature.
Operating expenses for three and six months ended June 30, 1996 increased by
$72,728 and $52,728 compared to the expenses in the same periods of 1995.
These increases are attributable to approximately $390,000 of expense
incurred by the Company's new CD-ROM equipment sales division. Operating
expenses, as a percentage of revenues decreased in the three and six months
ended June 30, 1996 to 38% and 41% respectively, from 65% and 58% in the same
periods of 1995
Operating loss for the three and six months ended June 30, 1996 improved to
$472,379 and $577,601 respectively, from $650,680 and $849,890 during the
same periods of 1995. This improvement was due to the aforementioned revenue
increases, but was offset by the gross profit deterioration, and operating
expense increases.
SERVICE SEGMENT - THREE AND SIX MONTHS ENDED JUNE 30, 1995 AND 1994
Service revenues (which include the revenues of the Rimage Service Group,
formerly "Dunhill", as well as the service business of Duplication
Technology) for the three and six months ended June 30, 1996 decreased by
$2,841,201 and $4,863,709 compared to the same periods of 1995. These
decreases resulted from the trend from diskette to optical media, and also
from the decreased revenues associated with one large 1995 software release
that did not recur in 1996 and the reduced 1996 revenues from one other
significant customer. The Company had two significant customers that
accounted for 24.9% and 27.9%, respectively of service revenues in the first
half of 1996. The Company is in the process of adding CD-ROM optical
capacity to transition into the optical service business..
-11-
<PAGE>
Gross profit for the three and six months ended June 30, 1996, as a
percentage of revenues, decreased to 8% and 14% respectively, from 17% and
16% during the same periods of 1995. These decreases are mainly attributable
to the lower revenues and the fixed nature of some manufacturing costs.
Operating expenses for the three and six months ended June 30, 1996 decreased
by $162,065 and $122,312 respectively, over operating expenses for the same
periods of 1995, but increased as a percentage of revenues to 16% and 15% in
1995 from 12% and 11% in 1994. Operating expenses were relatively fixed
when compared to the lower revenues.
Operating earnings (loss) for the three and six months ended June 30, 1996
declined substantially to ($314,330) and ($28,333) respectively, from
$359,935 and $834,616 for the same periods of 1995. The declines result from
the aforementioned revenue reductions compared to cost of sales and operating
expenses that did not fall proportionally.
CONSOLIDATED THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Revenues for the three and six months ended June 30, 1996 decreased by
$103,395 and $1,586,774 when compared to the same periods of 1995. These
decreases were a result of the reduced service revenues and were partially
offset by the increase in systems revenues. The Company had two significant
customers which totaled 11.9 and 13.3 percent, respectively, of revenues
during the six months ended June 30, 1996.
Gross profit for the three and six months ended June 30, 1996 as a percentage
of revenues, decreased to 22% and 26% respectively, from 28% and 27% during
same periods of 1995. These decreases are mainly due to the change in
revenue mix (new CD-ROM revenues which is lower margin business), the sales
discounting prevalent on diskette systems revenues, and the lower service
revenues on relatively stable fixed manufacturing costs.
Operating expenses for the three and six months ended June 30, 1996 decreased
by $89,339 and $69,586 compared to the same periods of 1995. Operating
expenses, as a percentage of sales in the three and six months ended June 30,
1996 were 30% and 29% respectively, compared to 30% and 27% in the same
periods of 1995. There were similar fixed operating costs when compared to
the lower revenues, and also new expenses incurred in the CD-ROM equipment
sales division.
Net other expenses were approximately $38,000 lower and $84,000 higher in the
first three and six months of 1996 when compared to the same periods of 1995,
primarily due to first quarter currency exchange fluctuations. The Company
has not booked any income tax benefit related to the 1996 losses. Prior to
the merger on September 30, 1995, Dunhill Software was a Subchapter-S
Corporation and thus was not subject to federal income taxes.
Net loss was ($897,359) and ($849,884) respectively, for the three and six
month periods ended June 30, 1996 versus ($258,775) and ($85,676) for the
same periods of 1995. Net loss per share was ($.29) and ($.27) respectively,
for the three and six months ended June 30, 1996 versus ($.08) and ($.03) for
the same periods of 1995. The increases in both loss and loss per share are
attributable to the gross margin deterioration, the unrecorded tax benefit in
1996, and the relatively stable fixed operating costs incurred on similar
revenues.
-12-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by (used in) operating activities was $750,611 and
($835,153) in the first six months of 1996 and 1995. The 1996 increase
resulted primarily from the reduction in accounts receivable of $4,066,167
and inventories of $445,149, and was partially offset by the decrease in
accounts payables of $3,181,309 and the increase in prepaid expenses of
$793,440, which was primarily due to down payments made by the Company on
CD-ROM equipment purchases.
The cash used in investing activities was $496,133 and $905,205 during
the first six months of 1996 and 1995. At June 30, 1996 the Company has
committed to purchase approximately $3,080,000 of equipment related to adding
CD-ROM pressing capacity for its service business.
At June 30, 1996, the Company's working capital was approximately
$3,075,000 compared to $3,808,000 at December 31, 1995. The net cash
provided by (used in) financing activities was ($191,124) and $662,095 for
the six months ended June 30, 1996 and 1995, respectively. The Company paid
down approximately $330,000 of net bank debt during the first six months of
1996.
The Company has a line of credit agreement totaling $5,000,000 with a
bank, which expired on June 30, 1996 and has been extended to August 15,
1996. Advances under this line of credit are secured by substantially all the
Company's assets, are subject to borrowing base requirements, are due on
demand and bear interest at the bank's reference rate plus 1/2 percent. At
June 30, 1996, the Company had borrowings under this line totaling
$3,697,000. The Company also has term note agreements totaling $866,757
under various terms that are secured by substantially all the Company's
assets, and bear interest varying from the bank's reference rate plus 1/2
percent to plus 3/4 percent. The Company obtained waivers (and forbearance
through June 30, 1996) from the bank for any financial ratios on which it is
out of compliance at June 30, 1996 and December 31, 1995. The Company is
currently negotiating a new credit agreement with this bank. The Company is
also currently negotiating lease financing for its CD-ROM equipment
purchases. The Company believes its banking relationship is good and that
satisfactory financing will be available on terms acceptable to the Company
for the foreseeable future.
-13-
<PAGE>
PART II -- OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On May 29, 1996 Trace Products, Inc. of San Jose, and the Company,
announced that they have amicably settled litigation in the United
States District Court for the Northern District of California
involving Trace's U.S. Patent No. 5,402,270.
Item 2. CHANGES IN SECURITIES
Not Applicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on June 20,
1996. The following members were elected to the Company's Board of
Directors to hold office for the ensuing year:
Nominee In Favor Withheld
------- -------- --------
David Suden 2,985,532 6,825
Ronald Fletcher 2,985,532 6,825
Richard McNamara 2,985,532 6,825
Robert Hoffman 2,985,532 6,825
George Kline 2,985,532 6,825
The results of the voting on the following additional items were
as follows:
(a) Ratification of the selection of KPMG Peat Marwick LLP as
independent accountants to audit the consolidated financial
statements of Rimage Corporation for the year ending December 31,
1996. The votes of the stockholders on this amendment were as
follows:
In Favor Opposed Abstained Broker Non-Vote
-------- ------- --------- ---------------
2,987,947 2,300 2,100 0
-14-
<PAGE>
Item 5. OTHER INFORMATION
Not Applicable.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit No. 11. Calculation of Earnings Per Share.
Exhibit No. 27. Financial Data Schedule.
(b) Reports on Form 8-K:
Not Applicable.
-15-
<PAGE>
SIGNATURES
In accordance with the Exchange Act, this report has been signed below by
following persons on behalf of the registrant and on the dates indicated.
RIMAGE CORPORATION
------------------
Registrant
Date: August 12, 1996 By: /s/ Ronald R. Fletcher
----------------- ----------------------
Ronald R. Fletcher
Chairman of the Board
Chief Executive Officer
(Principal Executive Officer)
Date: August 12, 1996 By: /s/ Jon D. Wylie
----------------- ----------------
Jon D. Wylie
Chief Financial Officer
(Principal Financial Officer)
(Principal Accounting Officer)
-16-
<PAGE>
EXHIBIT 11
RIMAGE CORPORATION
COMPUTATION OF NET EARNINGS PER SHARE OF COMMON STOCK
Net earnings per common share is determined by dividing the net earnings by
the weighted average number of shares of common stock and common share
equivalents outstanding. The following is a summary of the weighted average
common shares outstanding and common share equivalents:
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1996 1995 1996 1995
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Shares Outstanding at
beginning of period 3,069,000 1,950,000 3,051,000 1,950,000
Common stock issued in merger
with Dunhill Software Services 0 1,100,000 0 1,100,000
Shares Outstanding at
beginning of period 3,069,000 3,050,000 3,051,000 3,050,000
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Common stock issued in stock
option exercise 15,500 0 33,500 0
Shares Outstanding at
end of period 3,084,500 3,050,000 3,084,500 3,050,000
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Weighted average shares
of common stock outstanding 3,073,253 3,050,000 3,064,937 3,050,000
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
**Common stock equivalents 397,453 846,455 397,453 846,455
Weighted average shares of
common stock equivalents 19,708 18,677 43,183 20,778
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Weighted average shares of
common stock and
stock equivalents 3,092,961 3,068,677 3,108,120 3,070,778
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Net Earnings (loss) ($897,359) ($258,775) ($849,884) ($85,676)
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
Net earnings (loss) per share ($0.29) ($0.08) ($0.27) ($0.03)
---------- ---------- ---------- -----------
---------- ---------- ---------- -----------
</TABLE>
** Included as common stock equivalents are 540,000 warrants which expired
on July 20, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 266
<SECURITIES> 0
<RECEIVABLES> 6072
<ALLOWANCES> 527
<INVENTORY> 4295
<CURRENT-ASSETS> 12974
<PP&E> 10220
<DEPRECIATION> 5247
<TOTAL-ASSETS> 20123
<CURRENT-LIABILITIES> 9899
<BONDS> 0
0
0
<COMMON> 31
<OTHER-SE> 8441
<TOTAL-LIABILITY-AND-EQUITY> 20123
<SALES> 20950
<TOTAL-REVENUES> 20950
<CGS> 15608
<TOTAL-COSTS> 5948
<OTHER-EXPENSES> 244
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 271
<INCOME-PRETAX> (850)
<INCOME-TAX> 0
<INCOME-CONTINUING> (850)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (850)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.27)
</TABLE>
