CONFORMED{PRIVATE}
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 1999; 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: 0-20728
RIMAGE CORPORATION
- --------------------------------------------------------------------------------
(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
---------------------------------------------
(Address of principal executive offices)
612-944-8144
----------------------------------------------------
(Registrant's telephone number, including area code)
NA
----------------------------------------------------------------
(Former name, former address, and former fiscal year, if changed
since last report.)
Common Stock outstanding at November 11, 1999 -- 5,103,914 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 THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Description Page
----------- ----
PART I FINANCIAL INFORMATION
- ------
<S> <C> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of
September 30, 1999 (unaudited) and
December 31, 1998 ............................................ 3
Consolidated Statements of Operations
(unaudited) for the Three and Nine Months
Ended September 30, 1999 and 1998 ............................ 4
Consolidated Statements of Cash Flows
(unaudited) for the nine Months
Ended September 30, 1999 and 1998 ............................ 5-6
Condensed Notes to Consolidated
Financial Statements (unaudited) ............................. 7-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ................ 9-14
PART II OTHER INFORMATION ........................................................ 15-16
- -------
Items 1-3. None
Item 4. None
Item 5. None
Item 6. Exhibits
SIGNATURES ................................................................................ 17
</TABLE>
2
<PAGE>
RIMAGE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1999 and December 31, 1998
<TABLE>
<CAPTION>
September 30, December 31,
Assets 1999 1998
- ---------------------------------------------------------------------------------------------------------
(unaudited)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 11,419,203 $ 7,349,521
Trade accounts receivable, net of allowance for doubtful accounts
and sales returns of $230,000 and $143,000, respectively 6,868,902 4,772,337
Inventories 2,220,858 1,876,063
Interest receivable 87,960 --
Prepaid expenses and other current assets 92,316 90,667
Deferred income taxes 593,000 593,000
Net assets of discontinued operations -- 587,265
- --------------------------------------------------------------------------------------------------------
Total current assets 21,282,239 15,268,853
- --------------------------------------------------------------------------------------------------------
Property and equipment, net 706,551 566,114
Goodwill, net of accumulated amortization of $377,286 in 1998 -- 767,977
Other noncurrent assets 169,808 67,427
- --------------------------------------------------------------------------------------------------------
Total assets $ 22,158,598 $ 16,670,371
========================================================================================================
Liabilities and Stockholders' Equity
- --------------------------------------------------------------------------------------------------------
Current liabilities:
Trade accounts payable $ 2,083,844 $ 1,883,100
Income taxes payable 541,611 236,728
Accrued compensation 837,102 871,729
Accrued other 820,580 797,545
Deferred income and customer deposits 816,078 712,982
- --------------------------------------------------------------------------------------------------------
Total current liabilities 5,099,215 4,502,084
========================================================================================================
Stockholders' equity:
Common stock, $.01 par value, authorized 10,000,000 shares,
issued and outstanding 5,103,914 and 4,936,088, respectively 51,039 49,361
Additional paid-in capital 11,888,072 11,545,485
Retained earnings 5,345,493 647,477
Accumulated other comprehensive income - foreign
currency translation adjustment (225,221) (74,036)
- --------------------------------------------------------------------------------------------------------
Total stockholders' equity 17,059,383 12,168,287
- --------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 22,158,598 $ 16,670,371
========================================================================================================
</TABLE>
See accompanying condensed notes to consolidated financial statements
3
<PAGE>
RIMAGE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 9,823,421 $ 7,289,461 $ 26,068,531 $ 20,022,718
Cost of revenues 4,638,645 3,647,360 12,915,861 9,676,557
- ----------------------------------------------------------------------------------------------------------------------------
Gross profit 5,184,776 3,642,101 13,152,670 10,346,161
- ----------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Research and development 704,293 550,764 1,886,962 1,467,641
Selling, general and administrative 1,653,375 1,585,299 4,937,378 4,704,134
- ----------------------------------------------------------------------------------------------------------------------------
Total operating expenses 2,357,668 2,136,063 6,824,340 6,171,775
- ----------------------------------------------------------------------------------------------------------------------------
Operating income from continuing operations 2,827,108 1,506,038 6,328,330 4,174,386
- ----------------------------------------------------------------------------------------------------------------------------
Other income (expense):
Interest, net 137,711 28,287 289,502 (10,239)
Gain (loss) on currency exchange (17,205) 50,728 (35,701) 77,498
Gain on lease restructure - 361,098 - 361,098
Other, net 21,535 (4,090) 51,839 (8,284)
- ----------------------------------------------------------------------------------------------------------------------------
Total other income, net 142,041 436,023 305,640 420,073
- ----------------------------------------------------------------------------------------------------------------------------
Income from continuing operations
before income taxes 2,969,149 1,942,061 6,633,970 4,594,459
Income tax expense (benefit) 1,068,894 (415,043) 2,425,448 121,537
- ----------------------------------------------------------------------------------------------------------------------------
Income from continuing operations 1,900,255 2,357,104 4,208,522 4,472,922
Discontinued operations:
Income (loss) from operations of discontinued
Services Division, net of applicable income taxes - (684,380) 186,045 (749,189)
Gain on disposal of Services Division, net of
applicable income tax expense - - 303,449 -
- ----------------------------------------------------------------------------------------------------------------------------
Net income $ 1,900,255 $ 1,672,724 $ 4,698,016 $ 3,723,733
============================================================================================================================
Income (loss) per basic share:
Continuing operations $ 0.37 $ 0.49 $ 0.83 $ 0.95
Discontinued operations - (0.14) 0.10 (0.16)
- ----------------------------------------------------------------------------------------------------------------------------
Net income per basic share $ 0.37 $ 0.35 $ 0.93 $ 0.79
============================================================================================================================
Income (loss) per diluted share:
Continuing operations $ 0.33 $ 0.42 $ 0.73 $ 0.83
Discontinued operations - (0.12) 0.08 (0.14)
- ----------------------------------------------------------------------------------------------------------------------------
Net income per diluted share $ 0.33 $ 0.30 $ 0.81 $ 0.69
============================================================================================================================
Basic weighted average shares outstanding 5,080,947 4,827,948 5,042,481 4,727,882
============================================================================================================================
Diluted weighted average shares and
assumed conversion shares 5,838,376 5,596,913 5,812,875 5,421,212
============================================================================================================================
</TABLE>
See accompanying condensed notes to the consolidated financial statements
4
<PAGE>
RIMAGE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,698,016 $ 3,723,733
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest in net income of dissolved subsidiary - (57,907)
Depreciation and amortization 429,761 338,669
Change in reserve for excess and obsolete inventories 120,980 236,798
Change in allowance for doubtful accounts 87,674 (173,614)
Gain on sale of property and equipment (27,489) -
Write-off of other assets - 15,000
Deferred income tax benefit - (750,000)
Gain on lease restructure - (361,098)
Changes in operating assets and liabilities:
Trade accounts receivable (2,184,239) (1,958,584)
Inventories (465,775) (484,004)
Income tax receivable - (429,271)
Interest receivable (87,960) -
Prepaid expenses and other current assets (9,712) 79,349
Net assets of discontinued operations 587,265 1,682,961
Trade accounts payable 200,744 587,903
Income taxes payable 304,883 -
Accrued expenses (11,592) 508,875
Deferred income and customer deposits 103,096 64,497
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 3,745,652 3,023,307
- --------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of property and equipment (394,197) (333,651)
Proceeds from the sale of property, plant, equipment and intangibles 717,084 -
Other noncurrent assets (289,393) 157,018
Receipts from sales-type leases 8,063 89,782
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
investing activities 41,557 (86,851)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
5
<PAGE>
RIMAGE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
Nine months ended
September 30,
1999 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from financing activities:
Proceeds from stock option exercise 382,140 938,091
Cash payments to purchase treasury stock (37,875) --
Repayment of other notes payable -- (1,650,000)
Principal payments on capital lease obligation -- (21,135)
- --------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 344,265 (733,044)
- --------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (61,792) 26,547
- --------------------------------------------------------------------------------------------------------
Net increase in cash 4,069,682 2,229,959
Cash and cash equivalents, beginning of period 7,349,521 762,394
- --------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 11,419,203 $ 2,992,353
========================================================================================================
Supplemental disclosures of net cash paid during the period for:
Interest $ -- $ (513,388)
Income taxes $ 2,629,604 $ (18,186)
Supplemental disclosures of non-cash investing and financing activities:
Reduction of obligations under capital leases as a result of
conversions to operating leases $ 1,021,831
============
Reduction of net book value of facilities under capital leases as
a result of conversions to operating leases $ 660,733
============
</TABLE>
See accompanying condensed notes to the consolidated financial statements
6
<PAGE>
RIMAGE CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) BASIS OF PRESENTATION AND NATURE OF BUSINESS
Rimage Corporation (the Company) develops, manufactures and
distributes high performance CD-Recordable (CD-R) publishing and
duplication systems, and continues to support its long-term
involvement in diskette duplication and publishing equipment.
The accompanying unaudited consolidated financial statements of the
Company have been prepared pursuant to the rules of the Securities
and Exchange Commission. These financial statements should be read
in conjunction with the more detailed financial statements and
notes thereto included in the Company's most recent annual report
on Form 10-K.
The Company extends unsecured credit to its customers as well as
credit to a limited number of authorized distributor wholesalers,
who in turn provide warehousing, distribution, and credit to a
network of authorized value added resellers. These distributors
and value added resellers sell and service a variety of hardware
and software products.
In the opinion of management, the accompanying consolidated financial
statements reflect all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of the
financial position and results of operations and cash flows of the
Company for the periods presented. Certain previously reported
amounts have been reclassified to conform with the current
presentation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of
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.
(Continued)
7
<PAGE>
RIMAGE CORPORATION AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(2) DISCONTINUED OPERATIONS
On June 30, 1999, the Company completed the sale of the inventory,
fixed assets and intangible assets of its Boulder, Colorado based
Services Division to a third party. Accordingly, the consolidated
financial statements of the Company have been reclassified to
report separately the operating results of this discontinued
division. For 1998, the discontinued operations also reflects the
sale of the Bloomington, Minnesota Services Division. Revenues of
the Services Division were $2,322,000 and $7,693,000 for the nine
months ended September 30, 1999 and 1998, respectively and
$1,936,000 during the three months ended September 30, 1998.
(3) INVENTORIES
Inventories consist of the following as of:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
(unaudited)
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Finished goods and demonstration equipment $1,147,436 $ 899,290
Work-in-process 147,821 162,943
Purchased parts and subassemblies 925,601 813,830
- ---------------------------------------------------------------------------------------------
$2,220,858 $1,876,063
=============================================================================================
</TABLE>
(4) COMPREHENSIVE INCOME
The Company's only item of other comprehensive income relates to
foreign currency translation adjustments, and is presented
separately on the balance sheet as required. If presented on the
statement of operations for the nine months ended September 30,
1999 and 1998, comprehensive income would be $151,185 less than
reported net income and $129,565 more than reported net income,
respectively, due to foreign currency translation adjustments.
8
<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 Nine months ended
September 30, September 30,
------------------ -----------------
% %
1999 1998 Change 1999 1998 Change
------------ ------------- ---------- ------------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues $9,823 $7,289 34.8% $26,069 $20,023 30.2%
Cost of Revenues 4,638 3,647 27.2 12,916 9,677 33.5
Operating Expenses 2,358 2,136 10.4 6,825 6,172 10.6
----- ----- ----- -----
Operating Income 2,827 1,506 87.7 6,328 4,174 51.6
</TABLE>
RESULTS OF OPERATIONS
- ---------------------
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.
As discussed in Note 2 of the Condensed Notes of the Consolidated Financial
Statements, the Company divested of its Services Division during the second
quarter of 1999. The comments that follow pertain to the Company's continuing
operations.
REVENUE. Revenue from continuing operations increased 34.8% from $7.3 million
during the third quarter of 1998 to $9.8 million during the third quarter of
1999. The Company's introduction of new hardware and software products for
publishing, duplication and network applications related to the CD-Recordable
(CD-R) market and strong international sales have facilitated this increase. As
a result of a maturing distribution network, 1999 third quarter revenue from the
Company's German subsidiary increased 47% over 1998 third quarter revenues.
For the nine months ended September 30, 1999, revenues from continuing
operations of $26.1 million represented a 30.2% increase as compared to revenues
from continuing operations of $20.0 million during the same period in 1998. This
increase is primarily a result of continued increasing demand of CD-R related
products. The Company is also continually adding to its worldwide distribution
network.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
As of and for the nine months ended September 30, 1999, foreign revenues from
unaffiliated customers, operating earnings, and net identifiable assets were
$7,901,000, $527,000 and $3,651,000, respectively. As of and for the nine months
ended September 30, 1998, foreign revenues from unaffiliated customers,
operating income, and net identifiable assets were $5,731,000, $531,000 and
$3,127,000, respectively. The revenue growth is due to increasing penetration of
CD-R products in the European markets.
GROSS PROFIT. Gross profit as a percent of revenues during the third quarter of
1999 was 52.8% compared to 50.0% of revenues from continuing operations during
the same period of 1998. The increase was due to a larger percentage of sales of
higher margin CD-R equipment by the Company's German subsidiary during the third
quarter of 1999. This increase was partially offset by a shift in the U.S.
product mix including stronger sales of lower margin consumables such as media.
Gross profit as a percent of revenues from continuing operations during the
nine-month period ended September 30, 1999 was 50.5% compared to 51.7% during
the same period of 1998. This decrease is a result of product mix changes.
OPERATING EXPENSE. Operating expense during the third quarter of 1999 was $2.4
million, or 24.0% of revenues, compared to $2.1 million, or 29.3% of revenues
from continuing operations, during the third quarter of 1998. The decrease in
percentage was primarily a result of increased sales. Research and development
expense as a percent of revenues remained relatively consistent at 7.2% during
the third quarter of 1999 compared to 7.6% of revenues from continuing
operations during the same period of 1998.
Operating expense from continuing operations during the nine-month period ended
September 30, 1999 was $6.8 million, or 26.2% of revenues from continuing
operations compared to $6.2 million, or 30.8% of revenues from continuing
operations, during the same period of 1998. The decrease in percentage was
primarily a result of increased sales during the nine-month period ended
September 30, 1999. Research and development expense during the nine-month
period ended September 30, 1999 increased to $1.9 million compared to $1.5
million during the same period of 1998. This increase is the result of an
increase in personnel and development materials needed to manage the increase in
the number of projects the Company has undertaken.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
OTHER INCOME/(EXPENSE). During the third quarter of 1998, the Company eliminated
debt associated with a capital lease on certain CD-ROM equipment and
renegotiated capital leases which resulted in their reclassification as
operating leases and the elimination of future interest expense. As a result of
these transactions, the Company recognized net interest income of $138,000
during the third quarter of 1999 and $290,000 during the nine month period ended
September 30, 1999 on cash investments from continuing operations. Net interest
income (expense) from continuing operations totaled $28,000 and $(10,000) during
the third quarter of 1998 and the nine month period ended September 30, 1998,
respectively.
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES. The significant increase
in revenue derived from CD-R related product sales combined with only marginal
increases in operating expense to support those revenues, caused income from
continuing operations before income taxes to increase from $1.9 million during
the third quarter of 1998 to $3.0 million during the third quarter of 1999 and
from $4.6 million for the nine month period ended September 30, 1998 to $6.6
million for the nine month period ended September 30, 1999.
INCOME TAXES. The provision for income taxes represents federal, state, and
foreign income taxes on earnings before income taxes. Income tax expense for the
third quarter of 1999 amounted to $1,069,000. During the third quarter of 1998,
the Company recognized an income tax benefit of $594,000 consisting of a
$179,000 benefit related to the operations of the discontinued Services
Division, a $750,000 benefit related to the elimination of the Company's
valuation allowance against its deferred tax asset and a $335,000 expense from
continuing operations.
Income tax expense for the nine month period ended September 30, 1999 amounted
to $3,139,000 which included tax expense of $105,000 related to the operations
of the discontinued Services Division, tax expense of $609,000 related to the
gain on the disposal of the Services Division and tax expense of $2,425,000
related to the Company's continuing operations. Income tax benefit for the nine
month period ended September 30, 1998 amounted to $74,000 which included an
income tax benefit of $196,000 related to the operations of the discontinued
Services Division netted with tax expense of $122,000 related to the Company's
continuing operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company expects to fund its anticipated cash requirements (including the
anticipated cash requirements of its capital expenditures) with internally
generated funds and, if required, from the Company's existing credit agreement.
Current assets are $21,282,000 as of September 30, 1999 as compared to
$15,269,000 as of December 31, 1998. The allowance for doubtful accounts as a
percentage of receivables was 3% as of September 30, 1999 and December 31, 1998.
Current liabilities increased approximately 13% to $5,099,000 as of September
30, 1999 from $4,502,000 as of December 31, 1998, reflecting the increase in
income taxes payable and accounts payable.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Net cash provided by operating activities increased to $3,746,000 for the nine
months ended September 30, 1999 from $3,140,000 for the nine months ended
September 30, 1998. This increase is primarily the result of increased earnings
during the nine-month period ended September 30, 1999. Net cash provided by
(used in) investing activities was $42,000 for the nine months ended September
30, 1999 compared to $(224,000) for the nine months ended September 30, 1998. At
September 30, 1999, the Company had no significant commitments to purchase
additional capital equipment. Net cash provided by financing activities of
$344,000 during the nine months ended September 30, 1999 primarily reflected
stock option proceeds. Net cash used in financing activities of $712,000 during
the nine months ended September 30, 1998 reflects repayments of debt under the
credit agreement netted with stock option proceeds.
The Company believes that inflation has not had a material impact on its
operations or liquidity to date.
YEAR 2000 READINESS
The Company believes the approach of the Year 2000 could have a material effect
on the Company's business, results of operations, and financial condition if it
were not able to avoid the related consequences. To mitigate these potential
consequences, the Company has identified the following areas as requiring
significant analysis: 1) manufactured products, 2) information technology
applications, 3) information technology end user supported applications, 4)
information technology infrastructure, 5) business partners - both vendors and
customers, 6) manufacturing equipment, 7) facility operations (non-information
technology systems). The Company has also identified five phases associated with
each area described above as follows: 1) awareness - educating all levels of the
Company about the importance of Year 2000 readiness; 2) assessment - identify
all electronic systems which are date-sensitive and assess which systems are not
Year 2000 ready; 3) renovation - develop a strategy to repair, replace or retire
the system; 4) validation - testing of changed programs and date files to ensure
they are Year 2000 ready; and 5) implementation - placing the renovated and
validated systems into everyday use. Currently, the Company is in the
implementation phase of its plan to prepare itself for the Year 2000. The
Company anticipates completion of this final phase by the end of November 1999.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Through September 30, 1999, the Company has incurred costs of approximately
$105,000 directly attributable to addressing Year 2000 issues. The following are
some of its most reasonably likely worst case Year 2000 scenarios the Company
has identified: 1) The Company's manufacturing operations consist primarily of
the assembly of products from components purchased from third parties. While
some parts are stock "off the shelf" components, others are manufactured to the
Company's specifications. Although the Company believes it has identified
alternative assembly contractors for most of its subassemblies, an actual change
in such contractors, as a result of an inability to work with such contractor
due to Year 2000 consequences they face, would likely require a period of
training and testing. Accordingly, an interruption in a supply relationship or
the production capacity of one or more of such contractors could result in the
Company's inability to deliver one or more products for a period of several
months. 2) The Company sells most of its manufactured systems through a limited
number of authorized distributor wholesalers, who in turn provide warehousing,
distribution, and credit to a network of authorized value added resellers. The
interruption of product flow to one or more of these distributors due to their
inability to process date sensitive information could result in lower than
normal sales revenues. To alleviate this decrease, the Company would redirect
these sales to the remaining distributors and/or sell directly to its value
added resellers.
NEW EUROPEAN CURRENCY
On January 1, 1999, eleven of the fifteen member countries of the European Union
established fixed conversion rates between their existing currencies and the
euro, a new European currency, and adopted the euro as their common legal
currency (the "Euro Conversion"). Either the euro or a participating country's
present currency will be accepted as legal tender from January 1, 1999 to
January 1, 2002, from which date forward only the euro will be accepted.
The Company has customers located in European Union countries participating in
the Euro Conversion. Such customers will likely have to upgrade or modify their
computer systems and software to comply with the euro requirements. The amount
of money the Company anticipates spending in connection with product development
related to the Euro Conversion is not expected to have a material adverse effect
on the Company's results of operations or financial condition. The Euro
Conversion may also have competitive implications for the Company's pricing and
marketing strategies, which could be material in nature; however, any such
impact is not known at this time.
The Company has also modified its internal systems (such as payroll, accounting
and financial reporting) to deal with the Euro Conversion. There is no
assurance, however, that all problems related to the Euro Conversion will be
foreseen and corrected, or that no material disruptions of the Company's
business will occur.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standard No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS No. 133), effective in 2001,
established new standards for recognizing all derivatives as either assets or
liabilities, and measuring those instruments at fair value. At the present time,
the Company does not anticipate that SFAS No. 133 will have a material impact on
its financial position or results of operations.
MARKET RISK DISCLOSURE
The Company does not invest in any derivative financial instruments. See the
Company's most recent annual report filed on form 10K (Item 7A.). There has been
no material change in this information.
14
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Not Applicable.
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
---------------------------------------------------
None.
Item 5. Other Information
-----------------
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
Exhibit No. 11.1 Calculation of Earnings Per Share.
Exhibit No. 27.1 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: November 11, 1999 By: /s/ Bernard P. Aldrich
--------------------- ----------------------
Bernard P. Aldrich
Director, Chief Executive Officer,
and President
(Principal Executive Officer)
(Principal Financial Officer)
Date: November 11, 1999 By: /s/ Robert M. Wolf
--------------------- ------------------
Robert M. Wolf
Controller
(Principal Accounting Officer)
16
EXHIBIT 11.1
RIMAGE CORPORATION AND SUBSIDIARIES
COMPUTATION OF NET EARNINGS PER SHARE OF COMMON STOCK
Basic net earnings per common share is determined by dividing net earnings by
the weighted average number of shares of common stock outstanding, unless the
result is anti-dilutive. Diluted net earnings per common share is determined by
dividing net earnings by the weighted average number of shares of common stock
and assumed conversion shares outstanding, unless the result is anti-dilutive.
The following is a summary of the weighted average common shares outstanding and
assumed conversion shares:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Shares outstanding at
beginning of period 5,050,084 4,739,807 4,936,088 4,636,953
Common stock issued in stock
option exercise 53,830 115,692 167,826 218,546
----------- ----------- ----------- -----------
Shares outstanding at
end of period 5,103,914 4,855,499 5,103,914 4,855,499
=========== =========== =========== ===========
Weighted average shares
of common stock outstanding 5,080,947 4,827,948 5,042,481 4,727,882
=========== =========== =========== ===========
Common stock equivalents 985,371 889,797 985,371 889,797
Weighted average shares of
assumed conversion shares 757,429 768,965 770,394 693,330
=========== =========== =========== ===========
Weighted average shares of
common stock and assumed
conversion shares 5,838,376 5,596,913 5,812,875 5,421,212
=========== =========== =========== ===========
Income from continuing operations $ 1,900,255 $ 2,357,104 $ 4,208,522 $ 4,472,923
=========== =========== =========== ===========
Income (loss) from discontinued
operations $ - $ (684,380) $ 489,494 $ (749,189)
=========== =========== =========== ===========
Income (loss) per basic share:
Continuing operations $ 0.37 $ 0.49 $ 0.83 $ 0.95
Discontinued operations - (0.14) 0.10 (0.16)
----------- ----------- ----------- -----------
Net income per basic share $ 0.37 $ 0.35 $ 0.93 $ 0.79
=========== =========== =========== ===========
Income (loss) per diluted share:
Continuing operations $ 0.33 $ 0.42 $ 0.72 $ 0.83
Discontinued operations - (0.12) 0.08 (0.14)
----------- ----------- ----------- -----------
Net income per diluted share $ 0.33 $ 0.30 $ 0.81 $ 0.69
=========== =========== =========== ===========
</TABLE>
17
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 11,419
<SECURITIES> 0
<RECEIVABLES> 7,099
<ALLOWANCES> 230
<INVENTORY> 2,221
<CURRENT-ASSETS> 21,282
<PP&E> 2,552
<DEPRECIATION> 1,845
<TOTAL-ASSETS> 22,159
<CURRENT-LIABILITIES> 5,099
<BONDS> 0
0
0
<COMMON> 51
<OTHER-SE> 17,008
<TOTAL-LIABILITY-AND-EQUITY> 22,159
<SALES> 26,069
<TOTAL-REVENUES> 26,069
<CGS> 12,916
<TOTAL-COSTS> 12,916
<OTHER-EXPENSES> 6,824
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,634
<INCOME-TAX> 2,425
<INCOME-CONTINUING> 4,209
<DISCONTINUED> 489
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,698
<EPS-BASIC> .93
<EPS-DILUTED> .81
</TABLE>
