CONFORMED
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
JUNE 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 August 6, 1999 - 5,072,084 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 QUARTER ENDED JUNE 30, 1999
Description Page
----------- ----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
June 30, 1999 (unaudited) and
December 31, 1998...................................... 3-4
Consolidated Statements of Operations
(unaudited) for the Three and Six Months
Ended June 30, 1999 and 1998............................. 5
Consolidated Statements of Cash Flows
(unaudited) for the Three and Six Months
Ended June 30, 1999 and 1998.......................... 6-7
Condensed Notes to Consolidated
Financial Statements (unaudited)....................... 8-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........ 10-15
PART II OTHER INFORMATION............................................ 16-18
Item 1-3. None
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. None
Item 6. Exhibits
SIGNATURES................................................................... 19
2
<PAGE>
RIMAGE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 1999 and December 31, 1998
<TABLE>
<CAPTION>
June 30, December 31,
Assets 1999 1998
- ---------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $11,568,355 7,349,521
Trade accounts receivable, net of allowance for doubtful
accounts and sales returns of $165,000 and $143,000,
respectively 5,146,047 4,772,337
Inventories 1,776,764 1,876,063
Interest receivable 43,412 --
Prepaid expenses and other current assets 159,091 90,667
Deferred income taxes 593,000 593,000
Net assets of discontinued operations 176,034 587,265
=============================================================================================
Total current assets 19,462,703 15,268,853
- ---------------------------------------------------------------------------------------------
Property and equipment, net 691,925 566,114
Goodwill, net of accumulated amortization of $377,286 in 1998 -- 767,977
Other noncurrent assets 210,023 67,427
- ---------------------------------------------------------------------------------------------
Total assets $20,364,651 16,670,371
=============================================================================================
</TABLE>
See accompanying condensed notes to consolidated financial statements
3
<PAGE>
<TABLE>
<CAPTION>
June 30, December 31,
Liabilities and Stockholders' Equity 1999 1998
- ----------------------------------------------------------------------------------------------------
(unaudited)
<S> <C> <C>
Current liabilities:
Trade accounts payable 1,717,536 1,883,100
Income taxes payable 1,234,232 236,728
Accrued compensation 897,389 871,729
Accrued other 765,314 797,545
Deferred income and customer deposits 811,524 712,982
- ----------------------------------------------------------------------------------------------------
Total current liabilities 5,425,995 4,502,084
- ----------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock, $.01 par value, authorized 10,000,000 shares,
issued and outstanding 5,050,084 and 4,936,088, respectively 50,500 49,361
Additional paid-in capital 11,740,044 11,545,485
Retained earnings 3,445,238 647,477
Accumulated other comprehensive income - foreign
currency translation adjustment (297,126) (74,036)
- ----------------------------------------------------------------------------------------------------
Total stockholders' equity 14,938,656 12,168,287
- ----------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 20,364,651 16,670,371
====================================================================================================
</TABLE>
4
<PAGE>
RIMAGE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 8,728,841 $ 6,601,674 $ 16,245,110 $ 12,733,257
Cost of revenues 4,611,652 3,101,684 8,277,216 6,029,197
- -----------------------------------------------------------------------------------------------------------------------
Gross profit 4,117,189 3,499,990 7,967,894 6,704,060
- -----------------------------------------------------------------------------------------------------------------------
Operating expenses:
Research and development 584,711 407,466 1,182,669 916,877
Selling, general and administrative 1,621,965 1,571,928 3,284,003 3,118,835
- -----------------------------------------------------------------------------------------------------------------------
Total operating expenses 2,206,676 1,979,394 4,466,672 4,035,712
- -----------------------------------------------------------------------------------------------------------------------
Operating income from continuing operations 1,910,513 1,520,596 3,501,222 2,668,348
- -----------------------------------------------------------------------------------------------------------------------
Other income (expense):
Interest, net 79,773 4,123 151,791 (38,526)
Gain (loss) on currency exchange 52,122 32,453 (18,496) 26,770
Other, net 25,413 (14,838) 30,304 (4,194)
- -----------------------------------------------------------------------------------------------------------------------
Total other income (expense), net 157,308 21,738 163,599 (15,950)
- -----------------------------------------------------------------------------------------------------------------------
Income from continuing operations
before income taxes 2,067,821 1,542,334 3,664,821 2,652,398
Income taxes 744,416 383,733 1,356,554 536,580
- -----------------------------------------------------------------------------------------------------------------------
Income from continuing operations 1,323,405 1,158,601 2,308,267 2,115,818
Discontinued operations:
Income (loss) from operations of discontinued
Services Division, net applicable income tax
expense (benefit) 75,375 (111,067) 186,045 (64,808)
Gain on disposal of Services Division, net
applicable income tax expense 303,449 -- 303,449 --
- -----------------------------------------------------------------------------------------------------------------------
Net income $ 1,702,229 $ 1,047,534 $ 2,797,761 $ 2,051,010
=======================================================================================================================
Income (loss) per basic share:
Continuing operations $ 0.26 $ 0.24 $ 0.46 $ 0.45
Discontinued operations 0.08 (0.02) 0.10 (0.01)
- -----------------------------------------------------------------------------------------------------------------------
Net income per basic share $ 0.34 $ 0.22 $ 0.56 $ 0.44
=======================================================================================================================
Income (loss) per diluted share:
Continuing operations $ 0.23 $ 0.21 $ 0.40 $ 0.39
Discontinued operations 0.06 (0.02) 0.08 (0.01)
- -----------------------------------------------------------------------------------------------------------------------
Net income per diluted share $ 0.29 $ 0.19 $ 0.48 $ 0.38
=======================================================================================================================
Basic weighted average shares outstanding 5,048,162 4,713,576 5,022,929 4,677,018
=======================================================================================================================
Diluted weighted average shares and
assumed conversion shares 5,788,746 5,429,184 5,800,592 5,358,843
=======================================================================================================================
</TABLE>
See accompanying condensed notes to the consolidated financial statements
5
<PAGE>
RIMAGE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
1999 1998
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 2,797,761 $ 2,051,010
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 305,971 238,800
Change in reserve for excess and obsolete inventories 91,406 76,291
Change in reserve for allowance for doubtful accounts 22,233 (142,185)
(Gain) loss on sale of property, plant, and equipment (27,489) --
Changes in operating assets and liabilities:
Trade accounts receivable (395,943) (654,414)
Inventories 7,893 (527,159)
Income tax receivable -- (2,370)
Interest receivable (43,412) --
Prepaid expenses and other current assets (76,487) 54,139
Net assets of discontinued operations 411,231 787,791
Trade accounts payable (165,564) 326,906
Accrued expenses (6,571) 271,787
Income taxes payable 997,504 --
Deferred income and customer deposits 98,542 49,548
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 4,017,075 2,530,144
- -----------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of property, plant, and equipment (295,996) (69,290)
Proceeds from the sale of property, equipment and intangibles 717,084 0
Other noncurrent assets (337,322) 60,374
Receipts from sales-type leases 8,063 58,207
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
investing activities 91,829 49,291
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
6
<PAGE>
RIMAGE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
Six months ended
June 30,
1999 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from financing activities:
Proceeds from stock option exercise 233,573 313,707
Cash payments to purchase treasury stock (37,875) --
Principal payments on capital lease obligation -- (14,616)
Repayment of other notes payable -- (450,000)
- --------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 195,698 (150,909)
- --------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash (85,768) (3,215)
- --------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 4,218,834 2,425,311
Cash and cash equivalents, beginning of period 7,349,521 762,394
- --------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 11,568,355 $ 3,187,705
========================================================================================================
Supplemental disclosures of net cash paid during the period for:
Interest $ -- $ 219,285
Income taxes $ 1,072,480 $ 495,050
</TABLE>
See accompanying condensed notes to the consolidated financial statements
7
<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.
(Continued)
8
<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 for a sales
price of approximately $2.1 million in cash, generating a
pre-tax gain of $912,000. Accordingly, the consolidated
financial statements of the Company have been reclassified to
report separately the operating results of this discontinued
division. Revenues of the Services Division were $2,322,000
and $5,757,000 for the six months ended June 30, 1999 and
1998, respectively and $1,186,000 and $2,240,000 for the three
months ended June 30, 1999 and 1998, respectively.
(3) INVENTORIES
Inventories consist of the following as of:
June 30, December 31,
1999 1998
(unaudited)
- ----------------------------------------------------------------------
Finished goods and demonstration equipment $ 861,580 $ 899,290
Work-in-process 123,281 162,943
Purchased parts and subassemblies 791,903 813,830
- ----------------------------------------------------------------------
$1,776,764 $1,876,063
======================================================================
(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 six months ended June 30,
1999 and 1998, comprehensive income would be $223,090 less
than reported net income and $25,597 more than reported net
income, respectively, due to foreign currency translation
adjustments.
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.
Three months ended Six months ended
June 30, June 30,
--------------- ---------------
% %
1999 1998 Change 1999 1998 Change
----------------------------------------------------------
Revenues $ 8,729 $ 6,602 32.2% $16,245 $12,733 27.6%
======= ======= ======= =======
Cost of Revenues 4,612 3,102 48.7 8,277 6,029 37.3
======= ======= ======= =======
Operating Expenses 2,207 1,979 11.5 4,467 4,036 10.7
======= ======= ======= =======
Operating Earnings 1,910 1,521 25.6 3,501 2,668 31.2
======= ======= ======= =======
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.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
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 32.2% from $6.6 million
during the second quarter of 1998 to $8.7 million during the second quarter of
1999. The Company continued to intensify its focus on the development of
hardware and software for publishing, duplication and network applications
related to the CD-Recordable (CD-R) market with the introduction of the Producer
2000 line which incorporates 8x recording, color printing and enhanced robotics
and software.
For the six months ended June 30, 1999, revenues from continuing operations of
$16.2 million represented a 27.6% increase as compared to revenues from
continuing operations of $12.7 million during the same period in 1998. This
increase is primarily a result of continued increasing demand of CD-R related
products. The Company continued to add to its worldwide distribution network,
which now encompasses 135 channel partners.
As of and for the six months ended June 30, 1999, foreign revenues from
unaffiliated customers, operating earnings, and net identifiable assets were
$5,046,000, $769,000 and $3,373,000, respectively. As of and for the six months
ended June 30, 1998, foreign revenues from unaffiliated customers, operating
earnings, and net identifiable assets were $3,786,000, $542,000, and $2,638,000,
respectively. The growth is due to increasing penetration in the European
markets of sales of CD-R products.
GROSS PROFIT. Gross profit as a percent of revenues from continuing operations
during the second quarter of 1999 was 47.2% compared to 53.0% during the same
period of 1998. The decrease was due to the Producer 2000 product transition
from a 4x recorder to an 8x recorder as well as a shift in product mix including
stronger sales of lower margin consumables such as media.
Gross profit as a percent of revenues from continuing operations during the six
month period ended June 30, 1999 was 49.0% compared to 52.7% during the same
period of 1998. This decrease is a result of product mix changes.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
OPERATING EXPENSE. Operating expense from continuing operations during the
second quarter of 1999 was $2.2 million, or 25.3% of revenues from continuing
operations compared to $2.0 million, or 30.0% of revenues from continuing
operations, during the second quarter of 1998. The decrease in percentage was
primarily a result of increased sales coupled with a decrease in general and
administrative expense attributable to proceeds from a legal settlement during
the second quarter of 1999. Research and development expense as a percent of
revenues from continuing operations increased to 6.7% during the second quarter
of 1999 compared to 6.2% during the same period of 1998. This increase is in
line with the Company's objective to continue to direct more resources to
research and development activities.
Operating expense from continuing operations during the six month period ended
June 30, 1999 was $4.5 million, or 27.5% of revenues from continuing operations
compared to $4.0 million, or 31.7% of revenues from continuing operations,
during the same period of 1998. The decrease in percentage was primarily a
result of increased sales during the six month period ended June 30, 1999.
OTHER INCOME/(EXPENSE). During June 1998, the Company repaid the outstanding
balance of its Term Note with the bank. 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 from continuing operations of $80,000 during the second quarter of 1999
and $152,000 during the six month period ended June 30, 1999 on cash
investments. Net interest income (expense) totaled $4,000 and $(39,000) during
the second quarter of 1998 and the six month period ended June 30, 1998,
respectively.
INCOME TAXES. The provision for income taxes represents federal, state, and
foreign income taxes on earnings before income taxes. Income tax expense for the
second quarter of 1999 amounted to $1,395,000 which included tax expense of
$42,000 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 $744,000 related to the Company's continuing operations.
Income tax expense for the second quarter of 1998 amounted to $347,000 which
included an income tax benefit of $37,000 related to the operations of the
discontinued Services Division and tax expense of $384,000 related to the
Company's continuing operations. Net earnings, excluding the one-time gain from
the disposal of the Services Division, are reflected at a fully taxed rate of
38% for the second quarter of 1999 compared to 25% for 1998. This is due to the
reversal of the valuation allowance during 1998 since, with the continued
earnings, management has determined it more likely than not the deferred tax
asset will be realized.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Income tax expense for the six month period ended June 30, 1999 amounted to
$2,070,000 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 $1,356,000 related
to the Company's continuing operations. Income tax expense for the six month
period ended June 30, 1998 amounted to $520,000 which included an income tax
benefit of $16,000 related to the operations of the discontinued Services
Division and tax expense of $536,000 related to the Company's continuing
operations.
INCOME FROM CONTINUING OPERATIONS. 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 to increase to $1.3 million in the second quarter of 1999 and to $2.3
million for the six month period ended June 30, 1999.
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 $19,463,000 as of June 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 June 30, 1999 and December 31, 1998. Current
liabilities increased approximately 21% to $5,426,000 as of June 30, 1999 from
$4,502,000 as of December 31, 1998, reflecting the increase in income taxes
payable netted with normal reductions in accounts payable.
Net cash provided by operating activities increased to $4,017,000 for the six
months ended June 30, 1999 from $2,530,000 for the six months ended June 30,
1998. This increase is the result of increased earnings during the six month
period ended June 30, 1999 combined with an increase in income taxes payable.
Net cash provided by investing activities was $92,000 for the six months ended
June 30, 1999 compared to $49,000 for the six months ended June 30, 1998. At
June 30, 1999, the Company had no significant commitments to purchase additional
capital equipment. Net cash provided by financing activities of $196,000 during
the six months ended June 30, 1999 primarily reflected stock option proceeds.
Net cash used in financing activities of $151,000 during the six months ended
June 30, 1998 principally reflect repayments of debt under the credit agreement.
The Company believes that inflation has not had a material impact on its
operations or liquidity to date.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
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 renovation
and validation phases of its plan to prepare itself for the Year 2000. The
Company anticipates completion of its final phase (the Implementation phase) by
the end of September 1999.
Through June 30, 1999, the Company has incurred costs of approximately $105,000
directly attributable to addressing Year 2000 issues. The Company estimates the
remaining costs that will be incurred in connection with its analysis of Year
2000 issues to be approximately $5,000. 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.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
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.
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.
15
<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
The Company's Annual Meeting of Stockholders' was held on May 19,
1999. The following members were elected to the Company's Board of
Directors to hold office for the ensuing year:
Nominee In Favor Withheld
------- -------- --------
Bernard Aldrich 4,006,331 11,087
Ronald Fletcher 4,006,331 11,087
George Kline 4,006,331 11,087
Richard McNamara 4,006,331 11,087
James Reissner 4,006,331 11,087
David Suden 4,006,331 11,087
The results of the voting on the following additional items were as
follows:
(a) Ratification of the selection of KPMG as independent
accountants to audit the consolidated financial
statements of Rimage Corporation for the year ending
December 31, 1999. The votes of the stockholders on this
ratification were as follows:
In Favor Opposed Abstained Broker Non-Vote
-------- ------- --------- ---------------
4,004,918 525 11,975 -0-
16
<PAGE>
Item 5. Other Information
Not Applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit No. 10.1 Asset Purchase Agreement dated as
of June 30, 1999 by and between
Rimage and ADS
Exhibit No. 11.1 Calculation of Earnings Per
Share.
Exhibit No. 27.1 Financial Data Schedule
(b) Reports on Form 8-K:
Filed July 9, 1999. Reported the disposition of
inventory, fixed assets and intangible assets of its
Boulder, Colorado based Services Division.
17
<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 13, 1999 By: /s/ Bernard P. Aldrich
------------------- ----------------------
Bernard P. Aldrich
Director, Chief Executive Officer,
and President
(Principal Executive Officer)
(Principal Financial Officer)
Date: August 13, 1999 By: /s/ Robert M. Wolf
------------------- ------------------
Robert M. Wolf
Controller
(Principal Accounting Officer)
18
EXHIBIT 10.1
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is dated as of June 30, 1999, by and
between A/G SYSTEMS, INC., dba DUPLICATION TECHNOLOGY, a corporation organized
under the laws of the State of Colorado ("Seller"), located at 7725 Washington
Avenue South, Minneapolis, Minnesota 55439, and ADVANCED DUPLICATION SERVICES,
INC., a Minnesota corporation, located at 2155 Niagara Lane North, Suite 120,
Plymouth, Minnesota 55447 ("Buyer").
RECITALS
1. Seller is in the business of providing software
duplication services specializing in custom media
duplication and turnkey services, using certain
equipment located at the Seller's manufacturing facility
in Boulder, Colorado (the "Boulder Facility");
2. Buyer is in the business of manufacturing and
replicating CD-ROMs, among other businesses;
3. Buyer desires to purchase from Seller certain assets
located at the Boulder Facility; and
4. Seller desires to sell such assets to Buyer.
WITNESSETH:
In consideration of the mutual covenants and agreements,
representations and warranties hereinafter set forth, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I. PURCHASE AND SALE OF ASSETS
1.0 Assets to be Purchased. At Closing (as hereinafter defined)
subject to the terms and conditions of this Agreement, Seller shall sell to
Buyer, and Buyer shall purchase from Seller, all or substantially all of
Seller's assets utilized in the operation of Seller's Boulder Facility (the
"Business"), free and clear of all liens, encumbrances, and charges (the
"Assets"), which Assets shall include without limitation the following:
(a) all inventory owned, used or held for use with
respect to Seller's Business, including parts, materials, packaging,
works in progress and finished goods located at Seller's Boulder
Facility at the close of business on the date of Closing, as
hereinafter defined on the attached Schedule 1(a) (the "Inventory");
(b) all of Seller's right, title and interest in and to
those certain fixed assets that are described on the attached
Schedule 1(b) (the "Fixed Assets");
(c) all of Seller's right, title and interest in and to
any and all licenses and permits, to the extent assignable, whether
state, federal, county, municipal, or otherwise
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material to the operation of the Boulder Facility, leases, equipment
warranties, maintenance contracts, service contacts and other
commitments as may be assumed in writing by Buyer or as set forth on
the attached Schedule 1(c); and
(d) all of Seller's right, title and interest in and to
the general intangibles and goodwill associated with the operation
of the Assets at Seller's Boulder Facility, including all telephone
numbers used by Seller at the Boulder Facility, access to certain
books and records of Seller which pertain to the Boulder Facility
Business, including sales, customer lists and suppliers, paid
invoices, repair orders, employee records for the last three years,
yellow page advertising (subject to Section 12.1), copies of pending
sales orders, work in process and all other documents associated
with the Boulder Business (the "Company Records").
1.1 Assets Not Included. Buyer shall not acquire title to any assets
other than those that are expressly stated herein. Buyer acknowledges it will
not acquire any interest in Seller's accounts receivable, cash, or cash
equivalents.
1.2 Nonassumption of Liabilities.
(a) Generally. In no event will Buyer assume any
liability or obligation of any nature whatsoever, contractual or
otherwise, of Seller by reason of this Agreement, or any of the
transactions contemplated hereby, including but not limited to any
obligations or liability to employees, officers, or agents of Seller
or to pension or profit sharing plans or other entities for their
benefit (welfare plans, deferred compensation arrangements, sick
leave, payroll taxes and other employee benefits), any and all
obligations or liabilities of Seller to pay taxes (including sales
taxes, income taxes, withholding taxes, unemployment compensation,
worker's compensation or other taxes), any undisclosed contracts of
Seller, including but not limited to, collective bargaining
agreements and multi employer pension liabilities.
(b) Seller Warranties on Products. In the event Seller
has provided customers with certain warranties on Seller's products
sold by Seller, the parties agree that it is in the best interests
of both parties that Buyer honor such warranties. Buyer agrees that
in the event it performs warranty work for customers of Seller, it
shall perform such warranty services and repairs in compliance with
the terms of Seller's written warranties in accordance with this
Section. Seller agrees to reimburse Buyer for such written warranty
work for a period of twelve (12) months from the Date of Closing,
provided, however, Buyer must notify Seller and receive Seller's
approval within three (3) business days of Seller receiving Buyers
notice prior to beginning any such written warranty work, but such
approval shall not be unreasonably withheld. Seller shall reimburse
Buyer within thirty (30) days of receipt of Buyer's invoice for the
costs incurred for performing said warranty work. All warranty work
and repair reimbursement requests must be supported by
documentation.
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ARTICLE II. PURCHASE PRICE
2.0 Purchase Price. The agreed-upon Purchase Price for the Assets
shall be two million fifty thousand dollars ($2,050,000), subject to the
adjustment provided for in Section 2.2, which shall be payable by cashiers check
or wire transfer of same-day funds at Closing.
2.1 Allocation. The parties shall determine the allocation of the
Purchase Price among the Assets being purchased hereunder, shall report this
transaction for tax purposes in accordance with such mutually agreed-upon
allocation and shall execute IRS Form 8594 reflecting the same at Closing. The
total Purchase Price allocation shall be adjusted in accordance with the
Purchase Price adjustment below.
2.2 Purchase Price Adjustment. Part of the Purchase Price is based
upon the value of the inventory listed on Schedule 1(a) attached. The parties
agree to adjust the Purchase Price on or before the Closing Date to reflect an
adjusted Closing Date value of the inventory as follows:
The parties shall conduct an inspection of the inventory on or before the
Closing Date. The Purchase Price shall be adjusted up or down to correct for the
actual value, at Buyer's or Seller's cost, if the difference between the actual
value of inventory on the Closing Date and the value of inventory on the above
schedule is more than twenty thousand dollars ($20,000). If the difference, as
defined above, is less than twenty thousand dollars ($20,000), there will be no
adjustment to the Purchase Price.
ARTICLE III. CLOSING
3.0 Closing. The effective date of the Closing shall be June 30,
1999, at such time as the parties may mutually agree to, at 7725 Washington
Avenue South, Minneapolis, Minnesota or at such other location as the parties
may agree to.
3.1 Seller's Obligations at Closing. At Closing, Seller shall
deliver or cause to be delivered to Buyer:
(a) a bill of sale in the form attached hereto and
incorporated herein as Schedule 3.1(a) with respect to the Fixed
Assets and the Inventory, properly executed and acknowledged;
(b) an assignment and assumption agreement in the form
set forth in Schedule 3.1(b) hereto, properly executed with respect
to any intangible Assets and any and all leases and other agreements
as identified in Schedule 1(c); and
(c) such other documents as Buyer may reasonably request
to carry out the transactions contemplated in this Agreement.
(d) originals or copies of relevant Company records;
(e) assignment of customer contracts;
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(f) a Uniform Commercial Code security interest and tax
lien search from the State of Colorado, dated within fifteen (15)
days of the Closing Date, with an update as of the Closing Date,
showing that there are no security interests, judgments, taxes,
other liens or encumbrances outstanding against the Assets other
than those disclosed on Schedule 3.1 and agreed to by Buyer;
(g) assignments of all licenses and permits which can be
assigned and which are material to the operation of the Boulder
Facility;
(h) certified copy of a Certificate of Organization
and/or Good Standing Certificate for Seller and certified copies of
corporate resolutions of Seller, authorizing it to enter into the
Agreement and to consummate the transactions contemplated herein;
3.2 Buyer's Obligations at Closing. At the Closing, Buyer shall
deliver or cause to be delivered to Seller such documents as Seller may
reasonably request to carry out the transactions contemplated in this Agreement.
ARTICLE IV PRORATIONS
4.0 Operating Costs. All operating costs of the Business shall be
allocated so that Seller pays that part of such operating costs properly
allocable to periods before the Closing Date, and Buyer pays that part of such
operating costs attributable to periods on and after the Closing Date.
ARTICLE V. REPRESENTATIONS AND WARRANTIES OF SELLER
Except as otherwise disclosed to Buyer, Seller represents and
warrants to Buyer as follows:
5.0 Status. Seller is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Colorado and has
full power and authority to own its property and to carry on its Business as it
has been and is currently conducted. Seller has full power and authority to
enter into this Agreement and to consummate the transactions contemplated
herein.
5.1 Corporate Action. All necessary corporate action has been duly
taken by the Board of Directors in order to authorize the execution and
consummation of this Agreement. Upon execution hereof by Buyer, this Agreement
shall be the legal, valid and binding obligation of Seller enforceable in
accordance with its terms.
5.2 Restrictions. There have been no written notices of violation of
any applicable law, order, ordinance, rule, regulation or requirement, or of any
covenant, condition or restriction affecting or relating in a materially adverse
manner to the use of the Assets issued by any governmental agency.
5.3 Title to Assets. Seller is the owner of the Assets and has good
and marketable title to all of the Assets to be transferred hereunder, free and
clear of all liens, liabilities, encumbrances, security interests, charges,
imperfections of title, or restrictions of any kind or nature whatsoever, and on
the Closing Date, Buyer shall receive good and marketable title to
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all of such Assets free and clear of any liens, liabilities, encumbrances,
security interests, charges, imperfections of title, or restrictions of any
material kind or nature whatsoever.
5.4 Litigation. There is no claim, suit, action or other proceeding
which is pending or threatened before any court or other governmental agency, or
to the knowledge of Seller, threatened, which might materially affect the Assets
or Business of Seller or in which it is sought to restrain or prohibit the
consummation of the transaction herein contemplated.
5.5 Compliance with Law. Seller has complied with and, to the best
of Seller's knowledge, is not in violation of applicable federal, state or local
statutes, laws or regulations materially affecting the Assets or the operation
of the Business as now conducted by Seller.
5.6 Taxes. Seller has filed or will properly file when due, with the
appropriate governmental agencies, all tax returns required to be filed by it
and has paid or made provisions for the payment of all taxes which have or may
become due, pursuant to said return or pursuant to any assessment received by
Seller, except such taxes, if any, as are being contested in good faith and to
which adequate reserves have been provided. All Federal and State income, sales,
use, excise or other taxes due in connection with the Business of Seller being
purchased herein have been duly paid or shall be fully paid as of the Closing
Date or thereafter when due, except for the 1999 calendar year Colorado personal
property tax liability, which amount will be prorated based upon the closing
date of this agreement. To the knowledge of Seller, Seller is not now being
audited by the Internal Revenue Service.
5.7 Compliance with Environmental Laws. Except as disclosed in
Schedule 5(a), Seller has materially complied with, and is presently in material
compliance with, all Environmental Laws (as hereinafter defined), except for
such minor noncompliances which do not materially affect the Business. Except as
disclosed on Schedule 5(a), no party is currently asserting that Seller has
violated any Environmental Laws. Specifically and without limiting the
generality of the foregoing, except as disclosed on Schedule 5(a):
(a) Except as allowed under applicable laws and
regulations, including, without limitation, Environmental Laws,
Seller has not accepted, processed, handled, transferred, generated,
treated, stored or disposed of any Hazardous Material (as defined in
Section (f) below). Notwithstanding the foregoing, Seller makes no
representation or warranty of any kind with respect to third parties
or the activities of third parties who have accepted, processed,
handled, transferred, generated, treated, stored or disposed of any
Hazardous Materials for Seller; without limiting the generality of
the foregoing, Seller makes no representation or warranty of any
kind with respect to such third parties' compliance with
Environmental Laws; provided, however, that notwithstanding the
foregoing clauses, the representation will nevertheless apply in the
event that Buyer has any Losses directly resulting from Seller's
contractual agreements or relationships with such third parties.
(b) No Hazardous Material, other than that allowed under
applicable laws and regulations, including, without limitation,
Environmental Laws, has been disposed of, stored, maintained or
otherwise related on real property leased by Seller at 4601 Nautilus
Court South, Boulder, Colorado, during Seller's lease of such real
property (the "Leased Premises").
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(c) Seller has never been subject to nor received any
notice of, any private, administrative or judicial action, or notice
of any intended private, administrative or judicial action relating
to the presence or alleged presence of Hazardous Material in, under,
upon or emanating from the Leased Premises. There are no pending or
threatened actions or proceedings from any governmental agency or
any other entity involving remediation of any condition on the
Leased Premises, including, without limitation, petroleum
contamination, pursuant to Environmental Laws.
(d) Except as allowed under applicable laws and
regulations, including, without limitation, Environmental Laws,
Seller has not knowingly sent, transported or arranged for the
transportation or disposal of any Hazardous Waste, to any site,
location or facility. Notwithstanding the foregoing, Seller makes no
representation or warranty of any kind with respect to third parties
or the activities of third parties who have accepted, processed,
handled, transferred, generated, treated, stored or disposed of any
Hazardous Materials for Seller; without limiting the generality of
the foregoing, Seller makes no representation or warranty of any
kind with respect to such third parties' compliance with
Environmental Laws; provided, however, that notwithstanding the
foregoing clauses, the representation will nevertheless apply in the
event that Buyer has any Losses resulting from Seller's agreements
or relationships with such third parties.
(e) As used in this Agreement, "Environmental Laws"
means all federal, state and local laws, ordinances, rules,
regulations, governmental permits, orders, judgments, awards,
decrees, consent judgments, consent orders and requirements
applicable to Seller relating to the public health, safety or
protection of the environment, including, without limitation, the
federal Resource Conservation Recovery Act, 41 USC ss.6901et seq.
("RCRA").
(f) As used in this Agreement, "Hazardous Material"
shall mean the substances (i) defined as "Hazardous Waste" in 40 CFR
261, and substances defined in any comparable Colorado statute or
regulations, (ii) any substance, the presence of which, requires
remediation pursuant to any Environmental Laws; and (iii) any
substance disposed of in a manner not in compliance with
Environmental Laws.
(g) To Seller's knowledge, Schedule 5(b) contains a
complete listing (including addresses) of all the waste haulers,
landfills, hazardous waste recycling and hazardous waste disposal
companies used by Seller to dispose of or recycle such hazardous
waste since the start of its Business.
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ARTICLE VI. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller as follows:
6.0 Organization and Status. Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Minnesota
and has the full power and authority to own its property. Buyer is qualified and
in good standing to do business as a foreign corporation within the states in
which it is currently doing business.
6.1 Corporate Authority. Buyer has duly approved the Agreement and
the performance of the obligations contemplated herein and has authorized the
execution and delivery hereof by a duly elected and acting officer. No further
corporate action on the part of Buyer is required for approval of this Agreement
and authorization of the transaction contemplated herein. Upon execution hereof
by Seller, this Agreement shall be the legal, valid and binding obligation of
Buyer, enforceable in accordance with its terms.
6.2 Brokers. Buyer knows of no brokerage or finder's fees or
commissions that will be payable in connection with its purchase of the Assets
hereunder, and if any such fees or commissions are claimed or payable as the
result of any other party's claimed representation of Buyer or Seller, any such
fees or commissions shall be the sole responsibility of Buyer or Seller, as the
case may be.
ARTICLE VII. CONDITIONS PRECEDENT TO BUYER'S PERFORMANCE
The obligations of Buyer under this Agreement are subject to the
satisfaction, at or before the Closing, of all the conditions set out below in
this Article VII. Buyer may waive any or all of these conditions in whole or in
part without prior notice; provided, however, that no such waiver of a condition
shall constitute a waiver by Buyer of any of its other rights or remedies, at
law or in equity, if Seller is in default of any of its representations,
warranties or covenants under this Agreement.
7.0 Accuracy of Representations and Warranties. All representations
and warranties by Seller in this Agreement or in any written statement that
shall be delivered to Buyer under this Agreement shall be true on and as of the
Closing Date as though made at that time.
7.1 Seller's Performance. Seller shall have performed, satisfied and
complied with all covenants, agreements and conditions required by this
Agreement to be performed or complied with by it.
7.2 No Litigation. No action, suit or proceeding before any court or
any governmental body or authority, pertaining to the transaction contemplated
by this Agreement or to its consummation, shall have been instituted on or
before the Closing Date.
7.3 UCC Searches. Buyer shall have obtained for review and approval
UCC searches from the office of the Colorado Secretary of State as required
under the terms of this Agreement.
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7.4 Transfer of Personal Property Warranties. Seller shall assign
and transfer to Buyer all available equipment manufacturer warranties still in
effect on the Closing Date of all personal property being purchased by Buyer, if
any.
7.5 Buyer shall have received and approved landlord estoppel letter
regarding the lease being assigned to Buyer and the written consent of landlord
to the assignment.
7.6 Buyer shall have inspected the Assets on or before the Closing
Date and determined that they are in good condition and that the Fixed Assets
are in good working order.
ARTICLE VIII. CONDITIONS PRECEDENT TO SELLER'S PERFORMANCE
The obligations of Seller under this Agreement are subject to the
satisfaction, at or before the Closing, of all the conditions set out below in
this Article. Seller may waive any or all of these conditions in whole or in
part without prior notice; provided, however, that no such waiver of a condition
shall constitute a waiver by Seller of any of its other rights or remedies, at
law or in equity, if Buyer is in default of any of its representations,
warranties or covenants under this Agreement.
8.0 Accuracy of Representations and Warranties. All representations
and warranties by Buyer contained in this Agreement or in any written statement
delivered by Buyer under this Agreement shall be true on and as of the Closing
Date as though such representations and warranties were made on and as of that
date.
8.1 Buyer's Performance. Buyer shall have performed and complied
with all covenants and agreements, and satisfied all conditions that it is
required by this Agreement to perform, comply with or satisfy, before or on the
Closing Date.
8.2 No Litigation. No action, suit or proceeding before any court or
any governmental body or authority, pertaining to the transaction contemplated
by this Agreement or to its consummation, shall have been instituted on or
before the Closing Date.
ARTICLE IX. CONDITION OF ASSETS
9.0 EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED HEREIN, THE ASSETS ARE
SOLD "AS IS, WHERE IS" WITH NO WARRANTIES OF MERCHANTABILITY OR PHYSICAL
CONDITION EXPRESSED OR IMPLIED EXCEPT FOR EQUIPMENT WARRANTIES ASSIGNED BY
BUYER. BUYER ACKNOWLEDGES THAT IT HAS HAD THE OPPORTUNITY TO INSPECT THE ASSETS
AND THAT AN OFFICER OR REPRESENTATIVE OF BUYER HAS BEEN ABLE TO ASK QUESTIONS OF
SELLER'S EMPLOYEES AND OFFICERS.
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ARTICLE X. INDEMNIFICATION
10.0 Indemnity by Seller. Seller hereby agrees to indemnify and
defend and hold Buyer harmless from any and all claims, demands, obligations,
losses, liabilities, damages, recoveries and deficiencies ("Liabilities"),
including interest, penalties and reasonable attorneys' fees, costs and
expenses, which Buyer may suffer as a result of any misrepresentations or breach
of any of the warranties of Seller herein or given pursuant hereto, or any
default by Seller in the performance of any of its commitments, covenants or
obligations under this Agreement, or for any Liabilities which may arise from
operation or ownership of the Assets by Seller prior to the Closing Date. The
rights of Buyer under this Section are without prejudice to any other remedies
not inconsistent herewith which Buyer may have against Seller.
10.1 Indemnity by Buyer. Buyer hereby agrees to indemnify, defend
and hold Seller harmless from any and all Liabilities including interest,
penalties and reasonable attorneys' fees, costs and expenses which Seller may
suffer as a result of any misrepresentations or breach of any of the warranties
of Buyer herein or given pursuant hereto, or any default of Buyer in the
performance of any of its respective commitments, covenants or obligations under
this Agreement, or for any Liabilities which may arise from operation or
ownership of the Assets by Buyer from and after the Closing Date. The rights of
Seller under this Section are without prejudice to any other remedies not
inconsistent herewith which it may have against Buyer.
10.2 Defense of Claims. If a claim for Liabilities is to be made by
a party entitled to indemnification hereunder against the indemnifying party,
the party entitled to such indemnification shall give written notice to the
indemnifying party as soon as practical after the party entitled to
indemnification becomes aware of any fact, condition or event that may give rise
to Liabilities for which indemnification may be sought under this Article X.
10.3 Contested Claims. In the event a party hereto is notified of an
indemnity claim by the other party hereto, the party receiving such notice (the
"Receiving Party") shall be entitled to defend, compromise, or otherwise contest
the claim for Liabilities at its own cost and expense. The party hereto giving
such notice shall have the right, but not the obligation, and at its own
expense, to participate in the defense the of Liability with counsel of its own
choosing. The Receiving Party shall control all matters of the defense of the
Liability including compromise thereof until relieved of its indemnification
liability under this Agreement by the other party. In the event of a Liability
claim, the parties shall cooperate with one another in good faith in order to
effectuate the intent of Section 10.2 and this Section 10.3.
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ARTICLE XI. COVENANTS OF SELLER
11.0 Seller's Obligations. Seller shall assume and pay in a timely
manner all accounts payable for supplies received at the Boulder Facility prior
to the Closing Date, and for all other goods and services delivered, rendered or
performed prior to the Closing Date.
11.1 Ordinary Course. Prior to the Closing, Seller shall continue to
operate the Business consistently with historical practices and operations, and
shall take no action, including, but not limited to selling any Assets, not in
the ordinary course of business.
ARTICLE XII. COVENANTS OF BUYER
12.0 Nonaffiliation. Buyer shall not take any action that could
reasonably be anticipated to imply, or cause any customer or other person to
believe, that following the Closing, Seller will continue to be the owner of, or
affiliated with, the Business. Notwithstanding the temporary use by Buyer of
manuals and software containing the Rimage name, Buyer and its employees and
agents shall neither misrepresent Buyer's relationship to Seller nor say or do
anything that would create or fail to dispel any belief that Buyer is affiliated
with Seller.
12.1 Removal of Name. Buyer shall use its best efforts as soon as
practicable after the Closing to remove the name Rimage used in connection with
the Assets and to eliminate the name Rimage and the Rimage logo from each and
every instance of such use and from any other transferred assets, tangible or
intangible, that may carry or be imprinted with the Rimage name or logo.
ARTICLE XIII. MISCELLANEOUS
13.0 Survival of Representations. All statements contained in any
certificate or other instrument delivered by or on behalf of Buyer or Seller
pursuant hereto shall be deemed representations and warranties by Buyer and
Seller respectively hereunder. Except as otherwise provided herein, all
representations, warranties, covenants and agreements made by Buyer or Seller
shall survive the Closing.
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13.1 Arbitration. All disputes or claims arising out of, or in any
way relating to this Agreement, shall be submitted to and determined by final
and binding arbitration under the rules of the American Arbitration Association.
Arbitration proceedings may be initiated by any party hereto or to the Agreement
upon notice to the other parties and to the American Arbitration Association and
shall be conducted by three arbitrators under the rules of the American
Arbitration Association in Minneapolis, Minnesota; provided, however, that the
parties may agree following the giving of such notice to have the arbitration
proceedings conducted by a single arbitrator. The notice must specify in general
the issues to be resolved in any such arbitration proceeding. The arbitrators
shall be selected by agreement of the parties to the arbitration proceeding from
a list of five or more arbitrators proposed to the party by the American
Arbitration Association or may be persons not on such list as agreed to by the
parties to such arbitration. If the parties to the arbitration proceeding fail
to agree on one or more of the persons to serve as arbitrators within fifteen
days after delivery to each party hereto of the list as proposed by the American
Arbitration Association, then at the request of any party to such proceeding,
such arbitrators shall be selected at the discretion of the American Arbitration
Association. Where the arbitrators shall determine that an arbitration
proceeding was commenced by a party frivolously or without a basis, or primarily
for the purpose of harassment or delay, the arbitrators may assess such party
the cost of such proceedings including reasonable attorneys' fees of any other
party. In all other cases, each party to the arbitration proceeding shall bear
its own costs and its pro-rata share of the fees and expenses charged by the
arbitrators and the American Arbitration Association in connection with any
arbitration proceeding.
13.2 Expenses. Each of the parties shall pay all costs and expenses
incurred or to be incurred by it in negotiating and preparing this Agreement and
in closing and carrying out the transactions contemplated herein, including its
counsel and accountants, even if the transactions contemplated herein are not
consummated for any reason. Buyer shall pay all sales or transfer costs, if any,
imposed for the sale/purchase of the Assets.
13.3 Assignment. Neither this Agreement nor the rights, duties or
obligations arising hereunder shall be assignable or delegable by either party
without the express prior written consent of the other. All the terms and
provisions of this Agreement shall be binding upon and inure to the benefit of
and be enforceable by Buyer and Seller and their respective permitted successors
and assigns.
13.4 Parties in Interest. Nothing in this Agreement, whether express
or implied, is intended to confer any rights or remedies under or by reason of
this Agreement on any persons other than Buyer and Seller and their respective
permitted successors and assigns, nor is anything in this Agreement intended to
relieve or discharge the obligation or liability of any third persons to any
party to this Agreement, nor shall any provisions give any third persons any
right of subrogation or action over or against any party to this Agreement.
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13.5 Notices. To be effective, all notices or other communications
required or permitted hereunder shall be in writing. A written notice or other
communication shall be deemed to have been given hereunder (i) if delivered by
hand, when all other parties to this Agreement receive such notice or other
communication from the notifying party, (ii) if delivered by telecopies or
timely delivered to the overnight courier, when so sent or delivered or (iii) if
delivered by mail, on the third business day following the date such notice or
other communication is deposited in the U.S. Mail for delivery by certified or
registered mail addressed to the other party or when actually received,
whichever occurs earlier. Mailed or telecopied communications shall be directed
as follows unless written notice of the change of address or telecopies number
has been given in writing in accordance with this paragraph:
To Purchaser: Mr. Michael Bernstein, CEO
Advanced Duplication Services, Inc.
2155 Niagara Lane North, Suite 120
Plymouth, Minnesota 55447
To Seller: Mr. Bernard P. Aldrich
President
Rimage Corporation
7725 Washington Avenue South
Minneapolis, Minnesota 55439
Fax Number: (612) 944-7808
Copy to: Mr. James L. Reissner
Activar, Inc.
7808 Creek Ridge Circle, Suite 200
Minneapolis, Minnesota 55439
Fax Number: (612) 941-4781
13.6 Applicable Law. This Agreement shall be governed, construed,
and enforced in accordance with the laws of the State of Minnesota.
13.7 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
13.8 Entire Agreement; Modification; Waiver. This Agreement, with
the Schedules hereto, constitutes the entire agreement between Seller, on the
one hand, and Buyer, on the other, pertaining to the subject matter contained in
it and supersedes all prior agreements, representations and all understandings
of the parties. No supplement, modification or amendment of this Agreement shall
be binding unless expressed as such and executed in writing by Buyer and Seller.
No waiver of any of the provisions of this Agreement shall be deemed to be or
shall constitute waiver of any other provisions hereof, whether or not similar,
nor shall any such waiver constitute a continuing waiver. No waiver shall be
binding unless expressed as such in a document executed by the party making the
waiver.
13.9 Copies. To the extent necessary for Seller's tax and legal
recordkeeping and reporting purposes, Seller may make and retain copies, at its
expense, of production records, lists of suppliers, sales reports and
advertising materials that pertain to the Business as
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conducted by Seller prior to the Closing Date. After Closing, Buyer shall
provide Seller with access to, and Seller may make and retain copies, at its
expense, of production records, lists of suppliers, sales reports, advertising
materials and such other records as may be necessary or desirable to prosecute
and/or defend any claim, action, demand, suit or proceeding relating to the
Business.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first above written.
AG/SYSTEMS, INC., dba ADVANCED DUPLICATION SERVICES, INC.
DUPLICATION TECHNOLOGY
By___________________________ By____________________________
Bernard P. Aldrich Michael Bernstein
Its President and Chief Its Chief Executive Officer
Executive Officer
and
By___________________________ By______________________________
James L. Reissner Kathy Peterson
Its Secretary Its Chief Operating Officer
13
<PAGE>
SCHEDULE INDEX
Schedule 1(a) Inventory
Schedule 1(b) Fixed Assets
Schedule 1(c) Assumed Leases and Contracts
Schedule 2.1(a) Form of Bill of Sale
Schedule 2.1(b) Form of Assignment and Assumption Agreement
Schedule 3.1 Security Interests
Schedule 5(a) Environmental Violations
Schedule 5(b) List of Waste Haulers
14
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 Six months ended
June 30, June 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Shares outstanding at
beginning of period 5,047,585 4,656,707 4,936,088 4,636,953
Common stock issued in stock
option exercise 2,499 83,100 113,996 102,854
----------- ----------- ----------- -----------
Shares outstanding at
end of period 5,050,084 4,739,807 5,050,084 4,739,807
=========== =========== =========== ===========
Weighted average shares
of common stock outstanding 5,048,162 4,713,576 5,022,929 4,677,018
=========== =========== =========== ===========
Assumed conversion shares 1,039,401 1,334,696 1,039,401 1,334,696
Weighted average shares of
assumed conversion shares 740,584 715,608 777,663 681,825
=========== =========== =========== ===========
Weighted average shares of
common stock and assumed
conversion shares 5,788,746 5,429,184 5,800,592 5,358,843
=========== =========== =========== ===========
Income from continuing operations $ 1,323,405 $ 1,158,601 $ 2,308,267 $ 2,115,818
=========== =========== =========== ===========
Income (loss) from discontinued operations $ 378,824 $ (111,067) $ 489,494 $ (64,808)
=========== =========== =========== ===========
Income (loss) per basic share:
Continuing operations $ 0.26 $ 0.24 $ 0.46 $ 0.45
Discontinued operations 0.08 (0.02) 0.10 (0.01)
----------- ----------- ----------- -----------
Net income per basic share $ 0.34 $ 0.22 $ 0.56 $ 0.44
=========== =========== =========== ===========
Income (loss) per diluted share:
Continuing operations $ 0.23 $ 0.21 $ 0.40 $ 0.39
Discontinued operations 0.06 (0.02) 0.08 (0.01)
----------- ----------- ----------- -----------
Net income per diluted share $ 0.29 $ 0.19 $ 0.48 $ 0.38
=========== =========== =========== ===========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 11,568
<SECURITIES> 0
<RECEIVABLES> 5,311
<ALLOWANCES> 165
<INVENTORY> 1,777
<CURRENT-ASSETS> 19,463
<PP&E> 2,445
<DEPRECIATION> 1,753
<TOTAL-ASSETS> 20,365
<CURRENT-LIABILITIES> 5,426
<BONDS> 0
0
0
<COMMON> 51
<OTHER-SE> 14,888
<TOTAL-LIABILITY-AND-EQUITY> 20,365
<SALES> 16,245
<TOTAL-REVENUES> 16,245
<CGS> 8,277
<TOTAL-COSTS> 8,277
<OTHER-EXPENSES> 4,467
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,665
<INCOME-TAX> 1,357
<INCOME-CONTINUING> 2,309
<DISCONTINUED> 489
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,798
<EPS-BASIC> .56
<EPS-DILUTED> .48
</TABLE>
