CONFORMED
FORM 10-K
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
(Mark One)
{X} ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 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
incorporation or organization Identification No.)
7725 WASHINGTON AVENUE SOUTH, MINNEAPOLIS, MINNESOTA 55439
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (612) 944 - 8144
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK,
$.01 PAR VALUE
Indicate by checkmark 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 preceeding 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___
Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. { X }
As of March 10, 2000, the aggregate market value of the voting stock held by
non-affiliates of the registrant, computed by reference to the last quoted price
at which such stock was sold on such date as reported by the Nasdaq Stock
Market, was $121,674,000.
As of March 10, 2000, there were outstanding 5,233,281 shares of the
registrant's common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement for its 1999 Annual
Meeting of Shareholders, to be filed within 120 days after the end of the fiscal
year covered by this report, are incorporated by reference into Part III hereof.
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GENERAL INFORMATION
PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Rimage Corporation (together with its subsidiaries, "Rimage" or the "Company")
designs, manufactures and markets CD recordable ("CD-R") and DVD duplication and
production equipment. The Company's Producer line of CD-R production systems
provides turnkey premastering, recording and label printing in a single machine
that may be used alone or on a network to allow the user to record and label
large volumes of digital information for information distribution, archiving and
other applications. The Perfect Image(R) CD Printer and Autoprinter are fast,
affordable manual and unattended systems for professional quality color printing
on the surface of both CD's and DVD's.
The Company was incorporated as IXI, Inc. in Minnesota in February 1987 and
changed its name to Rimage Corporation in April 1988. Rimage acquired the assets
of a company that produced diskette duplication equipment in 1987 and of a
California-based manufacturer of duplication equipment in 1988. The Company's
operations through 1995 consisted primarily of the design, manufacture and sale
of diskette and tape duplication equipment. In 1992, Rimage created a formal
presence in Europe, forming Rimage Europe GmbH as a wholly owned subsidiary to
conduct sales and service. In December 1993, Rimage acquired Duplication
Technology, Inc. (Rimage Boulder); a company located in Boulder, Colorado that
manufactured tape and CD-R duplication equipment and provided duplication
services. In September 1994, the Company acquired a company in California,
Knowledge Access International, which provided customized browser and archiving
software. The Company formed a separate division in early 1996, Rimage Optical
Systems, to act as a distributor of CD-ROM stamping presses manufactured by a
European Company.
In September 1995, Rimage acquired Dunhill Software Services, Inc., an
affiliated corporation that was formed in 1988 and that offered diskette
duplication and production services. Dunhill was merged into the Company and,
together with a portion of Duplication Technology, represented most of the
Company's Services Division operations. The Company operated in two divisions:
1) Systems and 2) Services until June 1999, at which time its Services Division
was discontinued. Accordingly, the operations of the discontinued Services
Division are stated separately on the financial statements included herein.
In early 1997, the Company shutdown Knowledge Access and ceased operations of
its Optical Systems division. During the third quarter of 1998, the Company
ceased operations of its Bloomington, Minnesota Service Division (previously
known as Dunhill Software Services, Inc.) and sold the equipment and inventory
associated with its operations. Also, on June 30, 1999, the Company ceased
operations of its Rimage Boulder subsidiary and sold all the assets associated
with its operations. These changes, together with increased distribution and
market acceptance of its CD-R products, resulted in record earnings for the 1999
calendar year.
The Company's operations during the past five years have been affected by the
timing of the foregoing acquisitions and subsequent phasing out of unprofitable
operations, new product introductions and the expenses associated with
development of such new products, by changes in preferred formats for media
storage, and by increasing competition in the services businesses. The shift
from diskette to CD-R storage technologies precipitated the introduction of the
Company's new CD-R products in 1995. These new CD-R products continued to
generate significant, sales increases in 1997, 1998 and 1999.
PRODUCTS
The Company's sales of CD-R production equipment comprised 68%, 68% and 46% of
the Company's revenue from continuing operations during the 1999, 1998, and 1997
calendar years, respectively. The Company's other major sources of revenue
consist of consumables, maintenance contracts and diskette equipment sales.
The Company's core products are the Perfect Image line of automated CD-R
publishing and duplication systems, the Perfect Image CD-R Printer and the
Perfect Image CD-R Autoprinter.
The Perfect Image CD-R product line consists of a growing family of products
that cover a broad range of requirements for the publishing and duplication of
CD-R's. The Company has developed a comprehensive line of CD-R
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hardware and software solutions specifically for customers interested in
publishing large amounts of information and data onto a compact disc. The Rimage
Perfect Image Producer product line gives customers the capability to produce
multiple CD-R's in minutes, using automated loading systems, multiple recorders,
and in line printing. This product line serves a wide range of office networks,
industry production and retail environments.
The Rimage CD-R Printer is a unique product in the industry that provides laser
quality color printing on standard CD-R media for in-house, customized printing.
The CD-R Printer has allowed Rimage to better position itself in the rapidly
expanding and highly competitive CD marketplace. The Company also manufactures
the Rimage CD Autoprinter. The Autoprinter automates the process of printing
laser quality color prints on standard CD media using the Rimage CD-R Printer.
The Company's products are designed to automate manual processes, resulting in a
reduction of labor and training costs for users of the products. The principal
benefits to users of the Company's products are reduced operational costs,
higher throughput than alternative systems, and higher quality. One of the
essential elements of the Company's marketing and development is to provide
users with a path for upgrading to future enhancements and additional
capabilities. The Company has made a long-term commitment to its customers by
providing maintenance service contracts, replacement parts, and repair service
to customers for current as well as past products.
MARKETING AND DISTRIBUTION
The Company utilizes three principal means of distribution for its products: an
international and domestic distributor network, a value added reseller (VAR)
network, and inside sales.
The Company's sales force focuses primarily on building and supporting the
distribution channel; the distributor network sells to and supports all size
users; the VAR network is used to distribute the CD-R products within industry
specific environments; and inside sales focuses on the sale of maintenance
contracts and consumables.
During 1999, the Company derived 11% of its revenues from New Wave Technologies,
a third party distributor.
The Company conducts foreign sales and services through its subsidiary in
Germany, Rimage Europe GmbH. Foreign sales constituted approximately 31%, 31%,
and 23% of the Company's revenue from continuing operations for the years ended
December 31, 1999, 1998 and 1997, respectively.
COMPETITION
The Company competes with a growing number of manufacturers of CD-R production
equipment and related products. Rimage is able to compete effectively in the
sale of CD-R production equipment because of technological leadership in
automated solutions and its early start within the CD-R production equipment
industry. Rimage believes that the thermal quality printing capabilities for
CD-R, its transporter mechanisms and its software differentiate its products
from those of competitors.
MANUFACTURING
The Company's manufacturing operations consist primarily of the assembly of
products from components purchased from third parties. Some parts are stock
"off-the-shelf" components and others are manufactured to the Company's
specifications. The Company's employees at its facility in Edina, Minnesota
conduct final assembly operations. Components include CD-R drives, circuit
boards, electric motors, and machined and molded parts.
Although the Company believes it has identified alternative assembly contractors
for most of its subassemblies, an actual change in such contractors would likely
require a period of training and test. Accordingly, a sudden 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.
RESEARCH AND DEVELOPMENT
There are approximately 20 people involved in research and development at the
Company's various locations. This staff, with software, electronic, mechanical
and drafting capabilities engages in research and development of new products,
and development of enhancements to existing products.
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The microcomputer industry served by the Company is subject to rapid
technological changes. Alternate data storage media exist or are under
development, including high capacity hard drives, new CD technologies, file
servers accessible through computer networks, and the Internet. All these forces
may affect the usage of CD-R and DVD media. The Company believes that it must
continue to innovate and anticipate advances in the storage media industry in
order to remain competitive.
The Company's expenditures for engineering and development were $2,612,000,
$1,902,000, and $1,904,000 in 1999, 1998 and 1997 (or 7.2%, 6.7%, and 9.1% of
revenues from continuing operations), respectively. The Company intends to
maintain its level of investment in research and development to match the
percentage in 1999.
PATENTS AND GOVERNMENT REGULATION
The Company is the owner of thirteen patents, has three patents pending and has
license rights to another six patents. In addition, the Company protects the
proprietary nature of its software primarily through copyright and license
agreements and through close integration with its hardware offerings. It is the
Company's policy to protect the proprietary nature of its new product
developments whenever they are likely to become significant sources of revenue.
No guarantee can be given that the Company will be able to obtain patent or
other protection for other products.
As the number of the Company's products increase and the functionality of those
products expands, the Company believes that it may become increasingly subject
to attempts by others to duplicate its proprietary technology and to the
possibility of infringement claims. In addition, although the Company does not
believe that any of its products infringe the rights of others, there can be no
assurance that third parties will not assert infringement claims against the
Company in the future or that any such assertion will not require the Company to
enter into a royalty arrangement or result in litigation.
The FCC requires some of the Company's equipment meet radio frequency emission
standards. The Company has the necessary certification.
EMPLOYEES
At December 31, 1999, the Company had 120 full-time employees, of whom
approximately 20 were involved in research and development, 50 in manufacturing,
assembly, testing and customer service, and 50 in sales, administration and
management. None of the Company's employees are represented by a labor union or
are covered by a collective bargaining agreement.
ITEM 2. PROPERTIES
The Company headquarters are located in a leased facility of 43,000 square feet
at 7725 Washington Avenue South, Edina, Minnesota 55439. In September 1998, the
Company restructured its existing capital lease into an operating lease
containing a sixty-two month term for this facility, which is owned by a related
party (see note 8 to the consolidated financial statements). Rent is $6.95 per
square foot per year, plus taxes and common area charges of $2.98 per square
foot per year. The Systems Division also leases a facility in Frankfurt,
Germany. These facilities are used for manufacturing, engineering, service and
sales.
The Company also leases a 28,440 square foot facility in Bloomington, Minnesota.
In September 1998, the Company restructured its existing capital lease into an
operating lease containing a sixty month term for this facility, which is owned
by a related party (see note 8 to the consolidated financial statements). Rent
is $4.40 per square foot per year, plus taxes and common area charges of $2.16
per square foot per year. It is the intent of the Company to sublease this
facility by the end of June 2000.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any litigation that may have a material adverse
effect on the Company, its business, or its financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of security holders during the
last quarter of the fiscal year covered by this report.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the NASDAQ National Market under the
symbol "RIMG". The following table sets forth, for the periods indicated, the
range of low and high prices for the Company's common stock as reported on the
NASDAQ System.
Low High
--- ----
Calendar Year 1998:
1st Quarter................ $3.666 $5.166
2nd Quarter................ 5.416 8.750
3rd Quarter................ 6.750 11.083
4th Quarter................ 7.666 14.500
Calendar Year 1999:
1st Quarter................ 11.625 18.250
2nd Quarter................ 11.500 16.000
3rd Quarter................ 13.500 19.250
4th Quarter................ 15.000 17.250
SHAREHOLDERS
At March 3, 2000, there were 142 record holders of the Company's common stock,
and management believes that there are approximately 1,475 beneficial holders of
the Company's common stock.
DIVIDENDS
The Company has never paid or declared any cash dividends on its common stock
and does not intend to pay cash dividends on its common stock in the foreseeable
future. The Company presently expects to retain its earnings to finance the
development and expansion of its business. The payment by the Company of
dividends, if any, on its common stock in the future is subject to the
discretion of the Board of Directors and will depend on the Company's continued
earnings, financial condition, capital requirements and other relevant factors.
On March 22, 2000, the Company's Board of Directors declared a three for two
stock split in the form of a 50% stock dividend payable on April 7, 2000 to all
holders of record on April 1, 2000. The accompanying financial statements do not
reflect the effects of the stock dividend.
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ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in Item 7 below and the Consolidated Financial Statements and the
Notes thereto included in Item 8 below. Amounts are shown in 1000's (except per
share data).
CONSOLIDATED STATEMENTS OF OPERATIONS INFORMATION:
<TABLE>
<CAPTION>
Year ended December 31
----------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $36,313 $28,530 $21,012 $23,237 $17,359
Cost of Revenues 17,929 13,797 11,456 15,790 10,818
Gross Profit 18,384 14,733 9,556 7,447 6,541
Operating Expenses 9,604 8,501 5,918 10,179 11,289
Operating Income (Loss) from
Continuing operations 8,780 6,232 3,638 (2,732) (4,748)
Other Income (Expense), Net 425 441 (200) (345) (222)
Income Tax Expense (Benefit) 3,351 1,079 202 543 (355)
Income (Loss) From Continuing Operations 5,854 5,594 3,236 (3,620) (4,615)
Income (Loss) From Discontinued
Operations 489 (541) (1,311) (1,559) 3,363
Net Income (Loss) 6,343 5,053 1,925 (5,179) (1,252)
Basic Net Earnings (Loss) Per Share $1.25 $1.06 $.42 $(1.12) $(.27)
Diluted Net Earnings (Loss) Per Share $1.09 $.90 $.39 $(1.12) $(.27)
Weighted Average Shares and Assumed
Conversion Shares:
Basic 5,058 4,769 4,629 4,612 4,577
Diluted 5,820 5,638 4,915 4,612 4,577
</TABLE>
CONSOLIDATED BALANCE SHEET INFORMATION:
<TABLE>
<CAPTION>
Balances as of December 31
--------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Cash and Cash Equivalents $13,442 $7,350 $762 $439 $331
Trade Accounts Receivables, Net 5,341 4,772 2,927 2,296 3,442
Inventories, Net 2,287 1,876 1,510 2,636 3,259
Net Assets of Discontinued Operations -- 587 3,931 2,762 3,800
Current Assets 22,016 15,269 9,449 9,293 12,797
Property and Equipment, Net 817 566 926 1,238 1,444
Total Assets 22,963 16,670 11,473 12,149 16,182
Current Liabilities 4,708 4,502 3,722 6,965 5,714
Long-Term Liabilities -- -- 1,755 1,043 1,266
Stockholders' Equity 18,255 12,168 5,938 4,084 9,202
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Rimage develops, manufactures and distributes high performance CD-Recordable
(CD-R) and DVD-Recordable (DVD-R) publishing and duplication systems and
continues to support its long-term involvement in diskette duplication and
publishing equipment.
Until June 1999, Rimage had two primary divisions: The Systems Division and the
Services Division. On June 30, 1999, the Company discontinued its Services
Division with the sale of the assets of its Rimage Boulder subsidiary. The
consolidated financial statements reflect the net operating results of the
Services Division net of applicable income taxes, as "Income (loss) from
operations of discontinued Services Division"; the net assets of the Services
Division as "Net assets of discontinued operations", and the net cash flows of
the Services Division within the section "Net cash provided by operating
activities". The comments herein pertain to the Company's continuing operations
(its Systems Division), unless otherwise stated.
1999 COMPARED TO 1998
Revenues increased by $7,784,000 or 27.3% from 1998 to 1999. This increase was
primarily due to the Company's expanding distribution network during 1999
creating an increase in CD-R equipment sales and related peripheral products.
CD-R equipment sales totaled $24,809,000 during 1999 compared to $19,493,000
during 1998.
Gross margin as a percentage of revenues was 50.6% and 51.6% during 1999 and
1998, respectively. This decrease was due to strong sales of a product during
1999 carrying slightly lower margins than the Company's existing line of
products. An increase in sales of low margin consumables during 1999 also
contributed to the slight decrease in gross margin. CD-R equipment sales
comprised 68.3% of total revenues during both 1999 and 1998.
Operating expenses as a percent of revenues were 26.4% and 29.8% during 1999 and
1998, respectively. This decrease was primarily a result of 1999 sales expenses
remaining relatively consistent with 1998 levels. During 1999, the Company
maintained its 1998 sales work force level by increasing the utilization of the
sales force of its expanding distribution channel. The Company also modified the
incentive programs provided to its distributors and VAR's. These events were
primary causes of the Company's sales and marketing expense as a percent of
revenues to decrease from 15.6% during 1998 to 12.8% during 1999. The Company's
research and development expenses increased from $1,902,000 or 6.7% of revenues
during 1998 to $2,612,000 or 7.2% of revenues during 1999. This increase is a
result of an increase in personnel and development materials needed to manage
the increase in the number of projects the Company has undertaken during 1999.
Operating earnings were $8,780,000 and $6,232,000 during 1999 and 1998,
respectively. This improvement was primarily due to increased sales coupled with
stable sales expenses from 1998 to 1999.
1998 COMPARED TO 1997
Revenues increased by $7,518,000 or 35.8% from 1997 to 1998. This increase was
primarily due to the implementation of a distribution network during 1997
creating an increase in CD-R equipment sales and related peripheral products.
CD-R equipment sales totaled $19,493,000 during 1998 compared to $9,578,000
during 1997.
Gross margin as a percentage of revenues was 51.6% and 45.5% during 1998 and
1997, respectively. This increase was due to the continued shift to sales of
higher margin CD-R products from sales of diskette equipment. CD-R equipment
sales as a percent of total revenues increased from 45.6% during 1997 to 68.3%
during 1998.
Operating expenses as a percent of revenues were 29.8% and 28.2% during 1998 and
1997, respectively. This increase was primarily a result of increased sales and
marketing expenses. During 1998, the Company continued to expand its
distribution network, both domestically and internationally, for its CD-R
related products and has focused efforts on the promotion of joint marketing
campaigns with distributors and value added resellers. These steps were primary
causes of the Company's sales and marketing expense to increase from $2,490,000
or 11.9% of revenues during 1997 to $4,453,000 or 15.6% of revenues during 1998.
Partially offsetting the Company's increased sales and marketing expense was a
decrease in its general and administrative expense due to the consolidation of
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certain administrative duties. Research and development expenses remained
relatively constant from 1997 to 1998, but decreased slightly as a percentage of
revenue due to higher sales in 1998.
Operating income from continuing operations were $6,232,000 and $3,638,000
during 1998 and 1997, respectively. This improvement was primarily due to the
increased sales of higher margin CD-R related products.
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.
On June 30, 1999, the Company completed the sale of the assets of its Rimage
Boulder subsidiary to Advanced Duplication Services, Inc. for $2,050,000 in
cash. Also, on July 31, 1998, the Company completed the sale of a substantial
portion of its CD-ROM duplicating equipment and a portion of its diskette
duplication equipment used in its Bloomington, Minnesota services business to
Advanced Duplication Services, Inc. for $1,900,000 in cash.
Current assets are $22,016,000 as of December 31, 1999 as compared to
$16,037,000 as of December 31, 1998, primarily reflecting the increase in cash
from increased sales of CD-R products. The allowance for doubtful accounts as a
percentage of receivables increased from 3% as of December 31, 1998 to 6% as of
December 31, 1999. This increase occurred as a result of adjustments to the
sales returns allowance during 1999. Current liabilities increased approximately
5% to $4,708,000 as of December 31, 1999 from $4,502,000 as of December 31,
1998, reflecting normal increases in accounts payable and accruals.
Net cash provided by operating activities was $5,788,238 and $4,638,630 during
1999 and 1998, respectively. The increase in cash flow from operating activities
from 1998 to 1999 was greatly impacted by increased sales of CD-R products.
Net cash used in investing activities of $868,000 during 1999 primarily reflect
purchases of equipment for research and development purposes. Net cash used in
investing activities of $174,000 during 1998 primarily reflect capital
expenditures offset by receipts from the Company's sales-type leases. At
December 31, 1999 the Company had no significant commitments to purchase
additional capital equipment.
Net cash used in financing activities of $618,000 during 1999 primarily
reflected payments to acquire Company stock netted with proceeds from stock
option exercises. Net cash used in financing activities of $575,000 during 1998
principally reflect the payment of the Company's remaining long-term debt netted
with proceeds from stock option exercises.
The Company believes that inflation has not had a material impact on its
operations or liquidity to date.
YEAR 2000 ISSUES
To date, we have experienced no significant systems or other year 2000 problems
in connection with the transition to the year 2000. We will continue to monitor
for any year 2000 issues.
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 through 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.
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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
In June of 1999, the FASB issued Statement of Financial Accounting Standard No.
137 "Accounting for Derivative Instruments and Hedging Activities - Deferral of
the Effective Date of FASB Statement No. 133" which delays the effective date of
Statement No. 133 until fiscal years beginning after June 15, 2000. Statement
No. 133 establishes 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.
In December 1999, the Securities and Exchange Commission (SEC) released Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements". This bulletin summarizes certain interpretations and practices
followed by the SEC in administering the disclosure requirements of the Federal
securities laws in applying generally accepted accounting principles to revenue
recognition in financial statements. Although we have not fully assessed the
implications of SAB No. 101, our management does not believe adoption of this
bulletin will have a material impact on our consolidated financial position,
results of operations or cash flows.
FORWARD LOOKING STATEMENTS
Certain statements in this Annual Report and in the Company's press releases and
oral statements made by or with the approval of the Company's executive officers
constitute or will constitute "forward looking statements". All forward looking
statements involve risks and uncertainties, and actual results may be materially
different. The following factors are among those that could cause the Company's
actual results to differ materially from those set forth in such forward looking
statements. The Company's ability to succesfully identify and incorporate new
technologies into new and enhanced products and to develop and maintain
compatibility and interoperability with the products of others, as well as new
product introductions by competitors and the continuing availability of
intellectual property licenses on commercially available terms, may impact the
Company's ability to increase demand for its products. The success of the
Company's sales force to provide for broader account coverage through channel
partners, better utilization of existing resources and to control selling
expense may be impacted by the expertise and commitment of the affected
personnel, market acceptance of new and existing products and competitive market
conditions. The unanticipated need to enhance or modify products due to changing
market requirements, the success of current product programs, and the need to
meet unanticipated product opportunities The Company's ability to generate
revenue as presently expected, unexpected expenses and the need for additional
funds to react to changes in the marketplace, including unexpected increases in
personnel and product development expenses, may affect whether the Company has
sufficient cash resources to fund its operating plans and capital requirements
through at least 2000.
Other factors that could cause the results of the Company to differ materially
from those contained in any such forward looking statments include general
economic conditions, costs and availability of components and fluctuations in
exchange rates. In addition, the markets for the Company's products are
characterized by significant competition, and the Company's results may be
adversely affected by the actions of existing and future competitors, including
the development of new technologies, the introduction of new products and the
reduction of prices by such competitors to gain or retain market share. The
Company assumes no obligation to publicly release the results of any revision or
updates to these forward looking statements to reflect future events or
unanticipated occurrences.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of December 31, 1999 and 1998, the Company did not invest in any market risk
sensitive instruments including any derivative financial instruments.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FINANCIAL STATEMENTS
Page in
1999 Annual
Report to
Shareholders
------------
Independent Auditors' Report.............. 11
Consolidated Balance Sheets, as of
December 31, 1999 and 1998................ 12-13
Consolidated Statements of Operations,
for the years ended December 31, 1999,
1998 and 1997............................. 14
Consolidated Statements of Stockholders'
Equity and Comprehensive Income, for the
years ended December 31, 1999, 1998 and
1997...................................... 15
Consolidated Statements of Cash Flow,
for the years ended December 31, 1999,
1998 and 1997............................. 16-17
Notes to Consolidated Financial
Statements................................ 18-32
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INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Rimage Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Rimage
Corporation and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity and comprehensive
income, and cash flows for each of the years in the three-year period ended
December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Rimage Corporation
and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Minneapolis, Minnesota
February 8, 2000,
except as to note 13, which
is as of February 25, 2000
11
<PAGE>
RIMAGE CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
Assets 1999 1998
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 13,441,857 $ 7,349,521
Trade accounts receivable, net of allowance for doubtful
accounts and sales returns of $314,000 and
$143,000, respectively 5,340,607 4,772,337
Interest receivable 124,854 --
Inventories 2,286,867 1,876,063
Prepaid expenses and other current assets 185,273 90,667
Deferred income taxes 637,000 593,000
Net assets of discontinued operations -- 1,355,242
- -----------------------------------------------------------------------------------------------
Total current assets 22,016,458 16,036,830
- -----------------------------------------------------------------------------------------------
Property and equipment:
Building and leasehold improvements 517,393 380,209
Manufacturing equipment 349,550 535,480
Development equipment 283,303 554,307
Office furniture and equipment 962,698 819,867
- -----------------------------------------------------------------------------------------------
2,112,944 2,289,863
Less accumulated depreciation and amortization 1,295,979 1,723,749
- -----------------------------------------------------------------------------------------------
Net property and equipment 816,965 566,114
Other noncurrent assets 129,593 67,427
- -----------------------------------------------------------------------------------------------
Total assets $ 22,963,016 $ 16,670,371
===============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
12
<PAGE>
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity 1999 1998
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current liabilities:
Trade accounts payable $ 2,089,505 $ 1,883,100
Income tax payable 96,754 236,728
Accrued compensation 1,007,462 871,039
Accrued other 721,498 798,235
Deferred income and customer deposits 792,760 712,982
- --------------------------------------------------------------------------------------------------------
Total current liabilities 4,707,979 4,502,084
- --------------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock, $.01 par value, authorized 10,000,000 shares,
issued and outstanding 5,104,814 and 4,936,088, respectively 51,048 49,361
Additional paid-in capital 11,439,161 11,545,485
Retained earnings 6,990,727 647,477
Accumulated other comprehensive income - foreign currency
translation adjustment (225,899) (74,036)
- --------------------------------------------------------------------------------------------------------
Total stockholders' equity 18,255,037 12,168,287
Commitments and contingencies (notes 8 and 12)
- --------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 22,963,016 $ 16,670,371
========================================================================================================
</TABLE>
13
<PAGE>
RIMAGE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 36,313,426 $ 28,529,709 $ 21,011,742
Cost of revenues 17,929,214 13,796,751 11,456,117
- ----------------------------------------------------------------------------------------------------------
Gross profit 18,384,212 14,732,958 9,555,625
- ----------------------------------------------------------------------------------------------------------
Operating expenses:
Research and development 2,612,340 1,901,777 1,904,490
Selling, general and administrative 6,991,912 6,599,597 4,013,077
- ----------------------------------------------------------------------------------------------------------
Total operating expenses 9,604,252 8,501,374 5,917,567
- ----------------------------------------------------------------------------------------------------------
Operating income from continuing operations 8,779,960 6,231,584 3,638,058
- ----------------------------------------------------------------------------------------------------------
Other income (expense):
Interest, net 468,279 64,863 (315,166)
Gain (loss) on currency exchange (155,146) 80,389 58,294
Gain on lease restructure -- 361,098 --
Other, net 111,554 (64,972) 57,066
- ----------------------------------------------------------------------------------------------------------
Total other income (expense), net 424,687 441,378 (199,806)
- ----------------------------------------------------------------------------------------------------------
Income from continuing operations
before income taxes 9,204,647 6,672,962 3,438,252
Income tax expense 3,350,891 1,078,907 201,975
- ----------------------------------------------------------------------------------------------------------
Income from continuing operations 5,853,756 5,594,055 3,236,277
Discontinued operations:
Income (loss) from operations of discontinued
Services Division, net of applicable income taxes 186,045 (541,360) (1,311,204)
Gain on disposal of Services Division, net of
applicable income taxes 303,449 -- --
- ----------------------------------------------------------------------------------------------------------
Net income $ 6,343,250 $ 5,052,695 $ 1,925,073
==========================================================================================================
Income (loss) per basic share:
Continuing operations $ 1.16 $ 1.17 $ 0.70
Discontinued operations 0.09 (0.11) (0.28)
- ----------------------------------------------------------------------------------------------------------
Net income per basic share $ 1.25 $ 1.06 $ 0.42
==========================================================================================================
Income (loss) per diluted share:
Continuing operations $ 1.01 $ 0.99 $ 0.66
Discontinued operations 0.08 (0.09) (0.27)
- ----------------------------------------------------------------------------------------------------------
Net income per diluted share $ 1.09 $ 0.90 $ 0.39
==========================================================================================================
Basic weighted average shares outstanding 5,057,990 4,769,009 4,629,431
==========================================================================================================
Diluted weighted average shares and
assumed conversion shares 5,820,100 5,638,140 4,914,799
==========================================================================================================
</TABLE>
See accompanying notes to the consolidated financial statements
14
<PAGE>
RIMAGE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity and Comprehensive Income
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Retained Accumulated
Common Stock Additional earnings other
------------------------ paid-in (accumulated comprehensive
Shares Amount capital deficit) income Total
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 4,626,741 $ 46,268 $ 10,432,375 $ (6,330,291) $ (64,699) $ 4,083,653
Stock issued in stock
option exercise 10,203 102 20,304 -- -- 20,406
Comprehensive income:
Net income -- -- -- 1,925,073 -- 1,925,073
Translation adjustment,
net of tax effect of $0 -- -- -- -- (90,927) (90,927)
------------
Total comprehensive income -- -- -- -- -- 1,834,146
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 4,636,944 46,370 10,452,679 (4,405,218) (155,626) 5,938,205
Stock issued in stock
option exercise 299,144 2,991 1,092,806 -- -- 1,095,797
Comprehensive income:
Net income -- -- -- 5,052,695 -- 5,052,695
Translation adjustment,
net of tax effect of $0 -- -- -- -- 81,590 81,590
------------
Total comprehensive income 5,134,285
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 4,936,088 49,361 11,545,485 647,477 (74,036) 12,168,287
Stock issued in stock option
and warrant exercise 168,726 1,687 388,245 -- -- 389,932
Repurchases of Company stock -- -- (1,008,300) -- -- (1,008,300)
Income tax benefit from
disqualifying dispositions of
stock options -- -- 513,731 -- -- 513,731
Comprehensive income:
Net income -- -- -- 6,343,250 -- 6,343,250
Translation adjustment,
net of tax effect of $0 -- -- -- -- (151,863) (151,863)
------------
Total comprehensive income 6,191,387
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 5,104,814 $ 51,048 $ 11,439,161 $ 6,990,727 $ (225,899) $ 18,255,037
=================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE>
RIMAGE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 6,343,250 $ 5,052,695 $ 1,925,073
Adjustments to reconcile net income to net cash
provided by operating activities:
(Income) Loss from discontinued operations (186,045) 541,360 1,311,204
(Gain) Loss on sale of discontinued operations (303,449) -- --
Minority interest in net income of dissolved subsidiary -- (57,907) --
Depreciation and amortization 492,942 388,152 398,827
Change in reserve for excess and obsolete inventories 120,241 168,509 (208,000)
Change in allowance for doubtful accounts 171,665 (281,911) (568,670)
(Gain) loss on sale of property and equipment (27,489) 5,160 1,089
Write-off of other assets -- 15,000 81,636
Deferred income tax benefit (44,000) (593,000) --
Gain on lease restructure -- (361,098) --
Changes in operating assets and liabilities:
Trade accounts receivable (739,935) (1,563,415) (62,552)
Inventories (531,045) (534,522) 1,333,779
Income tax receivable -- 23,350 795,440
Interest receivable (124,854) -- --
Prepaid expenses and other current assets (102,669) 118,346 (76,226)
Trade accounts payable 206,405 540,130 (393,712)
Income taxes payable 373,757 236,728 --
Accrued expenses 59,686 774,547 (433,527)
Deferred income and customer deposits 79,778 166,506 189,587
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 5,788,238 4,638,630 4,293,948
- ---------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of property and equipment (605,959) (324,808) (87,441)
Proceeds from the sale of property, plant, equipment
and intangibles 27,489 -- 66,332
Other noncurrent assets (297,106) 52,803 66,360
Receipts from sales-type leases 8,063 98,372 293,849
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
investing activities (867,513) (173,633) 339,100
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
16
<PAGE>
RIMAGE CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from stock option exercise 389,932 1,095,797 20,406
Cash payments to purchase treasury stock (1,008,300) -- --
Repayment of other notes payable -- (1,650,000) (1,866,463)
Principal payments on capital lease obligation -- (21,135) (26,418)
- ---------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (618,368) (575,338) (1,872,475)
- ---------------------------------------------------------------------------------------------------------------------
Cash provided by (used in) discontinued operations 1,844,736 2,668,681 (2,399,484)
Effect of exchange rate changes on cash (54,757) 28,787 (37,287)
- ---------------------------------------------------------------------------------------------------------------------
Net increase in cash 6,092,336 6,587,127 323,802
Cash and cash equivalents, beginning of year 7,349,521 762,394 438,592
- ---------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 13,441,857 $ 7,349,521 $ 762,394
=====================================================================================================================
Supplemental disclosures of net cash paid during the period for:
Interest $ -- $ 284,293 $ 842,950
Income taxes $ 3,732,604 $ 1,038,550 $ 23,350
Supplemental disclosures of non-cash investing
and financing activities:
Reduction of income taxes payable for disqualifying
dispositions of stock options $ 513,731
=============
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 notes to the consolidated financial statements
17
<PAGE>
RIMAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) Nature of Business and Summary of Significant Accounting Policies
Basis of Presentation and Nature of Business
The consolidated financial statements include the accounts of Rimage
Corporation and Rimage Europe GmbH, collectively hereinafter referred
to as Rimage or the Company. All material intercompany accounts and
transactions have been eliminated upon consolidation.
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.
On June 30, 1999, the Company sold the fixed assets, inventory and
intangible assets of its wholly owned subsidiary A/G Systems, Inc.
d/b/a Duplication Technology, Inc. (Rimage Boulder). This sale, in
conjunction with the August 31, 1998 sale of the fixed assets and
inventory used in its Bloomington, Minnesota services operation,
constitutes the discontinued operations of the Company's Services
Division (see note 11). During March 1997, the Company completed the
shutdown of its Knowledge Access subsidiary. The Company also completed
shutdowns of its Asia facility and Televaulting division in February
and June 1997, respectively.
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.
(Continued)
18
<PAGE>
RIMAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Revenue Recognition
Revenue is recognized at the time of shipment on all equipment and service
orders. The Company provides maintenance services under long-term
maintenance contracts. Revenue associated with these contracts is
deferred and recognized on a straight-line basis over the terms of the
respective contracts.
Accounting Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles require management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from those
estimates.
Cash Equivalents
All short-term investments with original maturities of three months or
less at date of purchase are considered cash equivalents.
Inventories
Inventories are stated at the lower of cost, determined on a first-in,
first-out (FIFO) basis, or market.
Property and Equipment
Property and equipment are stated at cost and depreciated on a
straight-line basis over periods of two to seven years. Leasehold
improvements are amortized using the straight-line method over the
terms of the respective leases. Repairs and maintenance costs are
charged to operations as incurred.
Stock Based Compensation
The Company accounts for stock based compensation under Accounting
Principles Board Opinion No. 25 (APB No. 25), ACCOUNTING FOR STOCKS
ISSUED TO EMPLOYEES. Accordingly, no compensation expense had been
recognized for its stock-based compensation plans. The Company has
adopted the disclosure requirements under Statement of Financial
Accounting Standards (SFAS) No. 123, ACCOUNTING AND DISCLOSURE OF
STOCK-BASED COMPENSATION.
(Continued)
19
<PAGE>
RIMAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Software Development Costs
Capitalization of software development costs begins upon the establishment
of technological feasibility of the product. The establishment of
technological feasibility and the ongoing assessment of the
recoverability of these costs require considerable judgment by
management with respect to certain external factors, including, but not
limited to, anticipated future gross product revenues, estimated
economic life, and changes in software and hardware technology.
The Company capitalizes software development costs between the date when
project technological feasibility is established (beta stage) and the
date when the product is ready for normal production release. Research
and development costs related to software development are expensed as
incurred. Software development costs are amortized over the estimated
economic life of the product, which ranges from two to five years.
Amortization expense is included in cost of goods sold. Included in
other noncurrent assets are capitalized software costs of $367,836 as
of December 31, 1999 and 1998. Accumulated amortization at December 31,
1999 and 1998 was $338,437 and $313,238, respectively.
Income Taxes
Deferred tax assets and liabilities are recognized for the estimated
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates in effect for the year in which those
temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date.
(Continued)
20
<PAGE>
RIMAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Net Income (Loss) Per Share
Basic income (loss) per share is calculated as income (loss) available to
common stockholders divided by the weighted average number of common
shares outstanding for the period. Diluted income per share is
calculated by dividing the weighted average number of common and
assumed conversion shares outstanding during each period. Assumed
conversion shares result from dilutive stock options and warrants
computed using the treasury stock method.
Translation of Financial Statements in Foreign Currencies
The assets and liabilities for the Company's international subsidiary are
translated into U.S. dollars using current exchange rates. The
resulting translation adjustments are recorded in the foreign currency
translation adjustment account in equity. Statement of operations items
are translated at average exchange rates prevailing during the period.
Foreign currency transaction gains or losses are included in net
income.
Goodwill
Goodwill represents the excess of the purchase price over the fair value
of net assets acquired and is amortized on a straight-line basis over
15 years. Goodwill balances are reviewed periodically to determine that
the unamortized balances are recoverable. In evaluating the
recoverability, the following factors, among others, are considered: a
significant change in the factors used to determine the amortization
period, an adverse change in legal factors or in the business climate,
a transition to a new product or services strategy, a significant
change in the customer base, and/or a realization of failed marketing
efforts. If the unamortized balance is believed to be unrecoverable,
the Company recognizes an impairment charge necessary to reduce the
unamortized balance to the present value of cash flows expected to be
generated over the remaining life. The amount of impairment, if any, is
charged to income as a part of general and administrative expenses in
the current period. As a result of the sale of the fixed assets,
inventory, and intangible assets of Rimage Boulder on June 30, 1999
(see Note 11), goodwill is $0 as of December 31, 1999.
Comprehensive Income
Comprehensive income consists of the Company's net income and foreign
currency translation adjustment and is presented in the consolidated
statements of stockholders' equity and comprehensive income.
(Continued)
21
<PAGE>
RIMAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Reclassification
Certain prior year amounts have been reclassified to conform with the
current year presentation.
2) Fair Value of Financial Instruments
The following methods and assumptions were used by the Company in
estimating the fair value of its financial instruments.
Cash and cash equivalents: The carrying amount approximates fair value
because of the short maturity of those instruments.
Trade accounts receivables and accounts payable: The carrying amount
approximates fair value because of the short maturity of those
instruments.
3) Inventories
Inventories consist of the following as of December 31:
1999 1998
- --------------------------------------------------------------------------------
Finished goods and demonstration equipment $ 1,117,638 894,291
Work-in-process 100,737 162,943
Purchased parts and subassemblies 1,068,492 818,829
- --------------------------------------------------------------------------------
$ 2,286,867 1,876,063
================================================================================
4) Note Payable To Bank
On December 31, 1997, the Company entered into a term note agreement (the
Credit Agreement) with a bank. The Credit Agreement allows for advances
under a revolving loan based on various percentages of qualified asset
(primarily accounts receivable and inventory) amounts, up to a maximum
advance of $5,000,000 and is effective until June 30, 2000. There were
no outstanding borrowings under this revolving loan as of December 31,
1999.
The Credit Agreement contains various covenants pertaining to minimum
tangible net worth and current, leverage and fixed charge coverage
ratios. The company is in compliance with all covenants at December 31,
1999.
(Continued)
22
<PAGE>
RIMAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5) Income Taxes
The provision for income tax expense consists of the following:
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------------------
1999 1998 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
U.S. Federal $ 2,838,858 834,000 95,000
State 474,221 320,965 25,143
Foreign 81,812 300,000 --
- -----------------------------------------------------------------------------------------------
Total current 3,394,891 1,454,965 120,143
- -----------------------------------------------------------------------------------------------
Deferred:
Change in valuation allowance $ -- (1,461,000) --
U.S. Federal (50,500) 777,000 --
State 6,500 91,000 --
- -----------------------------------------------------------------------------------------------
Total deferred (44,000) (593,000) --
- -----------------------------------------------------------------------------------------------
$ 3,350,891 861,965 120,143
===============================================================================================
</TABLE>
Total tax expense differs from the expected tax expense, computed by
applying the federal statutory rate of 35% to earnings before income
taxes as follows:
<TABLE>
<CAPTION>
Year ended December 31
----------------------------------------------
1999 1998 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected income tax expense $ 3,222,000 2,011,000 696,000
Goodwill amortization 27,000 27,000 25,000
(Decrease) increase in deferred tax
asset valuation allowance -- (1,461,000) (888,000)
State income taxes, net of federal tax effect 312,000 233,000 17,000
Foreign sales corporation adjustment (129,000) -- --
Research and experimental credits -- -- (85,000)
Alternative minimum tax -- -- 95,000
Other, net (81,109) 51,965 260,143
- -----------------------------------------------------------------------------------------------
$ 3,350,891 861,965 120,143
===============================================================================================
</TABLE>
(Continued)
23
<PAGE>
RIMAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets as of December 31, are presented below:
<TABLE>
<CAPTION>
1999 1998
- --------------------------------------------------------------------------------------
<S> <C> <C>
Accounts receivable $ 95,000 56,000
Inventories 213,000 165,000
Accrued payroll 50,000 56,000
Warranty accrual 20,000 20,000
Fixed assets 54,000 86,000
Gross margin recognition on sale to foreign subsidiary 162,000 142,000
Other 43,000 68,000
- --------------------------------------------------------------------------------------
Total gross deferred tax assets $ 637,000 593,000
- --------------------------------------------------------------------------------------
</TABLE>
A reconciliation of the valuation allowance for deferred taxes as of
December 31 is as follows:
<TABLE>
<CAPTION>
1999 1998
- --------------------------------------------------------------------------------------
<S> <C> <C>
Valuation allowance at beginning of year $ -- 1,461,000
Decrease in valuation allowance -- (1,461,000)
- --------------------------------------------------------------------------------------
$ -- --
======================================================================================
</TABLE>
A valuation allowance is provided when it is more likely than not that
all or a portion of the deferred tax asset may not be recognized. The
Company periodically evaluates the need for the valuation allowance. As
a result of continued earnings and other positive business factors
during 1998 the Company determined that it was more likely than not
that the deferred tax asset would be realized. Therefore, the valuation
allowance of $1,461,000 was reduced to zero.
(Continued)
24
<PAGE>
RIMAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6) Stockholders' Equity
Stock Options
Rimage adopted a stock option plan on September 24, 1992 which allows for
the granting of options to purchase shares of common stock to certain
key administrative, managerial and executive employees and the
automatic periodic grants of stock options to non-employee directors.
Options under this plan may be either incentive stock options or
non-qualified options. Pursuant to this plan, the following options are
currently issued and outstanding:
Weighted
Shares average
available Options exercise
for grant outstanding price
- --------------------------------------------------------------------------------
Balance at December 31, 1996 262,575 435,675 $ 4.58
Additional shares available 750,000 -- --
Granted (630,750) 630,750 2.02
Exercised -- (10,203) 2.00
Canceled 85,281 (85,281) 4.92
- --------------------------------------------------------------------------------
Balance at December 31, 1997 467,106 970,941 2.11
Granted (326,700) 326,700 4.51
Exercised -- (239,144) 2.42
Canceled 4,000 (4,000) 2.75
- --------------------------------------------------------------------------------
Balance at December 31, 1998 144,406 1,054,497 2.78
Granted (103,000) 103,000 13.69
Exercised -- (171,126) 2.49
Canceled 1,750 (1,750) 9.18
- --------------------------------------------------------------------------------
Balance at December 31,1999 43,156 984,621 $ 3.96
At December 31, 1999, 948,047 of the options outstanding were exercisable.
Outstanding options had exercise prices ranging between $2.00 and
$15.00 per share and a weighted average contractual life of 7.5 years.
(Continued)
25
<PAGE>
RIMAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table calculates the fair market value of options granted on
the date of grant using the Black-Scholes option pricing model:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1999 1998 1997
------------- ------------- -----------
<S> <C> <C> <C>
Number of Options Granted 103,000 326,700 420,500
Fair Market Value of
Options Granted $ 914,050 $ 964,239 $ 796,637
Volatility Range 74.1 to 77.3% 65.1 to 77.1% 76.0%
Risk-free Interest Rate Range 4.59 to 5.32% 4.37 to 5.62% 6.90%
Expected Life of Options in Years 5.0 5.0 7.0
================================================================================
</TABLE>
The Company applies APB No. 25 and related interpretations in accounting
for its plans. Accordingly, no compensation expense has been recognized
for its stock-based compensation plans. Had the Company determined
compensation cost based on the fair value at the grant date for its
stock options under SFAS No. 123, the Company's 1999, 1998 and 1997 net
income and basic and diluted earnings per share would have been
adjusted to the proforma amounts stated below:
<TABLE>
<CAPTION>
1999 1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income:
As reported $6,343,250 $5,052,695 $1,925,073
Proforma 5,341,624 4,323,464 1,408,073
==================================================================================
Basic net income per share:
As reported $1.25 $1.06 $0.42
Proforma $1.06 $0.91 $0.30
==================================================================================
Diluted net income per share:
As reported $1.09 $0.90 $0.39
Proforma $0.92 $0.77 $0.29
==================================================================================
</TABLE>
(Continued)
26
<PAGE>
RIMAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7) Net Income Per Share
The components of net income per basic and diluted share are as follows:
Weighted
Average Shares Per Share
Net Income Outstanding Amount
------------- ------------- -------------
1999:
Basic $ 6,343,250 5,057,990 $ 1.25
Dilutive effect of
stock options -- 762,110 (.16)
------------- ------------- -------------
Diluted $ 6,343,250 5,820,100 $ 1.09
============= ========= =============
1998:
Basic $ 5,052,695 4,769,009 $ 1.06
Dilutive effect of
stock options -- 869,131 (.16)
------------- ------------- -------------
Diluted $ 5,052,695 5,638,140 $ .90
============= ========= =============
1997:
Basic $ 1,925,073 4,629,431 $ .42
Dilutive effect of
stock options -- 285,368 (.03)
------------- ------------- -------------
Diluted $ 1,925,073 4,914,799 $ .39
============= ========= =============
(Continued)
27
<PAGE>
RIMAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8) Leases
During September 1998, the Company renegotiated its existing capital
leases for both the Edina and Bloomington Minnesota facilities, which
resulted in reclassification to operating leases and a gain of
$512,192.
Also, in connection with the August 31, 1998 sale of its Bloomington,
Minnesota services operation, the Company paid $1,385,528 to satisfy
debt associated with a capital lease on certain CD-ROM equipment.
The future minimum lease payments excluding operating expenses and real
estate taxes as of December 31, 1999 are:
Related Third
party party Total
operating operating operating
Year ending December 31 leases leases leases
- --------------------------------------------------------------------------------
2000 $ 426,996 57,018 484,014
2001 436,026 57,018 493,044
2002 445,199 57,018 502,217
2003 301,004 57,018 358,022
2004 -- 57,018 57,018
- --------------------------------------------------------------------------------
Net minimum lease payments $ 1,609,225 285,090 1,894,316
=========== ============ ============
Rent expense under operating leases amounted to approximately $708,000,
$544,000, and $333,000, respectively, for the years ended December 31,
1999, 1998, and 1997.
(Continued)
28
<PAGE>
RIMAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9) Profit Sharing and Savings Plan
Rimage has a profit sharing and savings plan under Section 401(k) of the
Internal Revenue Code. The plan allows employees to contribute up to
16% of pretax compensation. The Company's discretionary contributions
totaled $142,957, $123,621 and $137,150 in 1999, 1998 and 1997,
respectively.
10) Major Customers
The Company derived approximately $4,167,873 of its 1999 sales from an
unaffiliated customer and had a receivable balance from this customer
in the approximate amount of $222,000 as of December 31, 1999.
11) Discontinued Operations, Restructuring Expenses and Related Reserves
On June 30, 1999, the Company sold the remaining assets of its Services
Division. The consolidated financial statements of the Company have
been reclassified to reflect the dispositions of the companies that
comprised the Company's Services Division business segment. This
segment included the Company's Bloomington, Minnesota services
operation and Rimage Boulder. Accordingly, the revenues, costs and
expenses, assets and liabilities, and cash flows of the Services
Division have been excluded from the respective captions in the
Consolidated Statements of Operations, Consolidated Balance Sheets and
Consolidated Statements of Cash Flows. The net operating results of the
Services Division have been reported, net of applicable income taxes,
as "Income (loss) from operations of discontinued Services Division";
the net assets of the Services Division have been reported as "Net
assets of discontinued operations", and the net cash flows of the
Services Division have been reported within the section "Net cash
provided by operating activities" and after the section "Net cash used
in financing activities".
(Continued)
29
<PAGE>
RIMAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Summarized financial information for the discontinued operation, is as
follows:
For the years ended
December 31 (in thousands) 1999 1998 1997
- -------------------------------------------------------------------------------
Revenues $ 2,322 $ 8,854 $ 17,867
Income from discontinued operations
net of income tax expense (benefit)
of $105, $(217), and $(82) for
1999, 1998, and 1997, respectively $ 186 $ (541) $ (1,311)
Gain on disposal, net of income tax
expense of $609 $ 303 $ -- $ --
===============================================================================
At December 31 (in thousands) 1998
- -----------------------------------------------------------------
Current assets $ 683
Total assets $ 1,026
- -----------------------------------------------------------------
Current liabilities $ 439
Total liabilities $ 439
- -----------------------------------------------------------------
Net assets of discontinued operations $ 587
=================================================================
12) Commitments and Contingencies
The Company is exposed to a number of asserted and unasserted claims
encountered in the normal course of business. In the opinion of
management, the resolution of these matters will not have a material
adverse effect on the Company's financial position or results of
operations.
30
<PAGE>
RIMAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13) Subsequent Event
On February 25, 2000, the Company entered an Agreement and Plan of Merger
(the "Agreement") with Cedar Technologies, Inc ("Cedar"). According to
the Agreement, the Company will issue 331,664 shares of its common
stock for all the outstanding common stock of Cedar and the Company
will issue 268,028 shares of its common stock in exchange for
outstanding options and warrants of Cedar. This business combination
will be accounted for as a pooling-of-interests combination and,
accordingly, the Company's historical consolidated financial statements
presented in future reports will be restated to include the accounts
and results of operations of Cedar.
The following unaudited pro forma data summarizes the combined results of
operations of the Company and Cedar as if the combination had been
consummated on December 31, 1999.
(Amounts in thousands, except per share data)
Years Ended December 31
--------------------------------------------
1999 1998 1997
------------ ------------- ------------
Revenues $ 41,354 $ 31,366 $ 21,012
============ ============= ============
Income from continuing operations $ 5,962 $ 5,793 $ 3,236
============ ============= ============
Diluted Earnings per share $ 0.94 $ 0.99 $ 0.66
============ ============= ============
(Continued)
31
<PAGE>
RIMAGE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14) Supplemental Quarterly Data - Unaudited (dollars in thousands, except per
share data)
<TABLE>
<CAPTION>
1999 1998
---------------------------------------- ----------------------------------------
Fourth Third Second First Fourth Third Second First
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 10,245 9,823 8,729 7,516 8,507 7,289 6,602 6,132
Cost of revenues 5,013 4,638 4,612 3,665 4,120 3,647 3,102 2,928
- ------------------------------------------------------------------------------------------------------------------------------
Gross profit 5,232 5,185 4,117 3,851 4,387 3,642 3,500 3,204
- ------------------------------------------------------------------------------------------------------------------------------
Operating expenses:
Research and development 725 704 585 598 434 551 407 509
Selling, general, and administrative 2,055 1,654 1,622 1,662 1,896 1,585 1,572 1,547
- ------------------------------------------------------------------------------------------------------------------------------
Total operating expenses 2,780 2,358 2,207 2,260 2,330 2,136 1,979 2,056
- ------------------------------------------------------------------------------------------------------------------------------
Operating income from
continuing operations 2,452 2,827 1,910 1,591 2,057 1,506 1,521 1,148
- ------------------------------------------------------------------------------------------------------------------------------
Other income (expense):
Interest, net 179 138 80 72 75 28 4 (43)
Gain (loss) on currency exchange (119) (17) 52 (71) 3 51 33 (6)
Gain on lease restructure -- -- -- -- 361 -- --
Other, net 59 21 25 5 (57) (4) (15) 11
- ------------------------------------------------------------------------------------------------------------------------------
Total other income (expense) 119 142 157 6 21 436 22 (38)
- ------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations
before income taxes 2,571 2,969 2,067 1,597 2,078 1,942 1,543 1,110
Income tax expense (benefit) 926 1,069 744 612 957 (415) 384 153
- ------------------------------------------------------------------------------------------------------------------------------
Income from continuing
operations 1,645 1,900 1,323 985 1,121 2,357 1,159 957
Discontinued operations:
Income (loss) from operations of
discontinued Services Division,
net of applicable income taxes -- -- 75 111 208 (684) (111) 46
Gain on disposal of Services
division, net of applicable
income tax expense -- -- 304 -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Net income $ 1,645 1,900 1,702 1,096 1,329 1,673 1,048 1,003
==============================================================================================================================
Income (loss) per basic share:
Continuing operations $ .32 .37 .26 .20 .23 .49 .24 .21
Discontinued operations -- -- .08 .02 .04 (.14) (.02) .01
- ------------------------------------------------------------------------------------------------------------------------------
Net income per basic share $ .32 .37 .34 .22 .27 .35 .22 .22
==============================================================================================================================
Income (loss) per diluted share:
Continuing operations $ .28 .33 .23 .17 .19 .42 .21 .18
Discontinued operations -- -- .06 .02 .04 (.12) (.02) .01
- ------------------------------------------------------------------------------------------------------------------------------
Net income per diluted share $ .28 .33 .29 .19 .23 .30 .19 .19
==============================================================================================================================
</TABLE>
32
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors, executive officers, promoters and control
persons of the Company is set forth under "Election of Directors" in the
Company's definitive proxy statement for its 2000 Annual Meeting of
Shareholders, to be filed by April 29, 2000 and is incorporated herein by
reference.
Information regarding compliance with Section 16(a) of the Securities Exchange
Act of 1934 by the directors, executive officers and beneficial owners of more
than ten percent of the common stock of the Company is set forth under "Section
16(a) Beneficial Ownership Reporting Compliance" in the Company's definitive
proxy statement for its 2000 Annual Meeting of Shareholders, to be filed by
April 29, 2000, and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding compensation of directors and executive officers of the
Company is set forth in the section entitled "Board Committee and Actions" under
"Election of Directors" and the sections entitled "Summary Compensation Table",
"Stock Options", and "Retirement Savings Plan" under "Executive Compensation" in
the Company's definitive proxy statement for its 2000 Annual Meeting of
Shareholders, to be filed by April 29, 2000, and is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management is set forth under "Beneficial Ownership of Common Stock" in the
Company's definitive proxy statement for its 2000 Annual Meeting of
Shareholders, to be filed by April 29, 2000, and is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions is set
forth in the section entitled "Certain Transactions" under "Executive
Compensation" in the Company's definitive proxy statement for its 2000 Annual
Meeting of Shareholders, to be filed by April 29, 2000, and is incorporated
herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) FINANCIAL STATEMENTS. See Part II, Item 8 of this report.
(2) FINANCIAL STATEMENT SCHEDULES.
Page in this
Form 10-K
---------
Independent Auditors' Report on Financial
Statement Schedule ................................... 34
Schedule II - Valuation and Qualifying Accounts ...... 35
(3) EXHIBITS. See Index to Exhibits on page 37 of this report.
(b) REPORTS ON FORM 8-K. No reports on Form 8-K were filed during the last
quarter of the fiscal year.
(c) See Exhibit Index and Exhibits.
(d) See the Financial Schedule included at the end of this report.
33
<PAGE>
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE
The Board of Directors and Stockholders
Rimage Corporation and Subsidiaries:
Under date of February 8, 2000, except as to note 13, which is as of February
25, 2000, we reported on the consolidated balance sheets of Rimage Corporation
and subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of operations, stockholders' equity and comprehensive income and cash
flows for each of the years in the three-year period ended December 31, 1999, as
contained in the 1999 annual report to stockholders. These consolidated
financial statements and our report thereon are included in the annual report on
Form 10-K for the year 1999. In connection with our audits of the aforementioned
consolidated financial statements, we also have audited the related financial
statement schedule as listed in Item 14(a)(2). This financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
/s/ KPMG LLP
Minneapolis, Minnesota
February 8, 2000
except as to note 13, which
is as of February 25, 2000
34
<PAGE>
SCHEDULE II
RIMAGE CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Allowance for Doubtful Accounts Receivable: YEARS ENDED DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Balance at beginning of year $ 142,514 424,425 993,095
Write-offs and other adjustments (39,196) (183,318) (680,426)
Recoveries (59,100) (262,720) --
Additions charged to costs and expenses 269,961 164,127 111,756
------------ ------------ ------------
Balance at end of year $ 314,179 142,514 424,425
============ ============ ============
<CAPTION>
Reserve for Inventory Obsolescence: YEARS ENDED DECEMBER 31,
1999 1998 1997
------------ ------------ ------------
Balance at beginning of year $ 525,509 357,000 565,000
Write-offs and other adjustments (104,554) (306,219) (264,497)
Additions charged to costs of sales 224,795 474,728 56,497
------------ ------------ ------------
Balance at end of year $ 645,750 525,509 357,000
============ ============ ============
</TABLE>
35
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant caused this report to be signed on its
behalf by the undersigned, thereto duly authorized.
RIMAGE CORPORATION
By: /s/ Bernard P. Aldrich
----------------------
Bernard P. Aldrich
Chief Executive Officer
Dated: 3/20/00
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Bernard P. Aldrich Chief Executive Officer, President, 3/20/00
- --------------------------- Director (principal executive and
Bernard P. Aldrich financial officer)
/s/ David J. Suden Chief Technical Officer & Director 3/20/00
- ---------------------------
David J. Suden
/s/ Robert M. Wolf Treasurer (principal accounting officer) 3/20/00
- ---------------------------
Robert M. Wolf
/s/ James L. Reissner Director 3/20/00
- ---------------------------
James L. Reissner
/s/ Ronald R. Fletcher Director 3/20/00
- ---------------------------
Ronald R. Fletcher
/s/ Richard F. McNamara Director 3/20/00
- ---------------------------
Richard F. McNamara
/s/ George E. Kline Director 3/20/00
- ---------------------------
George E. Kline
36
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
2.1 Agreement and Plan of Merger dated February 25, 2000 by and between Rimage
Corporation and Cedar Technologies, Inc. [Filed as Exhibit 2.1 to the
Company's Form 8-K Report (File No. 0-20728) and incorporated herein by
reference].
2.2 Escrow Agreement dated February 25, 2000 by and between Rimage Corporation
and all the shareholders of Cedar Technologies, Inc. [Filed as Exhibit 2.2
to the Company's Form 8-K Report (File No. 0-20728) and incorporated
herein by reference].
3.1 1992 Restated Articles of Incorporation of Rimage Corporation [Filed as
Exhibit 3.1 to the Company's Registration Statement on Form SB-2
(Registration No. 33-22558) and incorporated herein by reference].
3.2 Bylaws of Rimage Corporation [Filed as Exhibit 3.2 to the Company's
Registration Statement on Form SB-2 (Registration No. 33-22558) and
incorporated herein by reference].
10.1 Rimage Corporation 1992 Stock Option Plan [Filed as Exhibit 10.5 to the
Company's Registration Statement on Form SB-2 (Registration No. 33-22558)
and incorporated herein by reference].
10.2 Lease dated July 28, 1992, between Rimage Corporation and 7725 Washington
Avenue Corporation [Filed as Exhibit 10.6 to the Company's Registration
Statement on Form SB-2 (Registration No. 33-22558) and incorporated herein
by reference].
10.3 Credit Agreement dated December 31, 1997 between Rimage Corporation and
First Bank, National Association.
10.4 1992 Stock Option Plan
21.1 Subsidiaries of Rimage Corporation.
23.1 Independent Auditors' Consent.
27.1 Financial Data Schedules for 1999, 1998 and 1997 Year Ends.
37
<PAGE>
RIMAGE CORPORATION
7725 Washington Avenue South
Minneapolis, MN 55439
TEL: 612-944-8144
FAX: 612-944-7808
RIMAGE EUROPE, GMBH
Hans - Boekler - Str. 7
6057 Dietzenbach, Germany
TEL: 011-49-6074-8521-0
FAX: 011-49-6074-8521-21
38
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 13,442
<SECURITIES> 0
<RECEIVABLES> 5,655
<ALLOWANCES> (314)
<INVENTORY> 2,287
<CURRENT-ASSETS> 22,016
<PP&E> 2,113
<DEPRECIATION> (1,296)
<TOTAL-ASSETS> 22,963
<CURRENT-LIABILITIES> 4,708
<BONDS> 0
0
0
<COMMON> 51
<OTHER-SE> 18,204
<TOTAL-LIABILITY-AND-EQUITY> 22,963
<SALES> 36,313
<TOTAL-REVENUES> 36,313
<CGS> 17,929
<TOTAL-COSTS> 17,929
<OTHER-EXPENSES> 8,780
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 9,205
<INCOME-TAX> 3,351
<INCOME-CONTINUING> 5,854
<DISCONTINUED> 489
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,343
<EPS-BASIC> 1.25
<EPS-DILUTED> 1.09
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 7,350
<SECURITIES> 0
<RECEIVABLES> 4,915
<ALLOWANCES> (143)
<INVENTORY> 1,876
<CURRENT-ASSETS> 16,037
<PP&E> 2,290
<DEPRECIATION> 1,724
<TOTAL-ASSETS> 16,670
<CURRENT-LIABILITIES> 4,502
<BONDS> 0
0
0
<COMMON> 49
<OTHER-SE> 12,119
<TOTAL-LIABILITY-AND-EQUITY> 16,670
<SALES> 28,530
<TOTAL-REVENUES> 28,530
<CGS> 13,797
<TOTAL-COSTS> 13,797
<OTHER-EXPENSES> 8,501
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,673
<INCOME-TAX> 1,079
<INCOME-CONTINUING> 5,594
<DISCONTINUED> (541)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,053
<EPS-BASIC> 1.06
<EPS-DILUTED> .90
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 762
<SECURITIES> 0
<RECEIVABLES> 3,351
<ALLOWANCES> (424)
<INVENTORY> 1,510
<CURRENT-ASSETS> 5,518
<PP&E> 3,313
<DEPRECIATION> 2,387
<TOTAL-ASSETS> 6,694
<CURRENT-LIABILITIES> 3,722
<BONDS> 0
0
0
<COMMON> 46
<OTHER-SE> 1,171
<TOTAL-LIABILITY-AND-EQUITY> 6,694
<SALES> 21,012
<TOTAL-REVENUES> 21,012
<CGS> 11,456
<TOTAL-COSTS> 11,456
<OTHER-EXPENSES> 5,918
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 315
<INCOME-PRETAX> 3,438
<INCOME-TAX> 202
<INCOME-CONTINUING> 3,236
<DISCONTINUED> (1,311)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,925
<EPS-BASIC> 0.42
<EPS-DILUTED> 0.39
</TABLE>
