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| RNIN > SEC Filings for RNIN > Form 10-Q on 7-Aug-2009 | All Recent SEC Filings |
7-Aug-2009
Quarterly Report
The following discussion contains various forward-looking statements within the meaning of Section 21E of the Exchange Act. Although we believe that, in making any such statement, our expectations are based on reasonable assumptions, any such statement may be influenced by factors that could cause actual outcomes and results to be materially different from those projected. When used in the following discussion, the words "anticipates," "believes," "expects," "intends," "plans," "estimates" and similar expressions, as they relate to us or our management, are intended to identify such forward-looking statements. These forward-looking statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from those anticipated. Factors that could cause actual results to differ materially from those anticipated, certain of which are beyond our control, are set forth herein and in our "Cautionary Statement" in our Form 10-Q for the period ended March 31, 2009.
Our actual results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking statements. Accordingly, we cannot be certain that any of the events anticipated by forward-looking statements will occur or, if any of them do occur, what impact they will have on us. We caution you to keep in mind the cautions and risks described in this document and in our Form 10-Q for the period ended March 31, 2009. and to refrain from attributing undue certainty to any forward-looking statements, which speak only as of the date of the document in which they appear. We do not undertake to update any forward-looking statement.
Overview
Wireless Ronin Technologies, Inc. is a Minnesota corporation that has designed and developed application-specific visual marketing solutions. We provide dynamic digital signage solutions targeting specific retail and service markets through a suite of software applications collectively called RoninCast®. RoninCast® is an enterprise-level content delivery system that manages, schedules and delivers digital content over wireless or wired networks. Our solution, a digital alternative to static signage, provides our customers with a dynamic visual marketing system designed to enhance the way they advertise, market and deliver their messages to targeted audiences. Our technology can be combined with interactive touch screens to create new platforms for conveying marketing messages.
Our Sources of Revenue
We generate revenues through system sales, license fees and separate service fees, including consulting, content development and implementation services, as well as ongoing customer support and maintenance, including product upgrades. We currently market and sell our software and service solutions through our direct sales force.
Our Expenses
Our expenses are primarily comprised of three categories: sales and marketing, research and development and general and administrative. Sales and marketing expenses include salaries and benefits for our sales associates and commissions paid on sales. This category also includes amounts spent on the hardware and software we use to prospect new customers including those expenses incurred in trade shows and product demonstrations. Our research and development expenses represent the salaries and benefits of those individuals who develop and maintain our software products including RoninCast® and other software applications we design and sell to our customers. Our general and administrative expenses consist of corporate overhead, including administrative salaries, real property lease payments, salaries and benefits for our corporate officers and other expenses such as legal and accounting fees.
Significant Accounting Policies and Estimates
A discussion of our significant accounting policies was provided in Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2008. There were no significant changes to these accounting policies during the first six months of 2009.
Results of Operations
The following table sets forth, for the periods indicated, certain unaudited
consolidated statements of operations information ($000):
Three Months Ended
June 30, % of total June 30, % of total $ Increase % Increase
2009 sales 2008 sales (Decrease) (Decrease)
Sales $ 963 100 % $ 1,596 100 % $ (633 ) (40 %)
Cost of sales 743 77 % 1,534 96 % (791 ) (52 %)
Gross profit
(exclusive of
depreciation and
amortization shown
separately below) 220 23 % 62 4 % 158 255 %
Sales and marketing
expenses 603 63 % 1,110 70 % (507 ) (46 %)
Research and
development expenses 548 57 % 590 37 % (42 ) (7 %)
General and
administrative expenses 1,545 160 % 3,143 197 % (1,598 ) (51 %)
Depreciation and
amortization expense 193 20 % 337 21 % (144 ) (43 %)
Total operating
expenses 2,889 300 % 5,180 325 % (2,291 ) (44 %)
Operating loss (2,669 ) (277 %) (5,118 ) (321 %) (2,449 ) (48 %)
Other income
(expenses):
Interest expense (2 ) (0 %) (7 ) (0 %) (5 ) (71 %)
Interest income 16 2 % 165 10 % (149 ) (90 %)
Total other income
(expense) 14 2 % 158 10 % (144 ) (91 %)
Net loss $ (2,655 ) (276 %) $ (4,960 ) (311 %) $ (2,305 ) (47 %)
Three Months Ended
June 30, % of total June 30, % of total $ Increase % Increase
2009 sales 2008 sales (Decrease) (Decrease)
United States $ 924 96 % $ 1,350 85 % $ (426 ) (32 %)
Canada 7 1 % 246 15 % (239 ) (97 %)
Other International 32 3 % - - 32 100 %
Total Sales $ 963 100 % $ 1,596 100 % $ (633 ) (40 %)
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Six Months Ended
June 30, % of total June 30, % of total $ Increase % Increase
2009 sales 2008 sales (Decrease) (Decrease)
Sales $ 2,396 100 % $ 3,530 100 % $ (1,134 ) (32 %)
Cost of sales 1,903 79 % 3,069 87 % (1,166 ) (38 %)
Gross profit
(exclusive of
depreciation and
amortization shown
separately below) 493 21 % 461 13 % 32 7 %
Sales and marketing
expenses 1,434 60 % 2,330 66 % (896 ) (39 %)
Research and
development expenses 939 39 % 1,044 30 % (105 ) (10 %)
General and
administrative expenses 3,340 139 % 6,079 172 % (2,739 ) (45 %)
Depreciation and
amortization expense 392 16 % 588 17 % (196 ) (33 %)
Total operating
expenses 6,105 255 % 10,041 284 % (3,936 ) (39 %)
Operating loss (5,612 ) (234 %) (9,580 ) (271 %) (3,968 ) (41 %)
Other income
(expenses):
Interest expense (5 ) (0 %) (14 ) (0 %) (9 ) (64 %)
Interest income 59 3 % 437 12 % (378 ) (87 %)
Total other income
(expense) 54 2 % 423 12 % (369 ) (87 %)
Net loss $ (5,558 ) (232 %) $ (9,157 ) (259 %) $ (3,599 ) (39 %)
Six Months Ended
June 30, % of total June 30, % of total $ Increase % Increase
2009 sales 2008 sales (Decrease) (Decrease)
United States $ 2,191 91 % $ 2,887 82 % $ (696 ) (24 %)
Canada 117 5 % 639 18 % (522 ) (82 %)
Other International 88 4 % 4 0 % 84 2100 %
Total Sales $ 2,396 100 % $ 3,530 100 % $ (1,134 ) (32 %)
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Sales
Our sales totaled $963 for the three months ended June 30, 2009, compared to $1,596 for the same period in the prior year, a decrease of $633 or 40%. The decrease in sales was primarily due to the collapse in the automotive industry during the second quarter of 2009. On April 30, 2009, Chrysler LLC and twenty-four of its affiliated subsidiaries filed a consolidated petition for Chapter 11 Bankruptcy Protection with the U.S. Federal Bankruptcy court in New York City. During the three months ended June 30, 2008, we generated approximately $600 of services revenue or approximately 38% of our total revenue from Chrysler LLC and BBDO (Detroit/Canada), which is an advertising agent for Chrysler, which compares to less than $50 for such customers in the second quarter of 2009. Our revenues for the first half of 2009 totaled $2,396 compared to $3,530 for the same period in the prior year, a decrease of $1,134 or 32%. The additional decline in revenue when comparing the first half of 2009 to 2008 was primarily due to lower hardware sales as certain customers are choosing to contract directly with our display suppliers, thus resulting in lower hardware sales. During the first half of 2009 we recognized $766 of hardware sales compared to $1,260 for the same period in the prior year, representing a decline of $494 or 39%. The decline in hardware and services was partially offset by higher levels of software sales as we continued to sell and deploy our RoninCast® software into an increased number of quick serve restaurants and other financial services and retail locations during the second quarter and first half of 2009 compared to the same periods in the prior year. Due to the current recession, we are not able to predict or forecast our future revenues with any degree of precision at this time.
Our cost of sales decreased 52% or $791 to $743 for the three months ended June 30, 2009 compared to the same period in the prior year. Cost of sales for the first half of 2009 totaled $1,903 compared to $3,069 for the same period in the prior year. The decrease in cost of sales for both periods was due to the lower levels of hardware and service sales and also a reduction in compensation and related employee costs due to the workforce reductions taken in the third and fourth quarter of 2008 to better match our infrastructure and expenses with sales levels and current client projects.
Operating Expenses
Our operating expenses decreased 44% or $2,291 to $2,889 for the three months ended June 30, 2009 compared to the same period in the prior year. Operating costs for the first half of 2009 totaled $6,105 compared to $10,041 for the same period in the prior year.
Sales and marketing expense includes the salaries, employee benefits, commissions, stock compensation expense, travel and overhead costs of our sales and marketing personnel, as well as trade show activities and other marketing costs. Total sales and marketing expenses were lower by $507 or 46% and $896 or 39% in the second quarter and first half of 2009, respectively, when compared to the same periods in the prior year. The declines related to a decrease in compensation and benefits, along with lower travel related expenses as a result of the workforce reductions taken in the third and fourth quarter of 2008. In addition, we reduced the level of spending related to tradeshows and other marketing initiatives in the first half of 2009 when compared to the same period in the prior year. We traditionally incur higher levels of tradeshow expenditures in the first quarter of our fiscal year compared to the remaining three quarters. Any increased revenues and associated commissions may offset any future reduction in marketing expenditures.
Research and development expense includes salaries, employee benefits, stock compensation expense, related overhead costs and consulting fees associated with product development, enhancements, upgrades, testing, quality assurance and documentation. Total research and development expenses were lower by $42 or 7% and $105 or 10% in the second quarter and first half of 2009, respectively, when compared to the same periods in the prior year. The declines were primarily the result of lower compensation and benefits expenses. We remain committed to continuously enhancing our RoninCast® software which is critical for our success as the requirements for a more sophisticated dynamic digital signage platform continue to emerge. We currently expect our research and development expenses to remain at similar levels experienced during the first half of 2009 for the balance of fiscal 2009.
General and administrative expense includes the salaries, employee benefits, stock compensation expense and related overhead cost of our finance, information technology, human resources and administrative employees, as well as legal and accounting expenses, consulting and contractor fees and bad debt expense. Total general and administrative expenses were lower by $1,598 or 51% and $2,739 or 45% in the second quarter and first half of 2009, respectively, compared to the same periods in the prior year. The declines were primarily the result of a decrease in compensation and benefits, along with contractor costs as a result of the workforce reductions taken in the third and fourth quarter of 2008. Our stock compensation expense was also down $331 during the first half of 2009 when compared to the prior year period. In general, we experienced an across-the-board reduction in almost all expense categories as a result of better aligning our expenses with the lower levels of revenue.
Depreciation and amortization expense, which consists primarily of depreciation of computer equipment and office furniture and the amortization of purchased software, leasehold improvements made to our leased facilities and amortization of our acquisition-related intangible assets, was also lower by $144 and $196 in the second quarter and first half of 2009, respectively, when compared to the same periods in the prior year. This was primarily the result of recording an impairment charge during the fourth quarter of 2008 for the remaining value of our acquisition-related intangible assets.
We will continue to monitor our operating expenses in relationship to our revenue levels and make the necessary cost reductions to the point where it will not significantly impact our ability to service our customers.
Interest Expense
Interest expense decreased to $5 from $14 during the first half of 2009 compared to the same period in the prior year. The decrease was the result of reduced debt balances under our capital leases.
Interest Income
Interest income was lower by $149 and $378 in the second quarter and first half of 2009 when compared to the same periods in the prior year. The decreases in interest income were due to significantly lower cash balances and a lower realized interest rate yield on our investments during the first half of 2009 compared to the same period in the prior year. Our average cash, cash equivalents and marketable securities during the first half of 2009 was $11,946 with an average yield of 0.49% compared to $25,977 with an average yield of 1.7% for the same period in the prior year.
Operating Activities
We do not currently generate positive cash flow. Our investments in infrastructure have been greater than sales generated to date. As of June 30, 2009, we had an accumulated deficit of $69,770. The cash flow used in operating activities was $4,098 and $7,087 for the six months ended June 30, 2009 and 2008, respectively. The decrease in cash used in operations was primarily due to a reduction in our net loss during the first half of 2009 compared to the same period in 2008. Cash provided by changes in our working capital accounts were generally consistent for both periods presented, which for the first six months of 2009 and 2008 totaled $724 and $793, respectively. The changes to our working capital accounts were primarily the result of a sequential decline in our revenues from the first quarter to the second quarter for both periods presented. We generated cash from a decline in our asset accounts of $1,460 and $456 for the six months ended June 30, 2009 and 2008, which includes accounts receivable, inventory and prepaid and other assets. The decline in asset accounts for the six month period ended June 30, 2009 was partially offset by lower liability and deferred revenue accounts totaling $736 for the six months ended June 30, 2009. Our accrued liabilities increased during the first six months of 2008 as a result of recording an accrual for employee severance expense of $353, which provided an overall increase in our liability accounts of $337. Based on our current expense levels, we anticipate that our cash and cash equivalents at June 30, 2009 will be adequate to fund our operations for the next twelve months.
Investing Activities
Net cash provided by investing activities was $8,210 and $674 for the six months ended June 30, 2009 and 2008, respectively. The increase in cash provided by investing activities was due to net sales of marketable securities of $8,301 during the first half of 2009 compared to $1,373 for the same period in prior year. These amounts were partially offset by purchases of capital equipment of $91 during the first half of 2009 compared to $699 for the same period in the prior year. We currently anticipate our capital expenditures to remain at similar levels for the balance of 2009, however if the Company's hosting revenues were to significantly increase, there may be a need to make additional capital equipment investments to support our network operation center. During the second quarter 2009 we moved our investments held in marketable securities as they matured into a commercial paper sweep account with US Bank Corp which currently carries an A-1 P-1 rating.
Financing Activities
Net cash provided by financing activities was $85 and $456 for the first half of 2009 and 2008, respectively. Cash generated from the exercise of stock options and shares issued through our associate stock purchase plan totaled $52 and $520 for the first six months of 2009 and 2008, respectively. These amounts were partially offset by principal payments made on various capital leases due to expire during 2009.
We have historically financed our operations primarily through sales of common stock, exercise of warrants, and the issuance of notes payable to vendors, shareholders and investors. Based on our current and anticipated expense levels and our existing capital resources, we anticipate that our cash will be adequate to fund our operations for at least the next twelve months. Our future capital requirements, however, will depend on many factors, including our ability to successfully market and sell our products, develop new products and establish and leverage our strategic partnerships and reseller relationships. In order to meet our needs should we not become cash flow positive or should we be unable to sustain positive cash flow, we may be required to raise additional funding through public or private financings, including equity financings. Any additional equity financings may be dilutive to shareholders, and debt financing, if available, may involve restrictive covenants. Adequate funds for our operations, whether from financial markets, collaborative or other arrangements, may not be available when needed or on terms attractive to us, especially in light of recent turmoil in the credit markets. If adequate funds are not available, our plans to operate our business may be adversely affected and we could be required to curtail our activities significantly. We may need additional funding in the future. Necessary funding may not be available on terms that are favorable to the company, if at all.
Contractual Obligations
Although we have no material commitments for capital expenditures, we anticipate levels of capital expenditures consistent with our current levels of operations, infrastructure and personnel for the remainder of fiscal 2009.
Operating and Capital Leases
At June 30, 2009, our principal commitments consisted of long-term obligations under operating leases. We lease approximately 19,089 square feet of office and warehouse space located at 5929 Baker Road, Minnetonka, Minnesota under a lease that extends through January 31, 2013. In addition, we lease office space of approximately 9,700 square feet to support our Canadian operations at a facility located at 4510 Rhodes Drive, Suite 800, Windsor, Ontario under a lease that extends through June 30, 2014.
The following table summarizes our obligations under contractual agreements as of June 30, 2009 and the time frame within which payments on such obligations are due:
Payment Due by Period
Less Than More Than
Contractual Obligations Total 1 Year 1-3 Years 3-5 Years 5 Years
Contractual Lease Obligations
(including interest) $ 33 $ 33 $ - $ - $ -
Operating Lease Obligations 1,033 165 516 323 29
Total $ 1,066 $ 198 $ 516 $ 323 $ 29
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Based on our working capital position at June 30, 2009, we believe we have sufficient working capital to meet our current obligations.
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