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RNIN > SEC Filings for RNIN > Form 10-Q on 15-May-2013All Recent SEC Filings

Show all filings for WIRELESS RONIN TECHNOLOGIES INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for WIRELESS RONIN TECHNOLOGIES INC


15-May-2013

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

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 in Item 1A under the caption "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012.

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 our Annual Report on Form 10-K for the fiscal year ended December 31, 2012 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

We provide marketing technology solutions, which include digital signage, interactive kiosks, mobile messaging, social networking and web development solutions, to customers who use our products and services in certain retail and service markets. Through our proprietary RoninCast® software, we provide enterprise, web-based and hosted content delivery systems that manage, schedule and deliver digital content over wireless and wired networks. We also provide custom interactive software solutions, content engineering and creative services to our customers.

While our marketing technology solutions have application in a wide variety of industries, we focus on three primary markets: (1) automotive, (2) food service (including quick serve restaurants (QSR), fast casual and managed food services markets), and (3) retail. Commencing April 2013, we began to target the QSR and pump topper markets through our license agreement with Delphi Displays Systems, Inc. Further information regarding such agreement appears under the subcaption "Subsequent Event." The industries in which we sell goods and services are not new but their application of marketing technology solutions is relatively new and participants in these industries only recently started adopting these types of technologies as part of their overall marketing strategies. As a result, we remain an early stage company without an established history of profitability, or substantial or steady revenue. We believe this characterization applies to our competitors as well, which are working to promote broader adoption of marketing technology solutions and to develop profitable, substantial and steady sources of revenue.

We believe that the adoption of marketing technology solutions will increase substantially in years to come both in industries on which we currently focus and in other industries. We also believe that adoption of our marketing technology solutions, which includes digital signage, depends not only upon the software and services that we provide but upon the cost of hardware used to process and display content in digital signage systems. Digital media players and flat panel displays constitute a large portion of the expenditure customers make relative to the entire cost of digital signage systems. Costs of these digital media players and flat panel displays have historically decreased and we believe will continue to do so, though we do not manufacture either product and do not substantially affect the overall markets for these products. In addition, we have been developing our next generation of RoninCast software in such a way as to allow it to function on significantly lower cost media players than the ones in use today. With the successful launch of our next generation RoninCast during the first quarter of 2013, we are now able to deploy our software on lower cost media players. With this capability, coupled with a continued decline in costs for flat panel displays, we believe that adoption of digital signage and other marketing technology solutions is likely to increase, though we cannot predict the rate at which such adoption will occur.

Management focuses on a wide variety of financial measurements to assess our financial health and prospects but principally upon (1) sales, to measure the adoption of our marketing technology solutions by our customers, (2) cost of sales and gross profit, particularly expressed as gross profit percentage, to determine if sales have been made at levels of profit necessary to cover operating expenses on a long-term basis (based upon assumptions regarding adoption), (3) sales of hardware relative to software and services, understanding that hardware typically provides a lower gross profit margin than do software license fees and services, (4) operating expenses so that management can appropriately match those expenses with sales, and (5) current assets, especially cash and cash equivalents used to fund operating losses thus far incurred.


Our wholly-owned subsidiary, Wireless Ronin Technologies (Canada), Inc. ("RNIN Canada"), an Ontario, Canada provincial corporation located in Windsor, Ontario, maintains a vertical-specific focus in the automotive industry and houses our content engineering operation. RNIN Canada develops digital content and sales support systems to help retailers train their sales staff and educate their customers at the point of sale. Today, the capabilities of this operation are integrated with our historical business to provide content solutions to all of our clients.

Our company and our subsidiary sell products and services primarily throughout North America.

Our Sources of Revenue

We generate revenue 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 primarily through our direct sales force, but we also utilize strategic partnerships and business alliances.

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.

Critical Accounting Policies and Estimates

A discussion of our critical accounting policies was provided in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2012. There were no significant changes to these accounting policies during the three months ended March 31, 2013.


Results of Operations

All dollar amounts reported in Item 2 are in thousands, except per share information.

Three Months Ended March 31, 2013 Compared to Three Months Ended March 31, 2012

The following table sets forth, for the periods indicated, certain unaudited consolidated statements of operations information:

                                                 Three Months Ended

                  March 31,     % of total    March 31,     % of total    $ Increase    % Increase
                     2013         sales          2012         sales       (Decrease)    (Decrease)

Sales              $ 1,407         100.0%      $ 1,773         100.0%      $ (366)         (20.6%)
Cost of sales          661          47.0%          824          46.5%        (163)         (19.8%)

Gross profit
(exclusive of
depreciation
and
amortization
shown
separately
below)                 746          53.0%          949          53.5%        (203)         (21.4%)
Sales and                           25.7%          458          25.8%         (96)         (21.0%)
marketing
expenses               362
Research and                        22.6%          559          31.5%        (241)         (43.1%)
development
expenses               318
General and                        100.2%        1,676          94.5%        (266)         (15.9%)
administrative
expenses             1,410
Depreciation                         4.3%           80           4.5%         (19)         (23.8%)
and
amortization
expense                 61

Total                              152.9%        2,773         156.4%        (622)         (22.4%)
operating
expenses             2,151

Operating loss     (1,405)         (99.9%)     (1,824)        (102.9%)         419         (23.0%)
Other income
(expense)
Interest                            (0.5%)         (5)          (0.3%)           2         (40.0%)
expense                (7)
Interest                              -              1           0.1%          (1)        (100.0%)
income                  -

Total other                         (0.5%)         (4)          (0.2%)         (3)         (75.0%)
expense                (7)

Net loss           (1,412)        (100.4%)     (1,828)        (103.1%)         416         (22.8%)

                                                Three Months Ended

                 March 31,     % of total    March 31,     % of total    $ Increase    % Increase
                    2013         sales          2012         sales       (Decrease)    (Decrease)

United States     $ 1,276          90.7%      $ 1,637          92.3%      $ (361)         (22.4%)
Canada                118           8.4%          130           7.3%         (12)          (9.2%)
Other                  13           0.9%            6           0.4%            7         116.7%
International

Total Sales       $ 1,407         100.0%      $ 1,773         100.0%      $ (366)         (20.6%)

Sales

Our sales during the three months ended March 31, 2013 decreased 21% or $366 to $1,407, compared to the same period in the prior year. This decrease was primarily attributable to lower development and content orders associated with iShowroom from Chrysler. During the first quarter of 2013, we recognized total revenue from Chrysler of $565, compared to $757 from Chrysler for the same period in the prior year. Additionally, our sales to individual Fiat dealerships were also lower by $58, when comparing the first quarter of 2013 to the same period in 2012 as a result of fewer deployments of the interactive kiosks featuring iShowroom. Eleven Fiat dealerships deployed interactive kiosks during the first quarter of 2013, compared to 22 for the same period in the prior year. Chrysler continues to require that all Fiat dealerships adopt the iShowroom interactive application, which is being featured in the Fiat Style Center of the new Fiat Studio Facilities. We received no orders for kiosks from Chrysler dealerships during the first quarter of 2013 or 2012. Although we have not received any iShowroom branded tower orders from Chrysler dealers since the second quarter of 2011, we believe Chrysler will further expand the program with further dealership adoption once the inventory we have already delivered and recognized as revenue is deployed from the purchase made in May 2011. However, since we do not have a contract with Chrysler requiring it to source all the various components of the solution through us and the purchase of the iShowroom branded towers will remain within the discretion of individual dealerships, we are unable to predict or forecast the timing or value of any future orders. Since the start of this program in September 2010, we have received orders for a total of 672 Chrysler and Fiat dealerships, substantially all of which have been filled as of March 31, 2013.


We experienced an overall increase in sales to ARAMARK of approximately $71 when comparing the first quarter of 2013 to the same period in the prior year. This was the result of receiving orders for our digital menu board solutions for 18 additional ARAMARK food service locations. Through March 31, 2013, we had received purchase orders for 317 locations we manage or will be managing through our network operations center, most of which have been filled as of March 31, 2013.

We also generated additional revenue related to our recurring hosting revenue, which totaled approximately $495 during the first quarter of 2013, a 6% increase from $466 recognized during the same period in the prior year, as our installation base continues to grow.

Due to the current economic environment and the lengthy sales cycle associated with deploying large-scale marketing technology solutions, we are not able to predict or forecast our future revenue with any degree of precision at this time.

Cost of Sales

Our cost of sales declined 20% or $163 to $661 for the first quarter of 2013 compared to the same period in the prior year. The decrease was due primarily to a reduction in personnel costs as a result of a decline in content and development orders for Chrysler when comparing the first quarter of 2013 to the same period in the prior year. On a percentage basis, our overall gross margin was 53% for the first quarter of 2013, compared to 54% for the same period in 2012. The decline was primarily due to lower hardware margins realized during the first quarter of 2013, when compared to the same period in the prior year. Our gross margin for services revenue on a percentage basis continues to improve, primarily as a result of continued growth in our recurring hosting and support revenue from our expanding installed base. Our ability to maintain these levels of gross margin on a percentage basis can be impacted in any given quarter by shifts in our sales mix. However, we believe that, over the long-term, our gross margin on a percentage basis will continue to increase as our recurring revenue grows.

Operating Expenses

Our operating expenses decreased 22% or $622 to $2,151 for the three months ended March 31, 2013 compared to the same period in the prior year.

Sales and marketing expenses include the salaries, employee benefits, commissions, stock-based compensation expense, travel and overhead costs of our sales and marketing personnel, as well as tradeshow activities and other marketing costs. Total sales and marketing expenses decreased 21% or $96 to $362 for the three months ended March 31, 2013 compared to the same period in the prior year. The decrease in sales and marketing expense when comparing the first quarter of 2013 to the same period in 2012 was primarily due to a decrease in tradeshow expenses of $83 as a result of concentrating our marketing dollars on more forums and user groups instead of the larger national tradeshows such as Digital Signage Expo. Our stock-based compensation expense was also lower by $2 when comparing the first quarter of 2013 to the same period in 2012. Total stock-based compensation expense included in sales and marketing was $9 and $11 during the three months ended March 31, 2013 and 2012, respectively. We continue to focus our efforts to maximize return on investment by attending select industry digital signage tradeshows, as we believe our presence is necessary to attract and retain new customers. We traditionally incur higher levels of tradeshow expenditures in the first quarter of our fiscal year compared to the remaining three quarters. Any significant increase in our sales and marketing expenses for the full year 2013 relative to 2012 would be the result of higher levels of commission expense resulting from an increase in our revenue, as we do not anticipate higher costs associated with tradeshows or marketing initiatives.

Research and development expenses include salaries, employee benefits, stock-based compensation expense, related overhead costs and consulting fees associated with product development, enhancements, upgrades, testing, quality assurance and documentation. Total research and development expenses for the first quarter of 2013 decreased 43% or approximately $241 to $318 when compared to the same period in the prior year. The decrease when comparing the first quarter of 2013 to the same period in 2012 was primarily related to lower employee compensation costs due to personnel changes of $175 made after the end of the first quarter of 2012 and lower expense incurred with outside consultants of $48. In addition, we also allocated a higher level of our research and development expense to cost of goods sold as a result of an increase in billable development work we performed for our customers and lower outside consultant expense. We currently believe our research and development expenses for each of the remaining three quarters of 2013 will be at a similar level to that experienced during the first quarter of 2013. It continues to be critical for our success that we are able to further enhance our RoninCast® software as the need for a more sophisticated dynamic digital signage platform continues to evolve. Included in research and development expense was stock-based compensation expense of $9 and $13 during the first quarter of 2013 and 2012, respectively.


General and administrative expenses include the salaries, employee benefits, stock-based 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 decreased 16% or $266 to $1,410 for the first quarter of 2013, when compared to the same period in the prior year. The decline in general and administrative expenses was primarily attributable to lower stock-based compensation expense of $175 attributable to stock and warrants issued to outside vendors for professional fees when comparing the first quarter of 2013 to 2012. In addition, we had a reduction in employee compensation and related costs of $32 and also $20 less in public company related expenses. Total stock compensation expense related to stock awards and options issued to our employees and non-employee directors for the first quarter of 2013 totaled $139, compared to $135 for the same period in the prior year. We currently believe our general and administrative costs will remain at a similar level to that experienced during the first quarter of 2013 for each of the remaining three quarters of 2013.

Depreciation and amortization expense, which consists primarily of depreciation of computer equipment and office furniture and the amortization of purchased software and leasehold improvements made to our leased facilities, was $61 and $80 during the first quarter of 2013 and 2012. Our depreciation expense continues to decrease, primarily as the result of minimal capital expenditures being made during the past twelve months.

Interest Expense

Interest expense during the three months ended March 31, 2013 and 2012 totaled $7 and 5, respectively. Interest expense for the three months ended March 31, 2013 relates to the amount outstanding on the line of credit with Silicon Valley Bank. Included in interest expense for the three months ended March 31, 2012 was $2 associated with the capital lease that we entered into in July 2010 and paid off in June 2012. The remaining amount included in interest expense for the three months ended March 31, 2012 was the result of the expense recognized related to the fair value of the warrant issued to Silicon Valley Bank as additional consideration for the loan and security agreement we entered into in March 2010 and most recently modified effective March 13, 2013. The warrant vested 100% on date of grant and we recognized the fair value, as determined using the Black-Scholes model, of $66 over the one-year life of the agreement on a straight-line basis. The loan and security agreement modification in January 2011 included a provision to reduce the exercise price associated with the warrant resulting in an incremental increase in fair value of $0.20 per share.
The fair value remaining as of the date of the modification totaled $19 and was amortized on a straight-line basis through March 2012.

Interest Income

Interest income was lower by $1 during the three month period ended March 31, 2013 when compared to the same period in the prior year. The decrease in interest income was primarily due to a lower average cash balance during the three month period ended March 31, 2013 compared to the same period in the prior year.

Liquidity and Capital Resources

Going Concern

We incurred net losses and negative cash flows from operating activities for the years ended December 31, 2012, 2011 and 2010 and the three months ended March 31, 2013 and 2012. At March 31, 2013, we had cash, cash equivalents and restricted cash of $3,110 and working capital of $1,961. The cash used in operating activities for the three months ended March 31, 2013 was $563. At March 31, 2013, we had an outstanding balance of $400 on our line of credit with Silicon Valley Bank; additionally, Silicon Valley Bank has issued a letter of credit in the amount of $240 as collateral to the landlord of our corporate office. We cannot assure you that funds would be available or sufficient under our loan and security agreement with Silicon Valley Bank, and we may not be able to successfully obtain additional financing on favorable terms, or at all.
Additionally, from time to time we have failed to satisfy the minimum tangible net worth covenant, which must be satisfied in order for us to borrow under such agreement. Furthermore, as a result of the contractually imposed limits on our borrowing base, the amount available to us under the loan and security agreement, based on calculations as of March 31, 2013, was approximately $157. The line of credit, which is secured by all of our assets, matures on March 12, 2014.


The financial statements for the fiscal year ended December 31, 2012 were prepared on a going concern basis, meaning that they do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should our company be unable to continue as a going concern. However, our auditor also expressed substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is an issue raised as a result of losses suffered from operations. We do not currently have sufficient capital resources to fund operations beyond September 2013. We continue to experience operating losses. Management continues to seek financing on favorable terms; however, there can be no assurance that any such financing can be obtained on favorable terms, if at all. At present, we have no commitments for any additional financing. Because we have received an opinion from our auditor that substantial doubt exists as to whether our company can continue as a going concern, it may be more difficult for our company to attract investors, secure debt financing or bank loans, or a combination of the foregoing, on favorable terms, if at all. Our future depends upon our ability to obtain financing and upon future profitable operations. If we are unable to generate sufficient revenue, find financing, or adjust our operating expenses so as to maintain positive working capital, then we likely will be forced to cease operations and investors will likely lose their entire investment. We can give no assurance as to our ability to generate adequate revenue, raise sufficient capital, sufficiently reduce operating expenses or continue as a going concern. In light of our financial condition and potential for continued net losses, we continue to evaluate strategic and financial alternatives and have engaged Roth Capital Partners, LLC to assist us in that process. Such alternatives may include licensing our product for use in one or more specific industries, acquiring other entities to enable us to gain sufficient mass to regain meaningful access to the capital markets and/or become a more attractive acquisition candidate, and/or selling substantially all of our assets or engaging in some other business combination transaction. However, there can be no assurance that any of these efforts will be successful or resolve our short-term liquidity issues.

Operating Activities

We do not currently generate positive cash flow. Our operational costs have been greater than sales generated to date. As of March 31, 2013, we had an accumulated deficit of $95,834. The cash flow used in operating activities was $563 and $1,253 for the three months ended March 31, 2013 and 2012, respectively. The majority of the cash consumed by operations for both periods was attributed to our net losses of $1,412 and $1,828 for the three months ended March 31, 2013 and 2012, respectively. Included in our net losses were non-cash charges consisting of depreciation, stock compensation expense and amortization of warrants issued for debt issuance costs totaling $230 and $429 for the three months ended March 31, 2013 and 2012, respectively. The primary reasons for the decrease in the change to our working capital accounts for the three months ended March 31, 2013 were timing on when we collected certain receivables and our progressive invoicing of a significant amount of projects to Chrysler in January 2013, all of which were collected prior to March 31, 2013. Also in the three months ended March 31, 2012, we were able to invoice a higher percentage of orders to Chrysler earlier in the first quarter of 2012, when compared to the fourth quarter of 2011. Therefore, our accounts receivable declined $451 and $225 during the three months ended March 31, 2013 and 2012, respectively, when compared to the prior year end balances. Our accrued liabilities increased $82 and $170 during the first three months of 2013 and 2012, respectively, when compared to the prior year end balances as a result of an accrual for payroll to our employees and also a general increase in other employee compensation related account balances. The decreases in inventory balances of $51 and $46 for the three months ended March 31, 2013 and 2012 were primarily the result of fewer open projects at March 31, 2013 and 2012, when compared to December 31, 2012 and 2011, respectively. We also experienced an increase in our deferred revenue balance of $72 as a result of an increase of several uncompleted projects as of March 31, 2013.

Partially offsetting these declines to our working capital balances was an increase to our prepaid expenses balance of $37 at the end of the first quarter of 2013, when compared to the prior year end balance. This increase was . . .

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