UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO ____________.
Commission File Number: 0-21449
STORM TECHNOLOGY, INC.
(Exact name of Registrant as specified in its charter)
Delaware 77-0239305
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1395 Charleston Road
Mountain View, CA 94043
(Address of principal executive office and zip code)
(650) 691-6600
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
The number of shares of the Registrant's Common Stock outstanding as of
March 31, 1998 was 13,372,976.
<PAGE>
STORM TECHNOLOGY, INC.
INDEX
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheet at March 31, 1998 and
December 31, 1997
Condensed Consolidated Statement of Operations for the three
months ended March 31, 1998 and 1997
Condensed Consolidated Statement of Cash Flows for the three months
ended March 31, 1998 and 1997
Notes to Unaudited Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II- OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
STORM TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands, unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $867 $5,310
Accounts receivable, net......................... 11,229 10,204
Inventories...................................... 6,121 3,795
Other current assets............................. 384 355
----------- -----------
Total current assets.......................... 18,601 19,664
Property and equipment, net........................ 1,523 1,523
Goodwill........................................... 1,448 1,655
Other assets....................................... 10 40
----------- -----------
Total assets................................ $21,582 $22,882
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................. $4,860 $3,903
Accrued liabilities.............................. 1,651 3,935
Trade payables to related parties................ 11,267 11,831
Line of credit................................... 5,300 1,000
Convertible note payable to related party........ 4,000 --
Current portion of long-term obligations......... 249 151
----------- -----------
Total current liabilities..................... 27,327 20,820
Convertible note payable to related party.......... -- 4,000
Long-term obligations.............................. 616 401
----------- -----------
Total liabilities............................. 27,943 25,221
----------- -----------
Contingency (Note3)
Stockholders' equity (deficit):
Convertible preferred stock...................... 1 1
Common stock..................................... 13 13
Additional paid-in capital....................... 45,801 45,662
Deferred compensation............................ (64) (80)
Accumulated deficit.............................. (52,112) (47,935)
----------- -----------
Total stockholders' equity (deficit).......... (6,361) (2,339)
----------- -----------
Total liabilities and
stockholders' equity (deficit)............. $21,582 $22,882
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
STORM TECHNOLOGY, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
1998 1997
--------- ---------
<S> <C> <C>
Revenues.............................. $16,059 $2,047
Cost of revenues...................... 13,783 3,768
--------- ---------
Gross profit (loss)................... 2,276 (1,721)
--------- ---------
Operating expenses:
Research and development............ 1,349 1,116
Marketing and selling............... 2,903 2,088
General and administrative.......... 1,914 983
Goodwill amortization............... 207 448
--------- ---------
Total operating expenses....... 6,373 4,635
--------- ---------
Loss from operations.................. (4,097) (6,356)
Interest income (expense), net........ (80) 90
--------- ---------
Net loss.............................. ($4,177) ($6,266)
========= =========
Basic and diluted net loss per
share................................ ($0.32) ($0.60)
========= =========
Weighted average number of
common shares outstanding............ 12,858 10,424
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
STORM TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands, unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss............................................ ($4,177) ($6,266)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization................... 436 562
Changes in assets and liabilities:
Accounts receivable......................... (1,025) 6,106
Inventories................................. (2,326) (1,248)
Other current assets........................ (29) 26
Other assets................................ 30 6
Accounts payable............................ 957 247
Accrued liabilities......................... (2,284) 68
Trade payables to related parties........... (564) (2,459)
--------- ---------
Net cash used in operating activities........... (8,982) (2,958)
--------- ---------
Cash flows from investing activities:
Purchase of property and equipment.................. (213) (155)
Sales of short-term investments..................... -- 830
--------- ---------
Net cash provided by (used in) investing
activities..................................... (213) 675
--------- ---------
Cash flows from financing activities:
Net proceeds from line of credit.................... 4,300 --
Proceeds from secured equipment financings.......... 362 --
Repayment of secured equipment financings........... (49) --
Proceeds from issuance of common stock.............. 132 --
Other............................................... 7 (19)
--------- ---------
Net cash provided by (used in) financing
activities..................................... 4,752 (19)
--------- ---------
Net decrease in cash and cash equivalents.............. (4,443) (2,302)
Cash and cash equivalents at the beginning of the
period................................................ 5,310 7,335
--------- ---------
Cash and cash equivalents at the end of the period..... $867 $5,033
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
STORM TECHNOLOGY, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--BASIS OF PRESENTATION:
Storm Technology, Inc. (the "Company" or "Storm") creates personal
scanners that enable consumers to input, organize, store and use digital
images easily with their computers.
The accompanying unaudited condensed consolidated financial
statements have been prepared pursuant to the rules and regulations of
the Securities and Exchange Commission. In the opinion of management,
these financial statements reflect all adjustments (consisting only of
normal recurring adjustments) considered necessary for a fair
presentation of the Company's financial position, results of operations
and cash flows for the periods presented. These financial statements
should be read in conjunction with the Company's audited financial
statements for the year ended December 31, 1997, including notes
thereto, included in the Company's Form 10-K. The results of operations
for the interim periods included in these financial statements are not
necessarily indicative of the results to be expected for any future
period or the entire fiscal year.
NOTE 2--RESTATEMENT:
The Company's Form 10-Q for the quarter ended March 31, 1998
has been restated to reflect the March 26, 1999 maturity date of the
convertible note payable to related party. As this note is due within one
year of the March 31, 1998 balance sheet date, it has been reclassified
as a current liability.
NOTE 3--CONTINGENCY:
In March 1997, a suit was filed in the Superior Court of California
naming Storm, certain of the Company's officers and certain other
entities as defendants in a purported class action lawsuit. The lawsuit
alleges certain violations of state and federal securities laws in
connection with the Company's operating results for the fourth quarter
of 1996, and seeks unspecified damages. An amended complaint was filed
in October 1997 and a similar complaint was filed in the United States
District Court by the same plaintiffs in December 1997. The Company
believes that the allegations are without merit and intends to
vigorously defend itself in such matters.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This report contains forward-looking statements which reflect the
current views of the Company with respect to future events that will
have an effect on its future financial performance. These statements
include the words "expects," "believes" and similar expressions. These
forward-looking statements are subject to various risks and
uncertainties, including those referred to under "Factors That May
Affect Future Results" and elsewhere herein and contained in the
Company's Form 10-K, that could cause actual results to differ
materially from historical results or those currently anticipated.
OVERVIEW
The Company creates personal scanners that enable consumers to input,
organize, store and use digital images easily with their computers. The
Company's vision is to empower consumers to use all forms of digital
images to create more personable, memorable and effective
communications. Storm has been competing and gaining market share based
on a strategy of product innovation and price performance leadership to
develop and market personal scanners using the latest technology with
high quality at affordable consumer price points.
In 1995, the Company entered the personal scanner market by bundling
its EasyPhoto organizer software with a snapshot-sized photo scanner
manufactured by Primax Electronics, Ltd. ("Primax"). In 1996, Storm
established its own internal personal scanner hardware and software
product development teams, continued to build leadership in the personal
photo scanner market and leveraged OEMs to enter the page-sized sheetfed
scanner market segment. During 1997, Storm established itself as the
market leader in the personal photo scanner product segment, acquired
certain scanner assets from Logitech, Inc. and affiliated companies
("Logitech") (the "Logitech Acquisition"), resulting in a market
leadership position in page-sized sheetfed personal scanners, and
leveraged OEMs to enter the flatbed personal market segment. With the
December 1997 Logitech Acquisition, the Company has expanded
distribution in Europe through Logitech's existing European
infrastructure, providing access to over 8,000 retail outlets in the
region, broadened its underlying product portfolio and digital imaging
technology, and effectively doubled its worldwide market share.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain line
items from the Company's Condensed Consolidated Statement of Operations
as a percentage of the Company's total revenues:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------
1998 1997
--------- ---------
<S> <C> <C>
Revenues.............................. 100.0% 100.0%
Cost of revenues...................... 85.8% 184.1%
--------- ---------
Gross profit (loss)................... 14.2% -84.1%
--------- ---------
Operating expenses:
Research and development............ 8.4% 54.5%
Marketing and selling............... 18.1% 102.0%
General and administrative.......... 11.9% 48.0%
Goodwill amortization............... 1.3% 21.9%
--------- ---------
Total operating expenses....... 39.7% 226.4%
--------- ---------
Loss from operations.................. -25.5% -310.5%
Interest income (expense), net........ -0.5% 4.4%
--------- ---------
Net loss.............................. -26.0% -306.1%
========= =========
</TABLE>
Revenues
Revenues were $16.1 million in the first quarter of 1998, an increase
of approximately eight times the $2.0 million reported in the first
quarter of 1997, including revenue associated with acquired Logitech-
branded product sold in Europe. Excluding such European Logitech-branded
shipments, revenues for the first quarter of 1998 would have been $10.1
million, approximately five times the first quarter 1997 revenues. The
substantial increase in revenues was due primarily to European sales of
Logitech-branded products and increased European sales of Storm-branded
products resulting from the Logitech Acquisition and continued increases
in domestic unit sales volumes. The increase was also amplified by a
reserve provision of $1.7 million, principally for price protection,
recorded in the first quarter of 1997.
Cost of revenues
Cost of revenues increased to $13.8 million in the first quarter of
1998 from $3.8 million in the first quarter of 1997. Cost of revenues
increased in dollar amounts as the Company incurred higher costs
associated with its increase in product sales. This increase was
partially offset by the $1.1 million charge to cost of revenues,
primarily related to the write-down of the Company's EasyPhoto Drive
inventory for purposes of reconfiguration and sale to OEM customers,
recorded in the first quarter of 1997.
Gross profit (loss)
Gross profit was $2.3 million for the first quarter of 1998,
representing 14.2% of total revenues. For the first quarter of 1997,
gross loss was ($1.7) million, representing 84.1% of total revenues. The
increase in gross margin during the first quarter of 1998 was primarily
due to the adverse impact of the provisions for price protection and
inventory write-downs in the first quarter of 1997, as described above.
Research and development
Research and development expenses increased to $1.3 million in the
first quarter of 1998 from $1.1 million in the first quarter of 1997.
The increase in these expenses in dollar amounts from 1997 to 1998 is
primarily attributable to an increase in research and development
personnel to support the Company's new product development and
anticipated revenue growth. The decrease in research and development
expenses as a percentage of revenues from 1997 to 1998 is primarily
attributable to the significant increase in 1998 revenues. The Company
intends to continue to allocate substantial resources to research and
development, but research and development expenses may vary as a
percentage of total revenues.
Marketing and selling
Marketing and selling expenses increased to $2.9 million in the
first quarter of 1998 from $2.1 million in the first quarter of 1997.
The increase in these expenses in dollar amounts is primarily the result
of increased promotional expenses and increased headcount to support the
Company's domestic and international revenue growth. The decrease in
marketing and selling expenses as a percentage of revenues from 1997 to
1998 is primarily attributable to the significant growth in 1998
revenues. The Company believes that marketing and selling expenses will
increase in dollar amounts as the Company expands its sales and
marketing staff and promotional efforts to support the Company's
anticipated revenue growth, although marketing and selling expenses may
vary as a percentage of total revenues.
General and administrative
General and administrative expenses increased to $1.9 million in the
first quarter of 1998 from $1.0 million in the first quarter of 1997.
The increase in these expenses in dollar amounts from 1997 to 1998 is
primarily attributable to an increase in administrative personnel and
customer support costs to support the Company's domestic and
international revenue growth. The decrease in general and administrative
expenses as a percentage of revenues from 1997 to 1998 is primarily
attributable to the significant growth in 1998 revenues. The Company
believes that such expenses will increase in dollar amounts to support
the Company's anticipated revenue growth, although general and
administrative expenses may vary as a percentage of total revenues.
Goodwill amortization
Goodwill amortization was $0.2 million for the first quarter of 1998,
representing the amortization of goodwill associated with the December
1997 Logitech Acquisition over a two year period. Such goodwill and the
resultant amortization charges may increase significantly in 1998, if
additional consideration is paid to Logitech contingent on the
achievement of certain 1998 revenue objectives in Europe. The goodwill
amortization charge of $0.4 million in the first quarter of 1997
represents the write-off of the goodwill recorded in March 1996
associated with the purchase of certain photo scanner technologies from
Primax.
Interest income (expense), net
Interest income (expense), net consists primarily of interest
expense incurred in connection with the Company's line of credit and
long-term obligations offset by interest earned on cash equivalents and
short-term investments. Interest income (expense), net was less than
$0.1 million in each of the periods presented. The Company expects
interest expense to increase during 1998 in conjunction with increased
borrowings under the Company's line of credit to help fund the Company's
growth and interest incurred on notes payable issued and issuable to
Logitech in connection with the Logitech Acquisition.
Provision for income taxes
No provision for federal and state income taxes has been recorded as
the Company has incurred net operating losses through March 31, 1998.
LIQUIDITY AND CAPITAL RESOURCES
From inception through the third quarter of 1996, the Company
financed its working capital and capital expenditure requirements
primarily through the private sale of equity securities. On October 1,
1996, the Company completed a public offering of its common stock
generating net proceeds to the Company of $22.7 million. During 1997 the
Company raised an additional $5.0 million from the private placement of
equity securities, primarily to fund the cash portion of the Logitech
Acquisition purchase price.
During the first three months of 1998 the Company generated $4.7
million of cash from borrowings under the Company's bank line of credit
and to a lesser extent secured equipment financings. These funds were
used primarily to finance cash used in operating activities of $9.0
million for the three months ended March 31, 1998.
As of March 31, 1998, the Company had approximately $0.9 million in
cash and cash equivalents. The Company also has a $10.0 million
revolving accounts receivable line of credit. The line of credit expires
on February 27, 1999 and is secured by the assets of the Company. At
March 31, 1998, the Company had $5.3 million of borrowings under this
line of credit. As of March 31, 1998, the Company's principal
commitments consisted primarily of the above-mentioned line of credit
and secured equipment financings, its note payable to Logitech and a
lease for its office facilities. To date, the Company has not invested
in derivative securities or any other financial instruments that involve
a high level of complexity or risk. The Company expects that, in the
future, cash in excess of current requirements will be invested in
investment grade, interest-bearing securities.
The Company believes that its existing cash and investment balances,
its bank line of credit and other potential financing alternatives will
be sufficient to meet the Company's capital and operating requirements
for the next 12 months. The Company's management is currently exploring
financing alternatives to supplement Storm's cash position. Potential
sources of additional financing for the Company include private equity
financings, mergers, strategic investments, strategic partnerships, an
increase in its available bank line of credit or other forms of debt
financings. Nevertheless, there can be no assurance that such financing
will be available on acceptable terms, if at all. In addition, although
there are no present understandings, commitments or agreements with
respect to any material acquisition of other businesses, products or
technologies, the Company from time to time evaluates potential
acquisitions of businesses, products and technologies and may in the
future require additional equity or debt financings to consummate such
potential acquisitions.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's quarterly and annual operating results are affected by
a wide variety of risks and uncertainties as discussed below and in the
Company's Form 10-K. This Report on Form 10-Q should be read in
conjunction with such Form 10-K.
The Company, which was founded in January 1990, has incurred net
losses in every period since inception. There can be no assurance that
it will attain profitability, or, if profitability is attained, that the
Company will sustain profitability on a quarterly or an annual basis.
Management believes that its existing cash and investment balances, its
bank line of credit and other potential financing alternatives will be
sufficient to meet the Company's capital and operating requirements for
the next 12 months. Storm has no commitments or arrangements to obtain
any additional funding and there can be no assurance that the Company
will be able to obtain such funding, if necessary, on acceptable terms
or at all. The failure to raise needed funds on sufficiently favorable
terms could have a material adverse effect on the Company's business,
operating results and financial condition.
The Company recently completed the acquisition of Logitech's scanner
product line, primarily to expand its presence in the European consumer
scanner market, a market which is relatively new to the Company. While
the Company believes that the scanner products acquired from Logitech
offer an opportunity for the Company to increase its market share and
product offerings, there can be no assurance that the Company will be
successful in doing so. Furthermore, as the Company increases its
foreign sales, it may be materially and adversely affected by
fluctuations in currency exchange rates, changes in regulatory
requirements or duty rates, difficulties in staffing and managing
foreign operations and other risks inherent in conducting business on an
international level. There can be no assurance that one or more of such
factors will not have a material adverse effect on the Company's future
international operations and, consequently, on the Company's business,
operating results and financial condition.
The market for the Company's products is intensely competitive and
rapidly evolving. The Company currently derives substantially all of its
revenues from its personal scanner products and expects that revenues
from these products will continue to account for substantially all of
its revenues for the foreseeable future. There can be no assurance that
the market for personal scanner products will develop as anticipated by
the Company, or that the Company's products will be broadly accepted.
Furthermore, many of the Company's existing and potential competitors
have longer operating histories and significantly greater financial,
technical, sales, marketing and other resources, as well as greater name
recognition and larger customer bases, than the Company. As a result,
these competitors may be able to respond more effectively to new or
emerging technologies and changes in customer requirements, withstand
significant price decreases or devote greater resources to the
development, promotion, sale and support of their products than the
Company. There can be no assurance that the Company will be able to
compete successfully in the future or that competition will not have a
material adverse effect on the Company's business, operating results and
financial condition.
The Company has experienced and will continue to experience
significant fluctuations in revenues and operating results from quarter
to quarter and from year to year due to a combination of factors, many
of which are outside of the Company's direct control. These factors
include development of consumer demand for digital images on PCs in
general and for the Company's products in particular, the Company's
success in developing, introducing and shipping new products and product
enhancements in a timely manner, the purchasing patterns and potential
product returns from the Company's retail distribution, the potential
for reduced revenue due to price protection granted to distributors and
resellers, the performance of the Company's contract manufacturers and
component suppliers, the Company's ability to respond to new product
introductions and price reductions by its competitors, the timing,
cancellation or rescheduling of significant orders from the Company's
customers, the availability of key components and changes in the cost of
materials for the Company's products, the level of demand for PCs, the
Company's ability to attract, retain and motivate qualified personnel,
the timing and amount of research and development, marketing and selling
and general and administrative expenditures, and general economic
conditions. In addition, the Company has experienced seasonality in its
operating results. The Company believes that the seasonality of its
revenues results primarily from the purchasing habits of consumers and
the timing of the Company's fiscal year end. The Company currently
believes that such seasonality will generally continue.
Revenues and operating results in any quarter depend on the volume
and timing of and ability to fulfill customer orders, the receipt of
which is difficult to forecast. A significant portion of the Company's
operating expenses is relatively fixed in advance, based in large part
on the Company's forecasts of future sales. If sales are below
expectations in any given period, the adverse effect of a shortfall in
sales on the Company's operating results may be magnified by the
Company's inability to adjust operating expenses in the short term to
compensate for such shortfall. Accordingly, any significant shortfall in
revenues relative to the Company's expectations would have an immediate
material adverse impact on the Company's operating results and financial
condition. The Company may also be required to reduce prices in response
to competition or increase spending to pursue new product or market
opportunities. In the event of significant price competition in the
market for the Company's products, the Company would be required to
decrease costs at least proportionately in order to maintain profit
margins and would be at a significant disadvantage compared to
competitors with substantially greater resources, which could more
readily withstand an extended period of downward pricing pressure.
Primax and a third party are currently the primary manufacturing
sources for the hardware component of the Company's personal scanner
products. There can be no assurance that such suppliers will be able to
meet the Company's requirements for quality manufactured products,
competitive pricing and timely availability or U.S. Customs'
requirements for timely import into the United States. Furthermore,
obtaining products from an alternative manufacturing source involves
certain production start-up risks and delays, such as those associated
with the procurement of materials and training of production personnel.
Therefore, any inability to obtain requested quantities of quality
hardware components at competitive prices from these suppliers on a
timely basis or to increase manufacturing capacity from such suppliers
could have a material adverse effect on the Company's business, results
of operations and financial condition.
Since February 1995, most of the Company's sales have been made to
distributors, OEMs, and resellers such as computer superstores, consumer
electronics superstores, office supply superstores, specialty computer
stores, on-line companies and mass merchants. Accordingly, the Company
is dependent upon the continued viability and financial stability of
these customers. The Company's customers generally offer products of
several different companies, including scanner products that are
competitive with the Company's products. Accordingly, these customers
may give higher priority to products of suppliers other than the Company
through increased shelf space or promotions, thus reducing their efforts
to sell the Company's products. In addition, as is typical in the
personal computer industry, the Company grants its distributors and
resellers price protection and certain rights of return with respect to
products purchased by them. The Company accrues for expected returns and
anticipated price reductions in amounts that the Company believes are
reasonable. However, there can be no assurance that these accruals will
be sufficient, especially in light of the rapid product obsolescence
that often occurs during product transitions. In order to respond to
competitive pricing actions, increase sales or expand the distribution
of its products, the Company may reduce the prices of its products,
which could give rise to significant price protection charges and which
would have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, the
difficulty in predicting future sales and the anticipated short product
life cycles of the Company's products due to frequent upgrades increase
the risk that new product introductions, price reductions by the Company
or its competitors, or other factors affecting the digital imaging
market could result in significant product returns. Any price protection
charges or product returns in excess of recorded allowances would have a
material adverse effect on the Company's business, operating results and
financial condition.
In March 1997, a suit was filed in the Superior Court of California
naming Storm, certain of the Company's officers and certain other
entities as defendants in a purported class action lawsuit. The lawsuit
alleges certain violations of state and federal securities laws in
connection with the Company's operating results for the fourth quarter
of 1996, and seeks unspecified damages. An amended complaint was filed
in October 1997 and a similar complaint was filed in the United States
District Court by the same plaintiffs in December 1997. The Company
believes that the allegations contained in the lawsuits are without
merit and intends to vigorously defend itself in such actions. However,
there can be no assurance that the ultimate outcome of such lawsuits
will not have a material adverse effect on the Company's business,
operating results and financial condition.
The Company's common stock is quoted on the Nasdaq National Market.
Principally as the result of the payment of cash and issuance of notes
pursuant to the Logitech Acquisition, the Company does not currently
meet the National Market maintenance criteria. If the Company is not
able to raise sufficient equity or otherwise take action to meet such
requirements, the Company may be delisted from the National Market and
the quotation of the Company's stock could be included on the Nasdaq
SmallCap Market or in the non-Nasdaq over-the-counter market. As a
result of any such delisting, an investor may find it more difficult to
trade in shares of the Company's Common Stock.
The Company has recently experienced and may continue to experience
growth in the number of employees, the scope of its operating and
financial systems and the geographic distribution of its operations and
customers due to an anticipated increase in annual sales. The Company's
ability to compete effectively and to manage future growth, if any, will
require the Company to continue to assimilate such new personnel and to
implement and improve its financial and management controls, reporting
systems and procedures on a timely basis and expand, train and manage
its employee work force. There can be no assurance that the Company will
be able to do so successfully.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In March 1997, a suit was filed in the Superior Court of California
naming Storm, certain of the Company's officers and certain other
entities as defendants in a purported class action lawsuit. The lawsuit
alleges certain violations of state and federal securities laws in
connection with the Company's operating results for the fourth quarter
of 1996, and seeks unspecified damages. An amended complaint was filed
in October 1997 and a similar complaint was filed in the United States
District Court by the same plaintiffs in December 1997. The Company
believes that the allegations are without merit and intends to
vigorously defend itself in such matters.
ITEM 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) See Exhibit Index.
(b) Two reports on Form 8-K were filed during the quarter ended
March 31, 1998. These reports filed on January 2, 1998 and January
30, 1998, announced the acquisition of certain scanner assets from
Logitech and the release of the Company's 1998 first quarter
operating results, respectively.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized:
Date: June 10, 1998.
STORM TECHNOLOGY, INC.
By: /s/Rick M. McConnell
---------------------
Rick M. McConnell
Chief Financial Officer
and Vice President of Finance and Administration
(Principal Financial and Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibit Title
------ -------------
2.1* Form of Agreement and Plan of Merger between Storm Primax, Inc., a
California corporation (''Storm California''), and Storm Primax,
Inc., a Delaware corporation (''Storm Delaware'').
2.2** Agreement for Purchase and Sale of Assets dated as of December 18,
1997.
2.3** Joint Sales and Marketing Agreement dated as of December 18, 1997.
3.1* Sixth Amended and Restated Articles of Incorporation of Storm
California.
3.2* Certificate of Incorporation of Storm Delaware.
3.3* Bylaws of Storm California.
3.4* Bylaws of Storm Delaware.
3.10** Certificate of Designation for Series A 8.5% Convertible
Preferred Stock filed December 18, 1997.
10.1* Form of Indemnity Agreement for officers and directors.
10.2* The Registrant's Amended and Restated Stock Option Plan.
10.4* The Registrant's 1996 Outside Directors Stock Option Plan.
10.5* The Registrant's 1996 Employee Stock Purchase Plan.
10.10* Series F Preferred Stock Purchase Agreement dated June 11, 1996.
10.11* Fourth Amended and Restated Rights Agreement dated June 11, 1996,
as amended.
10.12* Agreement and Plan of Reorganization by and among Storm Software,
Inc., Storm Acquisition Corporation, Primax Electronics (U.S.A.)
Inc., and Primax Electronics, Ltd. (''Primax'') dated February 24,
1996.
10.13* Manufacturing and Purchase Agreement by and between Storm California
and Primax dated February 24, 1996.
10.17* Distribution Agreement by and between Storm California and Primax
dated February 29, 1996.
10.19* Agreement by and between Intel Corporation and Storm California dated
May 22, 1996.
10.25* Amendment No. 1 dated July 24, 1996 to the Agreement by and between
Storm California and Intel, dated May 22, 1996.
10.28* Addendum One dated June 11, 1996 to the Manufacturing and Purchase
Agreement between Primax and Storm California.
10.30* Amendment One to the Distribution Agreement by and between Storm
California and Primax dated February 29, 1996.
27 Financial Data Schedule.
* Incorporated by reference from the exhibits with corresponding numbers from
the Company's Registration Statement (No. 333-06911), as amended on September
30, 1996.
** Filed as an exhibit to the Company's Report on Form 8-K filed on
January 2, 1998 and incorporated herein by reference.
All other schedules are omitted because they are not required, are not
applicable or the information is included in the Condensed Consolidated
Financial Statements or notes thereto.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AND THE
STATEMENT OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 867
<SECURITIES> 0
<RECEIVABLES> 12,743
<ALLOWANCES> 1,514
<INVENTORY> 6,121
<CURRENT-ASSETS> 18,601
<PP&E> 2,964
<DEPRECIATION> 1,441
<TOTAL-ASSETS> 21,582
<CURRENT-LIABILITIES> 27,327
<BONDS> 0
0
1
<COMMON> 13
<OTHER-SE> (6,375)
<TOTAL-LIABILITY-AND-EQUITY> 21,582
<SALES> 16,059
<TOTAL-REVENUES> 16,059
<CGS> 13,783
<TOTAL-COSTS> 13,783
<OTHER-EXPENSES> 6,373
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (80)
<INCOME-PRETAX> (4,177)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,177)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,177)
<EPS-PRIMARY> ($0.32)
<EPS-DILUTED> ($0.32)
</TABLE>
