<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 28, 1997
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the period from to
Commission file number: 000-2159
APEX PC SOLUTIONS, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)
WASHINGTON 91-1577634
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
20031 142nd Avenue, N.E.
Woodinville, Washington 98072
(Address of Principal Executive Offices) (Zip Code)
425-402-9393
(Issuer's Telephone Number, Including Area Code)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 of 15(d) of the Exchange Act during the past 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 No X
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
<TABLE>
<CAPTION>
CLASS OUTSTANDING AT APRIL 30, 1997
-------------------------- -----------------------------
<S> <C>
Common Stock 12,160,016
</TABLE>
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
APEX PC SOLUTIONS, INC.
Consolidated Statements of Operations
for the quarter ended
<TABLE>
<CAPTION>
MARCH 31, MARCH 28,
1996 1997
------------ -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net sales........................................................ $ 7,916,053 $ 11,586,883
Cost of sales.................................................... 4,668,120 6,382,677
------------ -------------
Gross profit.................................................. 3,247,933 5,204,206
------------ -------------
------------ -------------
Research and development......................................... 257,960 441,794
Sales and marketing.............................................. 577,289 885,727
General and administrative....................................... 449,022 780,781
------------ -------------
Total operating expenses...................................... 1,284,271 2,108,302
------------ -------------
------------ -------------
Income from operations........................................ 1,963,662 3,095,904
Interest expense, net............................................ (471,938) (240,403)
Other income..................................................... 146,324
------------ -------------
Income from operations before income taxes and extraordinary
item........................................................... 1,491,724 3,001,825
Provision for income taxes....................................... (507,624) (1,025,500)
------------ -------------
Income before extraordinary item................................. 984,100 1,976,325
Extraordinary item--loss on early extinguishment of debt, net of
applicable income taxes........................................ -- (140,763)
------------ -------------
------------ -------------
Net income....................................................... $ 984,100 $ 1,835,562
------------ -------------
------------ -------------
Per Share:
Income before extraordinary item................................. $ 0.11 $ 0.18
Extraordinary item............................................... -- (0.01)
------------ -------------
Net income....................................................... $ 0.11 $ 0.17
------------ -------------
------------ -------------
Weighted average shares used in computing EPS.................... 9,091,932 10,735,664
</TABLE>
See notes accompanying these financial statements.
2
<PAGE>
APEX PC SOLUTIONS, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, MARCH 28,
1996 1997
------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................... $ 2,118,887 $ 7,451,387
Accounts receivable, net of allowance for doubtful accounts.. 6,170,193 5,978,002
Inventories.................................................. 1,653,011 1,612,468
Prepaid expenses............................................. 130,218 368,678
Deferred tax assets.......................................... 800,700 486,359
------------- -------------
Total current assets....................................... 10,873,009 15,896,894
------------- -------------
------------- -------------
Property and equipment, at cost:
Leasehold improvements....................................... 4,677 4,677
Furniture and office equipment............................... 273,831 351,241
Computer and other equipment................................. 380,334 397,815
------------- -------------
658,842 753,733
Less accumulated depreciation................................ 195,959 236,909
------------- -------------
462,883 516,824
------------- -------------
Other assets................................................... 617,255 10,922
------------- -------------
Total assets................................................... $ 11,953,147 $ 16,424,640
------------- -------------
------------- -------------
</TABLE>
(continued on next page)
See notes accompanying these financial statements.
3
<PAGE>
APEX PC SOLUTIONS, INC.
Consolidated Balance Sheets (continued)
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, MARCH 28,
1996 1997
------------- -------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt........................... $ 504,349 $ 4,349
Accounts payable............................................ 530,525 607,043
Accrued wages and commissions............................... 554,352 374,820
Accrued warranty costs...................................... 630,000 655,000
Accrued income taxes........................................ -- 559,639
Other accrued expenses...................................... 282,040 469,034
------------- --------------
Total current liabilities................................. 2,501,266 2,669,885
Subordinated debt............................................. 20,000,000 --
Long-term debt, less current portion.......................... 5,110,549 9,454
Deferred taxes................................................ 16,500 18,500
------------- -------------
Total liabilities........................................... 27,628,315 2,697,839
------------- -------------
Preferred stock, Series A redeemable and convertible,
no par value; 300,000 shares authorized, issued and
outstanding at December 31, 1996............................ 2,205,000 --
Preferred stock, Series B redeemable, no par value;
200,000 shares authorized, issued and outstanding at
December 31, 1996........................................... 1,000,000 --
------------- -------------
Shareholders' equity (deficit):
Preferred stock, 1,000,000 shares authorized; no shares
issued and outstanding.................................... -- --
Common stock, no par value; 100,000,000 shares authorized;
6,260,016 and 12,160,016 shares issued and outstanding.... 648,260 31,513,042
Deferred compensation....................................... (93,431) (186,806)
Accumulated deficit......................................... (19,434,997) (17,599,435)
------------- -------------
Total shareholders'equity (deficit)....................... (18,880,168) 13,726,801
------------- -------------
Total liabilities and shareholders' equity (deficit).......... $ 11,953,147 $ 16,424,640
------------- -------------
------------- -------------
</TABLE>
See notes accompanying these financial statements.
4
<PAGE>
APEX PC SOLUTIONS,INC.
Condensed Consolidated Statements of Cash Flows
for the quarter ended
<TABLE>
<CAPTION>
MARCH 31, MARCH 28,
1996 1997
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Net cash provided (used) by operating activities................ $ (1,155,015) $ 3,152,325
------------- -------------
Cash flows from investing activities:
Purchases of property and equipment........................... (141,028) (94,891)
------------- -------------
Net cash used in investing activities....................... (141,028) (94,891)
------------- -------------
Cash flows from financing activities:
Principal payments on notes to shareholder.................... (270,000) --
Repayments of long term debt.................................. (1,030) (25,601,095)
Proceeds from initial public offering of common stock (1)..... -- 28,876,161
Proceeds from exercise of common stock options................ 2,593 --
Redemption of Series B redeemable preferred stock............. (1,000,000)
------------- -------------
Net cash provided by (used in) investing activities......... (268,437) 2,275,066
------------- -------------
Net increase (decrease) in cash and cash equivalants............ (1,564,480) 5,332,500
Cash and cash equivalents at beginning of period................ 2,676,290 2,118,887
------------- -------------
Cash and cash equivalents at end of period...................... $ 1,111,810 $ 7,451,387
------------- -------------
------------- -------------
</TABLE>
- ------------------------
(1) Total net proceeds from the initial public offering of common stock were
$28,560,182, after reduction of $315,979 for prepaid offering expenses
incurred in 1996.
See notes accompanying these financial statements.
5
<PAGE>
APEX PC SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in conformity with generally accepted accounting principles and
reflect all adjustments consisting of normal recurring adjustments which, in
the opinion of management, are necessary for a fair presentation of the
results for the periods shown. The results of operations for such periods are
not necessarily indicative of the results expected for the full fiscal year
or for any future period. The preparation of financial statements in
conformity with generally accepted accounting principles requires 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 revenue and
expenses during the reporting period. Actual results could differ from those
estimates and assumptions.
The accompanying financial statements should be read in conjunction with
the audited financial statements of Apex PC Solutions, Inc. (the "Company")
for the year ended December 31, 1996 and the notes thereto contained in the
Company's Annual Report on Form 10-KSB for the year ended December 31, 1996.
The Company reports its annual results based on years ending December 31.
Interim periods in years prior to 1997 are reported on a calendar quarter
basis. Commencing in 1997, the Company will report its quarterly results for
the first three interim periods ending on the last Friday of March, June and
September and for the fourth interim period ending on December 31. The
difference between quarterly results reported on this basis and quarterly
results reported on the basis of calendar quarters for years prior to 1997 is
not material.
The Company formed a foreign sales corporation subsidiary in the first
quarter of 1997. Consequently, the Company's financial statements are now
presented on a consolidated basis.
2. LEVERAGED RECAPITALIZATION
In December 1995, the Company effected a leveraged recapitalization (the
"Leveraged Recapitalization") pursuant to which (i) the Company redeemed from
one of its shareholders Common Stock representing a 50% voting interest in
the Company prior to the Leveraged Recapitalization for approximately $12.5
million in cash and a Class B Subordinated Promissory Note in the principal
amount of $10.0 million, and (ii) the Company sold to a group of entities
affiliated with TA Associates, Inc. (the "TA Group") Common Stock and Series
A Redeemable and Convertible Preferred Stock representing a 50% voting
interest in the Company after the Leveraged Recapitalization for $2.5 million
and sold to the TA Group Class A Subordinated Promissory Notes in the
aggregate principal amount of $10.0 million. The subordinated promissory
notes issued by the Company in connection with the Leveraged Recapitalization
were repaid upon consummation of the Company's initial public offering in
February 1997 (the "IPO"). In connection with the Leveraged Recapitalization,
Kevin J. Hafer, the Company's President and Chief Executive Officer, received
200,000 shares of the Company's Series B Redeemable Preferred Stock. This
Series B Redeemable Preferred Stock was fully vested on January 1, 1997. The
Company redeemed 80,000 shares of such Series B Redeemable Preferred Stock on
January 1, 1997 for $5.00 per share (an aggregate of $400,000) and redeemed
the balance of such shares for $5.00 per share (an aggregate of $600,000)
upon the consummation of the Company's IPO. In connection with the Leveraged
Recapitalization, the Company incurred approximately $5.6 million of
long-term bank indebtedness in December 1995, which was repaid using the net
proceeds of the Company's IPO.
6
<PAGE>
3. EXTRAORDINARY ITEM
Because of the early retirement of the long-term bank indebtedness and
subordinated promissory notes upon consummation of the Company's IPO, the
Company's statement of operations in the first quarter of 1997 reflect an
extraordinary loss for the write-off of deferred financing costs of
approximately $141,000, net of applicable income taxes.
4. OTHER INCOME
The statement of operations includes other income of approximately
$136,000 received by the Company in connection with the Leveraged
Recapitalization .
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
THE INFORMATION CONTAINED IN THIS ITEM 2 -- "MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION" CONTAINS FORWARD-LOOKING STATEMENTS AS DEFINED
IN THE SECURITIES LITIGATION REFORM ACT OF 1995. SUCH FORWARD-LOOKING
STATEMENTS INCLUDE, WITHOUT LIMITATION, STATEMENTS RELATING TO FUTURE NET
SALES, FUTURE RESEARCH AND DEVELOPMENT EXPENDITURES, FUTURE SALES AND
MARKETING EXPENDITURES AND FUTURE LIQUIDITY AND CAPITAL RESOURCES. SUCH
FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES
THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE ANTICIPATED
IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE
INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN THIS ITEM 2 --
"MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION" AND IN THE
COMPANY'S ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 1996
ON FILE WITH THE SECURITIES AND EXCHANGE COMMISSION.
OVERVIEW
The Company designs, manufactures and markets stand-alone switching
systems and integrated server cabinet solutions for the client/server
computing market. The Company's switching products, including OutLook,
OutLook4 and ViewPoint, enable network administrators to access multiple
servers from a single, centralized keyboard, monitor and mouse configuration
(a "console"), consolidate hardware and provide direct hardwired connections
between the switch and the attached servers to facilitate access to servers
even when the network is down. The Company also offers server cabinet
solutions to consolidate and store heterogeneous servers and related hardware
in one or more cabinets to facilitate more efficient physical access and
safer performance of hardware maintenance tasks.
The Company markets and sells its products through a direct sales force
and various distribution channels. A substantial portion of the Company's
sales are concentrated among a limited number of OEM customers, to whom the
Company sells stand-alone switching systems under private label arrangements.
For the first quarter of 1997, sales to the Company's private label OEM
customers, represented 74% of the Company's net sales. The Company's OEM
business is subject to risks such as contract termination, reduced or delayed
orders, adoption of competing products developed by third parties for the OEM
or by the OEM's internal development team, and change in corporate ownership,
financial condition, business direction or product mix by the OEM, any of
which could have a material adverse effect on the Company's results of
operations. In the past, the Company has experienced, and may continue to
experience, significant reductions or delays in orders from its OEM customers
which have had and may in the future have a material adverse effect on the
Company's quarterly sales and operating results. The failure of any of the
Company's private label OEMs to continue to place orders at current or
anticipated levels would likely have a material adverse effect on the
Company's business, financial condition and results of operations.
7
<PAGE>
The Company has experienced substantial fluctuations in its operating
results, on a quarterly and annual basis, and expects such fluctuations to
continue in the future. The Company's operating results are affected by a
number of factors, including: the volume and timing of orders, particularly
from OEM customers, the timing of shipments; the timing of new product
introductions and enhancements by the Company and its competitors; changes in
product or distribution channel mixes; changes in pricing policies or price
reductions by the Company or its competitors; the availability and cost of
supplies and components; sales and marketing expenses relating to entering
new markets, introducing new products and retaining current OEM and other
large customers; seasonal customer demand; and fluctuations in sales of
servers due to changes in economic conditions or capital spending levels. The
Company is currently experiencing increased price competition in both the
market for stand-alone switching systems and the market for integrated server
cabinet systems and expects that pricing pressures will increase in the
future. Increased competition could result in price reduction and loss of
market share which would adversely affect the Company's business, financial
condition and results of operations.
Gross margins may vary significantly from period to period depending on a
number of factors, including: the ratio of OEM sales to branded sales, as OEM
sales typically have lower gross margins than branded sales; product mix,
including the percentage of cabinet system sales, which generally have lower
gross margins than sales of stand-alone switching systems; raw materials and
labor costs; new product introductions by the Company and its competitors;
and the level of outsourcing of manufacturing and assembly services by the
Company. The Company expects that increased competition and the introduction
of new technologies may affect pricing of the Company's products and
therefore erode the Company's gross margins in the future. The Company
expects that its operating results will be affected by seasonal trends and by
general conditions in the server market. The Company believes that it has
experienced and will continue to experience some degree of seasonality due to
customer buying cycles. The Company believes that the fourth quarter has
generally higher net sales levels due to customer budgeting and procurement
cycles, which correspondingly may depress net sales in other quarters.
Because the Company's business and operating results depend to a significant
extent on the general conditions in the server market, any adverse change in
the server market due to adverse economic conditions, declining capital
spending levels or other factors could have a material adverse effect on the
Company's business, financial condition and results of operations.
In general, the Company's sales cycle varies substantially and may be
lengthy, making revenues difficult to forecast. The Company has experienced
period to period variability in sales to each of its OEM customers and
expects this pattern to continue in the future. Although the Company's OEM
customers typically place orders for products several months prior to
scheduled shipment dates, these orders are subject to cancellation up to
eight weeks prior to the scheduled shipment date. The Company generally must
plan production, order components and undertake its manufacturing activities
prior to the time that these orders become firm. In addition, the Company's
OEM customers have in the past requested, and will likely continue to request
from time to time, that the Company delay shipment dates or cancel orders for
products that are subject to firm orders. Accordingly, sales to OEMs for
future quarters are difficult to predict. Moreover, any cancellation,
rescheduling or reduction of orders by OEM customers in the future could
materially adversely affect the Company's operating results. If the Company
succeeds in increasing branded sales as a percentage of net sales, the
Company's quarterly sales and operating results will become more dependent
upon the volume and timing of branded product orders received during the
quarter. Because customers of the Company's branded products (including
resellers) typically place orders shortly before their requested shipment
date, revenues from branded sales are difficult to forecast. The failure of
the Company to accurately forecast the timing and volume of orders for
branded products during any given quarter could adversely affect the
Company's operating results for such quarter and, potentially, for future
periods.
8
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth selected unaudited statement of operations
data expressed as a percentage of net sales for the quarters ended:
<TABLE>
<CAPTION>
MARCH 31, MARCH 28,
1996 1997
----------- -----------
<S> <C> <C>
Net sales.............................................................. 100.0% 100.0%
Cost of sales.......................................................... 59.0 55.1
----- -----
Gross margin........................................................... 41.0 44.9
----- -----
Operating expenses:
Research and development............................................. 3.3 3.8
Sales and marketing.................................................. 7.3 7.6
General and administrative........................................... 5.6 6.8
----- -----
Total operating expenses........................................... 16.2 18.2
----- -----
Income from operations................................................. 24.8 26.7
Interest expense, net.................................................. (6.0) (2.1)
Other income........................................................... 0.0 1.3
----- -----
Income from operations before income taxes and extraordinary item...... 18.8 25.9
Provision for income taxes............................................. 6.4 8.9
----- -----
Income before extraordinary item....................................... 12.4 17.0
Extraordinary item--loss on early extinguishment of debt, net of
applicable income taxes.............................................. 0.0 (1.2)
----- -----
Net income............................................................. 12.4% 15.8%
----- -----
----- -----
</TABLE>
Net Sales. The Company's net sales consist of sales of stand-alone
switching systems and integrated server cabinets. Net sales increased 46% to
$11.6 million for the first quarter of 1997 from $7.9 million for the first
quarter of 1996, due primarily to absolute growth in sales of stand-alone
switching systems to private label OEM customers and, to a lesser extent, to
increased sales of Apex branded switching systems and cabinets to resellers.
Private label OEM sales and sales of Apex branded products represented
approximately 74% and 26%, respectively, of net sales for the first quarter
of 1997, compared to 72% and 28%, respectively, of net sales for the first
quarter of 1996. Any cancellation, rescheduling or reduction of orders by any
of the Company's private label OEM customers could materially adversely
affect the Company's future operating results.
Gross Margin. Gross margin increased to 44.9% for the first quarter of
1997 from 41.0% for the first quarter of 1996, due primarily to a shift in
the Company's product mix during the quarter away from cabinet sales to a
larger percentage of switch sales, which generally have higher gross margins
than cabinet sales.
Research and development expenses. Research and development expenses
include compensation for engineers and materials costs and are expensed as
they are incurred. Research and development expenses increased to $442,000
for the first quarter of 1997 from $258,000 for the first quarter of 1996,
due primarily to increased staffing levels. Research and development expenses
as a percentage of net sales were 3.8% for the first quarter of 1997,
compared to 3.3% for the first quarter of 1996. The Company believes that the
timely development of innovative products and enhancements to existing
products is essential to maintaining its competitive position and, therefore,
expects research and development expenditures to increase in absolute dollars
and as a percentage of net sales.
Sales and marketing expenses. Sales and marketing expenses include
promotional material, trade show expenses and sales and marketing personnel
costs, including sales commissions and travel. Sales and marketing expenses
increased to $886,000 for the first quarter of 1997 from $577,000 for the
first quarter of 1996, increasing as a percentage of net sales to 7.6% for
the first quarter of 1997 from 7.3% for the first quarter of 1996. The
increase in absolute dollars was due primarily to increased staffing levels,
and, to a lesser extent, to increased advertising and trade show expenses,
including expenses relating to market entry
9
<PAGE>
and advertising strategies for Europe. Further, with first quarter net sales
greater than anticipated, the Company accelerated some scheduled marketing
activities and expenditures. The Company expects these expenditures to
increase in absolute dollars as it seeks to increase its branded sales, in
general, and its international sales, in particular.
General and administrative expenses. General and administrative expenses
include personnel costs for administration, finance, human resources and
general management, as well as rent, utilities and legal and accounting
expenses, and provision for Washington State's gross receipts tax. General
and administrative expenses increased to $781,000 for the first quarter of
1997 from $449,000 for the first quarter of 1996. As a percentage of net
sales, general and administrative expenses increased to 6.8% for the first
quarter of 1997 from 5.6% for the first quarter of 1996. The increase in
absolute dollars was due primarily to increased personnel costs, including
the addition of a Chief Financial Officer and Corporate Controller, and, to a
lesser extent, to increased costs relating to the Company's transition to a
public company, including legal and accounting costs.
Net interest expense (income). Net interest expense decreased to $240,000
for the first quarter of 1997 from $472,000 for the first quarter of 1996.
The decrease in net interest expense resulted primarily from the elimination
of all indebtedness incurred in the Leveraged Recapitalization, as well as
long-term bank indebtedness, using the proceeds of the Company's IPO.
Provision for income taxes. The provision for income taxes was
approximately $1.0 million for the first quarter of 1997, compared to
approximately $508,000 for the first quarter of 1997. The effective federal
tax rate for each of these periods was approximately 34%.
Net Income. Net income increased 87% to $1.8 million for the first
quarter of 1997 from net income of approximately $1.0 million for the first
quarter of 1996 due primarily to increased sales and related gross profits,
and, to a lesser extent, decreased net interest expense resulting from the
elimination of long-term indebtedness using the proceeds of the Company's
IPO. As a percentage of net sales, net income increased to 15.8% for the
first quarter of 1997 from 12.4% for the first quarter of 1996. The increase
in absolute dollars and as a percentage of net sales was due to the factors
discussed above.
BACKLOG
As of March 28, 1997, the Company's backlog was $6.0 million, compared to
$3.1 million at the end of the first quarter of 1996. Backlog consists of
purchase orders with delivery dates scheduled within the next six months.
None of the Company's customers is obligated to purchase products from the
Company except pursuant to binding purchase orders. Generally, purchase
orders are subject to cancellation up to eight weeks prior to the scheduled
shipment date. Because of the timing of orders and the possibility of
customer changes to delivery schedules, the Company's backlog as of any
particular date may not be representative of actual sales for any succeeding
period.
LIQUIDITY AND CAPITAL RESOURCES
As of March 28, 1997 the Company's principal sources of liquidity
consisted of approximately $7.5 million in cash and cash equivalents, an
increase of approximately $5.3 million from December 31, 1996 balances. In
addition, the Company has, since December 1995, had a combined line of credit
and letter of credit facility with a bank. In early April 1997, this facility
was renewed, providing a final maturity date of April 30, 1998 and increasing
the aggregate borrowing capacity from $3.0 million to $5.0 million. Under the
line of credit, the Company may borrow up to a specified amount based upon
its accounts receivable. Under the letter of credit arrangement, the bank
will issue commercial letters of credit up to $5.0 million (less any amounts
outstanding under the line of credit) at prime. There were no borrowings
under the line of credit and the letter of credit facility through March
1997. Thus, all $3.0 million was available through March 1997, and all $5.0
million thereafter.
The Company's operating activities generated cash of approximately $3.2
million for the first quarter of 1997, compared to a cash flow deficit of
approximately $1.2 million for the first quarter of 1996.
10
<PAGE>
This increase in cash flow in the first quarter of 1997 was due primarily to
decreased bonus payments and, to a lesser extent, to increased net income,
and increased collection of receivables.
In February 1997, the Company consummated an initial public offering of
its common Stock (the "IPO"). The net proceeds to the Company from the IPO
were approximately $28.4 million. Of that amount, $20.0 million was used to
repay the indebtedness evidenced by the Class A and Class B Subordinated
Promissory Notes issued in the Leveraged Recapitalization, approximately $5.6
million was used to repay long-term bank debt incurred by the Company in
December 1995, and $600,000 was used to redeem shares of Series B Redeemable
Preferred Stock. See Note 2 to Consolidated Financial Statements. After
application of the net proceeds of the IPO to the foregoing items, and
payment of IPO expenses (including $190,000 of Directors and Officers
insurance policy premium which is being expensed in 1997 as a period cost),
the remaining proceeds from the IPO were approximately $2.2 million. The
Company believes that existing cash balances, cash generated from operations
and the funds available to it under credit facilities, together with the
remaining proceeds from the IPO, will be sufficient to fund its operations
through 1997.
NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share."
This statement specifies the computation, presentation and disclosure
requirements for earnings per share ("EPS"), to simplify the existing
computational guidelines and increase comparability on an international
basis. The statement will be effective for interim and annual reporting
periods ending after December 15, 1997. This statement will replace "primary"
EPS with "basic" EPS, the principal difference being the exclusion of common
stock equivalents in the computation of basic EPS. In addition, this
statement will require the dual presentation of basic and diluted EPS on the
face of the consolidated statement of operations. Basic EPS computed pursuant
to this statement will differ from historical net income per share previously
reported due to the exclusion of common stock equivalents from the
computation. Diluted EPS computed pursuant to this statement is not expected
to be materially different from the historical net income per share
previously presented.
11
<PAGE>
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The Company held a Special Meeting of Shareholders on January 6,
1997. The shareholders approved Amended and Restated Articles of
Incorporation of the Company, approved the adoption of the Company's
Employee Stock Purchase Plan and the reservation of 250,000 shares of
Common Stock for issuance thereunder and approved the allocation and
reservation for issuance of an additional 750,000 shares of Common Stock
under the Company's 1995 Employee Stock Plan. All of the Company's
outstanding shares were voted in favor of such matters, none were voted
against and none were withheld.
(b) The Company's shareholders acted by unanimous written consent
effective February 14, 1997. The shareholders approved Amended and Restated
Articles of Incorporation of the Company. All of the Company's outstanding
shares were voted in favor of such matter, none were voted against and none
were withheld.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
11.1 Statement re Computation of Earnings Per Share
27.1 Financial Data Schedule
ITEMS 1, 2, 3, and 5 ARE NOT APPLICABLE AND HAVE BEEN OMITTED.
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
APEX PC SOLUTIONS, INC.
(REGISTRANT)
DATE: MAY 12, 1997 /S/ KEVIN J. HAFER
--------------------------------------
PRESIDENT AND CHIEF EXECUTIVE OFFICER
DATE: MAY 12, 1997 /S/ DOUGLAS A. BEVIS
--------------------------------------
VICE PRESIDENT, CHIEF FINANCIAL OFFICER
12
<PAGE>
EXHIBIT 11.1 STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
Apex PC Solutions, Inc.
Computation of Net Income Per Share
for the quarters ended
<TABLE>
<CAPTION>
MARCH 31, MARCH 28,
1996 1997
------------- ------------
<S> <C> <C>
Net income..................................................... $ 984,100 $ 1,835,562
------------- -------------
------------- -------------
Weighted average common shares outstanding..................... 5,600,000 8,837,028
Common stock equivalents -- Series A redeemable and convertible
preferred stock.............................................. 2,155,000 1,213,736
Common Stock equivalents -- stock options...................... 1,336,932 684,900
------------- -------------
Weighted average shares used in computing net income
Per share.................................................... 9,091,932 10,735,664
------------- -------------
------------- -------------
Net income per share........................................... $ 0.11 $ 0.17
------------- -------------
------------- -------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information exstracted from the
financial statements contained in the company's quarterly report for the
quarter ended March 28,1997 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-28-1997
<CASH> 7,451,897
<SECURITIES> 0
<RECEIVABLES> 6,313,905
<ALLOWANCES> 335,903
<INVENTORY> 1,612,468
<CURRENT-ASSETS> 15,896,894
<PP&E> 753,733
<DEPRECIATION> 236,909
<TOTAL-ASSETS> 16,424,640
<CURRENT-LIABILITIES> 2,697,839
<BONDS> 9,454
0
0
<COMMON> 31,513,042
<OTHER-SE> (17,786,241)
<TOTAL-LIABILITY-AND-EQUITY> 16,424,640
<SALES> 11,586,883
<TOTAL-REVENUES> 11,586,883
<CGS> 6,382,677
<TOTAL-COSTS> 6,382,677
<OTHER-EXPENSES> 2,108,302
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 240,403
<INCOME-PRETAX> 3,001,825
<INCOME-TAX> 1,025,500
<INCOME-CONTINUING> 1,976,325
<DISCONTINUED> 0
<EXTRAORDINARY> (140,763)
<CHANGES> 0
<NET-INCOME> 1,835,562
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
