<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 Or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1998
OR
[ ] 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 1-13317
BOX HILL SYSTEMS CORP.
----------------------
(Exact name of registrant as specified in its charter)
New York 13-3460176
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
161 Avenue of the Americas, New York, NY 10013
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(Address of principal executive offices) (Zip Code)
(212) 989-4455
--------------
(Registrant's telephone number, including area code)
N/A
---
(Former name, former address and former fiscal year,
if changed since last report)
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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 par value, 14,305,757 shares outstanding as of August 12,
1998.
<PAGE>
BOX HILL SYSTEMS CORP. AND SUBSIDIARIES
INDEX
Page
----
Part I. Financial Information
Item 1. Condensed Consolidated Financial Statements (unaudited):
Condensed Consolidated Balance Sheets -June 30, 1998
and December 31, 1997 1
Condensed Consolidated Statements of Income --
Three and Six months ended June 30, 1998 and 1997 2
Condensed Consolidated Statements of Cash Flows --
Three and Six months ended June 30, 1998 and 1997 3
Notes to Condensed Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
Part II. Other Information
Item 6. Exhibits 13
Signatures 14
<PAGE>
Item 1. Condensed Consolidated Financial Statements
BOX HILL SYSTEMS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share information)
June 30, December 31,
1998 1997
------- -------
ASSETS (unaudited)
Current assets:
Cash and cash equivalents ............................ $42,345 $40,897
Short-term investments ............................... 5,500 9,305
Accounts receivable, net ............................. 18,618 13,866
Inventories .......................................... 9,184 7,351
Prepaid expenses and other ........................... 1,058 344
Deferred income taxes ................................ 721 721
------- -------
Total current assets ........................ 77,426 72,484
Property and equipment, net .............................. 1,200 1,199
Deferred income taxes .................................... 134 134
------- -------
$78,760 $73,817
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ..................................... $ 8,772 $ 8,088
Accrued expenses ..................................... 2,568 2,000
Customer deposits .................................... 2,182 2,143
Deferred revenues .................................... 2,087 1,829
Income taxes payable ................................. 730 757
Distribution payable ................................. -- 227
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Total current liabilities .................. 16,339 15,044
------- -------
Deferred rent ............................................ 245 225
------- -------
Shareholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized, none issued ............................ -- --
Common stock, $.01 par value, 40,000,000 shares
authorized, 14,300,885 and 14,138,871 shares
issued and outstanding, respectively ............... 143 141
Additional paid-in capital ........................... 56,716 56,491
Retained earnings .................................... 5,317 1,916
------- -------
Total shareholders' equity ................. 62,176 58,548
------- -------
$78,760 $73,817
======= =======
The accompanying notes are an integral part of these statements.
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<PAGE>
BOX HILL SYSTEMS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share information)
(unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------------- -----------------
1998 1997 1998 1997
------- ------- ------- -------
Net revenues .......................... $19,802 $16,996 $35,847 $32,228
Cost of goods sold .................... 12,509 10,809 23,028 20,828
------- ------- ------- -------
Gross profit ................. 7,293 6,187 12,819 11,400
------- ------- ------- -------
Operating expenses:
Shareholder officers' compensation 319 2,868 638 4,908
Engineering and product development 662 617 1,308 1,082
Sales and marketing ............... 2,131 1,737 4,130 3,285
General and administrative ........ 1,137 792 2,100 1,418
------- ------- ------- -------
4,249 6,014 8,176 10,693
------- ------- ------- -------
Operating income ............. 3,044 173 4,643 707
Interest income ....................... 479 11 985 22
------- ------- ------- -------
Income before income taxes ... 3,523 184 5,628 729
Income tax provision .................. 1,417 79 2,227 160
------- ------- ------- -------
Net income ............................ $ 2,106 $ 105 $ 3,401 $ 569
======= ======= ======= =======
Basic net income per share ............ $ .15 $ .01 $ .24 $ .06
======= ======= ======= =======
Diluted net income per share .......... $ .14 $ .01 $ .23 $ .05
======= ======= ======= =======
The accompanying notes are an integral part of these statements.
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<PAGE>
BOX HILL SYSTEMS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------
1998 1997
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<S> <C> <C>
Operating activities:
Net income .......................................................... $ 3,401 $ 569
Adjustments to reconcile net income to net cash provided by (used in)
operating activities--
Depreciation and amortization ................................. 164 126
Other ......................................................... 20 13
Changes in assets and liabilities--
Accounts receivable ....................................... (4,752) (1,639)
Inventories ............................................... (1,833) (1,908)
Prepaid expenses and other ................................ (714) (12)
Accounts payable .......................................... 738 2,459
Accrued expenses .......................................... 568 4,902
Customer deposits ......................................... 39 780
Deferred revenues ......................................... 258 344
Income taxes payable ...................................... (36) --
-------- --------
Net cash provided by (used in) operating activities.. (2,147) 5,634
-------- --------
Investing activities:
Sale of short-term investments ...................................... 3,805 --
Purchases of property and equipment ................................. (158) (92)
-------- --------
Net cash provided by (used in) investing activities.. 3,647 (92)
-------- --------
Financing activities:
Proceeds from exercise of stock options ............................. 100 --
Proceeds from Employee Stock Purchase Plan .......................... 75 --
Distributions to S Corporation shareholders ......................... (227) --
-------- --------
Net cash used in financing activities ............... (52) --
-------- --------
Net increase in cash and cash equivalents ............................... 1,448 5,542
Cash and cash equivalents, beginning of period .......................... 40,897 994
-------- --------
Cash and cash equivalents, end of period ................................ $ 42,345 $ 6,536
======== ========
Supplemental cash flow disclosure:
Cash paid for income taxes .......................................... $ 2,272 $ 95
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE>
BOX HILL SYSTEMS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation:
The accompanying unaudited condensed consolidated financial statements of Box
Hill Systems Corp. and subsidiaries (the "Company"), have been prepared in
accordance with generally accepted accounting principles for interim financial
reporting and the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting only of normal
recurring adjustments) considered necessary for fair presentation have been
included. Operating results for the three and six month periods ended June 30,
1998, are not necessarily indicative of the results that may be expected for
the year ended December 31, 1998. For further information, refer to the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997.
2. Earnings Per Share:
Basic and diluted net income per share have been computed under the guidelines
of Statement of Financial Accounting Standards No. 128, "Earnings per Share."
Basic net income per share is computed by dividing net income by the weighted
average number of shares of common stock outstanding for the period. Diluted
net income per share is computed by dividing net income by the weighted
average number of shares of common stock outstanding for the period, adjusted
for the dilutive effect of common stock equivalents, consisting of dilutive
common stock options using the treasury stock method. The table below sets
forth the reconciliation of basic to diluted shares used in computing net
income per share (in thousands):
Three Months Ended Six Months Ended
June 30, June 30,
-----------------------------------
1998 1997 1998 1997
------ ------ ------ ------
Shares used in computing basic net
income per share .................... 14,263 9,900 14,242 9,900
Dilutive effect of options ............... 789 1,040 817 1,040
------ ------ ------ ------
Shares used in computing diluted net
income per share ..................... 15,052 10,940 15,059 10,940
====== ====== ====== ======
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<PAGE>
3. Inventories:
Inventories are stated at the lower of cost (first-in, first-out) or market
and consist principally of purchased components used as raw materials.
4. Initial Public Offering of Common Stock:
The Company completed an initial public offering (the "Offering"), of its
Common Stock effective September 16, 1997. The Offering consisted of the sale
of 5,500,000 shares of Common Stock at an initial public offering price of
$15.00 per share, of which 3,300,000 shares were issued and sold by the
Company and 2,200,000 shares were sold by individuals who were the only
shareholders of the Company prior to the Offering. Additionally, 825,000
shares of Common Stock were purchased from the Company at $15.00 per share by
the underwriters upon the exercise of an over-allotment option. The net
proceeds to the Company , after deducting underwriting discounts and expenses,
were approximately $56.6 million. The Company did not receive any proceeds
from the sale of shares by the selling shareholders.
The Company was subject to taxation under Subchapter S of the Internal Revenue
Code from 1990 until the termination of the S Corporation status concurrent
with the Offering. Subsequent to the Offering, the Company made aggregate
distributions of $11,927,000 to its S Corporation shareholders for taxed, but
previously undistributed, S Corporation earnings.
5. Box Hill Europe:
Effective January 1, 1998, the Company acquired all of the outstanding Common
Stock of Box Hill Systems Europe Limited ("Box Hill Europe") in exchange for
4,959 shares of the Company's Common Stock. The market value of the shares
issued totaled $51,750 and was equal to the net assets of Box Hill Europe on
the acquisition date. Box Hill Europe was formed in 1995 by the Company's
founding shareholders to provide marketing and technical support services to
the Company. The acquisition of Box Hill Europe has been accounted for as a
combination of companies under common control.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations:
Cautionary Statement for Forward-Looking Information
Certain statements contained in this report, including statements regarding
the anticipated development and expansion of the Company's business, the
intent, belief or current expectations of the Company, its directors or its
officers, primarily with respect to the future operating performance of the
Company and the products it expects to offer and other statements contained
herein regarding matters that are not historical facts, are "forward-looking"
statements within the meaning of the Private Securities Litigation Reform Act
(the "Reform Act"). Future filings with the Securities and Exchange
Commission, future press releases and future oral or written statements made
by or with the approval of Box Hill which are not statements of historical
fact, may contain forward-looking statements under the Reform Act. Because
such statements include risks and uncertainties, actual results may differ
materially from those expressed or implied by such forward-looking statements.
Factors that could cause actual results to differ materially from those
expressed or implied by such forward-looking statements follow.
The Open Systems storage market in which the Company operates is characterized
by rapid technological change, frequent new product introductions and evolving
industry standards. Customer preferences in that market are difficult to
predict. The introduction of products embodying new technologies and the
emergence of new industry standards could render the Company's existing
products as well as new products being introduced, obsolete and unmarketable.
The Company relies on other companies to supply certain key components of its
products and certain products which it resells that are available only from
limited sources in the quantities and quality demanded by the Company. The
Company has historically targeted industries requiring high-end storage
products, and a material portion of the Company's net revenues to date has
been derived from sales to customers in the financial services industry and
the telecommunications industry. In addition, historically, a material
percentage of the Company's net revenues in each year has been derived from a
limited number of customers. The Company's growth and expansion may place a
significant strain on its administrative, operational and financial resources
and increased demands on its manufacturing, sales and customer service
functions, especially as the Company attempts to expand its geographic reach
and becomes less reliant on the financial services and train, retain and
motivate qualified management, technical, manufacturing, sales and support
personnel for its operations. The Company has no patent protection for its
products and has attempted to protect its proprietary software and other
intellectual property rights through copyrights, trade secrets and other
measures which may prove to be inadequate.
All forward-looking statements speak only as of the date on which they are
made. Box Hill undertakes no obligation to update such statements to reflect
events which occur or circumstances which exist after the date on which they
are made.
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<PAGE>
Overview
Box Hill designs, manufactures, markets and supports high performance data
storage systems for the Open Systems computing environment. The Company
employs a direct marketing strategy aimed at data-intensive industries which,
to date, include financial services, telecommunications, health care,
government/defense and academia. Since its inception, Box Hill has focused
exclusively on providing storage solutions for high-end customers, primarily
in the UNIX environment. The Company initially focused on the financial
services industry in response to that industry's need for high-availability,
high- performance, fault-tolerant storage systems and high levels of customer
and technical support. Box Hill leveraged its position as a company focused
exclusively on storage solutions to bring new products to market faster than
its competitors. Box Hill has historically financed its growth primarily with
cash generated from operations.
Box Hill's manufacturing operations consist primarily of assembly and
integration of components and subassemblies into the Company's products with
certain of those subassemblies manufactured by independent contractors. The
Company's cost of goods sold consists primarily of direct material costs. The
Company generally extends to its customers the warranties provided to the
Company by its suppliers. To date, the Company's suppliers have covered the
majority of the Company's warranty costs. On a quarterly and annual basis the
Company's gross margins have been and will continue to be affected by a
variety of factors, including competition, product configuration, product mix,
the availability of new products and product enhancements, and the cost and
availability of components. The Company's long-term strategy includes
maintaining or improving existing gross margins.
Results of Operations
The following table sets forth certain items from the Company's income
statements as a percentage of net revenues for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------------------------------
1998 1997 1998 1997
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Net revenues...................................... 100.0% 100.0% 100.0% 100.0%
Cost of goods sold................................ 63.2 63.6 64.2 64.6
--------- --------- ---------- ---------
Gross profit............................. 36.8 36.4 35.8 35.4
--------- --------- ---------- ---------
Operating expenses:
Shareholder officers' compensation........... 1.6 16.9 1.8 15.2
Engineering and product development.......... 3.3 3.6 3.6 3.4
Sales and marketing.......................... 10.8 10.2 11.5 10.2
General and administrative................... 5.7 4.7 5.9 4.4
--------- --------- ---------- ---------
Total operating expenses................. 21.4 35.4 22.8 33.2
--------- --------- ---------- ---------
Operating income............................. 15.4% 1.0% 13.0% 2.2%
========= ========= ========== =========
</TABLE>
-7-
<PAGE>
Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997:
Net revenues - Net revenues increased 16.5% to $19.8 million for the three
months ended June 30, 1998, from $17.0 million for the three months ended June
30, 1997. The increase resulted from an increase in volume, which was
partially offset by price reductions of RAID and legacy disk storage systems.
Net revenues from sales of Fibre Channel, RAID and back-up products increased
while net revenues from sales of legacy storage products decreased.
Net revenues from sales of back-up products increased $2.2 million to $6.1
million for the three months ended June 30, 1998, compared to $3.9 million for
the comparable period of 1997. The increase in net revenues from sales of
back-up products is the result of the additional focus on backing-up mission
critical data by the Company's traditional customer base, and the successful
sales efforts in obtaining new customers requiring the Company's knowledge and
experience in back-up integration. Net revenues from sales of RAID products
increased slightly by $.3 million to $4.0 million for the three months ended
June 30, 1998, compared to $3.7 million for the three months ended June 30,
1997. Net revenues from sales of Fibre Channel products increased $1.0 million
to $1.1 million for the three months ended June 30, 1998, compared to $.1
million for the three months ended June 30, 1997. The increase is due to
growing market acceptance of the new technology. Net revenues from sales of
legacy storage products and services decreased slightly by $.7 million, to
$8.6 million for the three months ended June 30, 1998, compared to $9.3
million for the comparable period of 1997.
Gross profit - Gross profit increased 17.7% to $7.3 million for the three
months ended June 30, 1998, from $6.2 million for the comparable period of
1997. As a percentage of net revenues, gross profit increased slightly from
36.4% to 36.8%, principally as a result of a more favorable product mix.
Shareholder officers' compensation - Shareholder officers' compensation
consists of salaries and bonuses paid to three of the Company's officers who
were the only shareholders of the company prior to the Offering. Shareholder
officers' compensation decreased $2.6 million to $.3 million for the three
months ended June 30, 1998 as compared to $2.9 million for the three months
ended June 30, 1997. The decrease in shareholder officers' compensation is
attributable to new employment agreements entered into with the shareholder
officers in connection with the Company's initial public offering.
Engineering and product development - Engineering and product development
expenses consist primarily of employee compensation, engineering equipment and
supply expenses and fees paid for third-party design services. To date, no
software development expenses have been capitalized since the period between
achieving technological feasibility and completion of such software is
relatively short and software development costs qualifying for such
capitalization have been relatively insignificant. Engineering and product
development increased 16.7% to $.7 million for the three months ended June 30,
1998 from $.6 million for the comparable period of 1997. The increase in
engineering and product development expenses is due to an increase in the
number of employees engaged in
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<PAGE>
research and development activities. As a percentage of net revenues,
engineering and product development decreased to 3.3% for the three months
ended June 30, 1998 from 3.6% for the comparable period of 1997.
Sales and marketing - Sales and marketing expenses consist primarily of
salaries and commissions, advertising and promotional costs and travel
expenses. Sales and marketing expenses increased 23.5% to $2.1 million for the
three months ended June 30, 1998 from $1.7 million for the three months ended
June 30, 1997. As a percentage of net revenues, sales and marketing expenses
increased to 10.8% for the three months ended June 30, 1998 from 10.2% for the
comparable period of 1997. The increase was primarily due to an increase in
the direct sales force and field service staff and increased commissions based
on the increase in sales.
General and administrative - General and administrative expenses consist
primarily of compensation to employees performing the Company's administrative
functions and expenditures for the Company's administrative facilities.
General and administrative expenses increased 37.5% to $1.1 million for the
three months ended June 30, 1998 from $.8 million for the three months ended
June 30, 1997. As a percentage of net revenues, general and administrative
expenses increased to 5.7% for the three months ended June 30, 1998 from 4.7%
for the comparable period of 1997. The increase is primarily due to the costs
associated with being a public company and increased receivable allowances.
Interest income - Interest income consists primarily of income earned on the
Company's cash and cash equivalents and short-term investments. Interest
income increased $.5 million for the three months ended June 30, 1998 from
$11,000 for the three months ended June 30, 1997. The increase is due to the
investment of the net proceeds of the September 1997 initial public offering.
Income tax provision - For the three months ended June 30, 1998, the Company's
effective income tax rate was 40.2%, reflecting federal, state and local
taxes, and a one-time charge for estimated prior years' taxes as a result of a
voluntary disclosure agreement entered into with one state, partially offset
by research and development credits and a favorable tax benefit from the
Company's foreign sales corporation. The Company operated as a Subchapter "S"
Corporation under the Internal Revenue Code and the New York State Tax Code
from 1990 until the termination of its S Corporation status concurrent with
its initial public offering. Accordingly, the provision for income taxes for
the three months ended June 30, 1997, consists only of New York City taxes and
state franchise taxes.
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997:
Net revenues - Net revenues increased 11.2% to $35.8 million for the six
months ended June 30, 1998, from $32.2 million for the six months ended June
30, 1997. The increase resulted from an increase in volume, which was
partially offset by price reductions of RAID and legacy disk systems. For the
six months ended June 30, 1998, increases in sales of Fibre Channel and
back-up products were offset by decreases in net revenues from sales of RAID
products and legacy storage products.
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<PAGE>
Net revenues from sales of back-up products increased $5.1 million to $11.8
million for the six months ended June 30, 1998, compared to $6.7 million for
the comparable period of 1997. The increase in net revenues from sales of
back-up products is the result of the additional focus on backing-up mission
critical data by the Company's traditional customer base, and the successful
sales efforts in obtaining new customers requiring the Company's knowledge and
experience in back-up integration. Net revenues from sales of RAID products
decreased $1.7 million, to $6.7 million for the six months ended June 30,
1998, compared to $8.4 million for the six months ended June 30, 1997. Net
revenues from sales of legacy storage products and services decreased $.9
million to $16.0 million for the six months ended June 30, 1998, compared to
$16.9 million for the comparable period of 1997. The decrease in net revenues
from sales of RAID products and legacy storage products is primarily due to
several large customers delaying purchasing decisions while reviewing new
technologies and consolidating their information systems infrastructures
during the first quarter. Net revenues from sales of Fibre Channel products
increased $1.1 million to $1.3 million for the six months ended June 30, 1998,
compared to $.2 million for the six months ended June 30, 1997. The increase
is due to growing market acceptance of the new technology.
Gross profit - Gross profit increased 12.3% to $12.8 million for the six
months ended June 30, 1998, from $11.4 million for the comparable period of
1997. As a percentage of net revenues, gross profit increased slightly from
35.4% to 35.8%, principally as a result of a more favorable product mix.
Shareholder officers' compensation - Shareholder officers' compensation
decreased $4.3 million to $.6 million for the six months ended June 30, 1998
as compared to $4.9 million for the six months ended June 30, 1997. The
decrease in shareholder officers' compensation is attributable to new
employment agreements entered into with the shareholder officers in connection
with the Company's initial public offering.
Engineering and product development - Engineering and product development
increased 18.2% to $1.3 million for the six months ended June 30, 1998 from
$1.1 million for the comparable period of 1997. As a percentage of net
revenues, engineering and product development increased to 3.6% for the six
months ended June 30, 1998 from 3.4% for the comparable period of 1997. The
increase in engineering and product development expenses is due to an increase
in the number of employees engaged in research and development activities.
Sales and marketing - Sales and marketing expenses increased 24.2% to $4.1
million for the six months ended June 30, 1998 from $3.3 million for the six
months ended June 30, 1997. As a percentage of net revenues, sales and
marketing expenses increased to 11.5% for the six months ended June 30, 1998
from 10.2% for the comparable period of 1997. The increase was primarily due
to an increase in the direct sales force and field service staff and increased
commissions based on the increase in sales.
General and administrative - General and administrative expenses increased
50.0% to $2.1 million for the six months ended June 30, 1998 from $1.4 million
for the six months ended June 30, 1997. As a percentage of net revenues,
general and administrative expenses
-10-
<PAGE>
increased to 5.9% for the six months ended June 30, 1998 from 4.4% for the
comparable period of 1997. The increase is primarily due to the costs
associated with being a public company.
Interest income - Interest income consists primarily of income earned on the
Company's cash and cash equivalents and short-term investments. Interest
income increased $1.0 million for the six months ended June 30, 1998 from
$22,000 for the six months ended June 30, 1997. The increase is due to the
investment of the net proceeds of the September 1997 initial public offering.
Income tax provision - For the six months ended June 30, 1998, the Company's
effective income tax rate was 39.6%, reflecting federal, state and local
taxes, and a one-time charge for estimated prior years' taxes as a result of a
voluntary disclosure agreement entered into with one state, partially offset
by research and development credits and a favorable tax benefit from the
Company's foreign sales corporation. The Company operated as a Subchapter "S"
Corporation under the Internal Revenue Code and the New York State Tax Code
from 1990 until the termination of its S Corporation status concurrent with
its initial public offering. Accordingly, the provision for income taxes for
the six months ended June 30, 1997, consists only of New York City taxes and
state franchise taxes.
Liquidity and Capital Resources
As of June 30, 1998, the Company had $47.8 million of cash and cash
equivalents and short-term investments and no bank indebtedness. Short-term
investments generally consist of variable rate securities that provide for
early redemption within twelve months. As of June 30, 1998, working capital
was $61.1 million. In September 1997, the Company completed an initial public
offering of its Common Stock. Proceeds of the offering, after expenses, were
approximately $56.6 million.
For the six months ended June 30, 1998, cash used in operating activities was
$2.1 million compared to cash provided by operating activities of $5.6 million
for the same period in 1997. The decrease in net cash provided by operating
activities is mainly due to the increase in accounts receivable during the
1998 six month period.
Cash provided by investing activities of $3.6 million consists of the sale of
short-term investments of $3.8 million, offset partially by purchases of
property and equipment.
Cash used in financing activities for the six months ended June 30, 1998
consists of $227,000 of distributions to the S Corporation shareholders,
representing the final distribution for taxed, but previously undistributed, S
Corporation earnings, offset by proceeds from the exercise of stock options
and from the Company's Employee Stock Purchase Plan totaling $175,000.
In October 1997, the Company obtained a $10 million revolving line of credit
facility from a commercial bank. The Company has not made any borrowings under
this facility. The line of credit expired in May 1998, but the Company is
currently negotiating a renewal.
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<PAGE>
The Company presently expects that cash and cash equivalents and short-term
investments, cash generated from operations and availability under its
revolving line of credit, will be sufficient to meet its foreseeable operating
and capital requirements. However, the Company may need additional capital to
pursue acquisitions or significant capital improvements, neither of which is
currently contemplated.
Year 2000
Many computer systems were not designed to handle any dates beyond the year
1999, and therefore computer hardware and software will need to be modified
prior to the year 2000 in order to remain functional. The current versions of
the Company's storage and backup products support dates in the year 2000 and
beyond, however, the Company is still in the process of evaluating third party
software products sold by Box Hill for Year 2000 compliance. In the event that
any of the Company's significant suppliers or customers do not successfully
achieve Year 2000 compliance on a timely basis, the Company's business or
operations could be adversely affected. The Company has evaluated its
information technology infrastructure and has made modifications for Year 2000
compliance. The Company does not expect future costs to modify its information
technology infrastructure to be material to its financial condition or results
of operations.
-12-
<PAGE>
BOX HILL SYSTEMS CORP. AND SUBSIDIARIES
Part II - Other Information
Item 1. Legal Proceedings
The Company is involved in certain legal actions and claims arising
in the ordinary course of business. Management believes that the
outcome of such litigation and claims will not have a material
adverse effect on the Company's financial position or results of
operations.
Item 2. Changes in Securities
None.
Item 3. Defaults upon senior securities
None.
Item 4. Submission of matters to a vote of security holders
None.
Item 5. Other information
None.
Item 6. Exhibits and reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
On May 13, 1998, the Company filed a report on Form 8-K to report
that Philip Black, CEO, planned to take a short-term medical leave
of absence. Mr. Black resumed his duties as CEO on a full-time
basis on July 8, 1998.
-13-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report
to be signed on behalf by the undersigned, thereunto duly authorized.
BOX HILL SYSTEMS CORP.
Date: August 14, 1998 By /s/ Philip Black
-----------------------------
Philip Black
Chief Executive Officer
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, this Report has been signed below by the following
persons on behalf of the Registrant and in the capacities and on the dates
indicated.
Date: August 14, 1998 By /s/ Philip Black
-----------------------------
Philip Black
Chief Executive Officer
(Principal Executive Officer)
Date: August 14, 1998 By /s/ R. Robert Rebmann, Jr.
-----------------------------
R. Robert Rebmann, Jr.
Chief Financial Officer and Treasurer
(Principal Financial Officer)
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Financial Statements contained in the body of the Form 10-Q and is qualified in
its entirety by reference to such Financial Statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 42,345
<SECURITIES> 5,500
<RECEIVABLES> 19,036
<ALLOWANCES> (418)
<INVENTORY> 9,184
<CURRENT-ASSETS> 77,426
<PP&E> 2,544
<DEPRECIATION> (1,344)
<TOTAL-ASSETS> 78,760
<CURRENT-LIABILITIES> 16,339
<BONDS> 0
0
0
<COMMON> 143
<OTHER-SE> 62,033
<TOTAL-LIABILITY-AND-EQUITY> 78,760
<SALES> 35,847
<TOTAL-REVENUES> 35,847
<CGS> 23,028
<TOTAL-COSTS> 31,204
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (985)
<INCOME-PRETAX> 5,628
<INCOME-TAX> 2,227
<INCOME-CONTINUING> 3,401
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,401
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.23
</TABLE>
