<PAGE>
===============================================================================
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, 1995 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: 0-13994
-------
Computer Network Technology Corporation
---------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Minnesota 41-1356476
------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
605 North Highway 169, Suite 800, Minneapolis, Minnesota 55441
-------------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Telephone Number: (612) 797-6000
----------------------------------------------------
(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 the filing
requirements for at least the past 90 days. Yes X No
----- -----
As of July 25, 1995, the registrant had 22,668,280 shares of $.01 par value
common stock issued and outstanding.
===============================================================================
<PAGE>
COMPUTER NETWORK TECHNOLOGY CORPORATION
INDEX
-----
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1995 and
December 31, 1994........................................... 3
Consolidated Statements of Operations for the three
and six months ended June 30, 1995 and 1994................. 4
Consolidated Statements of Cash Flows for the six months
ended June 30, 1995 and 1994................................ 5
Notes to Consolidated Financial Statements.................... 6
Item 2. Management's Discussion and Analysis of
Results of Operations....................................... 8
Financial Condition......................................... 13
PART II. OTHER INFORMATION............................................. 14
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. None
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES.............................................................. 19
</TABLE>
2
<PAGE>
COMPUTER NETWORK TECHNOLOGY CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30 December 31
1995 1994
------------- -----------
<S> <C> <C>
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents $19,074,486 $15,855,905
Marketable securities 9,842,580 2,486,234
Receivables, net 20,612,040 23,451,598
Inventories 9,257,526 8,060,363
Deferred tax asset 2,120,000 2,120,000
Other current assets 734,913 1,088,164
----------- -----------
Total current assets 61,641,545 53,062,264
----------- -----------
Property and equipment, net 8,439,682 9,285,714
Field support spares, net 5,039,544 5,473,078
Purchased technology, net 3,875,119 4,215,391
Goodwill, net 770,890 780,479
Other assets 422,119 331,848
----------- -----------
$80,188,899 $73,148,774
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,131,049 $ 2,163,054
Accrued liabilities 4,330,021 5,125,365
Deferred revenue 10,495,087 7,463,821
Income taxes payable 1,248,477 2,663,096
Current installments of obligations under capital leases 139,138 259,540
----------- -----------
Total current liabilities 19,343,772 17,674,876
----------- -----------
Obligations under capital leases, less current installments 97,520 163,028
Deferred tax liability 1,332,000 1,332,000
----------- -----------
Total liabilities 20,773,292 19,169,904
----------- -----------
Shareholders' equity:
Common stock, $.01 par value; authorized
30,000,000 shares, issued and outstanding
22,644,530 at June 30, 1995 and
22,360,122 at December 31, 1994 226,445 223,601
Additional paid-in capital 56,837,620 55,801,073
Retained earnings (deficit) 2,524,641 (1,656,636)
Cumulative translation adjustment (173,099) (389,168)
----------- -----------
Total shareholders' equity 59,415,607 53,978,870
----------- -----------
$80,188,899 $73,148,774
=========== ===========
</TABLE>
3
<PAGE>
COMPUTER NETWORK TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
-------------------------- --------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUE:
Product sales $17,388,784 $14,696,331 $31,972,297 $27,075,524
Service fees 4,387,199 3,359,130 8,534,477 6,576,356
----------- ----------- ----------- -----------
Total revenue 21,775,983 18,055,461 40,506,774 33,651,880
----------- ----------- ----------- -----------
COST OF REVENUE:
Cost of product sales 4,895,689 4,928,876 8,989,341 9,051,853
Cost of service fees 3,419,654 3,355,371 6,872,251 6,164,489
---------- ----------- ----------- -----------
Total cost of revenue 8,315,343 8,284,247 15,861,592 15,216,342
----------- ----------- ----------- -----------
GROSS PROFIT 13,460,640 9,771,214 24,645,182 18,435,538
----------- ----------- ----------- -----------
OPERATING EXPENSES:
Sales and marketing 5,633,728 5,147,528 10,222,462 9,625,407
Engineering and development 2,830,504 2,996,340 5,573,738 5,500,840
General and administrative 1,553,597 1,195,775 2,926,315 2,128,185
Purchased in-process research
and development - - - 9,302,212
----------- ----------- ----------- -----------
Total operating expenses 10,017,829 9,339,643 18,722,515 26,556,644
----------- ----------- ----------- -----------
INCOME (LOSS) FROM OPERATIONS 3,442,811 431,571 5,922,667 (8,121,106)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income 435,565 137,405 779,265 313,142
Interest expense (30,117) (34,985) (43,226) (77,742)
Other, net 79,516 287,942 133,571 462,294
----------- ----------- ----------- -----------
Other income 484,964 390,362 869,610 697,694
----------- ----------- ----------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 3,927,775 821,933 6,792,277 (7,423,412)
PROVISION FOR INCOME TAXES 1,494,000 350,000 2,611,000 795,000
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 2,433,775 $ 471,933 $ 4,181,277 $(8,218,412)
=========== =========== =========== ===========
NET INCOME (LOSS) PER COMMON AND
COMMON EQUIVALENT SHARE $ .10 $ .02 $ .18 $ (.38)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER
OF COMMON AND COMMON
EQUIVALENT SHARES 23,743,694 23,161,958 23,532,195 21,679,529
=========== =========== =========== ===========
</TABLE>
4
<PAGE>
COMPUTER NETWORK TECHNOLOGY CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Six months ended June 30
----------------------------
1995 1994
----------- ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 4,181,277 $ (8,218,412)
Depreciation and amortization 3,957,008 3,062,606
Purchase of in-process research and development - 9,302,212
Increase in deferred taxes - (120,000)
CHANGES IN OPERATING ASSETS AND LIABILITIES
NET OF THE EFFECT OF ACQUIRED COMPANY:
Receivables 2,839,558 (1,465,328)
Inventories (1,197,163) (3,776,569)
Other current assets 353,251 703,603
Accounts payable 967,995 (64,715)
Accrued expenses (2,209,963) (3,362,088)
Deferred revenue 3,031,266 2,396,663
----------- ------------
Cash provided by (used for) operating activities 11,923,229 (1,542,028)
----------- ------------
INVESTING ACTIVITIES:
Additions to property and equipment (1,433,713) (3,117,354)
Additions to field support spares (889,761) (2,308,552)
Purchase of Brixton, net of cash acquired - (5,455,671)
Redemption of marketable securities (7,356,346) -
Other (128,039) (141,326)
----------- ------------
Cash used for investing activities (9,807,859) (11,022,903)
----------- ------------
FINANCING ACTIVITIES:
Proceeds from issuance of common stock 1,039,391 695,412
Repayments of obligations under capital leases (185,910) (542,144)
----------- ------------
Cash provided by financing activities 853,481 153,268
----------- ------------
Effects of exchange rate changes 249,730 69,817
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 3,218,581 (12,341,846)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 15,855,905 24,452,737
----------- ------------
CASH AND CASH EQUIVALENTS - END OF PERIOD 19,074,486 $ 12,110,891
=========== ============
</TABLE>
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The accompanying consolidated financial statements, which are unaudited except
for the balance sheet as of December 31, 1994, have been prepared in accordance
with instructions to Form 10-Q and do not include all the information and notes
required by Generally Accepted Accounting Principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. These consolidated financial statements should be read in conjunction
with the financial statements and accompanying notes included in the Company's
Annual Report on Form 10-K filed with the Securities and Exchange Commission.
(2) INVENTORIES
Inventories, stated at the lower of cost (first-in, first-out method) or market,
consist of:
<TABLE>
<CAPTION>
JUNE 30 December 31
1995 1994
---------- -----------
<S> <C> <C>
Components and subassemblies $4,385,080 $3,712,084
Work in process 315,783 106,634
Finished goods 4,556,663 4,241,645
---------- ----------
$9,257,526 $8,060,363
========== ==========
</TABLE>
(3) ACQUISITION
On March 10, 1994, the Company acquired all of the outstanding common and
preferred stock of Brixton Systems, Inc. (Brixton), in exchange for 986,094
unregistered shares of its common stock valued at $6.5 million, $5.5 million in
cash, assumption of $1.6 million in liabilities and the conversion of existing
Brixton employee stock options into CNT stock options valued at approximately
$2.0 million. The transaction has been accounted for as a purchase, and,
accordingly, the acquired assets and liabilities have been recorded at their
estimated fair market values on the date of acquisition. In addition, a portion
of the purchase price paid to acquire Brixton has been allocated to research and
development activities that were in process at the time of the acquisition and
had not yet reached technological feasibility. The amount allocated to in-
process research and development, $9,302,212, was immediately charged to expense
upon the completion of the acquisition. The Company's consolidated financial
statements include the results of Brixton's operations since March 10, 1994.
6
<PAGE>
(4) COMMON STOCK EQUIVALENTS
For the three month periods ended June 30, 1995 and 1994, and the six month
period ended June 30, 1995, outstanding stock options and warrants were
converted to common equivalent shares using the treasury stock method. For the
six month period ended June 30, 1994, outstanding stock options and warrants
were not converted to common equivalent shares due to their antidilutive nature.
7
<PAGE>
Item 2. Managements Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
As an aid to understanding the Company's operating results, the following table
sets forth certain information derived from the Consolidated Statements of
Operations of the Company. (All amounts are expressed as a percentage of total
revenue except gross profit which is expressed as a percent of the related
revenue.)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
------------------ -----------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUE:
Product sales 79.9% 81.4% 78.9% 80.5%
Service fees 20.1 18.6 21.1 19.5
----- ----- ----- -----
Total revenue 100.0 100.0 100.0 100.0
----- ----- ----- -----
GROSS PROFIT:
Product sales 71.8 66.5 71.9 66.6
Service fees 22.1 0.1 19.5 6.3
----- ----- ----- -----
Total gross profit 61.8 54.1 60.8 54.8
----- ----- ----- -----
OPERATING EXPENSES:
Sales and marketing 25.9 28.5 25.2 28.7
Engineering and development 13.0 16.6 13.8 16.3
General and administrative 7.1 6.6 7.2 6.3
Purchased in-process research
and development - - - 27.6
----- ----- ----- -----
Total operating expenses 46.0 51.7 46.2 78.9
----- ----- ----- -----
INCOME (LOSS) FROM OPERATIONS 15.8 2.4 14.6 (24.1)
Other income 2.2 2.2 2.1 2.0
----- ----- ----- -----
INCOME (LOSS) BEFORE INCOME TAXES 18.0 4.6 16.7 (22.1)
Provision for income taxes (6.8) (2.0) (6.4) (2.3)
----- ----- ----- -----
NET INCOME (LOSS) 11.2% 2.6% 10.3% (24.4)%
===== ===== ===== =====
</TABLE>
REVENUE
The Company's revenue primarily includes the sale and service of its
Channelink products for the channel networking market and the licensing,
sale and support of its Brixton hardware and software products for the
internetworking and IBM connectivity data communications market. The
Company's consolidated financial statements include the results of
Brixton's operations since its acquisition on March 10, 1994.
Revenue increased 21% and 20% for the three and six month periods ended
June 30, 1995, respectively, when compared to the same periods of 1994.
Revenue from the Company's
8
<PAGE>
Channelink product line totaled $18.7 million and $34.1 million for the three
and six month periods ended June 30, 1995, respectively, increases of 23% and
21%, respectively, when compared to the same periods of 1994.
Revenue from the Company's Brixton product line (acquired March 10, 1994)
totaled $2.8 million and $5.7 million for the three and six month periods ended
June 30, 1995, respectively, increases of 82% and 120%, respectively, when
compared to the revenue reported by Brixton on a pro forma basis during the same
periods of 1994. The Company's financial statements for the six months ended
June 30, 1994 include $1.9 million of Brixton revenue. The remaining $.7 million
of Brixton revenue reported on a pro forma basis was recorded during the first
quarter of 1994 prior to the Company's acquisition of Brixton.
Revenue from the Company's UltraNet product line totaled $.3 million and $.7
million for the three and six month periods ended June 30, 1995, respectively,
decreases of $1.1 million and $2.8 million, respectively, when compared to the
same periods of 1994. The reductions in revenue from the UltraNet product line
were expected as the Company has discontinued active marketing of the UltraNet
product line.
Revenue from product sales increased 18% for both the three and six month
periods ended June 30, 1995, when compared to the same periods of 1994. The
growth in product sales is attributable to increases in Channelink product sales
of 19% and 15%, and Brixton product sales of 80% and 196% for the three and six
months ended June 30, 1995, respectively. Brixton product sales increased 120%
on a pro forma basis for the six months ended June 30, 1995. These increases
were partially offset by the expected decrease in product sales from the
Company's UltraNet product line. The increase in Channelink product sales for
the three and six months ended June 30, 1995 primarily resulted from an increase
in direct sales to end user customers in North America and Europe. The increase
in Channelink product sales for the three months ended June 30, 1995 was
partially offset by a decrease in sales to the Company's international
distributors.
Revenue from service fees, which primarily reflects purchases of maintenance
service from the Company's technical support personnel, increased 31% and 30%
during the three and six months ended June 30, 1995, respectively, when compared
to the same periods of 1994. The increase primarily reflects a 42% and 48%
increase in Channelink service fees for the three and six months ended June 30,
1995, respectively, which were partially offset by the expected decline in
UltraNet service fees. The Company believes it will experience a steady decline
in service fees from the UltraNet product line as a result of the nonrenewal of
existing maintenance contracts. Service fees from the Company's Brixton product
line totaled $.2 million and $.4 million during the three and six months ended
June 30, 1995, respectively. Service revenue from the Brixton product line was
approximately $.1 million during the six months ended June 30, 1994. In 1995,
the Company believes service fees for its Channelink and Brixton product lines
will grow at approximately the same rate as the installed base of these
products.
The Company derived 24% and 28% of its revenue from international customers
during the three and six months ended June 30, 1995, respectively, as compared
to 34% and 31%, respectively, for the same periods of 1994. The percentage of
revenue derived from
9
<PAGE>
international customers for any given period is subject to fluctuation due to
the variable timing of sizable orders from customers.
As in the past, the Company expects to continue to see quarter to quarter
fluctuations in revenue. The timing of sizable orders, because of their relative
impact on total quarterly sales, may contribute to such fluctuations. For the
first six months of 1995, the Company's order level increased 22% when compared
to the same period of 1994 to over $45 million, which translates into a
"book-to-bill" ratio of 1.11. During the second quarter of 1995, orders for
product and services totaled $17 million, which translates into a "book-to-bill"
ratio of .78, a lower order rate when compared to recent periods. The Company
currently anticipates that revenue for the three months ending September 30,
1995 will be less than the $23.8 million of revenue recorded by the Company
during the three months ended September 30, 1994.
The Company believes that the anticipated lower revenue in the third quarter of
1995 can be attributed to the recent reduction in orders from the Company's
traditional Channelink market, lower than expected revenue from OEM resellers of
Brixton software products, and a longer than expected recruiting period for
experienced sales and marketing employees for the Brixton marketplace. The
Company believes the growth in new applications, particularly in the area of
network based storage, should result in continuing demand for the Company's
Channelink products.
The Company anticipates that it will fill the current vice president of sales
vacancy during the third quarter of 1995 and will continue to invest in its
North American direct sales force and increase the number of international
distributors and resellers of its products. During the second quarter of 1995,
the Company hired additional sales and marketing employees who are dedicated to
the Brixton product line, and the Company is continuing to actively recruit
additional sales and marketing personnel with prior experience in the Brixton
marketplace. In addition, Sun Microsystems recently released certain Brixton
software products to its sales organization and we believe they are now being
actively marketed. A couple of account opportunities could also result in higher
third quarter revenue; however, the realization of revenue from these
opportunities is unlikely in the third quarter and these opportunities are not
included in the Company's current forecast. There can be no assurance that these
activities will result in revenue increases in the current or future periods.
As a result of these anticipated activities and a full year of revenue from the
Brixton product line (including the Brixton integrated gateway which was
previously called Convergence), the Company believes revenue will increase in
1995 in both North America and internationally, but at a slower overall rate
than in prior years. The actual results achieved by the Company may be impacted
by a number of factors, including market acceptance of the Brixton product line,
the availability of new employees who are experienced in the Brixton
marketplace, growth in new applications for the Company's Channelink products,
changes in general economic conditions, cost and availability of components, and
fluctuations in foreign exchange rates. In addition, the markets for the
Company's products are characterized by significant competition, and the
Company's results may be adversely affected by the actions of existing or future
competitors, including the development of new technologies, the introduction of
new products, and the reduction of prices by such competitors to gain or retain
market share.
10
<PAGE>
GROSS PROFIT
The gross profit margins from product sales for both the three and six months
ended June 30, 1995 were 72%, as compared to 66% and 67%, for the three and six
months ended June 30, 1994, respectively. The increase in gross margins from
product sales resulted from a larger percentage of total revenue coming from
Brixton software product sales and a larger percentage of Channelink product
sales consisting of more complex, higher margin systems.
The Company anticipates that product margins will continue to fluctuate from
quarter to quarter because of the unpredictable nature of the product mix in any
particular quarter. However, the Company anticipates that it will continue to
experience relatively strong product margins during the remainder of 1995,
particularly if the Brixton products become a larger percentage of overall
revenue.
There can be no assurance that the Company will be able to maintain historical
gross profit margins on Brixton products, and actual gross profit margins on
product sales throughout the remainder of 1995 will depend on a number of
factors, including market acceptance of the Brixton product line, the mix of
products, the relative amount of products sold through indirect distribution
sources, and the level of continuing price competition.
For the three and six months ended June 30, 1995, gross profit margins on
service fees were 22% and 19%, respectively, as compared to 0% and 6%,
respectively, during the same periods of 1994. The increase in gross margins
from service fees resulted from a steadily increasing base of installed
Channelink units covered by maintenance contracts, which provide economies of
scale, and the timing of certain maintenance contract renewals.
During 1995, the Company anticipates making additional investments in its
service business and, as these fixed costs of providing maintenance service are
spread over a larger base of installed products, the Company anticipates gross
profit margins on service fees will increase slightly throughout the remainder
of 1995 when compared to the same periods in 1994, although the Company expects
that service margins will be somewhat lower than the levels experienced in the
second quarter of 1995.
OPERATING EXPENSES
Sales and marketing expenses increased during the three and six month periods
ended June 30, 1995 by 9% and 6%, respectively, when compared to the same
periods of 1994. The increases primarily resulted from continuing expansion of
the Company's sales organization, with an emphasis being placed on new employees
to expand the Company's sales and support activities in the Brixton marketplace.
The Company expects to expand its domestic and international sales organizations
as well as increase its marketing and customer support programs during the
second half of 1995.
Engineering and development costs (primarily compensation and related fringe
benefits, depreciation, and consulting expenses) related to product development
and enhancements to existing products did not change significantly during the
three and six months ended June 30,
11
<PAGE>
1995 as compared to the same periods in 1994. Engineering and development costs
declined as a percentage of revenue to 13% and 14% of revenue during the three
and six month periods ended June 30, 1995, respectively, as compared to 17% and
16% of revenue, respectively, during the same periods of 1994.
The Company anticipates spending between 12% and 14% of total revenue on
engineering and development in 1995, which includes additional investments in
current and future products. The Company believes a sustained high level of
investment is essential to continued customer satisfaction and future revenue.
General and administrative expenses increased during the three and six months
ended June 30, 1995 by 30% and 38%, respectively, when compared to the same
period of 1994. The increases during 1995 are primarily related to planned
additions to administrative staff. In addition, the six months ended June 30,
1995 include general and administrative expenses associated with Brixton for the
entire period, as compared to the approximately four months of expense that were
incurred subsequent to the acquisition in 1994. General and administrative
expenses were 6% to 7% of total revenue during the three and six months ended
June 30, 1995 and 1994; and the Company anticipates general and administrative
expenses will remain in that same range during the balance of 1995.
The Company recorded a provision for income taxes at an effective rate of
approximately 38% for the three and six months ended June 30, 1995. During the
six months ended June 30, 1994, the Company recorded a $9.3 million charge for
purchased in-process research and development. Excluding this charge, the
Company recorded a provision for income taxes at an effective rate of 42% for
both the three and six months ended June 30, 1994. The Company anticipates that
its effective income tax rate for the remainder of 1995 will be between 37% and
39%.
12
<PAGE>
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations through the private and
public sales of equity securities, bank borrowings under lines of credit,
capital equipment leases, and cash generated from operations.
Cash, cash equivalents and marketable securities at June 30, 1995 totaled $28.9
million, an increase of $10.6 million during the first six months of 1995. This
net increase resulted from the cash provided by operations, financing
activities, and the effects of exchange rate changes which aggregate, $13.0
million, partially offset by the cash used for investing in property and
equipment, field support spares and other assets of approximately $2.4 million.
Expenditures for capital equipment and field support spares have been, and
likely will continue to be, a significant capital requirement. The Company plans
to continue to invest aggressively in productivity tools for its employee and in
its field support spares.
The Company believes that the current balances of cash, cash equivalents and
marketable securities, when combined with anticipated cash flow from operations,
will be adequate to fund its operating plans and meet its currently anticipated
aggregate capital requirements, at least through 1996; however, if the Company
does not generate revenue as expected or incurs unanticipated expense, or needs
additional investment funds to react to changes in the marketplace, it may need
additional capital earlier or in greater amounts than would otherwise be
required.
The Company believes that inflation has not had a material impact on its
operations or liquidity to date.
13
<PAGE>
PART II. OTHER INFORMATION
Item 1-3. None
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders was held May 18, 1995.
(b) Elected as Directors of the Company
C. McKenzie Lewis III
Erwin A. Kelen
Eugene D. Misukanis
Lawrence Perlman
John A. Rollwagen
(c) Matters voted upon
<TABLE>
<CAPTION>
Broker
Affirmative Negative Non
votes votes Abstain Votes
------------ -------- -------- ---------
<S> <C> <C> <C> <C>
1. Election of Directors
C. McKenzie Lewis III 17,497,856 181,933 0 0
Erwin A. Kelen 17,499,423 180,366 0 0
Eugene D. Misukanis 17,490,373 189,416 0 0
Lawrence Perlman 17,484,680 195,109 0 0
John A. Rollwagen 17,496,323 183,466 0 0
2. Proposal to ratify and
approve the appointment
of KPMG Peat Marwick
LLP as Independent
Auditors of the Company
for the year ending
December 31, 1995 17,502,158 77,575 100,057 0
</TABLE>
Item 5. None
14
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits are filed herewith.
Exhibit Description
------- -----------
2A. Agreement and Plan of Merger among Computer Network Technology
Corporation, BRX Corp., Brixton Systems, Inc., and certain
Significant Shareholders of Brixton, dated February 4, 1994.
(Incorporated by reference to Exhibit 2 to current report on
Form 8-K dated February 22, 1994.)
4A. Restated Articles of Incorporation of the Company, as amended.
(Incorporated by reference to Exhibit 2 to current report on
Form 8-K dated June 22, 1992.)
4B. By-laws of the Company, as amended. (Incorporated by reference
to Exhibit 3B to the Annual Report on Form 10-K for the fiscal
year ended December 31, 1991.)
10A. Master Lease Agreement by and between the Company and Comdisco,
Inc. dated September 7, 1990. (Incorporated by reference to
Exhibit 10B to Form S-2 Registration Statement No. 33-41985.)
10B. Lease Agreement dated November 30, 1990 by and between TOLD
Development Company, a general partnership, and Computer
Network Technology Corporation. (Incorporated by reference to
Exhibit 10C to Form S-2 Registration Statement No. 33-41985.)
10C. Computer Network Technology Corporation 401(k) Salary Savings
Plan effective January 1, 1991. (Incorporated by reference to
Exhibit 10F to Form S-2 Registration Statement No. 33-41985.)
10D. Subscription Agreements of Kanematsu Electronics Ltd. and
Kanematsu USA Inc. dated October 22, 1990. (Incorporated by
reference to Exhibit 10G to Form S-2 Registration Statement No.
33-41985.)
10E. Amended and Restated Incentive Stock Option Plan (Incorporated
by reference to Exhibit 10A to Form S-8 Registration Statement,
Commission File No. 33-41986.)
10F. Amended 1986 Nonqualified Stock Option Plan. (Incorporated by
reference to Exhibit 10B to Form S-8 Registration Statement No.
33-41986.)
15
<PAGE>
10G. Certificate of Resolutions contained in Minutes of Annual
Meeting of Shareholders on May 30, 1990 increasing shares
reserved under ISOP from 500,000 to 1,000,000. (Incorporated by
reference to Exhibit 10C to Form S-8 Registration Statement No.
33-41986.)
10H. Certificate of Resolutions contained in Minutes of Special
Meeting of the Board of Directors on April 25, 1991 increasing
the number of shares reserved under the NSOP from 1,100,000 to
1,600,000. (Incorporated by reference to Exhibit 10D to Form S-
8 Registration Statement No. 33-41986.)
10I. Employment agreement by and between the Company and Eugene D.
Misukanis. (Incorporated by reference to Exhibit 10B of Form S-
2 Registration Statement No. 33-18501.)
10J. Employment Agreement by and between the Company and C. McKenzie
Lewis, III. (Incorporated by reference to Exhibit 10M of Form
S-2 Registration Statement No. 33-41985.)
10K. Employment Agreement by and between the Company and John R.
Brintnall. (Incorporated by reference to Exhibit 10O Form S-2
Registration Statement No. 33-41985.)
10L. Employment Agreement by and between the Company and Peter
Dixon. (Incorporated by reference to Exhibit 10P of Form S-2
Registration Statement No. 33-41985.)
10M. Employment Agreement by and between the Company and Richard
Carlson. (Incorporated by reference to Exhibit 10s of Annual
Report on Form 10-K for the fiscal year ended December 31,
1991.)
10N. 1992 Employee Stock Purchase Plan (Incorporated by reference to
Exhibit 28 to Form S-8 Registration Statement No. 33-48954.)
10O. 1992 Stock Award Plan (Incorporated by reference to Exhibit 28
to Form S-8 Registration Statement No. 33-48944.)
10P. Sublease Agreement by and between ITT Consumer Financial
Corporation and Computer Network Technology Corporation dated
October 1, 1993. (Incorporated by reference to Exhibit 10X to
Annual Report on Form 10-K for the fiscal year ended December
31, 1993.)
16
<PAGE>
10Q. First Amendment to Sublease Agreement by and between ITT
Consumer Financial Corporation and Computer Network Technology
Corporation dated October 26, 1993. (Incorporated by reference
to Exhibit 10Y to Annual Report on Form 10-K for the fiscal
year ended December 31, 1993.)
10R. Employment Agreement by and between the Company and Julie C.
Quintal. (Incorporated by reference to Exhibit 10Z to Annual
Report on Form 10-K for the fiscal year ended December 31,
1993.)
10S. Minutes of Annual Meeting of Shareholders on May 27, 1993
increasing shares reserved under the 1992 Stock Award Plan from
650,000 to 1,050,000 and increasing shares reserved under the
1992 Employee Stock Purchase Plan from 150,000 to 300,000.
(Incorporated by reference to Exhibit 10BB to Annual Report on
Form 10-K for the fiscal year ended December 31, 1993.)
10T. Amendment No. 1 to Sublease Agreement by and between ITT
Consumer Financial Corporation and Computer Network Technology
Corporation dated February 9, 1994. (Incorporated by reference
to Exhibit 10CC to Form 10Q for the quarterly period ended
March 31, 1994.)
10U. March 10, 1994 Incentive Stock Option Agreements (Incorporated
by reference to Exhibit 28.2 to Form S-8 Registration Statement
No. 33-83266.)
10V. March 10, 1994 Non-Qualified Stock Option Agreements
(Incorporated by reference to Exhibit 28.3 to Form S-8
Registration Statement No. 33-83266.)
10W. Amendment to 1992 Stock Award Plan increasing shares reserved
from 1,050,000 to 3,250,000 (Incorporated by reference to Form
S-8 Registration Statement No. 33-83262.)
10X. Amendment to Employee Stock Purchase Plan increasing shares
reserved from 300,000 to 400,000 (Incorporated by reference to
Form S-8 Registration Statement No. 33-83264.)
10Y. Employment Agreement by and between the Company and Herbert L.
Rush III. (Incorporated by reference to Exhibit 10HH to Annual
Report on Form 10-K for the fiscal year ended December 31,
1994.)
17
<PAGE>
10Z. Employment Agreement by and between the Company and Frantz
Corneille. (Incorporated by reference to Exhibit 10II to Annual
Report on Form 10-K for the fiscal year ended December 31,
1994.)
11. Statement Re: Computation of Net Income (Loss) per Common and
Common Equivalent Share.
27. Financial Data Schedule.
(b) No reports on Form 8-K were filed during the quarter ended
June 30, 1995.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned duly authorized officers.
COMPUTER NETWORK TECHNOLOGY CORPORATION
(Registrant)
Date: August 11, 1995 By: /s/ John R. Brintnall
--------------- -------------------------------------------
John R. Brintnall
Vice President of Finance
(Principal financial and accounting officer
and duly authorized signatory on behalf
of the Registrant.)
19
<PAGE>
EXHIBIT INDEX
Exhibit Description Page
------- ----------- ----
2A. Agreement and Plan of Merger among Computer Network Technology
Corporation, BRX Corp., Brixton Systems, Inc., and certain
Significant Shareholders of Brixton, dated February 4, 1994.
(Incorporated by reference to Exhibit 2 to current report on
Form 8-K dated February 22, 1994.)
4A. Restated Articles of Incorporation of the Company, as amended.
(Incorporated by reference to Exhibit 2 to current report on
Form 8-K dated June 22, 1992.)
4B. By-laws of the Company, as amended. (Incorporated by reference
to Exhibit 3B to the Annual Report on Form 10-K for the fiscal
year ended December 31, 1991.)
10A. Master Lease Agreement by and between the Company and Comdisco,
Inc. dated September 7, 1990. (Incorporated by reference to
Exhibit 10B to Form S-2 Registration Statement No. 33-41985.)
10B. Lease Agreement dated November 30, 1990 by and between TOLD
Development Company, a general partnership, and Computer
Network Technology Corporation. (Incorporated by reference
to Exhibit 10C to Form S-2 Registration Statement No. 33-41985.)
10C. Computer Network Technology Corporation 401(k) Salary Savings
Plan effective January 1, 1991. (Incorporated by reference to
Exhibit 10F to Form S-2 Registration Statement No. 33-41985.)
10D. Subscription Agreements of Kanematsu Electronics Ltd. and
Kanematsu USA Inc. dated October 22, 1990. (Incorporated by
reference to Exhibit 10G to Form S-2 Registration Statement
No. 33-41985.)
10E. Amended and Restated Incentive Stock Option Plan (Incorporated
by reference to Exhibit 10A to Form S-8 Registration Statement,
Commission File No. 33-41986.)
10F. Amended 1986 Nonqualified Stock Option Plan. (Incorporated by
reference to Exhibit 10B to Form S-8 Registration Statement
No. 33-41986.)
10G. Certificate of Resolutions contained in Minutes of Annual
Meeting of Shareholders on May 30, 1990 increasing shares
reserved under ISOP from 500,000 to 1,000,000. (Incorporated by
reference to Exhibit 10C to Form S-8 Registration Statement
No. 33-41986.)
20
<PAGE>
Exhibit Description Page
------- ----------- ----
10H. Certificate of Resolutions contained in Minutes of Special
Meeting of the Board of Directors on April 25, 1991 increasing
the number of shares reserved under the NSOP from 1,100,000 to
1,600,000. (Incorporated by reference to Exhibit 10D to Form S-8
Registration Statement No. 33-41986.)
10I. Employment agreement by and between the Company and Eugene D.
Misukanis. (Incorporated by reference to Exhibit 10B of Form
S-2 Registration Statement No. 33-18501.)
10J. Employment Agreement by and between the Company and C. McKenzie
Lewis, III. (Incorporated by reference to Exhibit 10M of Form
S-2 Registration Statement No. 33-41985.)
10K. Employment Agreement by and between the Company and John R.
Brintnall. (Incorporated by reference to Exhibit 10O Form S-2
Registration Statement No. 33-41985.)
10L. Employment Agreement by and between the Company and Peter Dixon.
(Incorporated by reference to Exhibit 10P of Form S-2
Registration Statement No. 33-41985.)
10M. Employment Agreement by and between the Company and Richard
Carlson. (Incorporated by reference to Exhibit 10S of Annual
Report on Form 10-K for the fiscal year ended December 31,
1991.)
10N. 1992 Employee Stock Purchase Plan (Incorporated by reference to
Exhibit 28 to Form S-8 Registration Statement No. 33-48954.)
10O. 1992 Stock Award Plan (Incorporated by reference to Exhibit 28
to Form S-8 Registration Statement No. 33-48944.)
10P. Sublease Agreement by and between ITT Consumer Financial
Corporation and Computer Network Technology Corporation dated
October 1, 1993. (Incorporated by reference to Exhibit 10X to
Annual Report on Form 10-K for the fiscal year ended
December 31, 1993.)
10Q. First Amendment to Sublease Agreement by and between ITT
Consumer Financial Corporation and Computer Network Technology
Corporation dated October 26, 1993. (Incorporated by reference
to Exhibit 10Y to Annual Report on Form 10-K for the fiscal year
ended December 31, 1993.)
21
<PAGE>
Exhibit Description Page
------- ----------- ----
10R. Employment Agreement by and between the Company and Julie C.
Quintal. (Incorporated by reference to Exhibit 10Z to Annual
Report on Form 10-K for the fiscal year ended December 31,
1993.)
10S. Minutes of Annual Meeting of Shareholders on May 27, 1993
increasing shares reserved under the 1992 Stock Award Plan
from 650,000 to 1,050,000 and increasing shares reserved under
the 1992 Employee Stock Purchase Plan from 150,000 to 300,000.
(Incorporated by reference to Exhibit 10BB to Annual Report on
Form 10-K for the fiscal year ended December 31, 1993.)
10T. Amendment No. 1 to Sublease Agreement by and between ITT
Consumer Financial Corporation and Computer Network Technology
Corporation dated February 9, 1994. (Incorporated by reference
to Exhibit 10CC to Form 10Q for the quarterly period ended
March 31, 1994.)
10U. March 10, 1994 Incentive Stock Option Agreements (Incorporated
by reference to Exhibit 28.2 to Form S-8 Registration Statement
No. 33-83266.)
10V. March 10, 1994 Non-Qualified Stock Option Agreements
(Incorporated by reference to Exhibit 28.3 to Form S-8
Registration Statement No. 33-83266.)
10W. Amendment to 1992 Stock Award Plan increasing shares reserved
from 1,050,000 to 3,250,000 (Incorporated by reference to
Form S-8 Registration Statement No. 33-83262.)
10X. Amendment to Employee Stock Purchase Plan increasing shares
reserved from 300,000 to 400,000 (Incorporated by reference to
Form S-8 Registration Statement No. 33-83264.)
10Y. Employment Agreement by and between the Company and Herbert L.
Rush III (Incorporated by reference to Exhibit 10HH to Annual
Report on Form 10-K for the fiscal year ended December 31, 1994.)
10Z. Employment Agreement by and between the Company and Frantz
Corneille (Incorporated by reference to Exhibit 10II to Annual
Report on Form 10-K for the fiscal year ended December 31, 1994.)
11. Statement Re: Computation of Net Income (Loss) per Common and
Common Equivalent Share........................................... 23
27. Financial Data Schedule .......................................... 24
22
<PAGE>
Exhibit 11
----------
COMPUTER NETWORK TECHNOLOGY CORPORATION
Statement Re: Computation of Net Income (Loss) Per Common and Common Equivalent
Share
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Income (loss) $ 2,433,775 $ 471,933 $ 4,181,277 $(8,218,412)
=========== =========== =========== ===========
Primary Earnings (Loss) Per Share
Weighted average number of common
shares outstanding 22,536,615 22,101,017 22,476,474 21,679,529
Dilutive effect of outstanding common
equivalent shares (1) 1,207,079 1,060,941 1,055,721 --
----------- ----------- ----------- -----------
Weighted average number of common and
common equivalent shares outstanding 23,743,694 23,161,958 23,532,195 21,679,529
=========== =========== =========== ===========
Net income (loss) per common and common
equivalent share $ .10 $ .02 $ .18 $ (.38)
=========== =========== =========== ===========
Fully Diluted Earnings (Loss) Per Share:
Weighted average number of common 22,536,615 22,101,017 22,476,474 21,679,529
shares outstanding
Dilutive effect of outstanding common
equivalent shares (2) 1,302,874 1,060,941 1,312,079 --
----------- ----------- ----------- -----------
Weighted average number of common and
common equivalent shares outstanding 23,839,489 23,161,958 23,788,553 21,679,529
=========== =========== =========== ===========
Net income (loss) per common and common
equivalent share $ .10 $ .02 $ .18 $ (.38)
=========== =========== =========== ===========
</TABLE>
(1) For the three month periods ended June 30, 1995 and 1994, and the six month
period ended June 30, 1995, outstanding stock options and warrants issuable
under various stock option plans, warrant agreements, and the employee stock
purchase plan (as disclosed in the notes to the consolidated financial
statements incorporated by reference in the Companys annual report on Form
10-K for the fiscal year ended December 31, 1994) are converted to common
equivalent shares by the treasury stock method using the average market
price during the period for the Company's shares. For the six month period
ended June 30, 1994, such stock options, warrants, and shares issuable under
the employee stock purchase plan are not included in the computation due to
their anti-dilutive nature.
(2) Outstanding stock options and warrants issuable under various stock option
plans, warrant agreements, and the employee stock purchase plan are
converted to common equivalent shares by the treasury stock method using the
higher of the average market price during the period or the market price at
the end of the period for the Companys shares. For the six months ended
June 30 1994, such stock options, warrants, and shares issuable under the
employee stock purchase plan are not included in the computation due to
their anti-dilutive nature.
23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from the
consolidated balance sheet and statements of operation of Computer Network
Technology Corporation as of and for the six month period ended June 30, 1995
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 19,074,486
<SECURITIES> 9,842,580
<RECEIVABLES> 20,612,040
<ALLOWANCES> 0<F1>
<INVENTORY> 9,257,526
<CURRENT-ASSETS> 61,641,545
<PP&E> 8,439,682
<DEPRECIATION> 0<F1>
<TOTAL-ASSETS> 80,188,899
<CURRENT-LIABILITIES> 19,343,772
<BONDS> 97,520
<COMMON> 226,445
0
0
<OTHER-SE> 56,837,620
<TOTAL-LIABILITY-AND-EQUITY> 80,188,899
<SALES> 31,972,297
<TOTAL-REVENUES> 40,506,774
<CGS> 8,989,341
<TOTAL-COSTS> 15,861,592
<OTHER-EXPENSES> 5,573,738<F2>
<LOSS-PROVISION> 0<F1>
<INTEREST-EXPENSE> 43,226
<INCOME-PRETAX> 6,792,277
<INCOME-TAX> 2,611,000
<INCOME-CONTINUING> 4,181,277
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,181,277
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
<FN>
<F1> Item has been omitted because it is not separately presented in the
Form 10Q Financial Statements.
<F2> Amount presented represents engineering and development expense.
</FN>
</TABLE>
