<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K /A
AMENDMENT NO. 2 TO ANNUAL REPORT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1994
---------------------------------------
Commission File Number 0-18238
------------------------------
SEQUOIA SYSTEMS, INC.
---------------------
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 04-2738973
- -------- ----------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
400 Nickerson Road, Marlborough, Massachusetts 01752
- ---------------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (508) 480-0800
--------------
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $0.40 per share
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether 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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The approximate aggregate market value of the voting stock held by non-
affliates of the Registrant, computed by reference to the closing sales price of
such stock quoted on the Nasdaq National Market on January 31, 1995, was
$32,497,966.
The number of shares outstanding of the Registrant's common stock, $.40
par value per share, as of January 31, 1995, was approximately 9,866,956.
Page 1 of 43 pages
Exhibit Index appears on p. .
-----
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
YEARS ENDED JUNE 30, 1993 AND 1994
REVENUES
--------
The Company's revenues increased 9% from $41,019,000 in fiscal 1993 to
$44,765,000 in fiscal 1994. The increase was primarily due to an 18% increase
in Customer Service revenues from $11,571,000 to $13,636,000 and the receipt of
a $1,500,000 software license fee from Toshiba Corporation. System revenues
during 1994 consisted primarily of sales of expansion systems and upgrades to
existing customers. System revenues which were relatively unchanged as compared
to 1993 reflected an increase in sales of expansion systems and upgrades offset
by a reduction in computer systems sold to new customers. Total fiscal 1994
system and upgrade revenues increased 1.3% over fiscal 1993. During the third
quarter of fiscal 1994, the Company's VME technology was introduced. VME based
products accounted for 40% of fourth quarter total system and system upgrade
revenues, and 23% of total system and system upgrade revenues for the full
fiscal year.
Most recently, system revenues consisted of sales of expansion systems, or
upgrades, to existing customers with increased information processing
requirements rather than system sales to new customers. While sales of
expansion systems have provided a reliable source of revenues during periods
when sales to new customers have been particularly slow, those revenues could
decline if the Company failed to develop attractive, competitively priced
upgrade features and products for existing customers or if the Company were
unable to increase the size of its installed base.
The Company's ability to maintain or increase its level of revenues in the
future will primarily depend on a sustained level of expansion systems or
upgrade sales, the successful introduction of new products, the ability to add
new systems and new customer accounts, and a continued technology licensing
revenue stream.
During fiscal 1993 and 1994, 71% and 66%, respectively, of the Company's
revenues were derived from the sale of computer systems and system upgrades,
including the licensing of associated operating software. In fiscal 1993 and
1994, 28% and 30%, respectively, were derived from service and 1% and 4%,
respectively, were derived from other revenue including rental revenues and
technology licensing fees.
In fiscal 1993 and 1994, sales to one customer exceeded 10% of revenues. In
fiscal 1993, Ultimate Corporation represented 14% of the Company's revenues in
the amount of $5,735,000. In fiscal 1994, CSC Healthcare Systems, Inc.
represented 17% of the Company's revenues in the amount of $7,615,000.
2
<PAGE>
Sales outside the United States during fiscal 1993 and 1994 were $6,272,000
and $9,701,000, representing 15% and 22% of revenues during these respective
periods. The majority of the sales outside of the United States occurred in the
United Kingdom, Asia, and Australia.
GROSS MARGIN
------------
The Company's gross margin increased from 46% in fiscal 1993 to 59% in fiscal
1994 as a result of increases in fiscal 1994 of service margins that were 10%
higher than fiscal 1993, increases in system margins that were 13% higher than
fiscal 1993, and increased technology licensing fees.
The increase in service margin was largely the result of an increase in
service revenues, partially associated with the retroactive billing of $230,000
maintenance charges for services performed at a cost of approximately $105,000
prior to contract execution combined with a decrease in service spending
compared with the prior year.
Contributing to the favorable total system margin increase were significant
overhead cost reductions in manufacturing, including facility consolidations and
the sale of approximately $900,000 of inventory previously written off.
However, system margins are expected to experience a gradual decline with
increased sales volume of low-end systems, a higher percentage of new system
sales rather than upgrades, and competitive pricing pressures.
RESEARCH AND DEVELOPMENT EXPENSES
---------------------------------
The Company incurred research and development expenses of $11,353,000 and
$7,750,000 in fiscal 1993 and 1994, respectively. The reduction in expense of
$3,603,000 was the result of substantial reductions in personnel related
expenses and a reduction in depreciation expense resulting from the write-off of
idle assets associated with the Company's restructuring during the second
fiscal quarter ended December 27, 1992. Research and development expenses as a
percentage of revenues decreased from 28% in fiscal 1993 to 17% in fiscal 1994.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
--------------------------------------------
Selling, general and administrative expenses decreased 46% from $20,318,000 in
fiscal 1993 to $10,983,000 in fiscal 1994. The decrease was the combined result
of personnel reductions, vacated leased facilities and reduced depreciation
charges related to written off equipment resulting from the Company's
restructuring during the second fiscal quarter ended December 27, 1992, as well
as decreases in certain expenses such as external commissions, bad debt
provisions, and audit and legal fees associated with shareholder lawsuits. As a
percentage of revenues, selling, general and administrative expenses decreased
from 50% in fiscal 1993 to 25% in fiscal 1994.
RESTRUCTURING CHARGE/CREDIT
------------------------------
During fiscal 1993, the Company recorded a $13,990,000 restructuring charge to
reduce the carrying value of excess assets and to accrue costs for anticipated
liabilities arising from a
3
<PAGE>
restructuring and downsizing of the business in December 1992. As a result of
the restructuring, the Company reduced its personnel, leased facilities and
equipment utilized in the business. The impact of these reductions in fiscal
1994 was to lower the associated operating expenses by approximately
$14,500,000. During 1994, the Company recognized a $900,000 gain from the sale
of previously written-off inventory, which was not expected to be sold at the
time of the restructuring.
By the end of fiscal 1994, substantially all of the restructuring activities
were completed and the utilization of the restructuring reserves had been
consistent with the original estimates and reflected actions planned and
implemented. Excess reserves totaling $1,109,000 were reversed in fiscal 1994
as a result of the Company's ability, through successful negotiations with
lessors and vendors, to ultimately settle certain of its commitments for amounts
lower than its contractual obligations. These excess reserves consisted
principally of amounts accrued for commitments for leases, software licenses and
engineering services. As of June 30, 1994, the remaining accrued restructuring
balance amounted to $373,000 for contractual obligations.
OPERATING PROFIT/LOSS
------------------------
The Company incurred an operating profit of $8,607,000 in fiscal 1994 versus
an operating loss of $26,901,000 in fiscal 1993. With the exception of the
fiscal 1993 restructuring charges and class action settlement, the fiscal 1994
operating profit resulted from higher gross profit, lower operating expenses,
the license fee from Toshiba of $1,500,000 and the reversal of a restructuring
reserve of $1,109,000.
INTEREST INCOME/EXPENSE
-------------------------
The Company had net interest income of $229,000 in fiscal 1994 compared to net
interest expense of $211,000 in fiscal 1993. This change was the combined
result of higher cash balances and the paydown of bank debt and reduction of
capital lease obligations in fiscal 1994.
INCOME TAXES
------------
The Company booked a provision for income taxes in the amount of $308,000 in
fiscal 1994. This amount reflects alternative minimum tax requirements and
foreign withholding taxes. There was no state or federal income tax liability
in fiscal 1993. See Note 4 of the Notes to Consolidated Financial Statements.
YEARS ENDED JUNE 30, 1992 AND 1993
REVENUES
--------
The Company's revenues decreased 34% from $62,588,000 in fiscal 1992 to
$41,019,000 in fiscal 1993. This decrease was due primarily to a decrease in the
number of computer systems and system upgrades sold, as well as to a decline in
other revenues, primarily technology
4
<PAGE>
licensing fees earned. Certain customers canceled orders during fiscal 1993 as a
result of the Company's financial difficulties. Product revenues during fiscal
1993 consisted primarily of sales of system upgrades to existing customers.
Revenues from customer service increased 15% from $10,019,000 to $11,571,000 as
a result of the servicing requirements of a larger customer base.
During fiscal 1992 and 1993, 76% and 71%, respectively, of the Company's
revenues were derived from the sale of computer systems and system upgrades,
including the licensing of associated operating software. In fiscal 1992 and
1993, 16% and 28% of revenues, respectively, were derived from service and 8%
and 1%, respectively, were derived from other revenue consisting of customer
training fees and technology licensing fees.
In fiscal 1992 and 1993, sales to one customer, Ultimate Corp., exceeded 10%
of revenues and were $12,020,000 and $5,735,000, respectively, representing 19%
and 14% of revenues in these respective years.
Sales outside the United States during fiscal 1992 and 1993 were $15,866,000
and $6,272,000, respectively, representing 25% and 15% of revenues during these
periods. A majority of the sales outside of the United States occurred in the
United Kingdom, Asia and Canada. Due to the Company's restructuring in fiscal
1993, two sales offices were closed outside the United States in countries where
the Company believed less potential business existed.
GROSS MARGIN
------------
The Company's gross margin as a percentage of revenues decreased to 46% in
fiscal 1993 from 58% in fiscal 1992. This decrease in gross profit percentage
was caused by the decrease in technology license fees included in other
revenues, an increase in service and training revenues which had lower gross
margins than product sales, and substantial excess fixed manufacturing costs.
The Company's gross margin was also impacted unfavorably by an increase in the
average discount level offered to customers, partially offset by the favorable
margin impact of the change in product mix from systems to system upgrades,
which generally have better margins.
RESEARCH AND DEVELOPMENT EXPENSES
---------------------------------
The Company incurred research and development expenses of $13,637,000 and
$11,353,000 in fiscal years 1992 and 1993, respectively. The decrease was
primarily due to a substantial reduction in personnel, equipment and engineering
services resulting from the Company's downsizing as part of the restructuring
during the second fiscal quarter ended December 27, 1992 resulting in lower
research and development spending levels throughout the Company's third and
fourth quarters. Research and development expenses as a percentage of revenues
increased to 28% in fiscal 1993 from 22% of revenues in fiscal 1992, due to the
reductions in revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
--------------------------------------------
Selling, general and administrative expenses decreased 24% to $20,318,000 in
fiscal 1993 from $26,670,000 in fiscal 1992. The decrease was primarily due to a
decrease in personnel and
5
<PAGE>
related expenses, vacated lease facilities and depreciation charges related to
written off equipment, offset by increases in legal and audit fees relating to
the Company's prior year restatements and defense of shareholder lawsuits, and
severance provisions resulting from the Company's downsizing as part of the
restructuring during the second fiscal quarter ended December 27, 1992. As a
percentage of revenues, selling, general and administrative expenses increased
from 42% in fiscal 1992 to 50% of revenues in fiscal 1993, primarily due to the
substantial decrease in sales during fiscal 1993.
RESTRUCTURING CHARGE
--------------------
During the second quarter of fiscal 1993, the Company was experiencing
liquidity issues resulting from sales being substantially below expectations,
accounts receivable with extended or delayed payment expectations, an excess
investment in inventory and the Company's default under its line of credit with
The First National Bank of Boston. Additionally, the Company was experiencing a
reluctance by customers to purchase products partially due to adverse publicity
relating to revenue restatements. In response to these circumstances, the
Company decided on a course of action that would maximize its available cash
resources by (i) focusing on existing customers and its highest potential
revenue-generating products and (ii) selectively investing resources in the
development of certain new products and upgrades. This decision resulted in a
reduction in its workforce from approximately 300 to 165, the closing of 14 of
its 20 sales offices worldwide, and the discontinuance of certain research and
development projects and most of its investments in technology platforms upon
which the Company had planned to offer its products.
As a direct result of management's plans to refocus its product strategy and
reduce its sales infrastructure, the Company determined that it would not
realize any return on a substantial portion of its existing inventory and
therefore wrote-off $4,022,000 of its inventory.
These actions also resulted in the write-off of idle property and equipment of
$3,077,000 which, as a direct result of the workforce reductions, office
closings and discontinued product lines and development efforts, no longer had
alternative future uses. The write-off consisted primarily of assets
previously used in the engineering and sales functions.
In addition, as a direct result of the Company's decision to discontinue
certain product lines and development efforts, the Company wrote-off other
assets of $2,600,000 consisting of the carrying value of software licenses which
would not be used in any future products. Also, as a result of the office
closings, the Company wrote off $643,000 of lease deposits which were forfeited
upon cancellation of the leases.
The Company also recognized other costs as a result of these actions, the most
material of which included $2,494,000 related to lease cancellation payments,
$800,000 of commitment under contractual obligations and employee termination
costs of $350,000.
As of June 30, 1993, the Company had taken a number of actions consistent with
the restructuring plan established in December, 1992. During the fiscal year,
the Company had utilized approximately $2,000,000 of the $3,649,000 accrual for
commitments primarily for payment due to lease cancellation obligations.
6
<PAGE>
As a result of its restructuring, the Company reduced certain costs including
payroll and payroll related costs, lease expenses, depreciation and amortization
of equipment and software. The reductions in these costs were realized in the
second half of fiscal 1993 and were approximately $7,000,000. The Company
expected that it would continue to experience reduced levels of such expenses
during 1994 and until the Company was able to regain customer confidence within
its markets. The Company's intent was to reduce operating expenses consistent
with the lower expected revenue levels.
OPERATING LOSS
--------------
The Company incurred operating losses of $3,871,000 and $26,901,000 in fiscal
years 1992 and 1993, respectively. The increase in the operating loss was the
result of a $13,990,000 restructuring charge booked during fiscal 1993, the
Company's inability to achieve planned sales levels during the first half of
fiscal 1993, and operating expense increases during the fourth quarter of fiscal
1992 and first quarter of fiscal 1993.
INTEREST INCOME/EXPENSE
-------------------------
The Company had net interest income of $269,000 in fiscal 1992 compared to net
interest expense of $211,000 in fiscal 1993. The decrease in net interest income
was primarily the result of decreases in investment income due to lower cash and
short-term investment balances during the year, and, to a lesser extent, lower
yields on such investments and increases in interest expenses from capitalized
leases.
INCOME TAXES
------------
The Company had no state or federal income tax liability for fiscal 1992 and
1993, but made a provision for foreign tax of $337,500 in fiscal 1992. See Note
4 of Notes to Consolidated Financial Statements.
INFLATION
The Company believes inflation has not had a material effect on its results of
operations to date.
LIQUIDITY AND CAPITAL RESOURCES
In fiscal 1994, the Company funded its operations through positive cash flow
from operations. In fiscal 1993, the Company experienced a liquidity crisis due
to operating losses, an excessive investment in inventory, an increased accounts
receivable balance, and lack of credit availability under the Company's then
existing line of credit.
At June 30, 1994, the Company had cash and working capital of $20,741,000 and
$20,988,000, compared to cash, restricted cash, and working capital of
$10,639,000, $3,989,000,
7
<PAGE>
and $8,189,000, respectively, at June 30, 1993. The Company had no restricted
cash at June 30, 1994. The increase in cash was primarily due to the Company's
cash generated from operations in fiscal 1994 aided by a reduction in
inventories. Payments relating to the settlement of the class action lawsuit and
the payoff of the bank debt in fiscal 1994 resulted in the subsequent release of
cash collateral. The increase in working capital was primarily due to the
increase in cash and accounts receivable, and the issuance of preferred stock,
previously included in accrued expenses, in connection with the settlement of
the class action lawsuit. The increase in cash generated from operations in
fiscal 1994 over fiscal 1993 was largely due to reductions in certain expenses
resulting from actions taken in fiscal 1993 to restructure operations. In
particular, cash payments for payroll and payroll related costs and lease
obligations were approximately $7,300,000 lower in fiscal 1994 reflecting
reductions from the restructuring actions offset by certain staff additions in
1994.
At June 30, 1993, the Company's expected cash requirements to settle its
remaining restructuring obligations was approximately $1,600,000. During fiscal
1994, the Company had settled through cash payment or negotiations,
substantially all of these obligations and, as a result of its ability to
successfully negotiate amounts less than contractually due, reversed $1,109,000
of amounts accrued. Cash payments in fiscal 1994 related primarily to the
settlement of software license and development agreements. The Company believes
that the settlement of its remaining obligations will not materially impact
future liquidity.
At June 30, 1994, the Company's net accounts receivable totaled $5,453,000
compared to $4,150,000 at June 30, 1993. The Company's days sales outstanding
at June 30, 1994 was 38 days, an increase from 34 days at June 30, 1993.
The Company generally ships systems within 30 days after receipt of specific
purchase orders from customers. In order to do so, the Company typically
produces and maintains an inventory of subsystems in standard configurations. As
a result, the Company generally maintains a high inventory balance. Inventories
have declined to $3,431,000 at June 30, 1994 from $4,875,000 at June 30, 1993
due to the utilization of existing inventories on hand and the controlled
procurement of new inventory. The Company expects to be able to continue to
manage its inventory at current levels throughout fiscal 1995.
Capital expenditures totaled $1,435,000 for fiscal 1994, and were comprised
primarily of computer equipment. This was in contrast to fiscal 1993 capital
expenditures of $1,721,000, also primarily computer equipment. The Company
expects to increase capital expenditures in fiscal 1995 as it plans for greater
investment in research and development and internal computer systems.
On March 25, 1993, the Bank of Boston and the Company entered into a waiver
and extension agreement relating to the revolving credit facility and the
capital lease credit facility requiring monthly payments of principal and
interest, and final payment upon maturation of the facility on November 1, 1993.
The remaining obligations under the capital lease credit facility and revolving
credit facility were repaid on October 29, 1993 and November 1, 1993,
respectively, and all security interests were released by the bank.
8
<PAGE>
On March 22, 1994, the Company and State Street Bank and Trust Company entered
into a credit agreement which provides for maximum borrowings of $10,000,000.
Borrowings under this agreement bear interest at the rate of prime to prime plus
1%, dependent on certain ratios. The Company is required to meet specific
covenants throughout the duration of this agreement. The agreement expires on
May 31, 1995. Available borrowings under this agreement are subject to a
borrowing base formula. At June 30, 1994, no amounts were outstanding under
this agreement and the Company had $3,060,000 available under the borrowing base
formula. See Note 5 of Notes to Consolidated Financial Statements.
The Company believes that its present cash, working capital levels, and
borrowing capacity are adequate for its operating needs through fiscal 1995.
9
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following statements are filed as part of this Amendment No. 2 to the
Annual Report on Form 10-K.
Page No.
--------
Report of Independent Accountants F-1
Audited Financial Statements:
Consolidated Balance Sheets at June 30, 1993 and 1994 F-3
Consolidated Statements of Operations for the three years
ended June 30, 1994 F-4
Consolidated Statements of Cash Flows for the
three years ended June 30, 1994 F-5
Consolidated Statements of Stockholders' Equity for the
three years ended June 30, 1994 F-6
Notes to Consolidated Financial Statements F-7
Financial Statement Schedules:
Schedule VIII - Valuation and Qualifying Accounts
Schedule IX - Short-Term Borrowings
Schedule X - Supplementary Income Statement Information
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto.
10
<PAGE>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
The following exhibits are filed as part of this Amendment No. 2 to the Annual
Report on Form 10-K.
(a) Exhibits
Exhibit
Number Description
- ------ -----------
3.1 Restated Certificate of Incorporation of the Company.
3.2 Amended and Restated By-Laws of the Company (incorporated
by reference to Exhibit 3.2 to the Company's Registration
Statement on Form S-1 (File No. 33-33024)).
10.1 Amended Registration Rights Agreement, as amended, among
the Company and certain investors (incorporated by reference to
Exhibit 10.9 to the Company's Registration Statement on Form
S-1 (File No. 33-33024)).
10.2 Amended Registration Rights Agreement, as amended, among
the Company and certain investors (incorporated by reference to
Exhibit 10.28 to the Company's Registration Statement on Form
S-1 (File No. 33-33024)).
10.3 1986 Incentive Stock Option Plan and related form of stock
option agreement (incorporated by reference to Exhibit 10.10
to the Company's Registration Statement on Form S-1 (File
No. 33-33024).
10.4 Second Amendment to 1986 Incentive Stock Option Plan
(incorporated by reference to Exhibit 10.42 to the Company's
1990 Annual Report on Form 10-K (File No. 0-18238)).
10.5 1986 Incentive Stock Option Plan and related form of stock
option agreement (incorporated by reference to Exhibit 10.10
to the Company's Registration Statement on Form S-1 (File
No. 33-33024).
11
<PAGE>
10.6 Second Amendment to 1986 Supplemental Stock Option Plan
(incorporated by reference to Exhibit 10.43 to the Company's
1990 Annual Report on Form 10-K (File No. 0-18238)).
10.7 1990 Outside Director's Stock Option Plan (incorporated by
reference to Exhibit 10.45 to the Company's 1990 Annual Report on
Form 10-K (File No. 0-18238)).
10.8 401(k) Plan of the Company (incorporated by reference to Exhibit
10.37 to the Company's Registration Statement on Form S-1 (File
No. 33-33024)).
10.9 Lease dated November 23, 1983 between the Company and
Metropolitan Life Insurance Company (incorporated by reference
to Exhibit 10.12 to the Company's Registration Statement on Form
S-1 (File No. 33-33024)).
10.10 Third Amendment dated April 2, 1990 to Lease of November 23,
1983, between the Company and Metropolitan Life Insurance
Company (incorporated by reference to Exhibit 10.38 to the
Company's 1990 Annual Report on Form 10-K (File No. 0-18238)).
10.11 Lease dated March 20, 1992 between the Company and
Metropolitan Life Insurance Company (incorporated by reference
to Exhibit 10.14 to the Company's 1992 Annual Report on Form
10-K, Amendment No. 1 (File No. 0-18238)).
10.12 Forbearance Agreement dated as of February 4, 1993, as amended
April 7, 1993, between the Company and Metropolitan Life Insurance
Company.
10.13 Employment Agreement dated October 20 1987 between the
Company and Jack J. Stiffler (incorporated by reference to
Exhibit 10.16 to the Company's Registration Statement on Form
S-1 (File No. 33-33024)).
10.14 Pick Systems - Open Architecture License Agreement dated
October 10, 1986 among the Company, Concurrent Operating
Systems Technology and Pick Systems, and assigned to the
Company on February 24, 1988 (incorporated by reference to
Exhibit 10.19 to the Company's Registration Statement on Form
S-1 (File No. 33-33024)).
12
<PAGE>
10.15 Credit Agreement dated as of March 22, 1994 between the
Company and State Street Bank and Trust Company (incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q
for the Quarter Ended April 13, 1994 (File No. 0-18238)).
10.16 Product Development and Technology License Agreement dated
July 24, 1990 between the Company and Samsung Electronics
Company Ltd. (incorporated by reference to Exhibit 10.40 to the
Company's 1990 Annual Report on Form 10-K (File No. 0-18238)).**
10.17 OEM Agreement dated July 24, 1990 between the Company and
Samsung Electronics Company Ltd. (incorporated by reference to
Exhibit 10.41 to the Company's 1990 Annual Report on Form 10-K
(File No. 0-18238)).**
10.18 Service Provider II Maintenance Agreement dated January 1, 1992
between the Company and Samsung Electronics Company Ltd.
(incorporated by reference to Exhibit 10.45 to the Company's 1992
Annual Report on Form 10-K, Amendment No. 1 (File No. 0-18238)).
10.19 OEM Agreement dated September 7, 1993 between the Company
and Samsung Electronics Co., Ltd. (incorporated by reference to Exhibit
10.43 to the Company's 1993 Annual Report on Form 10-K
(File No. 0-18238)).
10.20 Master Agreement dated September 7, 1993 between the Company and Samsung
Electronics Co., Ltd. (incorporated by reference to Exhibit 10.44 to
the Company's 1993 Annual Report on Form 10-K (File No. 0-18238)).
10.21 Development, Manufacturing, and Distribution Agreement dated as of
December 26, 1991 between the Company and Toshiba Corporation
(incorporated by reference to Exhibit 10.48 to the Company's 1992
Annual Report on Form 10-K, Amendment No. 1 (File No. 0-18238)). **
10.22 Revised Development, Manufacturing, and Distribution Agreement executed
as of May 13, 1994 between the Company and Toshiba Corporation.
10.23 Software Cooperation Agreement executed April 5, 1994 between the
Company and UNIX System Laboratories, Inc. **
13
<PAGE>
10.24 Joint Venture Agreement dated as of September, 1991 by and among the
Company, Tricom Computer Pty. Ltd. and Sequoia Systems (Australia) Pty.
Ltd., together with material exhibits (incorporated by reference to
Exhibit 10.49 to the Company's 1992 Annual Report on Form 10-K,
Amendment No. 1 (File No. 0-18238)).
10.25 International Distributorship Agreement dated October 15, 1991 by and
among the Company, Tricom Computer Pty. Ltd. and Sequoia Systems
(Australia) Pty. Ltd., together with material exhibits (incorporated
by reference to Exhibit 10.50 to the Company's 1992 Annual Report on
Form 10-K, Amendment No. 1 (File No. 0-18238)).
10.26 Purchase of Business Agreement dated June 17, 1994 by and among the
Company, SEQ (Aust.) Pty. Ltd., Sequoia Systems (Australia) Pty. Ltd.,
Tricom Group Pty. Ltd., Samuel Seabury and William A. Cruthers.
10.27 Settlement Agreement and Mutual General Release dated February 1, 1993
between the Company and Ultimate Corp. (incorporated by reference to
Exhibit 10.54 to the Company's 1993 Annual Report on Form 10-K (File
No. 0-18238)).
10.28 Order of Final Approval and Final Judgment and Order of Dismissal dated
September 10, 1993, of the United States District Court for the
District of Massachusetts. (incorporated by reference to Exhibit
10.55 to the Company's 1993 Annual Report on Form 10-K (File No.
0-18238)).
10.29 Employment Agreement dated November 5, 1992, as amended January 22, 1993
between the Company and Cornelius P. McMullan. (incorporated by
reference to Exhibit 10.56 to Amendment No. 1 to the Company's 1993
Annual Report on Form 10-K/A. (File No. 0-18238)). +
10.30 Employment Agreement dated October 2, 1992, as amended
November 7, 1992 between the Company and Richard B. Goldman.
(incorporated by reference to Exhibit 10.57 to Amendment No. 1 to the
Company's 1993 Annual Report on Form 10-K/A (File No. 0-18238)). +
11 Statement re: Computation of Earnings (incorporated by reference to
Exhibit 11 to the Company's 1994 Annual Report on
Form 10-K (File 0-18238)).
14
<PAGE>
21 Subsidiaries of the Company.(incorporated by reference to
Exhibit 21 to the Company's 1994 Annual Report on
Form 10-K (File 0-18238)).
23.1 Consent of Coopers & Lybrand L.L.P.*
23.2 Consent of Arthur Andersen LLP.*
27 Financial Data Schedule.*
- ------------
* Filed herewith
** Confidential treatment previously granted to certain portions
thereof.
*** Previously filed subject to request for confidential treatment as to
certain portions thereof.
+ Management Contract or Compensatory Plan or Arrangement required
to be filed by Item 14C of this Annual Report on Form 10-K
(b) Financial Statement Schedules
The Financial Statement Schedules are listed on page 296 of this
Amendment No. 2 to the Annual Report on Form 10-K as originally filed.
(c) Reports on Form 8-K
None
15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SEQUOIA SYSTEMS, INC.
Dated February 17, 1995 By: /s/ Richard B. Goldman
---------------------------
Name: Richard B. Goldman
Title: Vice President of Finance,
Chief Financial Officer
16
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Sequoia Systems, Inc:
We have audited the accompanying consolidated balance sheets of Sequoia Systems,
Inc. and subsidiaries as of June 30, 1993 and 1994 and the related statements of
operations, cash flows and stockholders' equity for the two years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits. The consolidated financial statements of Sequoia Systems, Inc.
for the year ended June 30, 1992 were audited by other independent accountants
whose report dated August 19, 1992 (except with respect to the matters discussed
in Notes 1, 5 and 7, as to which the dates are December 9, 1992, March 25, 1993
and September 10, 1993, respectively) included an unqualified opinion on those
statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Sequoia Systems,
Inc. and subsidiaries at June 30, 1993 and 1994, and the consolidated results of
their operations and their cash flows for the years then ended, in conformity
with generally accepted accounting principles.
COOPERS & LYBRAND
Boston, Massachusetts
July 26, 1994
17
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Sequoia Systems, Inc:
We have audited the accompanying consolidated statements of operations, cash
flows and stockholders' equity of Sequoia Systems, Inc. (a Delaware corporation)
and subsidiaries for the year ended June 30, 1992, as restated (see Note 1(A)).
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations, cash flows and
stockholders' equity of Sequoia Systems, Inc. and subsidiaries for the year
ended June 30, 1992, as restated, in conformity with generally accepted
accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The supplemental schedule
listed in the index to the consolidated financial statements are presented for
purposes of complying with the Securities and Exchange Commission's rules and
are not a required part of the basic consolidated financial statements. These
schedules for 1992 have been subjected to the auditing procedures applied in our
audit of the basic consolidated financial statements and, in our opinion, are
fairly stated, in all material respects, in relation to the basic consolidated
financial statements taken as a whole.
ARTHUR ANDERSEN
Boston, Massachusetts
August 19, 1992 (except with respect to
the matters discussed in Notes 1(A), 5
and 7(B), as to which the dates are
December 9, 1992, March 25, 1993
and September 10, 1993, respectively)
18
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS SEQUOIA SYSTEMS, INC. AND SUBSIDIARIES
June 30,
ASSETS 1993 1994
---------------------------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents (Note 2B) $10,639,494 $20,740,826
Restricted cash (Note 2C) 3,438,016 --
Accounts receivable, net of allowance for doubtful accounts
of $1,971,000 and $1,399,000 at June 30, 1993 and 1994, respectively 2,554,898 4,556,618
Accounts receivable from related parties (Note 11) 814,720 845,940
Current portion of long-term accounts receivable (Note 3) 730,000 50,000
Inventories (Note 2D) 4,874,592 3,431,456
Other current assets 478,146 522,450
---------------------------------
Total current assets 23,529,866 30,147,290
---------------------------------
Accounts Receivable, Long-Term (Note 3) 50,000 --
---------------------------------
Equipment and Improvements, at cost: (Note 2E)
Computer equipment 7,346,518 8,708,812
Machinery and equipment 2,137,286 2,176,185
Equipment under capital lease (Note 7A) 2,665,660 2,665,660
Furniture and fixtures 499,519 538,361
Leasehold improvements 634,502 649,192
---------------------------------
13,283,485 14,738,210
Less - Accumulated depreciation and amortization 9,955,230 12,288,662
---------------------------------
3,328,255 2,449,548
---------------------------------
Restricted Cash (Note 2C) 551,233 --
Other Assets (Note 9) 511,218 213,634
---------------------------------
Total Assets $27,970,572 $32,810,472
---------------------------------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current Liabilities:
Note payable to bank (Note 5) $1,950,000 $ --
Current portion of capital lease obligations (Note 7A) 687,653 111,646
Accounts payable 1,302,244 1,889,621
Accrued expenses (Note 10) 10,458,810 6,345,133
Deferred revenue 941,737 813,375
---------------------------------
Total current liabilities 15,340,444 9,159,775
---------------------------------
Obligations Under Capital Lease, net of current portion (Note 7A) 844,365 190,360
---------------------------------
Commitments and Contingencies (Note 7)
Stockholders' Equity:
Preferred stock, $.40 par value:
Authorized--12,500,000 and 11,453,000 shares at June 30, 1993
and 1994, respectively
Issued--none
Common stock, $.40 par value:
Authorized--25,000,000 shares at June 30, 1993 and 1994
Issued--8,599,234 shares and 9,811,000 shares at June 30, 1993
and 1994, respectively 3,439,694 3,924,400
Additional paid-in capital 77,098,182 79,782,064
Accumulated deficit (68,752,113) (60,246,127)
---------------------------------
Total stockholders' equity 11,785,763 23,460,337
---------------------------------
Total Liabilities and Stockholders' Equity $27,970,572 $32,810,472
---------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
19
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS SEQUOIA SYSTEMS, INC. AND SUBSIDIARIES
For the years ended June 30, 1992 1993 1994
Restated
-------------------------------------------
<S> <C> <C> <C>
Revenues
System $47,528,017 $29,096,154 $29,463,856
Service 10,019,383 11,570,679 13,636,105
Other 5,040,547 351,734 1,665,229
-------------------------------------------
Total revenues 62,587,947 41,018,567 44,765,190
Cost of Revenues
System 19,001,113 15,474,682 11,870,643
Service and other 7,150,615 6,784,033 6,664,563
-------------------------------------------
Total cost of revenues 26,151,728 22,258,715 18,535,206
Gross profit 36,436,219 18,759,852 26,229,984
Research and Development Expenses 13,636,792 11,352,886 7,749,970
Selling, General and Administrative Expenses 26,670,311 20,317,964 10,982,622
Restructuring Charge (Credit) -- 13,990,000 (1,109,327)
-------------------------------------------
Income (loss) from operations (3,870,884) (26,900,998) 8,606,719
Interest Income 507,677 159,762 344,429
Interest Expense (239,104) (370,647) (115,592)
Other Income (Expense) -- (46,491) 38,499
Provision for Settlement of Class Action Lawsuit -- (3,875,000) --
-------------------------------------------
Income (loss) before provison for income taxes (3,602,311) (31,033,374) 8,874,055
Provison for Income Taxes 337,500 -- 307,500
-------------------------------------------
Net income (loss) ($3,939,811) ($31,033,374) $8,566,555
-------------------------------------------
Net Income (Loss) Per Common and Common Share Equivalent ($0.48) ($3.63) $0.87
-------------------------------------------
Weighted Average Number of Common and Common Share
Equivalents Outstanding 8,254,915 8,555,926 9,876,940
-------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
20
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS SEQUOIA SYSTEMS, INC. AND SUBSIDIARIES
For the years ended June 30, 1992 1993 1994
(Restated)
-------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) ($3,939,811) ($31,033,374) $8,566,555
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities--
Depreciation 3,171,122 2,680,072 1,836,693
Amortization 761,250 1,199,522 561,376
Provision for bad debt 2,037,206 1,180,000 --
Deferred income taxes 469,227 -- --
Restructuring charge (credit) -- 10,341,380 (1,109,000)
Changes in assets and liabilities:
Restricted cash for class action settlement -- (1,000,000) --
Accounts receivable 445,610 11,187,877 (1,321,720)
Accounts receivable from related parties 611,394 969,477 (31,220)
Accounts receivable, long-term 180,000 130,000 50,000
Inventories (7,018,296) 6,553,500 1,443,136
Other current assets (3,685,313) 3,041,360 (44,304)
Accounts payable 397,514 (2,586,497) 587,377
Accrued expenses (955,020) 4,201,649 870,323
Deferred revenue (441,757) 580,400 (128,362)
-------------------------------------------
Net cash provided by (used in)
operating activities (7,966,874) 7,445,366 11,280,854
-------------------------------------------
Cash Flows From Investing Activities:
Sale of short-term investments 7,094,598 -- --
Purchase of equipment and improvements (4,351,458) (1,721,309) (1,434,942)
Sale of equipment and improvements 78,283 -- --
Increase in other assets (1,821,475) 582,848 213,163
-------------------------------------------
Net cash provided by (used in)
investing activities 999,948 (1,138,461) (1,221,779)
-------------------------------------------
Cash Flows From Financing Activities:
Restricted cash for collateral on bank debt -- (2,989,249) --
Repayment of note payable to bank -- (1,050,000) --
Proceeds from note payable to bank -- 3,000,000 --
Repayment of obligations under capital leases (838,102) (1,333,941) (190,762)
Proceeds from obligations under capital leases 1,036,665 -- --
Payment of dividends on preferred shares -- -- (60,569)
Proceeds from issuance of common stock 1,204,571 496,145 293,588
-------------------------------------------
Net cash provided by (used in) financing activities 1,403,134 (1,877,045) 42,257
-------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents (5,563,792) 4,429,860 10,101,332
Cash and Cash Equivalents, beginning of year 11,773,426 6,209,634 10,639,494
-------------------------------------------
Cash and Cash Equivalents, end of year $6,209,634 $10,639,494 $20,740,826
-------------------------------------------
Supplemental Disclosures of Noncash Investing
and Financing Activities:
Equipment acquired under capital lease $702,041 $405,869 --
Issuance of convertible preferred stock in settlement
of class action lawsuit -- -- $2,875,000
Release of restricted cash for:
Class action settlement -- -- $1,000,000
Repayment of note payable to bank -- -- $1,950,000
Repayment of obligations under capital leases -- -- $1,039,249
Supplemental Disclosure of Cash Flow Information:
Interest paid $250,464 $368,575 $341,784
Income taxes paid (refunds received) $1,683,059 ($2,147,372) $53,397
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
21
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY SEQUOIA SYSTEMS, INC. AND SUBSIDIARIES
For the years ended June 30,
-----------------------------------------------------------------------------------
Common Stock Additional Preferred Stock Additional
Par Paid-in Shares Par Paid-In
Shares Value Capital Value Capital
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1991, (Restated) 8,481,538 $ 3,392,615 $ 80,670,194
Issuance of common stock
pursuant to stock option and
employee stock purchase plans 382,440 152,976 1,051,595
Net loss, restated
-----------------------------------------------------------------------------------
Balance, June 30, 1992, (Restated) 8,863,978 3,545,591 81,721,789
Issuance of common stock
pursuant to stock option and
employee stock purchase plans 210,315 84,127 412,018
Retirement of treasury stock (475,059) (190,024) (5,035,625)
Net loss
-----------------------------------------------------------------------------------
Balance, June 30, 1993 8,599,234 3,439,694 77,098,182
Issuance of common stock
pursuant to stock option and
employee stock purchase plans 164,349 65,739 227,849
Issuance of convertible preferred
stock 1,047,418 418,967 2,456,033
Conversion of preferred stock 1,047,418 418,967 2,456,033 (1,047,418) (418,967) (2,456,033)
Dividends paid on convertible
preferred stock
Net Income
-----------------------------------------------------------------------------------
Balance, June 30, 1994 9,811,001 $3,924,400 $79,782,064 -- -- --
===================================================================================
</TABLE>
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
Accumulated Common Stock in Treasury
Deficit Shares Cost Total
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, June 30, 1991, (Restated) $(33,778,928) 475,059 $ (5,225,649) $ 45,058,232
Issuance of common stock
pursuant to stock option and
employee stock purchase plans 1,204,571
Net loss, restated (3,939,811) (3,939,811)
-----------------------------------------------------------------------------------
Balance, June 30, 1992, (Restated) (37,718,739) 475,059 (5,225,649) 42,322,992
Issuance of common stock
pursuant to stock option and
employee stock purchase plans 496,145
Retirement of treasury stock (475,059) 5,225,649 --
Net loss (31,033,374) (31,033,374)
-----------------------------------------------------------------------------------
Balance, June 30, 1993 ($68,752,113) $11,785,763
Issuance of common stock
pursuant to stock option and
employee stock purchase plans 293,588
Issuance of convertible preferred
stock 2,875,000
Conversion of preferred stock --
Dividends paid on convertible
preferred stock (60,569) (60,569)
Net Income 8,566,555 8,566,555
-----------------------------------------------------------------------------------
Balance, June 30, 1994 ($60,246,127) -- -- $ 23,460,337
===================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
22
<PAGE>
Notes to Consolidated Financial Statements, continued
Sequoia Systems, Inc. and Subsidiaries
Note 1 Organization
- ------
Sequoia Systems, Inc. (the Company) designs, manufactures and markets high-
performance, fault-tolerant computer systems and provides ongoing user and
maintenance support to its customers.
A. Restatement
In fiscal 1992, information that had not previously been available to the
Company's Board of Directors or its auditors, became available and resulted in
restatement of the Company's financial statements. Therefore, certain amounts
related to the Company's fiscal 1992 financial results are included in these
statements as restated.
B. Restructuring Charge/Credit
The Company recorded a restructuring charge of $13,990,000 in fiscal 1992 as the
result of lower revenues and a downsizing of the operations based on anticipated
future revenue levels. The restructuring charge included: $4,022,000 for
provisions to reduce the carrying value of excess inventory, $3,077,000 for
provisions to write off idle equipment and improvements, and $3,242,000 for
provisions to reduce the carrying value of other current and long-term assets to
their estimated net realizable values. The restructuring charge also included
$2,494,000 of provisions for lease obligations for abandoned facilities, and
$1,155,000 for other contractual obligations and provisions. During fiscal
1994, the Company settled the lease, contractual, and other obligations, and
determined that, as of June 30, 1994, $1,109,000 of restructuring charges was in
excess of the business' requirements and recorded a restructuring credit.
Additionally, the Company realized a benefit in cost of revenues of $900,000 in
fiscal 1994 as a result of the sale of inventory which had been written-off as
part of the restructuring.
Note 2 Summary of Significant Accounting Policies
- ------
The consolidated financial statements reflect the application of certain
accounting policies described in this and other notes to consolidated financial
statements.
A. Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries (Sequoia Systems (U.K.) Limited,
Sequoia Systems Europe B.V., and Sequoia Systems, Japan). All significant
intercompany accounts and transactions have been eliminated in consolidation.
B. Cash and Cash Equivalents
Cash and cash equivalents are stated at cost, which approximates market. Cash
equivalents consist of highly liquid investments with original maturities of 90
days or less.
C. Restricted Cash
At June 30, 1993, the Company had $3,989,249 of cash that was restricted and
served as collateral for both the amounts that were outstanding to the Bank of
Boston for a note payable and equipment
23
<PAGE>
Notes to Consolidated Financial Statements, continued
Sequoia Systems, Inc. and Subsidiaries
leases ($2,989,249) and as the Company's obligation under the settlement of the
class action lawsuit ($1,000,000). Payments relating to the settlement of the
class action lawsuit and the bank debt resulted in the subsequent release of
cash collateral in fiscal 1994. (See Notes 5 and 7)
D. Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
which requires the periodic assessment of net realizable value. The difference
of cost and market is charged to income in the period the impairment is
determined. Inventory including materials, labor and manufacturing overhead
consists of the following:
<TABLE>
<CAPTION>
June 30, 1993 1994
--------------------------------
<S> <C> <C>
Raw materials $ 567,661 $ 507,457
Work-in-process 2,635,749 1,500,077
Finished goods 1,671,182 1,423,921
--------------------------------
$ 4,874,592 $ 3,431,455
--------------------------------
</TABLE>
E. Depreciation and Amortization
The Company provides for depreciation and amortization by charges to operations
in amounts estimated to allocate the cost of equipment and leasehold
improvements over their estimated useful lives on a straight-line basis.
Computer equipment, machinery and equipment, equipment under capital lease and
furniture and fixtures are being depreciated over three to five years, and
leasehold improvements are being amortized over the term of the associated
leases.
The cost of improvements is charged to the property accounts, while maintenance
and repairs are charged to income as incurred. The Company periodically
evaluates its fixed assets to determine whether assets are impaired or continue
to be utilized. Upon determination of an impairment, retirement or other
disposition of property and equipment, the cost and related depreciation are
removed from the accounts, and any resulting gain or loss is reflected in the
results of operations.
F. Software License Fees and Royalties
The Company has entered into license and royalty agreements for software to be
incorporated into certain computer systems held for resale. The initial fees
under such software license arrangements are capitalized in other assets and
amortized over the lesser of the term of the license agreement or on a straight-
line basis over three to five years. Royalty payments are expensed upon the sale
of computer systems that incorporate the licensed software.
G. Revenue Recognition
Revenues from product sales are recognized upon shipment unless significant
uncertainties exist. Revenues from software licenses are recognized upon
commencement of the software license. Service
24
<PAGE>
Notes to Consolidated Financial Statements, continued
Sequoia Systems, Inc. and Subsidiaries
revenues include maintenance and professional services; other revenues include
rental revenue and technology license fees. Service revenues related to
maintenance agreements are recognized ratably over the period in which the
service is provided. All other service revenues are recognized as earned.
The Company entered into a development, manufacturing and distribution agreement
with Toshiba Corporation in December 1991, and amended such agreement in April
1994. Technology license fees are due the Company in several increments under
this agreement as milestones are reached. The technology license fees that have
been earned are included in other revenue for the years ended June 30, 1992 and
1994. No technology license fees were earned in fiscal 1993.
H. Research and Development
Costs relating to research and development are expensed as incurred.
I. Net Income (Loss) per Share
Primary and fully diluted earnings per share are not separately stated as they
are substantially the same. Net loss per share for the years ended June 30,
1992 and 1993 was based on the weighted average number of common shares
outstanding during the year as common share equivalents are anti-dilutive. For
the year ended June 30, 1994, net income per share was based on the weighted
average number of common and common share equivalents outstanding during the
year, computed in accordance with the treasury stock method.
J. Foreign Currency Translation
For the Company's foreign subsidiaries, the U.S. dollar has been determined to
be the functional currency. Monetary assets and liabilities are translated at
rates of exchange in effect at the end of the fiscal year, while non-monetary
items are translated at historical rates. Income and expenses are translated at
average exchange rates prevailing during the fiscal year. The resulting gains or
losses are reflected in results of operations.
K. Postretirement Benefits
The Company sponsors a defined contribution employee savings and retirement plan
(the Plan), which covers all employees. The Plan is a contributory plan for
which contributions by the Company are made at the discretion of management.
Employees may contribute up to 20% of their annual compensation. The Company
made contributions of $99,720 in fiscal 1992 and $109,755 in fiscal 1994. No
contributions were made in fiscal 1993.
L. Concentrations of Credit Risk
The Company's financial instruments that are exposed to concentrations of credit
risk consist primarily of cash equivalents and trade receivables. The Company's
cash equivalents are placed with high credit quality financial institutions and
government securities. The Company limits the amount of credit exposure to any
one institution.
Concentrations of credit risk with respect to trade receivables are limited due
to the varied customer base, comprised principally of distributors and
resellers, dispersed across various industries and
25
<PAGE>
Notes to Consolidated Financial Statements, continued
Sequoia Systems, Inc. and Subsidiaries
geographic locations. The Company generally does not require collateral;
however, in certain circumstances the Company may require letters of credit from
its customers. The Company may require deposits to be paid with an order.
M. Reclassifications
Certain prior year balances have been reclassified to conform to current year
presentation.
N. Income Taxes
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes". Under the
liability method specified by SFAS No. 109, a deferred tax asset or liability is
determined based on the differences between the financial statement and tax
basis of assets and liabilities as measured using the enacted tax rates which
will be in effect when these differences reverse.
O. Warranty Obligations
The Company generally provides the end-users of its systems with a 90-day
warranty from the date of installation. Estimated warranty obligations are
evaluated and provided at the time of sale.
Note 3 Accounts Receivable, Long-term
- ------
In fiscal 1992, the Company granted extended credit terms related to the sale of
certain systems. Under these arrangements, the Company receives payment for the
systems over a specified period of up to three years, with interest of
approximately the prime rate plus 1%. Additionally, during fiscal 1993, a
customer entered into a plan of reorganization under Chapter 11 of the
Bankruptcy code under which it paid the Company $600,000 in fiscal 1994, and the
remaining $50,000 is due the Company in fiscal 1995.
Note 4 Income Taxes
- ------
Effective July 1, 1993, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes". Under this statement,
deferred tax assets, net of any valuation allowance, and deferred tax
liabilities resulting from temporary differences are determined, based on the
difference between the financial statement and tax basis of assets and
liabilities, as measured by the enacted tax rates that will be in effect when
these differences reverse. The principal differences between assets and
liabilities for financial statement and tax return purposes are primarily a
result of inventory and accounts receivable reserves not currently deductible.
The impact of the accounting change is not material. Prior years' financial
statements have not been restated to apply the provisions of SFAS No. 109.
26
<PAGE>
Notes to Consolidated Financial Statements, continued
Sequoia Systems, Inc. and Subsidiaries
The provisions for income taxes in the accompanying statements of income consist
of the following for the years ended June 30, 1992, 1993, and 1994:
<TABLE>
<CAPTION>
1992 1993 1994
------------------------------
<S> <C> <C> <C>
Current
Federal income taxes $ (469,000) -- $ 147,500
State income taxes -- -- 10,000
Foreign income taxes 337,500 -- 150,000
-----------------------------
$ (131,500) -- 307,500
-----------------------------
Deferred
Federal income taxes 469,000 -- --
State income taxes -- -- --
-----------------------------
469,000 -- --
-----------------------------
Total provisions $ 337,500 -- $ 307,500
-----------------------------
</TABLE>
There were no provisions for income taxes made in fiscal 1993.
The components of the net deferred tax asset at June 30, 1994 are as
follows (in thousands):
<TABLE>
<S> <C>
Deferred tax assets $ 22,290
Deferred tax liabilities (107)
---------
Net deferred tax assets 22,183
Valuation allowance (22,183)
---------
$ 0
---------
</TABLE>
Due to the uncertainty surrounding the timing of realizing the benefits of its
favorable tax attributes in future tax returns, the Company has established a
full valuation allowance against its otherwise recognizable net deferred asset.
The components of the net deferred tax asset are as follows (in thousands):
<TABLE>
<S> <C>
NOL carryforward $ 16,649
Property and equipment 2,498
Inventory 1,200
Bad debt reserve 416
Other 1,420
--------
Total net asset 22,183
Valuation allowance $(22,183)
--------
Deferred tax asset $ 0
--------
</TABLE>
27
<PAGE>
Notes to Consolidated Financial Statements, continued
Sequoia Systems, Inc. and Subsidiaries
A reconciliation of the federal statutory rate to the Company's effective tax
rate is as follows:
<TABLE>
<CAPTION>
Years Ended June 30, 1992 1993 1994
----------------------
<S> <C> <C> <C>
Federal statutory rate (34%) (34%) 34%
Federal tax benefit of net operating
loss carryforwards -- -- (34%)
State income taxes, net of federal
benefit in 1991 -- -- 0.2%
Federal Alternative Minimum Tax -- -- 1.6%
Net losses without tax benefit 34% 34% --
Foreign income tax 9% -- 1.7%
---------------------
Effective tax rate 9% -- 3.5%
---------------------
</TABLE>
The Tax Reform Act of 1986 (the Act), enacted in October 1986, limits the amount
of net operating loss carryforwards that companies may utilize in any one year
in the event of cumulative changes in ownership in excess of 50%, as defined in
the Act, which has limited the Company's ability to utilize in any one year the
net operating loss carryforwards incurred prior to this change in ownership
occurring upon the Company's initial public offering. The Company estimates that
the total net operating loss carryforward subject to this limitation is
approximately $27,000,000. The utilization of the available net operating loss
carryforwards and general business credit carryforwards generated prior to the
ownership change is limited to approximately $2,700,000 in each year subsequent
to this change in ownership until fiscal 2002, at which time the unused net
operating loss carryforwards will expire. These carryforwards are subject to
review and possible adjustment by the Internal Revenue Service. The Company's
net operating loss and general business credit carryforwards at June 30, 1994
were approximately $48,500,000 ($21,500,000 unrestricted) and $2,800,000,
respectively.
Note 5 Note Payable to Bank
- ------
On March 25, 1993, the Bank of Boston and the Company entered into a waiver and
extension agreement relating to the revolving credit facility and the capital
lease credit facility requiring monthly payments of principal and interest, and
final payment upon maturation of the facility on November 1, 1993. The
remaining obligations under the capital lease credit facility and revolving
credit facility were repaid on October 29, 1993 and November 1, 1993,
respectively, and all security interests were released by the bank and these
arrangements were terminated.
28
<PAGE>
Notes to Consolidated Financial Statements, continued
Sequoia Systems, Inc. and Subsidiaries
On March 22, 1994, the Company and State Street Bank and Trust Company entered
into a credit agreement which provides for maximum borrowings of $10,000,000.
Borrowings under this agreement bear interest at the rate of prime to prime plus
1%, dependent on certain ratios. The Company is required to meet specific
covenants throughout the duration of this agreement, the most restrictive of
which is that the Company shall not have a net loss (i) of greater than $750,000
for any fiscal quarter or (ii) in any two consecutive quarters. The agreement
expires on May 31, 1995. Available borrowings under this agreement are subject
to a borrowing base formula predicated on qualified receivables as defined and
are collateralized by all assets of the Company. At June 30, 1994, no amounts
were outstanding under this agreement and the Company had $3,060,000 available
under the borrowing base formula.
On June 17, 1994 State Street Bank and Trust Company consented to the Company's
acquisition of the Company's Australia distributor for a purchase price not to
exceed $2,000,000.
Note 6 Stockholders' Equity
- ------
A. Common and Preferred Stock
The Company has 25,000,000 and 12,500,000 authorized shares of common and
preferred stock, respectively. No shares of preferred stock were issued or
outstanding at June 30, 1993 or 1994. The Company has reserved 2,425,000
authorized shares of common stock for issuance under the Company's options
plans, 250,000 authorized shares of common stock for issuance under the 1993
employee stock purchase plan and 131,000 shares for issuance under the 1991
outside directors' option plan. On October 27, 1993, the Company issued
1,047,418 shares of Series A Convertible Preferred Stock in settlement of the
class action litigation. Subsequently, holders of 264,435 shares of preferred
stock converted, at their option, such shares into the same number of common
shares. The remaining 782,983 shares of Series A Convertible Preferred Stock
were automatically converted to the same number of common shares on March 15,
1994 in accordance with a mandatory conversion clause in the class action
settlement agreement.
B. Stock Option Plans
The Company has two employee stock option plans: the 1986 Incentive Stock Option
Plan (the Incentive Plan) and the 1986 Supplemental Stock Option Plan (the
Supplemental Plan). The Incentive Plan provides for the grant of incentive stock
options to officers and employees of the Company at a price no less than the
fair market value on the date of the grant. The Supplemental Plan provides for
the grant of nonqualified stock options to employees and consultants at no less
than 85% of the fair market value on the date of grant. Options expire 10 years
from the date of grant or, if applicable, three months after termination of the
optionee's employment or other applicable relationship with the Company.
In fiscal 1990, the Company established the 1990 outside directors' stock option
plan (the Directors' Plan) which provides for the issuance of nonqualified stock
options at a price no less than the fair market value on the date of grant to
members of the Company's Board of Directors who are not employees of the
Company. An aggregate of 131,000 shares of common stock was reserved for
issuance under the Directors' Plan. The options expire upon the earlier of 10
years from the date of
29
<PAGE>
Notes to Consolidated Financial Statements, continued
Sequoia Systems, Inc. and Subsidiaries
grant or six months after the director ceases to be a director of the Company.
This plan expires in June 1995.
During 1993, the Company canceled certain options to employees and directors
and reissued options, with similar terms, to employees and directors with an
exercise price of $2.25, the fair market value at the date of grant.
The following table summarizes the option activity under the Incentive,
Supplemental and Directors Stock Option Plans for the respective periods.
<TABLE>
<CAPTION>
Number of Option Price
Shares per Share
-------------------------------
<S> <C> <C> <C>
Outstanding at June 30, 1991 1,192,660 .80 - 15.50
1992 Activity:
Options granted 247,950 10.375 - 16.50
Options exercised (315,475) .80 - 11.75
Options terminated (66,438) .80 - 15.50
-------------------------------
Outstanding at June 30, 1992 1,058,697 .80 - 16.50
1993 Activity:
Options granted 943,644 2.25 - 7.625
Options exercised (173,176) .80 - 5.125
Options terminated (1,107,131) .80 - 16.50
-------------------------------
Outstanding at June 30, 1993 722,034 $ .80 - $ 11.44
-------------------------------
1994 Activity:
Options granted 656,020 1.94 - 6.06
Options exercised (137,392) .80 - 2.25
Options terminated (120,802) .80 - 11.44
-------------------------------
Outstanding at June 30, 1994 1,119,860 $ .80 - $ 11.44
-------------------------------
Exercisable at June 30, 1994 528,567 $ .80 - $ 11.44
-------------------------------
</TABLE>
C. Employee Stock Purchase Plans
In June 1993, the Board of Directors approved the 1993 employee stock purchase
plan (the 1993 Plan) for fiscal 1994 and 1995. The 1993 Plan authorized the
issuance of up to 250,000 shares of common stock. Under the terms of the 1993
employee stock purchase plan, eligible employees were able to purchase shares of
the Company's common stock at 85% of market price, as defined by the 1993 Plan.
The term of the 1993 Plan was two years and was divided into four separate semi-
annual offerings commencing on July 1, 1993, January 1, 1994, July 1, 1994 and
January 1, 1995. In the first offering which commenced on July 1, 1993 and
ended on December 31, 1993, 26,957 shares were issued. The second offering,
which commenced on January 1, 1994 and ended on June 30, 1994, resulted in the
issuance of 18,621 shares in July 1994.
30
<PAGE>
Notes to Consolidated Financial Statements, continued
Sequoia Systems, Inc. and Subsidiaries
Note 7 Commitments and Contingencies
- ------
A. Lease Commitments
The Company leases equipment, and office space for its headquarters and sales
offices under various operating arrangements that expire at various dates
through 1998.
In addition, the Company leases certain equipment, office furniture and software
licenses under capital leases that mature at various dates through March 1997.
At June 30, 1994, minimum payments due under all operating and capital lease
arrangements are as follows:
<TABLE>
<CAPTION>
Operating Capital
Lease Lease
Fiscal Year Commitments Commitments
------------------------
<S> <C> <C>
1995 1,226,897 148,908
1996 1,015,544 137,452
1997 921,624 57,271
1998 479,740 --
1999 7,830 --
-----------------------
Total minimum lease payments $3,651,635 $ 343,631
-----------------------
Less--Amount representing interest on
capital lease -- 41,625
-----------------------
Present value of minimum lease payments $ -- $ 302,006
------------------------
</TABLE>
Approximately $2,562,000, $2,580,000 and $1,579,000 were charged to rent expense
in fiscal 1992, 1993 and 1994, respectively, under operating lease agreements.
Accumulated amortization on equipment under capital lease amounted to $2,154,000
and $2,507,000 at June 30, 1993 and 1994, respectively.
31
<PAGE>
Notes to Consolidated Financial Statements, continued
Sequoia Systems, Inc. and Subsidiaries
B. Legal Proceedings
Three lawsuits were filed against the Company in the United States District
Court for the District of Massachusetts in 1992 and were later consolidated into
a single class action. The plaintiffs purported to represent a class of persons
who purchased the common stock of the Company between July 29, 1991 and December
11, 1992 and alleged that the Company violated (S)10 (b) of the Securities and
Exchange Act of 1934 and committed common law fraud by materially overstating
its revenue and income for the fiscal quarter ended September 30, 1991,
thereafter failing to disclose the alleged need to restate the Company's revenue
and income for that fiscal quarter and by agreeing with certain revenue and
earnings projections for the Company made by financial analysts. On July 30,
1993, the Company entered into a settlement by which all claims asserted by the
plaintiffs against the Company, Arthur Andersen & Co., the Company's former
auditors, and former executives of the Company were settled. The global
settlement provided for a cash payment totaling $3,125,000, of which $1,075,000
was paid by the Company and $2,050,000 was paid by the Company's insurance
carrier and the other defendants in the class action litigation. In addition,
the Company issued to the plaintiffs $2,875,000 in face amount of a new class of
preferred stock, bearing dividends at a rate of 7% per year, payable annually,
and convertible into common stock at a conversion price equal to 110% of the
average trading price of the Company's common stock during a specified period
prior to the effective date. The preferred stock was automatically converted
to common stock according to its terms on March 15, 1994 on which date the
closing price of the Company's common stock was $6.0625 per share. The
agreement was approved by the District Court on September 10, 1993.
On May 8, 1992, the Securities and Exchange Commission ( the Commission)
notified the Company that the Commission staff had begun an informal
investigation with respect to the Company's revenue recognition policies. On
September 28, 1992, after receiving certain documentation and information
requested from the Company, the Commission notified the Company that the
Commission had entered a formal order of investigation with respect to these
matters. The Company and the Staff of the Commission have reached a preliminary
settlement pursuant to which the Company will make no monetary payment. The
preliminary settlement is subject to the approval of the Commission.
32
<PAGE>
Notes to Consolidated Financial Statements, continued
Sequoia Systems, Inc. and Subsidiaries
Note 8 Significant Customers and Domestic and Export Sales
- ------
The following summarizes significant customers:
<TABLE>
<CAPTION>
Number of Percentage
Significant of
Years Ended June 30, Customers Revenues Revenues
--------------------------------------------
<S> <C> <C> <C>
1992 (Restated) 1 12,019,990 19%
1993 1 5,734,533 14%
1994 1 7,614,746 17%
</TABLE>
The following summarizes domestic and export sales:
<TABLE>
1992 1993 1994
Years Ended June 30, (Restated)
-----------------------------------------
<S> <C> <C> <C>
Domestic $46,722,005 $34,746,487 $35,064,600
Export--
Europe 5,158,064 2,487,618 3,851,306
Asia 8,631,777 1,401,292 3,578,811
Australia 1,248,625 933,635 1,331,606
All other 827,476 1,449,535 938,867
-----------------------------------------
$62,587,947 $41,018,567 $44,765,190
-----------------------------------------
Percent:
Domestic 75% 85% 78%
Export--
Europe 8% 6% 9%
Asia 14% 3% 8%
Australia 2% 2% 3%
All other 1% 4% 2 %
-----------------------------------------
100% 100% 100%
-----------------------------------------
</TABLE>
Note 9 Other Assets
- ------
Other assets consist of the following at June 30:
<TABLE>
<CAPTION>
1993 1994
------------------
<S> <C> <C>
Software license fees, net
of accumulated amortization
of $225,670 and $310,091 in
1993 and 1994, respectively. $ 363,383 $ 86,429
Other 147,835 127,205
----------- -----------
$ 511,218 $ 213,634
----------- -----------
</TABLE>
33
<PAGE>
Notes to Consolidated Financial Statements, continued
Sequoia Systems, Inc. and Subsidiaries
Note 10 Accrued Expenses
- -------
Accrued expenses consist of the following at June 30:
<TABLE>
<CAPTION>
1993 1994
--------------------------
<S> <C> <C>
Accrued compensation and
benefits $ 1,088,065 $1,798,648
Accrued commissions and
royalties 364,880 1,000,612
Accrued restructuring 1,602,904 373,000
Accrued lawsuit settlement 3,875,000 --
Accrued other 3,527,961 3,172,873
--------------------------
$10,458,810 $6,345,133
--------------------------
</TABLE>
Note 11 Related Party Transactions
- -------
A. Sequoia Systems, Pty. Ltd.
In November 1991, the Company entered into a joint venture, Sequoia Systems Pty.
Ltd., with Tricom Group Pty. Ltd. (Tricom). The joint venture, through Tricom,
had the right to distribute the Company's products in Australia and New Zealand.
The Company purchased 15% of the joint venture and had the right to purchase the
joint venture after five years. During fiscal 1993 and 1994, the Company had
sales to the joint venture, through Tricom of $933,635 and $1,332,000,
respectively. The Company had accounts receivable as of June 30, 1993 and 1994
of $448,397 and 455,393, respectively. The Company had accounted for its
investment in the joint venture at cost, but as part of the restructuring charge
recorded during fiscal 1993, has subsequently written down the investment to its
net realizable value.
The Company has reached agreement with Tricom Group Pty Ltd. and on July 1,
1994, through a newly formed subsidiary, purchased selected assets and the
ongoing business operations of the Joint Venture. (See Note 13)
B. Hewlett-Packard Company
Under a 1989 stock purchase agreement, Hewlett-Packard Company (Hewlett-Packard)
acquired 688,836 shares of the Company's common stock.. In December 1989, the
Company entered into an OEM agreement with Hewlett-Packard under which Hewlett-
Packard has certain non-exclusive worldwide rights to distribute the Company's
systems and the right to obtain a royalty-bearing license to manufacture a
specified portion of its requirements for the Company's systems in certain
circumstances. The term of the OEM agreement is eight years, subject to renewal
provisions. During fiscal 1992, 1993, and 1994, Hewlett-Packard purchased UNIX-
based systems and system upgrades with an aggregate purchase price of
$2,022,656, $3,821,619, and $569,698, respectively. Also during fiscal 1992,
1993 and 1994, the Company had service and other revenues from Hewlett-Packard
of $653,551, $249,136, and $195,011, respectively. The Company had trade
accounts receivable as of June 30, 1993 and 1994 of $366,323 and $390,547,
respectively.
34
<PAGE>
Notes to Consolidated Financial Statements, continued
Sequoia Systems, Inc. and Subsidiaries
Note 12 Selected Quarterly Data (Unaudited)
- -------
The following table presents a summary of the quarterly results for the years
ended June 30, 1993 and 1994 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Fiscal 1993 First Second Third Fourth
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Total revenues $ 9,916 $ 10,970 $ 9,588 $10,545
Gross profit 3,416 4,608 4,896 5,840
Net income (loss) (9,190) (19,611) (2,982) 750
Net income (loss)
per share $ (1.09) $ (2.32) $ (.35) $ .09
<CAPTION>
Fiscal 1994 First Second Third Fourth
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Total revenues $10,395 $ 11,080 $10,729 $12,560
Gross profit 5,914 6,708 6,035 7,573
Net income (loss) 1,472 2,377 1,224 3,494
Net income (loss)
per share $ .17 $ .24 $ .12 $ .34
</TABLE>
Note 13 Subsequent Events
- -------
On July 1, 1994, the Company reached agreement and purchased selected assets and
the ongoing business operations of Sequoia Systems (Australia) Pty. Ltd., its
joint venture with Tricom Computer. The Company transferred 15% of its
ownership to Tricom as part of the agreement.
The Company has also incorporated certain Australian legal entities to operate
the business in the same geographical market area. Tricom also agreed to
specific noncompete arrangements in selected markets with the Company and/or its
subsidiary(s) and further, that the joint venture would be
35
<PAGE>
Notes to Consolidated Financial Statements, continued
Sequoia Systems, Inc. and Subsidiaries
liquidated, as defined in the agreement. As of June 30, 1994, the Company had
$1,278,000 in cash in an escrow account for the acquisition of the assets.
36
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Sequoia Systems, Inc.:
Our report on the consolidated financial statements of Sequoia Systems, Inc. and
subsidiaries is included on page F-1 of this Amendment No. 2 to the Annual
Report on Form10-K. In connection with our audits of such financial statements,
we have also audited the related financial statement schedules for the years
ended June 30, 1993 and 1994 listed in the index on page 9 of this Amendment No.
2 to the Annual Report on Form 10-K.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements take as a whole,
present fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND
Boston, Massachusetts
July 26, 1994
37
<PAGE>
SCHEDULE VIII
SEQUOIA SYSTEMS, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
-----------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINING COSTS AND OTHER END OF
DESCRIPTON OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS (1) PERIOD
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
JUNE 30, 1992:
- ----------------------
Bad Debt Reserve: 2,045,000 2,037,206 335,000 1,222,639 3,194,567
Inventory Reserve: 2,628,028 1,802,339 496,718 996,933 3,930,152
JUNE 30, 1993:
- ----------------------
Bad Debt Reserve: 3,194,567 1,180,000 400,000 2,803,923 1,970,644
Inventory Reserve: 3,930,152 600,000 0 760,397 3,769,755(2)
JUNE 30, 1994:
- ----------------------
Bad Debt Reserve: 1,970,644 (75,000) 300,000 796,906 1,398,738
Inventory Reserve: 3,769,755 0 579,000 1,840,961 2,507,794(2)
</TABLE>
(1) Specific write-offs
(2) In fiscal 1993, the Company recorded a restructuring charge which included
a $4,022,000 adjustment to the carrying value of inventories. In fiscal
1994, the Company sold $900,000 of this previously written-off inventory.
Neither the charge nor the subsequent sale, are included on this schedule
as the charge represented on adjustment to the carrying value.
38
<PAGE>
SCHEDULE IX
<TABLE>
<CAPTION>
SEQUOIA SYSTEMS, INC.,
SHORT-TERM BORROWINGS
Maximum Amount Average Amount Weighted Average
Weighted Outstanding Outstanding Interest Rate
Category of Aggregate Balance at End Average Interest during the during the during the
Short-term Borrowings of Period Rate Period Period Period
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
June 30, 1993:
Note payable to a bank $1,950,000 7% (2) $3,000,000 $2,200,000 (4) 7%
June 30, 1994:
Note payable to a bank $0 8% (1) $1,850,000 $1,700,000 (3) 8%
</TABLE>
(1) Borrowings bore interest at 8% from July 1, 1993 through November 1, 1993.
(2) Borrowings bore interest at 6% from July 1, 1992 through December 31,
1992, then at 8% until June 10, 1993.
(3) The amount was computed using a monthly average for the 4 months ended
October 31, 1993.
(4) The amount was computed using a monthly average for the 12 months ended
June 30, 1993.
39
<PAGE>
SCHEDULE X
SEQUOIA SYSTEMS, INC.
SUPPLEMENTARY INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
ITEM CHARGED TO
COSTS AND
EXPENSES
<S> <C>
YEAR ENDED JUNE 30, 1992:
Maintenance and repairs NOTE 1
Depreciation and amortization of intangible assets,
noncompete agreements, software licenses fees,
and leasehold improvements $772,740
Taxes, other than payroll and income taxes, are property
and sales tax NOTE 1
Royalties $1,388,174
Advertising costs NOTE 1
YEAR ENDED JUNE 30, 1993:
Maintenance and repairs NOTE 1
Depreciation and amortization of intangible assets,
noncompete agreements, software licenses fees,
and leasehold improvements $848,294
Taxes, other than payroll and income taxes, are property
and sales tax NOTE 1
Royalties $630,574
Advertising costs NOTE 1
YEAR ENDED JUNE 30, 1994:
Maintenance and repairs NOTE 1
Depreciation and amortization of intangible assets,
noncompete agreements, software licenses fees,
and leasehold improvements NOTE 1
Taxes, other than payroll and income taxes, are property
and sales tax NOTE 1
Royalties $712,230
Advertising costs NOTE 1
</TABLE>
NOTE: Less than 1% of revenues.
40
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTS
We consent to the incorporation by reference in the registration statements of
Sequoia Systems, Inc. on Form S-8 (File Nos. 33-35361, 33-35362, 33-40339 and
33-64690) of our reports dated July 26, 1994 on our audits of the consolidated
financial statements and financial statement schedules of Sequoia Systems, Inc.
as of June 30, 1993 and 1994 and for the years ended June 30, 1993 and 1994
which reports are included in this Amendment No. 2 to the Annual Report on Form
10-K.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
February 17, 1995
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Amendment No. 2 to Form 10-K into the Company's
previously filed Registration Statements on Form S-8 (file nos. 33-35361, 33-
35362, 33-40339 and 33-64690).
ARTHUR ANDERSEN LLP
Boston, Massachusetts
February 17, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF THE CORPORATION FOR THE YEAR ENDED
JUNE 30, 1994 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1994
<PERIOD-START> JUL-01-1993
<PERIOD-END> JUN-30-1994
<CASH> 20,740,826
<SECURITIES> 0
<RECEIVABLES> 6,851,296
<ALLOWANCES> 1,398,738
<INVENTORY> 3,431,456
<CURRENT-ASSETS> 30,147,290
<PP&E> 14,738,210
<DEPRECIATION> 12,288,662
<TOTAL-ASSETS> 32,810,472
<CURRENT-LIABILITIES> 9,159,775
<BONDS> 0
<COMMON> 3,924,400
0
0
<OTHER-SE> 19,535,937
<TOTAL-LIABILITY-AND-EQUITY> 32,810,472
<SALES> 29,463,856
<TOTAL-REVENUES> 44,765,190
<CGS> 11,870,643
<TOTAL-COSTS> 18,535,206
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 115,592
<INCOME-PRETAX> 8,874,055
<INCOME-TAX> 307,500
<INCOME-CONTINUING> 8,566,555
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,566,555
<EPS-PRIMARY> $.87
<EPS-DILUTED> $.87
</TABLE>
