<PAGE>
SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K/A
AMENDMENT NO. 1
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 (Fee Required)
For the Fiscal Year Ended December 31, 1993
-----------------
[ ] Transitional _____ pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 (No Fee Required) For the transition period from ______ to
______. Commission File Number 0-13381
-------
MYLEX CORPORATION
____________________________________________________
(Exact name of registrant as specified in its charter)
FLORIDA 59-2291597
_______________________________ ___________________
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
34551 Ardenwood Boulevard
Fremont, California 94555
_____________________________________ ___________
Address of principal executive office (Zip code)
Registrant's telephone number, including area code: 510-796-6100
------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
____________________________
(Title of class)
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 shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
----- -----
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sales price of the Common Stock on February
28, 1994, as reported on NASDAQ was approximately $53,985,200. Shares of Common
Stock held by each officer and director and by each person who owns 5% or more
of the outstanding Common Stock have been excluded in that such persons may be
deemed to be affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in the definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K/A or any amendment to this form 10-K/A. [ ]
As of February 28, 1994, registrant had total outstanding 13,064,445 shares of
Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE The Registrant's definitive Proxy Statement
for the Annual meeting of Shareholders to be held on May 23, 1994, is
incorporated by reference in Part III of this Form 10-K/A to the extent stated
herein.
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TABLE OF CONTENTS
PART I
Page
Item 1. Business 3
Item 2. Properties 9
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a
Vote of Security Holders 10
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 11
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis of
Financial Condition and Results
of Operations 14
Item 8. Consolidated Financial Statements and
Supplementary Data 19
Item 9. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure 19
PART III
Item 10. Directors and Executive Officers
of the Registrant 20
Item 11. Executive Compensation 20
Item 12. Security Ownership of Certain
Beneficial Owners and Management 20
Item 13. Certain Relationships and Related
Transactions 20
PART IV
Item 14. Exhibits, Consolidated Financial Statements,
Financial Statement, Schedules, and
Reports on Form 8-K 21
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PART I
ITEM 1. BUSINESS
GENERAL
Mylex Corporation (the "Company") is presently engaged in the design,
development, production, and marketing of high performance disk array
controllers, based on RAID (Redundant Array of Inexpensive Disks) technology,
personal computer system boards, LAN adapters and SCSI host adapters. The
products currently being produced by the Company provide enhanced performance
for IBM(1) and IBM-compatible personal computers with either single-user or
multiple-user file servers.
The Company was incorporated under the laws of the State of Florida in May
1983. In September, 1987, the Company moved its headquarters and manufacturing
facility from Florida to Fremont, California.
Production of system boards based on the Intel 80386 ("386") microprocessor
was launched in 1987. After intensive research in 1988 and 1989, the Company
introduced in 1989 two system boards based on the Intel 80486 microprocessor
("486"), and three new peripheral products based on Extended Industry Standard
Architecture ("EISA")(2) Sales of these products began in 1990. Four new 486
system boards, based on Local Bus Architecture were introduced in 1992. In the
fourth quarter of 1992, the Company began shipping its new five channel disk
array controllers and subsystems. In the first quarter of 1993 the Company
introduced one, two and three channel disk array controllers as well as a custom
disk array controller product for one of its large OEM customers. Volume
shipments of the one, two and three channel disk array controller products
commenced during the first quarter of 1994. Production level shipments of the
custom disk array controller product began in the second quarter of 1993. The
Company expects to complete its design work on two additional disk array
- --------------------
IBM is a registered trademark of International Business Machines
Corporation.
EISA (Extended Industry Standard Architecture) is a system architecture
licensed to the Company by Intel Corporation ("Intel"). The license permits the
Company to manufacture, use, lease, import, export, or sell any product
incorporating the EISA patent owned by Intel.
(3) PCI (Perpheral Component Interconnect) is a system architecture licensed to
the Company by Intel.
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controller families during the second quarter of 1994 which will include
products based on the PCI(3) Bus Architecture.
The Company also plans to introduce the second generation of its EISA disk
array controllers during the second quarter of 1994. All of the Company's
primary products are sold in the high-technology electronic products segment.
The Company's customers are original equipment manufacturers (OEMs), system
integrators, value-added resellers (VARs), and computer distributors and
dealers.
PRODUCTS
During 1993, the Company generated a large portion of its revenue (44.4% of
net sales) from its disk array controllers and subsystem products, as compared
to 2.4% of net sales during 1992. Sales of system board products accounted for
36.9% of net sales during 1993 as compared to 72.4% and 65.7% of net sales
during 1992 and 1991 respectively.
In November of 1993 the Company introduced its new Pentium processor based
system boards (MPEPNTM) at the COMDEX trade show. The new boards feature an
EISA bus or the PCI local bus. The MPEPNTM is targeted for the high performance
server and workstation markets.
The Mylex Disk Array Controllers (DAC960), which utilize RAID technology
provide high performance, fault tolerant data storage solutions for EISA bus PC
platforms. Introduced in 1992, the DAC960 uses the latest in SCSI and
microprocessor technology. The Mylex disk array products are designed for both
internal and external storage options. The DAC 960 products are designed with
one to five SCSI-2 (fast and wide) channels. The Mylex disk array controllers
are compatible with the most commonly used operating systems such as Novell
Netware, O/S2 and Windows NT as well as many other operating systems.
The Company continues to dedicate most of its research to products which
offer solutions to the data processing, data storage, and other computer
requirements of the business community. During 1994 increased emphasis will be
placed upon opportunities in the emerging image storage applications.
The Company is committed to and dependent upon continued development of new
products as well as enhancement of existing products. The Company believes its
future profitability is dependent to a large extent upon the successful
introduction of its new PCI and SCSI to SCSI disk array product families as well
as
- --------------------
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continued market acceptance of its current disk array products. However, there
can be no assurance that new products will be successfully developed or, if
developed, that such products or the Company's current products will achieve and
sustain market acceptance.
PRODUCT MANUFACTURE AND SUPPLIERS
The manufacture of Mylex products entails placing semiconductors and other
electronic components onto the printed circuit board and soldering them into
place. Each product is then subjected to a series of quality control tests.
Almost all of Mylex manufacturing is done on Fuji Surface Mount Technology
equipment ("SMT"). The SMT automatically positions and attaches chips and other
components to systems boards, increasing the speed and accuracy of the
manufacturing process. There can, however, be no assurance that the Company's
products will be free of manufacturing defects, notwithstanding the quality-
control tests performed by the Company, or that the Company's manufacturing
capabilities and materials sources will be adequate to meet product demand.
The Company's manufacturing facility is located in the United States, and a
majority of the Company's products are currently manufactured in-house.
The Company depends heavily upon its suppliers to provide high quality
materials on a timely basis, at a reasonable price, and with suitable credit
terms. Although many of the components for the Company's products are available
from numerous sources at competitive prices, some of the most critically-needed
components are sole-sourced. Moreover, because of high industry demand for many
such components, manufacturers of these components are not always able to make
delivery on a timely basis.
The most critical components used in the Company's disk array controller
boards are the 960 CPU from Intel and the proprietary chip provided by one of
the Company's large OEM customers for inclusion on its custom product. The
Company currently has no long term supply commitments with these vendors. As a
result, there can be no assurance that sufficient quantities of these or other
critical components will be available for the Company's production. In the
event that these essential components cannot be obtained, the Company may be
unable to meet demand for its products, adversely affecting results from
operations.
The Company's need to manufacture products before receiving firm purchase
orders, combined with risks of technological obsolescence and rapid shifts in
market demand, may lead to inventory devaluation or obsolescence, either of
which could have a material adverse effect on operations.
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SALES AND MARKETING
As of February 28, 1994, the Company's sales and sales support personnel
numbered approximately 14 persons who devoted substantially all their time to
marketing, sales, and customer support of the Company's products.
Potential customers are identified by research and analysis of industry
publications; through the Company's advertising programs; and by attendance at
trade shows such as CeBIT in Hanover, Germany, and COMDEX (Computer Dealers
Exposition) in Las Vegas.
Sales of the Company's disk array controller products represented 44.4 % of
sales for the year ended December 31, 1993, as compared to 2.4% of sales for the
year ended December 31, 1992. Sales of the 486 system board products accounted
for approximately 36.5% of the Company's sales for the year ended December 31,
1993, as compared to 62% for the year ended December 31, 1992, and 27% for the
year ended December 31, 1991. Sales of the 386 system boards represented less
than 1% of the Company's sales for the year ended December 31, 1993, as compared
to 9% and 33% respectively for the 1992 and 1991 fiscal years. Other peripheral
product sales (LAN, graphics, and SCSI adapter products) accounted for 5.1% of
net sales during 1993, 14.3% for 1992, and 17.8% for 1991. The Company expects
its dependence upon disk array controllers products to increase during 1994.
The Mylex disk array controller products are designed for integration into
the client server, networked PC, and scientific workstation environments.
Because of this transition to primarily disk array controllers, marketing these
products entails development of new distribution channels and marketing
methods. The Company was able to market these products to OEMs during fiscal
1993. Since the introduction of the product in 1992, the Company's disk array
RAID technology has been selected by seven major OEMs to be incorporated into
their product lines. However, development of such markets and marketing channels
involves substantial risk and expense, and there can be no assurance that the
Company will be successful in retaining relationships with these OEMs, in
developing additional agreements with other OEMs, or in maintaining a profitable
share of the market for these more sophisticated electronic products.
This course of seeking additional new markets was originally motivated by
declining profit margins generated by personal computer system boards, and by
the Company's commitment to technological innovation and by diversification the
Company's desire to diversify its product line. Despite this strategy, the
Company expects that sales of its current generation of disk array
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controller boards will continue to generate a significant part of the Company's
revenue, at least during 1994. A major reduction in sales of such products
without a corresponding increase in the sales of the Company's newer products
would have a material adverse effect on the Company.
During the year ended December 31, 1993, the Company renewed agreements
with several distributors to distribute the Company's products. These
distributors include Merisel, Ingram Micro, Tech Data, Gates FA.
The Company's largest OEM customer during 1993 was IBM Corporation, which
represented approximately 18% and 39% of net sales for the year and the quarter
ended December 31, 1993 respectively. This compared to sales to Northgate
Computer Systems, Inc.(Northgate), the Company's largest OEM customer for the
year ended December 31, 1992, which represented approximately 38% of net sales
for that year. Sales to Northgate totaled approximately 11% of sales during
1993. Sales to Hewlett Packard Company amounted to 9.6% of total sales and
sales to AST Research accounted for approximately 10.2% of net sales for the
year ended December 31, 1993. The second largest customers for the year ended
December 31, 1992, were AST Research and Sidus Systems which each accounted for
slightly more than 5% of sales for that year. (See Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of Operations").
Export sales were 21% of net sales in 1993, including 15% in Europe, 7% in
Canada, and 7% in the rest of the world. Export sales comprised 29%, and 35% of
net sales in 1992, and 1991 respectively.
The general custom of the market for disk array controllers and system
boards is that customers are not bound contractually to make long-term purchase
commitments and may cancel orders at any time.
BACKLOG
The Company's backlog as of December 31, 1993, totaled $11,200,600 as
compared to $3,455,400 at December 31, 1992. The Company's backlog increased as
a result of the successful introduction of a new product line of disk array
controllers and the designs wins achieved with several major original equipment
manufacturer customers. The majority of the increase in backlog was
attributable to purchase orders received from IBM in the fourth quarter of 1993
for delivery of disk array products during the first quarter of 1994. Due to
industry practice with respect to customer changes in delivery schedules and
cancellation of orders,
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the Company believes that backlog as of any particular date may not be
indicative of actual net revenues for any succeeding period. All orders
outstanding at December 31, 1993 which were not subsequently changed or canceled
would have been scheduled for delivery within the three months ended March 31,
1994.
COMPETITION
Numerous companies in the computer industry produce and market system
boards and computer peripheral cards in competition with the Company. In
addition, in its efforts to sell specialized products to distributors, original
equipment manufacturers, and private label users, the Company faces competition
from other system board manufacturers. Many of these manufacturers have
substantially greater financial resources than those of the Company.
Technological advancements and more sophisticated users' needs have created
demands for newer, faster, and more powerful products and applications for
specialized markets such as local area networks (LANs); multi-user, real-time
environments; CAD/CAM; desktop publishing, and engineering scientific
workstations. In addition, price competition is intense. This trend has
prompted the Company to broaden its product offerings from only the system board
market to new markets as well.
The market for the Company's more advanced products, such as the disk array
is also very competitive. There are, moreover, numerous companies with
established reputations in that market, many of whom have greater financial,
manufacturing, and marketing resources than those of the Company. As the disk
array market is a relatively new one for the Company, there can be no assurance
of continued acceptance of the Company's products.
The Company's ability to compete successfully in either the personal
computer market or the market for its more sophisticated products depends upon
its ability to develop products which obtain market acceptance, which can be
sold at competitive prices while maintaining adequate gross margin levels, and
which are proven to be reliable. Although the Company believes that certain of
its products have certain competitive advantages, there can be no assurance that
the Company will be able to compete successfully in the future or that other
companies may not develop products with greater performance or at more favorable
prices and thus reduce the demand for the Company's products. The Company is
dedicated to continuance of its research and development efforts to obtain and
maintain whatever competitive advantages may be available to it.
EMPLOYEES
As of February 28, 1994, the Company employed approximately 125 people.
The employees are not represented at the Company by any
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labor union nor employed by the Company under any collective bargaining
agreement.
RESEARCH AND DEVELOPMENT
Mylex decreased its expenditures for research and development in 1993. For
the year ended December 31, 1993, research and development expenditures totaled
$2,474,000 (or 5.5% of net sales) as compared to $2,823,200 (or 5.8% of net
sales) for the year ended December 31, 1992, and $2,655,000 (or 4.9% of net
sales) for the year ended December 31, 1991. The decrease in expenditures
during 1993 was due to the elimination of the Company's multiprocessor research
and development projects.
PATENTS AND TRADEMARKS
Except for Patent 4,553,035 for a Data Acquisition Control Method and
System for a Hand Held Reader, the Company currently holds no patents on any of
its products, The Company has taken and continues to take other measures
reasonably available to it to protect its rights with respect to product
designs, component selections, production processes, and any other information
considered by the Company to be proprietary, whether patentable or not, by such
means as protecting its proprietary trade secrets, innovative skills, and
technical expertise. While these means have proven thus far to be satisfactory
in protecting the Company's property, the Company may seek patent protection on
some of its more advanced products. However, there can be no assurance that
such patents will be granted or that other companies will not develop products
which are competitive with the unpatented products of the Company using
proprietary designs or software of the Company.
The Company is the owner of a registered trademark, Reg. No. 1,310,862, for
its MYLEX logo.
Certain patents and copyrights owned by others are of critical importance
to the high-technology electronic product industry segment in which the Company
operates. The Company has obtained licenses to certain technology protected by
patents or copyrights which the Company believes are adequate for the operation
of the business of the Company as it is currently being conducted. It is likely
that such licenses, and licenses to produce, use, and market new technologies,
will continue to be important to the Company. In the future, the Company may be
required to obtain licenses from others and there are no assurances that such
licenses would be available at all or on terms satisfactory to the Company.
ITEM 2. PROPERTIES
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On April 1, 1991, the Company moved to its current headquarters and
manufacturing facility, located in a 73,887 square foot facility in Fremont,
California. The Company's lease on this facility extends through March 31,
1996.
ITEM 3. LEGAL PROCEEDINGS
The Company and American Megatrends, Inc. ("AMI") entered into an agreement
on February 15, 1987, pursuant to which, inter alia, AMI licensed to the Company
the rights to use a basic input/output system ("BIOS") and certain other
technical information in consideration for the payment of royalties. On May 5,
1992, AMI initiated arbitration proceedings before the American Arbitration
Association in Miami, Florida, asserting a right under the agreement to audit
the Company's books and records for the purpose of calculating royalties. The
Company counterclaimed against AMI for breach of contract, failure to pay a
written account, failure to pay for goods sold and delivered, and failure to
provide required information.
On March 16, 1993, AMI amended its demand for arbitration, seeking specific
performance of AMI's audit rights under the February 15, 1987 agreement, and in
particular, seeking to include in the audit additional records sought by AMI.
AMI has also asserted claims for any monies that the audit may indicate are due
to AMI, for recovery of all fees and costs associated with the arbitration, and
for recovery of additional costs allegedly incurred with respect to the audit.
Preliminary conferences in this matter were held on March 19, 1993 and on
November 2, 1993. The matter is in the discovery stage, and no dates have as
yet been set for evidentiary hearings.
On September 3, 1993, while arbitration was still pending, AMI also filed
suit against the Company in the United States District Court in Atlanta,
Georgia, alleging claims similar to those presented in the arbitration. The
complaint alleges claims for breach of contract, fraud, breach of fiduciary
duty, tortious interference with contractual rights and prospective business
relations, and unfair competition. The relief sought includes injunctive
relief, an accounting, damages in an unspecified amount, exemplary damages,
attorneys' fees and costs. On October 29, 1993 the Company filed an answer and
counterclaim, denying the allegations of the complaint, setting forth various
affirmative defenses, and presenting counterclaims for breach of contract,
unjust enrichment and unfair competition. The Company has also filed a motion
to compel arbitration of all claims and/or to stay the Federal Court action
pending completion of the arbitration. AMI has not opposed this motion but no
order has as of yet been issued by the district court. While the Company
believes it has
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numerous defenses to AMI's claims and intends to vigorously defend the
arbitration and the lawsuit, there can be no assurance that the Company will
ultimately prevail and an unfavorable outcome could have a material adverse
effect on the Company's business and results of operations.
In addition to matters discussed herein, the Company is a party to routine
suits and claims arising in the ordinary course of its business which the
Company does not believe will have a material adverse effect on its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
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PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's common stock ($0.01 par value) is traded on the National
Association of Securities Dealers National Marketing System ("NMS") and is
quoted on the National Association of Securities Dealers Automated Quotation
System ("NASDAQ") under the symbol MYLX.
The following table sets forth quarterly high and low bid quotations for
the Company's common stock for the two year period ended December 31, 1993 as
quoted by the NASDAQ National Market System. Such bid quotations represent
inter-dealer prices without retail mark-up or mark-down or commission and may
not, therefore, represent actual transaction prices.
COMMON STOCK (MYLX) HIGH BID LOW BID
1992
First quarter 5 1/4 2 3/8
Second quarter 5 3/8 3 7/8
Third quarter 5 1/4 4 1/8
Fourth quarter 6 7/8 3 7/8
1993
First quarter 6 1/4 4 1/8
Second quarter 5 1/2 3 1/2
Third quarter 5 5/8 3 1/2
Fourth quarter 7 3/4 4 3/4
As of February 28, 1994, there were approximately 750 record holders of the
Company's common stock.
DIVIDENDS
The Company has not paid cash dividends on its common stock during either
of the two most recent fiscal years nor during the period subsequent thereto.
While the Board of Directors has general authority over dividend policy, it does
not anticipate paying cash dividends in the foreseeable future.
The Company has a revolving line of credit with Imperial Bank (the "Bank"),
secured by the Company's unencumbered assets, which expires on May 14, 1994. The
line of credit bears interest at the Bank's prime rate plus 0.75%. Borrowings
are limited to 70% of eligible accounts receivable, and are subject to an
overall limit of $2,500,000. The agreement states that so long as the Company
is indebted to the Bank, the Company will not declare or pay any
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dividend (other than dividends payable in the Company's common stock) or make
any other distribution on any of its capital stock, or purchase, redeem, or
retire any of such stock without written consent of the Bank.
CONVERTIBLE SUBORDINATED DEBENTURES
During June and July 1987, the Company issued $1,670,000 in 10% Convertible
Subordinated Debentures (the "Debentures") through a private placement of
securities. The issue consisted of 1,670 units in $1,000 denominations
(individually a "unit"; collectively, the "units"), which matured on April 30,
1992. The units have all been converted to shares of the Company's Common
Stocks at various dates during the five-year term of the debentures.
During 1993 the Company issued $3,000,000 in 8% Convertible Subordinated
Debentures (the 'Debentures') through a private placement of securities.
Debentures totaling $2,025,000 mature on the earlier of December 31, 1994 or
upon the closing date of a public offering of stock or debt, pursuant to which
the Company receives proceeds of at least $10 million. Debentures totaling
$300,000 matured on December 31, 1993. As of December 31, 1993, $675,000 of the
debentures plus accrued interest had been converted to common stock.
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ITEM 6. SELECTED FINANCIAL DATA
OPERATING DATA:
<TABLE>
<CAPTION>
(In thousands except share data)
YEAR ENDED DECEMBER 31,
-----------------------
1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Net Sales 45,234 48,770 54,268 47,867 40,104
Cost of Sales 36,456 42,112 47,634 35,417 30,893
Gross Profit 8,778 6,657 6,634 12,450 9,211
Operating
Expenses and
Other Income/
Expense 13,268 11,118 9,931 6,758 6,424
Income (loss)
Before Income
Tax (4,490) (4,461) (3,297) 5,692 2,787
Income Tax
Expense
(Benefit) ( 46) (1,461) (1,092) 2,308 1,108
Net Income
(loss) (4,444) (3,000) (2,205) 3,384 1,682
====== ====== ====== ====== ======
Income (loss)
Per Share: $ (.35) $(.25) $(.19) $ .31 $ .16
====== ====== ===== ===== =====
Fully Diluted $(.35) $(.25) $(.19) $ .28 $ .15
====== ====== ===== ===== =====
Average Common
Shares
Outstanding:
Primary 12,740,100 12,102,900 11,337,000 11,076,000 10,465,000
Fully
Diluted 12,740,100 12,102,900 11,337,000 12,299,000 12,139,000
</TABLE>
FINANCIAL POSITION AT YEAR END
<TABLE>
<S> <C> <C> <C> <C> <C>
Total Assets $14,640 $23,694 $22,433 $25,929 $16,332
Working
Capital $ 3,461 $ 6,286 $ 8,405 $11,107 $ 7,909
Long-term
Obligations $ 910 $ 1,293 $ 1,651 $ 1,382 $ 1,670
Stockholders'
Equity $ 4,664 $ 7,963 $10,060 $11,420 $ 7,236
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
During the year ended December 31, 1993, the Company financed its
operations from tax refunds and proceeds of $3,000,000 from a private placement
of convertible subordinated debentures (the "Debentures"). As of December 31,
1993, $675,000 of the debentures plus accrued interest were converted into
common stock. The Debentures bear interest at the rate of 8% per annum,
compounded semi-annually. The principal and all accrued interest on $2,025,000
of the Debentures are due and payable upon the earlier of the closing date of a
public offering of stock or debt pursuant to which the company receives proceeds
of at least $10 million in proceeds, or December 31, 1994. The remaining
$300,000 of the debentures became due on December 31, 1993 and were subsequently
paid in January of 1994. The Debentures due December 31, 1994, are convertible
into common stock of the Company at any time during the life of the notes, with
a conversion price of $3.875 for each share of common stock.
At December 31, 1993, the Company's working capital had decreased by 44.9% to
$3,461,300 from $6,285,900 on December 31, 1992. The Company's cash and
equivalents balance had increased by $1,568,100 or 93% from $1,685,100 on
December 31, 1992 to $3,253,200 at December 31, 1993. The increase in cash was
primarily due to proceeds of $3 million received from the sale of convertible
subordinated debentures and the receipt of federal income tax refunds totaling
approximately $3 million. The increase to cash was partially offset by
repayments against the Company's line of credit and payments to the Company's
suppliers which fell due during the first quarter of 1993.
Net accounts receivable decreased by 52.7% to $4,021,300 at December 31, 1993,
compared to $8,500,400 at December 31, 1992, a decrease of $4,479,100. The
decrease was primarily due to an increase in the allowance for doubtful accounts
receivable of approximately $4.7 million. This increase in the Company's
provision for doubtful accounts receivable was a result of the rapidly
deteriorating financial condition during the third quarter of 1993 of one of the
Company's customers, Northgate Computer Systems, Inc. On July 17, 1992, certain
directors and several officers of the company along with many other outside
investors purchased a majority interest in northgate. the company's
evaluatiion criteria used to extend credit to northgate were the same used with
other third parties under similar conditions such as tandon corporation. as of
december 31, 1992, virtually the entire northgate receivable was current and was
less than 45 days old. during the first quarter of 1993, the company received
payments from northgate totaling $1,868,220. during the secong quarter of 1993
northgate continued to make regular payments on its account totaling $1,754,383.
on may 14, 1993, the company and northgate entered into a security agreement and
the company received a security interest in all of the inventory of northgate.
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northgate's inventory as of april 30, 1993, was valued at $6.6 million net of
the reserve for excess and obsolete inventory. after reviewing a detailed
listing of the inventory, the company took a conservative approach and applied a
50% factor to the net inventory value. the company believed that the inventory
was worth at least $3.3 million as of april 30, 1993. as of the same date, the
northgate account receivables totaled $3.8 million with a $0.5 million reserve,
for a net account receivable of $3.3 million. during the third quarter of 1993,
northgate's financial condition deteriorated rapidly. the following factors
contributed to that deterioration: (i) northgate's landlord drew upon $1.5
million stand-by letter of credit, which severely reduced the amount of cash
available to northgate for purchases of inventory and payment of operating
expenses; (ii) northgate was forced to vacate its facility and in doing so
incurred several hundred thousand dollars of relocation expenses; and
(iii) additional competitors entered northgate's market in the third quarter of
1993 and northgate's sales and margins declined dramatically and further reduced
the cash available to northgate. extension of credit decisions relative to
northgate were made solely by dr. chowdry, the company's former chief executive
officer. the common directors for the respective companies were neither
consulted nor informed by dr. chowdry of the decision making process.
The Company's inventories decreased by 34.8% to $4,630,600 at December 31, 1993,
from $7,099,900 at December 31, 1992. This decrease was due to decreased
purchases of material from vendors during December of 1993.
During 1993 the Company used $130,300 in cash for investing activities which
were primarily capital expenditures. During 1992 cash used for investing
activities totaled $512,300.
As of December 31, 1993 the Company's current ratio remained at 1.4 which was
also the current ratio as of December 31, 1992.
The Company has a revolving line of credit with Imperial Bank (the "Bank"),
secured by the Company's unencumbered assets, which expires on May 14, 1994.
The line of credit bears interest at the Bank's prime rate plus 0.75%.
Borrowings are limited to 70% of eligible accounts receivable, and are subject
to an overall limit of $2,500,000. The Company is required to maintain a
compensating deposit balance with the Bank of at lease $500,000 and to comply
with certain covenants with respect to dividends, stock repurchases, borrowings,
and maintenance of specific financial ratios. As of December 31, 1993, the
Company was in compliance with the covenants under this line of credit. The
Company paid a net of $1,864,100 against the line of credit during 1993,
reducing the outstanding balance from $4,364,100 at December 31, 1992, to
$2,500,000 at December 31, 1993. As of February 28, 1994, the Company's
outstanding borrowings under this line of credit totaled $2,413,400.
The Company expects to finance operations and capital requirements through cash
provided by continuing operations, existing cash balances and borrowings under
its revolving bank line of credit. There can be no assurance that the
17
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Company will not require outside financing, or if required, that such financing
will be available on terms favorable to the Company.
The Company's line of credit expires on May 14, 1994. The Company intends to
renegotiate such line of credit. However, there can be no assurance that the
line will be renewed, or if renewed, that the terms will be as favorable to the
Company as the existing line.
On December 29, 1990, the Company entered into an agreement with United States
Leasing International, Inc. ("United"), under which United committed itself to
lease certain equipment to the Company subject to the terms of a Master Lease
Agreement. For the year ended December 31, 1993, the lease payments for the
equipment based under this agreement totaled $186,100.
The Company also entered into a Master Lease Agreement with Linc Scientific
Leasing (USX Credit Corporation), a division of Scientific Leasing, Inc. on May
10, 1991, pursuant to which the Company has leased certain equipment, including
a Fuji CP-III 5000 High Speed Chip Placer. The total purchase price of such
equipment was $1,312,300. For the year ended December 31, 1993, the lease
payments for the equipment leased under this agreement totaled $338,400.
18
<PAGE>
YEAR ENDED DECEMBER 31, 1993, COMPARED TO YEAR ENDED DECEMBER 31, 1992
RESULTS OF OPERATIONS
SALES AND PROFITS The Company's net sales for the year ended December 31, 1993,
decreased by $3,535,800 to $45,233,700 compared to $48,769,500 for the year
ended December 31, 1992. Sales declined primarily due to aggressive price
competition leading to a reduction in both the selling prices and unit volumes
of the Company's system boards. The number of system boards shipped by the
Company during 1993 totaled approximately 50,000 as compared to approximately
80,000 shipped during 1992. Sales of the Company's disk array products
increased significantly during 1993 due to growing industry acceptance of the
Company's disk array technology and product family. However, there can be no
assurance that sales of such products will continue at current levels.
The Company's largest customer during 1993 was IBM Corporation ("IBM") which
accounted for $8,319,800 or 18% of the Company's sales during that year. During
the quarter ended December 31, 1993 sales to IBM accounted for 38% of net sales,
The Company expects its dependence on sales to IBM to increase during the first
half of 1994. The Company sells products to IBM on a purchase order basis, and
currently has no long term purchase commitment. No assurance can be given that
sales to IBM will continue at their 1993 levels.
Gross profit for fiscal 1993 increased by $2,121,100 to $8,778,200 from
$6,657,100 for fiscal 1992. Gross profit for 1993 was 19.4% of net sales
compared to 13.7% for 1992. The increase in gross profit in fiscal 1993 was due
to the increased sales of higher margin disk array controllers products which
more than offset the declining margins of the Company's system boards. The
Company expects price competition for its system board products to continue, and
expects to encounter price competition for its disk array controller products
which will create pressure on the Company's gross margin. The Company continues
to develop new disk array and other computer peripheral products that generate
more favorable margins than those generated by its mature products.
Improvements in overall gross margins are dependent upon the successful
development and market acceptance of the Company's newer product lines,
particularly new disk array controllers. There can be no assurance that the
Company will be able to develop and introduce such products in a timely manner
or that such products will gain or sustain market acceptance. Sales of disk
array products accounted for 44.4% of sales during the year ended December 31,
1993, and 71.5% of sales during the fourth quarter of 1993.
The Company recorded a loss before taxes for the year ended December 31, 1993,
of $4,490,300 or 9.9% of net sales, compared to a pre-tax loss of $4,460,900 or
9.1% of net sales for the year ended December 31, 1992. The net loss after
income tax benefits for fiscal 1993 was $4,444,200, an increase from the net
loss after income tax benefits for fiscal 1992 of $3,000,000. The increased net
loss was partially due to a reduction of income tax benefits available to the
Company during 1993.
19
<PAGE>
SELLING AND MARKETING EXPENSE. Sales and marketing expenses for the year ended
December 31, 1993, were $2,962,500, a 12% decrease from the $3,369,600 reported
for the year ended December 31, 1992. The decrease in sales and marketing
expenses is due to a reduction in the number of sales and marketing personnel
supporting the system board product line and lower advertising expenses. The
Company expects the level of spending to increase with the introduction of
additional new products. The 1993 sales and marketing expenses were 6.5% of net
sales as compared to 6.9% of net sales during 1992.
RESEARCH AND DEVELOPMENT. Research and development expenses for the year ended
December 31, 1993, were $2,474,000 or 5.8% of net sales, a decrease of 12.4%
from the amount expended for the year ended December 31, 1992, of $2,823,200 or
5.5% of net sales. This decrease in research and development expenses was due
to the completion of several projects during early 1993 and the elimination of
the Company's multiprocessor project resulting in lower engineering consulting
and prototype expenses.
The Company plans to allocate additional resources to research and development
efforts during 1994 with the objective of further diversification of its product
lines and to maintain its position as a world leader in RAID and disk array
technology.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses for
the year ended December 31, 1993, totaled $2,689,800 or 5.9% of net sales
compared to $2,515,400 or 5.2% of net sales for the year ended December 31,
1992. The 6.9% increase was primarily due to higher legal expenses and director
and officer liability insurance premiums. These increases in general and
administrative expenses were only partially offset by reduced compensation and
benefit expenses resulting from lower staffing levels during 1993 as compared to
1992.
PROVISION FOR UNCOLLECTIBLE ACCOUNTS RECEIVABLE. The provision for
uncollectible accounts receivable increased by $2,719,200 to $4,675,600 or 10.3%
of sales for the year ended December 31, 1993. The increase was due to the
rapid deterioration in the financial condition during the third quarter of 1993,
of one of the Company's customers, Northgate Computer Systems, Inc. Subsequent
to August 1993, product sales to Northgate have been minimal and on a cash-in-
advance basis.
IMPACT OF INFLATION. The impact of inflation on the Company's business was not
material during the year ended December 31, 1993.
INCOME TAXES. The Company had a net operating loss for its fiscal year ended
December 31, 1993, the financial statements reflect a tax benefit of $46,100 for
that year as compared to a tax benefit of $1,460,900 for the year ended December
31, 1992. The Company had recorded substantially all of the tax benefits
available to it in years prior to 1993.
20
<PAGE>
YEAR ENDED DECEMBER 31, 1992, COMPARED TO YEAR ENDED DECEMBER 31, 1991
RESULTS OF OPERATIONS
SALES AND PROFITS. The Company's net sales for the year ended December 31,
1992, decreased by $5,498,900 to $48,769,500 compared to $54,268,400 for the
year ended December 31, 1992. Sales declined primarily due to aggressive price
competition for the Company's 80386 and 80486 system boards, which led to a
decline in the selling prices for these boards; however, the number of boards
shipped by the Company during the 1992 year actually increased to 80,000 from
65,000 during the 1991 year.
The Company's largest customer during 1992 was Northgate Computer Systems,
Inc., ("Northgate") which accounted for $18,703,000 (38%) of the Company's sales
during 1992.
Gross profit for fiscal 1992 increased slightly (by $22,900) to $6,657,100
from $6,634,200 for fiscal 1991. Gross profit for 1992 was 13.7% of net sales
compared to 12.2% for 1991. During fiscal 1991, the Company experienced rapidly
declining material costs and as a result the Company was forced to adjust
inventories downward. The increase in gross profits in fiscal 1992 was due to
improved management of inventory procurement activities. The Company monitored
material costs quarterly and implemented additional inventory control procedures
to minimize any impact of any declining material costs. Although the Company
continues to develop new system boards that generate slightly more favorable
margins than do its mature products, improvements in total gross margins are
dependent upon the successful development and continued market acceptance of the
Company's newer technology products such as the disk array. Sales of disk array
products accounted for 2% of the Company's sales during the year ended December
1992 and 5% during the fourth quarter of 1992.
The Company incurred a loss before income taxes for the year ended December
31, 1992, of $4,460,900 (9.1% of net sales) compared to a pre-tax loss of
$3,297,000 (6.1% of net sales) for the year ended December 31, 1991. The net
loss after income tax benefits for fiscal 1992 was $3,000,000, an increase from
the net loss after income tax benefits for fiscal 1991 of $2,204,900. The
increased net loss was due to a charge to income related to an increase in the
Company's reserve for doubtful accounts receivable.
SELLING AND MARKETING EXPENSE. Sales and marketing expenses for the year
ended December 31, 1992, were $3,369,600, a 20.7% increase from the $2,791,600
reported for the year ended December 31, 1991. The higher level of sales and
marketing expenditures resulted from increased emphasis on marketing, promotion,
and product support which required the hiring of additional staff. Travel and
trade show related expenses were also increased to support the introduction of
new product lines during the year. The 1992 sales and marketing expenses were
6.9% of net sales, an increase from the 5.1% of net sales for 1991.
21
<PAGE>
RESEARCH AND DEVELOPMENT. Research and development expenses for the year
ended December 31, 1992, were $2,823,200 (5.8% of net sales), an increase of
6.3% over the amount expended for the year ended December 31, 1991, $2,655,000
(4.9% of net sales). This higher level of expenditures for research and
development was a reflection of the Company's efforts to develop more
sophisticated electronic products, particularly the Disk Array Subsystem and
the Multiprocessor System (MPS).
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
for the year ended December 31, 1992, totaled $2,515,400 (5.2% of net sales)
compared to $2,938,200 (5.4% of net sales) for the year ended December 31, 1991.
The decrease was due to reduced compensation expenses resulting from a reduction
in staff during the third quarter of 1992. The level of legal and consulting
expenses also declined during 1992.
PROVISION FOR UNCOLLECTIBLE ACCOUNTS RECEIVABLE. The provision for
uncollectible accounts receivable increased by $814,900 to $1,956,400 or 4%
of sales for the year ended December 31, 1992. The increase was required as a
result of the deteriorating financial condition during 1992 of one of the
Company's major customers in 1991.
IMPACT OF INFLATION. The impact of inflation on the Company's business was
not material during the year ended December 31, 1992.
INCOME TAXES. As the Company had a net operating loss for its fiscal year
1992, the financial statements reflect a tax benefit of $1,460,900 for that
year, compared to a tax benefit of $1,092,100 for the year ended December 31,
1991.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14 hereof.
ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 of Form 10-K is incorporated by
reference to the information contained in the section captioned "Directors and
Executive Officers" of the Registrants definitive Proxy Statements for the
Annual Meeting of Shareholders.
22
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
In exchange for a promissory note bearing interest at 4% (the "Note"), the
Company paid withholding taxes totalling $181,900 for the exercise of stock
options by the company's former Chief Executive Officer, Dr. M.A. Akram Chowdry.
By April 1994, Dr. Chowdry had paid the Company the entire principal and
interest outstanding under the note.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.
Directors, Dr. Singh and Mr. Dudhia comprised the Compensation Committee.
Dr. Singh was treasurer of the Company from February 1989 to November of 1989.
On July 17, 1992, a group of investors purchased a majority interest in
Northgate for $1.3 million. as a result of this transaction, four directors,
including Mr. Dudhia, were appointed to the membership of Northgate's board of
directors. Mr. Dudhia resigned from the northgate board in April 1994. Prior
to his resignation, Mr. Dudhia was appointed to chairman of Northgate's board in
November 1993.
OTHER information required by Item 11 of Form 10-K is incorporated by
reference to the information contained in the section captioned "Executive
Officers Compensation" of the Registrants definitive Proxy Statements for the
Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by Item 12 of Form 10-K is incorporated by
reference to the information contained in the section captioned "Securities
Ownership of Management" of the Registrants definitive Proxy Statements for the
Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The company is currently utilizing the services of the business firm,
Saicom, owned by the wife of officer, Dr. Parveen Gupta, for software
duplication and printing of product manuals. The Company's transactions with
Saicom were completed in the normal course of business and the company paid
$215,448 for Saicom's services in 1993. Dr. Gupta did not oversee the billing
or contracting services for this transaction and the prices charged by Saicom
were competitive with prices charged by other companies that provide duplicating
and printing services.
OTHER information required by Item 13 of Form 10-K is incorporated by
reference to the information contained in the section captioned "Certain
Relationships and Related Transactions" of the Registrants definitive Proxy
Statements for the Annual Meeting of Shareholders.
23
<PAGE>
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENTS, FINANCIAL
STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) and (2) CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULES
The consolidated financial statements listed in the
accompanying Index to Consolidated Financial Statements
and Financial Statement, schedules are filed as part of
this Form 10-K/A.
(3) Exhibits
The Exhibits listed on the accompanying Index to Exhibits
immediately following the Financial Statement Schedules are
filed as part of this Report.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
fiscal quarter ended December 31, 1993
(c) Exhibits
Consolidated Financial Statements
See Item 14(a)(1) above
Consolidated Financial Statement Schedules
See Item 14(a)(2) above
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<PAGE>
(A) (3) Exhibits
Exhibit No. Exhibit
3.1 (e) Articles of Incorporation of
Registrant, as amended.
3.2 (e) By-laws of Registrant as amended
March 30, 1989
4.4 (g) Form of 10% Convertible Subordinated
Debenture
4.6 (c) Form of 8% Convertible Subordinated
Debenture
10.10 (d) 1983 Incentive Stock Option Plan of
Registrant as amended and restated
March 8, 1991
10.11 (a) 1993 Stock Option Plan
10.19 (h) President's Employment Agreement
10.20 (d) Lease Agreement of premises at
34551 Ardenwood Boulevard dated
March 6, 1991.
10.21 (a) Documents related to the Company's
revolving line of credit with Imperial
Bank; Security and Loan Agreement dated
November 14, 1993.
10.23 (b) Inventory Repurchase Agreement dated
August 2, 1988, with Chrysler First
Wholesale Credit, Inc.
10.25 (a) IBM Development/Design and Production
Ordering Agreement
10.26 (a) Form of 8% Convertible Subordinated
Debenture Agreement and Registration
Rights Agreement and Schedule
of Purchasers
10.28 (d) License Agreement with International
Business Machines Corporation
(IBM) effective December 1, 1990.
10.29 (d) Master lease Agreement between United
States Leasing International, Inc.,
25
<PAGE>
(formerly Ford Equipment Leasing
Company) and the Company, dated
December 29, 1990, and related
lease commitments.
10.30 (d) Master Lease Agreement between the
Company and Linc Scientific Leasing,
a division of Scientific leasing Inc.
11 (a) The Company's statement regarding
computation of per share earnings.
24.1 (a) Consent of the Independent Auditors.
28.1 (d) Trademark Registration No. 1,310,862
=================================================================
(a) Filed with the 10-K.
(b) Filed as an exhibit to the Registrant's Annual Report on
Form 10-K/A for the year ended December 31, 1988, Commission
File No 0-13381 and incorporated herein by reference.
(c) Filed as an exhibit to the Registrant's Report on Form 10-Q,
for the period ended June 30, 1987, Commission File No. 0-13381
and incorporated herein by reference.
(d) Filed as an exhibit to the Registrant's Annual Report on
Form 10-K/A, for the year ended December 31, 1992, Commission
File No. 0-13381 and incorporated herein by reference.
(e) Filed as an exhibit to the Registration Statement on
Form S-8 and Form 3, on July 24, 1989, No. 33-30104 and
incorporated herein by reference.
(f) Filed as an exhibit to the Registrant's Annual Report on
Form 10-K/A for the year ended December 31, 1988, Commission
File No. 0-13381 and incorporated herein by reference.
(g) Filed as an exhibit to the Registrant's Quarterly Report on
Form 10-Q, for the period ended June 30, 1987, Commission
File No. 0-13381 and incorporated herein by reference.
(h) Filed as an exhibit to the Registrant's Quarterly Report on
Form 10-Q, for the period ended September 30, 1993, and
incorporated herein by reference.
(B) Reports on Form 8-K
There were no reports on Form 8-K filed during
the fourth quarter of 1992.
26
<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.
MYLEX CORPORATION \s\ M. Yaqub Mirza
Dated May 18, 1995 --------------------------------------------------
M. Yaqub Mirza
Attorney-in-Fact for the signatories below
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons in the capacities and on May 18,
1995.
Signature Title
- --------- -----
\s\ ISMAEL DUDHIA Chairman of the Board
- -----------------
Ismael Dudhia
\s\ YAQUB MIRZA Secretary/Director
- ---------------
Yaqub Mirza
\s\ INDER SINGH Director
- ---------------
Inder Singh
\s\ RICHARD LOVE Director
- ----------------
Richard Love
\s\ ALBERT MONTROSS Chief Executive Officer
- -------------------
Albert Montross
\s\ COLLEEN MEYERS Chief Financial Officer
- ------------------
Colleen Meyers
27
