<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(Mark One)
[x] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934.
For the Quarterly Period ended JUNE 30, 1995 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from ___________ to ___________.
Commission file number 0-13381
MYLEX CORPORATION
______________________________________________________
(Exact name of registrant as specified in its charter)
FLORIDA 59-2291597
_______________________________ ______________________________
(State or other jurisdiction of (IRS Employer Identification No
incorporation or organization)
34551 Ardenwood Blvd., Fremont, California 94555
___________________________________________ _________
(Address of principal executive offices) ZIP Code
Registrant's telephone number (including area code): (510) 796-6100
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
------- -------
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common Stock, $.01 par value 14,825,519 shares
---------------------------- ---------------------------
Class Outstanding at June 30,1995
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MYLEX CORPORATION
BALANCE SHEET
(IN $000'S)
<TABLE>
<CAPTION>
UNAUDITED
JUNE 30 DEC 31
1995 1994
----------- ----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
CASH AND EQUIVALENTS $ 2,242 $ 3,866
ACCOUNTS RECEIVABLE 15,623 11,321
ALLOWANCE FOR DOUBTFUL ACCOUNTS (509) (532)
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ACCOUNTS RECEIVABLE, NET 15,114 10,789
INVENTORIES 18,868 10,237
PREPAID EXPENSES & OTHER CURRENT ASSETS 1,114 775
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TOTAL CURRENT ASSETS $37,338 $25,667
PROPERTY AND EQUIPMENT, NET 1,499 1,579
OTHER ASSETS 112 112
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TOTAL ASSETS $38,949 $27,358
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------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
ACCOUNTS PAYABLE $ 9,121 $ 3,187
ACCRUED LIABILITIES 3,006 3,151
LINE OF CREDIT PAYABLE TO BANK 2,500 2,350
CURRENT PORTION OF LONG-TERM
CAPITAL LEASE OBLIGATIONS 359 417
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TOTAL CURRENT LIABILITIES $14,986 $ 9,105
LONG-TERM CAPITAL LEASE OBLIGATIONS 343 493
STOCKHOLDERS' EQUITY
COMMON STOCK 148 146
ADDITIONAL PAID-IN CAPITAL 14,627 13,526
RETAINED EARNINGS (DEFICIT) 8,845 4,088
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TOTAL STOCKHOLDERS' EQUITY $23,620 $17,760
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TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $38,949 $27,358
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</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
2
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MYLEX CORPORATION
STATEMENTS OF OPERATIONS, THREE MONTHS ENDED
UNAUDITED
(IN $000'S, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30 JUNE 30
1995 1994
----------- ----------
<S> <C> <C>
NET SALES $22,131 $14,133
COST OF SALES 13,724 9,128
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GROSS PROFIT 8,407 5,005
OPERATING EXPENSES:
SELLING AND MARKETING 1,457 844
RESEARCH AND DEVELOPMENT 1,121 831
GENERAL AND ADMINISTRATION 1,610 1,300
----------- ----------
TOTAL OPERATING EXPENSES $ 4,188 $ 2,975
----------- ----------
OPERATING PROFIT 4,219 2,030
INTEREST INCOME 11 31
INTEREST EXPENSE (27) (134)
OTHER EXPENSE (22) (16)
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INCOME BEFORE TAXES $ 4,181 $ 1,911
INCOME TAX EXPENSE 1,463 478
----------- ----------
NET INCOME $ 2,718 $ 1,433
----------- ----------
----------- ----------
EARNINGS PER COMMON SHARE:
PRIMARY 0.17 0.10
FULLY DILUTED 0.17 0.10
AVERAGE COMMON SHARE OUTSTANDING:
PRIMARY 15,688,000 13,984,200
FULLY DILUTED 15,841,000 14,547,500
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
3
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MYLEX CORPORATION
STATEMENTS OF OPERATIONS, SIX MONTHS ENDED
UNAUDITED
(IN $000'S, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30 JUNE 30
1995 1994
----------- -----------
<S> <C> <C>
NET SALES $39,216 $27,775
COST OF SALES 24,537 18,783
----------- -----------
GROSS PROFIT 14,679 8,992
OPERATING EXPENSES:
SELLING AND MARKETING 2,582 1,618
RESEARCH AND DEVELOPMENT 2,078 1,566
GENERAL AND ADMINISTRATION 2,583 2,175
----------- -----------
TOTAL OPERATING EXPENSES $ 7,243 $ 5,359
----------- -----------
OPERATING PROFIT 7,436 3,633
INTEREST INCOME 19 37
INTEREST EXPENSE (85) (265)
OTHER EXPENSE (51) (42)
----------- -----------
INCOME BEFORE TAXES $ 7,319 $ 3,363
INCOME TAX EXPENSE 2,562 841
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NET INCOME $4,757 $ 2,522
----------- -----------
----------- -----------
EARNINGS PER COMMON SHARE:
PRIMARY 0.31 0.18
FULLY DILUTED 0.30 0.18
AVERAGE COMMON SHARE OUTSTANDING:
PRIMARY 15,577,600 13,975,000
FULLY DILUTED 15,783,200 14,591,400
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
4
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MYLEX CORPORATION
STATEMENT OF CASH FLOWS, SIX MONTHS ENDED
UNAUDITED
(IN $000'S)
<TABLE>
<CAPTION>
JUNE 30 JUNE 30
1995 1994
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 4,757 $ 2,522
TAX BENEFIT RELATED TO DISQUALIFYING
DISPOSITIONS OF STOCK OPTIONS 375 437
DEPRECIATION AND AMORTIZATION 475 557
INTEREST EXPENSE ON CONVERTIBLE DEBENTURES --
CONVERTED TO COMMON STOCK -- 29
CHANGES IN OPERATING ASSETS & LIABILITIES
ACCOUNTS RECEIVABLE, NET (4,325) (3,840)
INVENTORIES (8,631) (1,154)
PREPAID EXPENSES AND
OTHER CURRENT ASSETS (339) 38
ACCOUNTS PAYABLE 5,934 2,020
ACCRUED LIABILITIES (145) 1,683
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NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (1,899) 2,292
CASH FLOWS FROM INVESTING ACTIVITIES:
CAPITAL EXPENDITURES (395) (437)
------- -------
NET CASH USED BY INVESTING ACTIVITIES (395) (437)
CASH FLOWS FROM FINANCING ACTIVITIES:
(REPAYMENTS) BORROWINGS AGAINST LINE OF CREDIT, NET 150 (241)
REPAYMENT OF CAPITAL LEASE OBLIGATIONS (208) (188)
REPAYMENT OF NOTE RECEIVABLE FROM SHAREHOLDER -- 194
EXERCISE OF STOCK OPTIONS 728 218
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NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 670 (17)
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NET INCREASE (DECREASE) IN CASH (1,624) 1,838
CASH AND CASH EQUIVALENTS: AT BEGINNING OF PERIOD $ 3,866 $ 3,253
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CASH AND CASH EQUIVALENTS: AT END OF PERIOD $ 2,242 $ 5,091
------- -------
------- -------
NONCASH FINANCING AND INVESTING ACTIVITIES:
CONVERSION OF SUBORDINATED DEBENTURES $ -- $ 454
CASH PAID DURING THE PERIOD:
CASH PAID FOR INTEREST $ 83 $ 146
CASH PAID FOR INCOME TAXES $ 2,588 $ 1
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS
5
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MYLEX CORPORATION
NOTES TO FINANCIAL STATEMENTS
Unaudited
NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
In the opinion of the Company, the accompanying financial statements
contain all adjustments (consisting only of normal recurring adjustments)
necessary to fairly present the Company's financial position and its results of
operations and cash flows as of the dates and for the periods indicated.
Certain information and footnote disclosures normally contained in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. These condensed financial
statements should be read in conjunction with the financial statements
contained within the Company's Form 10-K for the year ended December 31,
1994. The results of operations for the three months and the six months ended
June 30, 1995, are not necessarily indicative of the operating results for
the full year.
PER SHARE DATA
Primary earnings per share is based on the weighted average common and,
when dilutive, common equivalent shares outstanding each period. Common
equivalent shares consist of dilutive shares issuable upon the exercise of
stock options and warrants. In determining fully diluted earnings per share,
convertible subordinated debentures are considered converted upon issuance
and the related interest expense, net of taxes, is added back to net income.
NOTE B. INVENTORIES (in $000's)
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
---------- ------------
<S> <C> <C>
Raw materials 11,052 6,924
Work-in-process 5,748 2,263
Finished goods 2,068 1,050
------ ------
Total Inventories 18,868 10,237
</TABLE>
6
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NOTE C. ACCOUNTS RECEIVABLE
Northgate Computer Systems, Inc. ("Northgate") declared bankruptcy in the
fourth quarter of 1994. The Company to date received net proceeds of
$113,167 through the liquidation of Northgate's inventory and continues its
efforts, as an unsecured creditor through the credit committee, to collect on
the outstanding account receivables due from Northgate.
NOTE D. CONTINGENCIES
The Company is party to an arbitration proceeding that alleges breach of
contract and other claims relating to a royalty agreement entered into by the
Company with American Megatrends Inc. ("AMI"). The amount of damages sought
by AMI is unspecified. The Company has certain defenses and counterclaims
and intends to continue to defend this action vigorously. It should be
noted, however, that legal proceedings can be unpredictable, and an
unfavorable outcome could have a material adverse effect on the Company's
business and results of operations. (see Part II, item 1.)
The former Chief Executive Officer of the Company, Dr. M. A. Chowdry,
filed a complaint against the Company and its outside directors on October
13, 1994, seeking $5 million in damages and claiming breach of an employment
agreement that he entered into with the Company approximately three months
prior to his termination as the Company's Chief Executive Officer. Dr.
Chowdry voluntarily filed an amendment to his complaint on February 23, 1995.
On March 17, 1995 the Company and the individual defendants filed a response
(demurrer) to the amended complaint. A hearing on the demurrer filed by the
Company and the individual defendants was held on April 27, 1995. The court
granted the demurrer on June 26, 1995. On July 10, 1995, Dr. Chowdry filed
another amendment to his complaint with the Company including a claim for
punitive damages. The Company believes it has meritorious defenses and will
vigorously defend this lawsuit.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATION
Mylex Corporation (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.
In May 1991, the Company again moved to a larger facility in Fremont,
California.
Mylex Corporation is a technology-based company engaged in the design,
development, production and marketing of high performance disk array
controllers, network interface cards, personal computer system boards and
SCSI host adaptors, as well as supporting proprietary software and firmware. The
7
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products currently being produced by the Company provide enhanced performance
for a wide range of personal computers, workstations and servers. All of the
Company's 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.
As of August 1, 1995, the Company had approximately 155 employees. The
employees are not represented at the Company by any labor union nor employed
by the Company under any collective bargaining agreement.
LIQUIDITY AND CAPITAL RESOURCES
During the first six months of 1995 the Company financed its operations
primarily from existing cash balances and cash generated from the exercise of
stock options by the Company's employees.
As of June 30, 1995, the Company's working capital had increased to $22.4
million from $16.6 million at December 31, 1994. This increase in working
capital was due primarily to a $4.3 million growth in accounts receivable and
a $8.6 million rise in inventories. This was offset by a decrease in cash of
$1.6 million and an increase in accounts payable of $5.9 million for a net
increase in working capital of $5.8 million. Accounts receivable increased
over the year end 1994 balance due to a high percentage of the quarter's sales
occurring in June. Additionally, inventory growth was due primarily to a
decision on the part of the Company to increase DRAM's minimum stocking level
to approximately a two month supply.
Cash balances decreased by $1.6 million from $3.9 million at December 31,
1994, to $2.2 million at June 30, 1995. This decline was due primarily to the
growth in inventory which was partially related to the increased DRAM stocking
levels explained above and increased stocking levels of certain capacitors that
are also in short supply.
Accounts payable increased to $9.1 million at June 30, 1995, compared to
$3.2 million at December 31, 1994, an increase of $5.9 million or 184%. This
increase was due to the high percentage of inventory purchases made during
the final month of the quarter.
Net accounts receivable increased to $15.1 million at June 30, 1995,
compared to $10.8 million at December 31, 1994, an increase of $4.3 million
or 40%. This increase was attributable to a large percentage of the
quarter's sales occurring in June. The Company expects to collect amounts due
related to these receivables during the third quarter.
Effective May 15, 1995, the Company renegotiated its revolving line of
credit with Imperial Bank (the "Bank"). The line of credit expires May 15,
1996, and bears an interest rate of the Bank's prime rate. Borrowing
are subject to an overall limit of $8 million. Under its previous line of
credit agreement with the Bank, borrowings were limited to $6 million and were
limited to 80% of the eligible accounts receivable. Under the agreement, the
Company must maintain average profitability of $500,000 after tax for each
successive two quarters period, must meet a working capital financial ratio
and must have no borrowings under the line during any consecutive 30-day
period.
The Company presently expects to finance near-term and long-term
operations and capital requirements through cash provided by continuing
8
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operations, existing cash balances, and borrowings under the revolving bank
line of credit. However, there can be no assurance that the Company will not
require outside financing, or, if required, that such financing will be
available on terms favorable to the Company.
RESULTS OF OPERATIONS
SALES AND GROSS PROFITS. The Company's net sales for the three months
ended June 30, 1995, totaled $22.1 million, compared to $14.1 million for the
corresponding period of fiscal year 1994, an increase of approximately 57%.
For the six months ended June 30, 1995, net sales increased 41% to $39.2
million compared to $27.8 million during the corresponding period of 1994.
Sales in the second quarter and first six months of 1995, as compared to the
same period of 1994, increased primarily due to a 90% and 63% increase,
respectively, in shipments of the Company's disk array controller products,
which more than offset the decline in sales of the Company's boards and other
peripheral products. The year to date 1995 sales mix is of a comparable
composition as the second quarter's sales and reflects a shift in product mix
to the Company's disk array controller products from the first six months of
1994. When comparing the six months sales of 1995 with the same period of
1994, the resulting changes were of a similar nature. Sales have not been
significantly impacted by inflation over the last three fiscal years.
Gross profit for the three months ended June 30, 1995, was $8.4 million or
38% of net sales, compared to $5.0 million or 35% of net sales for the same
period in 1994. Gross profit for the six months ended June 30, 1995, was
$14.7 million or 37% of net sales, compared to $9.0 million or 32% of net
sales for the six months ended June 30, 1994. The increase in gross margins
was attributable to increased sales of the Company's higher margin disk array
controller products during the three and six month periods ended June 30, 1995,
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. However,
although no assurances can be given, the Company is taking steps to introduce
feature and performance improved disk array products and to further reduce
production and material costs
9
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in its effort to offer competitive prices for its products without
significantly affecting its gross margin.
Maintenance of current gross margins or improvement of future gross
margins are dependent upon continued manufacturing cost reductions and the
successful development and market acceptance of the Company's future disk
array controller products. 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. The Company
anticipates increased competition in the market for its disk array products
during the balance of 1995 and thereafter. The impact of such competition on
the Company's sales and gross profits is uncertain. The Company anticipates
that additional competition could result in a decline in the selling prices for
these products that would impact both gross margins and operating results.
Sales of disk array products accounted for 96% of net sales during the quarter
ended June 30, 1995, as compared to 79% of net sales during the corresponding
period in 1994. Sales of the Company's system board products in the second
quarter of 1995 were 2% of total sales. This compares with sales of $2.2
million or 16% of total sales in the first quarter of 1994.
The Company's largest customer during the second quarter of 1995 was IBM,
which accounted for $8.5 million or 38% of the Company's sales during that
period. The Company second largest customer during the three months ending
June 30, 1995 was Hewlett Packard (HP). Sales to HP were $2.9 million or 13%
of the total sales. IBM was the Company's largest customer for the six months
ended June 30, 1995, with sales of $12.3 million or 31% of net sales. While
there are OEM agreements in place that define the terms of the sales and
support services with some of the Company's largest customers, these
agreements do not include specific quantity commitments. The Company sells
products to its customers on a purchase order basis. As a result, historical
sales cannot be relied upon as an accurate indicator of future sales.
The Company's backlog as of June 30, 1995 totaled $12.3 million. This
ending backlog represents a $4.0 million increase from the corresponding
period of 1994. The Company attributes the increase in the backlog to the
wide acceptance of its PCI bus based products. Due to industry practice with
respect to customer changes in delivery schedules and cancellation of orders,
the Company believes that backlog as of any particular date may not be
indicative of actual net revenues for any succeeding period. 92% of all
orders outstanding at June 30, 1995, which were not subsequently changed or
canceled, would have been scheduled for delivery within the three months ended
June 30, 1995.
As a result of the Company's release of new RAID (Redundant Array of
Independent Disk) products in the latter part of 1994 and the first quarter of
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1995, the Company's customer base responded by incorporating these products
into their product configurations. The Company believes its future
profitability is dependent to a large extent upon the continued market
acceptance of its PCI and SCSI-to-SCSI disk array product families as well as
market acceptance of its feature and performance improved 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.
The Mylex disk array controller products are designed for integration into
the client server, networked PC, and scientific workstation environments.
Because of the Company's transition to primarily disk array controller
products, marketing these products entailed development of new distribution
channels and marketing methods. The Company continued to market its disk
array products to many OEM's during the six months ending June 30, 1995.
Sales to major OEM's accounted for 72% of the Company's total revenue for the
first six months of 1995. Additionally, the Company was able to market these
products to leading distributors, system integrators and value added
resellers during the period through its alternate channel sales division.
This course of seeking additional new markets is motivated by the
Company's commitment to technological innovation and by the Company's desire
to diversify its product line. The Company expects that sales of its current
generation of disk array controller boards will continue to generate a
significant part of the Company's revenue during 1995. A major reduction in
sales of such products without a corresponding increase in the sales of the
Company's new disk array products would have a material adverse effect on the
Company.
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 depends heavily on its suppliers to provide materials on
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. At the current time, the Company is dealing with
world wide shortages of DRAM simm memory modules and surface mount
capacitors. DRAM simm modules are in heavy demand throughout the personal
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computer industry and surface mount capacitor supplies are in high demand for
use in the manufacturing of cellular phones. The Company is attempting to
develop different design strategies to cope with these shortages. In the event
that essential components, alternative designs or additional manufacturing
capacity cannot be obtained as required, the Company could be unable to meet
demand for its products, thus adversely affecting results from operations.
In addition, scarcity of such components could result in cost increases,
which could adversely affect the Company's gross margins.
SALES AND MARKETING EXPENSES
Sales and marketing expenses for the three and six months ended June 30,
1995, totaled $1.5 million and $2.6 million, an increase of $614 thousand and
$964 thousand, respectively. Sales and marketing expenses represented 6.6% of
net sales for the three and six months ended June 30, 1995, compared to 6.0%
and 5.8%, respectively, for the three and six months ended June 30, 1994.
Increases in sales and marketing expenditures resulted from increased
staffing levels and commission expenses as well as increased advertising,
promotional and travel expenses. The Company expects that sales and marketing
expenses will increase during the balance of 1995 as its infrastructure is
expanded to support growing market opportunities through both domestic and
international channels.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses for the three and six months ended June
30, 1995, totaled $1.1 million and $2.1 million or 5.1% and 5.3% of net sales
respectively. Comparing research and development expenses to the same
periods for 1994, there was an increase of $290 thousand for the second
quarter and an increase of $512 thousand for the six months ended June 30,
1995. Research and development expenses increased during the three and six
months ending June 30, 1995 due to increased staffing expense resulting
from higher salaries and increased staffing levels. The Company expects to
increase its investment in research and development activities during the
balance of 1995 in an effort to achieve market acceptance of future products
and to continue its strategy of maintaining technology leadership in the
RAID market.
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the three and six months ended
June 30, 1995, totaled $1.6 million and $2.6 million, respectively. These
expenses are 7.3% and 6.6% of net sales for the three and six months ended
June 30, 1995 as compared to 9.2% and 7.8% for the same periods of 1994.
General and administrative expenses increased during the quarter and six months
due to higher compensation and benefit expenses as a result of increased
staffing levels
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and bonus expenses. Legal expenses also increased over those incurred during
the same periods of 1994. The Company anticipates that general and
administrative expenses will continue to increase during the balance of 1995.
These expenses may vary as a percentage of net sales in future periods as
expenses related to litigation matters may fluctuate.
INCOME TAXES
The Company's effective tax rate during the six months ended June 30, 1995,
was 35% as compared to 25% in the corresponding period of the prior year.
The 1995 tax rate reflects the reduction of available tax benefits.
PART II OTHER INFORMATION
ITEM 1. 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.
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 alleged 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 included injunctive
relief, accounting damages in an unspecified amount, exemplary damages and
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
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presenting counterclaims for breach of contract, unjust enrichment and unfair
competition. On April 1, 1994, both AMI and the Company filed amended
pleadings in the arbitration to include all claims and counterclaims
previously asserted in the federal court action. Pursuant to a stipulation
of the parties, the federal court lawsuit was dismissed without prejudice in
February 1995. Preliminary conferences with the arbitrators were held on
March 19, 1993, on November 2, 1993, on July 29, 1994 and on November 22,
1994. The matter is in the discovery stage. The evidentiary hearings are
scheduled for a two-week period beginning October 30, 1995.
While the Company believes it has numerous defenses to AMI's claims and
intends to continue to vigorously defend the arbitration, there can be no
assurance that the Company will ultimately prevail. An unfavorable outcome
could have a material adverse effect on the Company's business and results of
operations.
The former Chief Executive Officer of the Company, Dr. M. A. Chowdry,
filed a complaint against the Company and its outside directors, on October
13, 1994 seeking $5 million in damages, and claiming breach of an employment
agreement that he entered into with the Company approximately three months
prior to his termination as the Company's Chief Executive Officer. Dr.
Chowdry voluntarily filed an amendment to his complaint on February 23, 1995.
On March 17, 1995 the Company and the individual defendants filed a response
(demurrer) to the amended complaint. A hearing on the demurrer filed by the
Company and the individual defendants was held on April 27, 1995. The court
granted the demurrer on June 26, 1995. On July 10, 1995, Dr. Chowdry filed
another amendment to his complaint with the Company. The Company believes
it has meritorious defenses and will vigorously defend this lawsuit.
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
or financial condition.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The 1995 annual meeting of the shareholders was held on April 24, 1995.
The results of the shareholder vote are listed below.
Election of Directors:
<TABLE>
<S> <C> <C>
Mr. Ismael Dudhia vote for 11,557,278
vote withheld 135,410
Dr. M. Yaqub Mirza vote for 11,557,578
vote withheld 135,110
Dr. Inder M. Singh vote for 11,557,578
vote withheld 135,110
Mr. Richard Love vote for 11,557,813
vote withheld 134,875
Mr. Al Montross vote for 11,556,778
vote withheld 135,910
Mr. Stephen McKenzie vote for 11,552,313
vote withheld 140,375
</TABLE>
Proposal to amend the 1993 Stock Option Plan - votes for were 9,441,125, votes
against were 2,022,578 and votes abstaining were 84,985. Shares not voted were
144,000.
Proposal to ratify the appointment of KPMG Peat Marwick LLP as independent
public accountants of the Company for the fiscal year ending December 31,
1995 - votes for were 11,614,163, votes against were 17,000 and votes
abstaining were 61,525.
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, in Fremont,
California, on the 14th day of August 1995.
MYLEX CORPORATION
By \s\ Colleen Gray
-----------------
Colleen Gray
Vice President of Finance and
Chief Financial Officer
16
<PAGE>
INDEX TO EXHIBITS
Mylex Corporation
Quarterly Report on Form 10-Q
Sequentially
Exhibit No. Description Numbered Page
----------- ----------- -------------
11.1 Statement re Computation
of Per Share Earnings 18-20
10.21 Documents related to the
Company's revolving line of
credit with Imperial Bank;
Security and Loan Agreement
date May 15, 1995 21-25
17
<PAGE>
EXHIBIT 11.1
MYLEX CORPORATION
EARNINGS PER SHARE COMPUTATION
THREE AND SIX MONTHS ENDED JUNE 30, 1995 AND 1994
The basis for computing net income per common share is described in Note A to
the financial statements, beginning on page 6 of the Company's Quarterly
Report on Form 10-Q for the three and six months ended June 30, 1995.
The computation of primary and fully diluted earnings per share is as follows:
PRIMARY EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, JUNE 30,
1995 1994
----------- -----------
<S> <C> <C>
NET EARNINGS $ 2,717,600 $ 1,433,100
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING DURING THIS PERIOD 14,773,000 13,435,300
NUMBER OF COMMON SHARE EQUIVALENTS
RESULTING FROM STOCK OPTIONS AND WARRANTS,
COMPUTED USING THE TREASURY STOCK METHOD 916,800 548,900
----------- ----------
NUMBER OF COMMON AND COMMON SHARE
EQUIVALENTS USED IN COMPUTATION 15,689,800 13,984,200
PRIMARY EARNINGS PER SHARE $ 0.17 $ 0.10
</TABLE>
18
<PAGE>
FULLY DILLUTED EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, JUNE 30,
1995 1994
----------- -----------
<S> <C> <C>
NET EARNINGS $ 2,717,600 $ 1,433,100
INTEREST ON CONVERTED CONVERTIBLE
DEBENTURES (NET OF TAX) 0 44,500
----------- -----------
EARNINGS AFTER INTEREST ADDBACK $ 2,717,600 $ 1,477,600
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING DURING THIS PERIOD 14,773,00 13,435,300
NUMBER OF COMMON SHARE EQUIVALENTS
RESULTING FROM STOCK OPTIONS AND WARRANTS,
COMPUTED USING THE TREASURY STOCK METHOD 1,072,100 548,900
WEIGHTED AVERAGE SHARES ISSUABLE FROM
ASSUMED CONVERSION OF CONVERTIBLE
SUBORDINATED DEBENTURES SINCE ISSUANCE 0 563,300
----------- -----------
WEIGHTED AVERAGE COMMON AND DILUTIVE COMMON
SHARES OUTSTANDING 15,845,100 14,547,500
PRIMARY EARNINGS PER SHARE $ 0.17 $ 0.10
</TABLE>
19
<PAGE>
PRIMARY EARNINGS PER SHARE
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, JUNE 30,
1995 1994
----------- -----------
<S> <C> <C>
NET EARNINGS $ 4,757,700 $ 2,522,300
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING DURING THIS PERIOD 14,711,000 13,245,600
NUMBER OF COMMON SHARE EQUIVALENTS
RESULTING FROM STOCK OPTIONS AND WARRANTS,
COMPUTED USING THE TREASURY STOCK METHOD 866,600 729,400
----------- -----------
NUMBER OF COMMON AND COMMON SHARE
EQUIVALENTS USED IN COMPUTATION 15,577,600 13,975,000
PRIMARY EARNINGS PER SHARE $ 0.31 $ 0.18
</TABLE>
FULLY DILLUTED EARNINGS PER SHARE
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, JUNE 30,
1995 1994
----------- -----------
<S> <C> <C>
NET EARNINGS $ 4,757,700 $ 2,522,300
INTEREST ON CONVERTED CONVERTIBLE
DEBENTURES (NET OF TAX) 0 87,800
----------- -----------
EARNINGS AFTER INTEREST ADDBACK $ 4,757,700 $ 2,610,100
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING DURING THIS PERIOD 14,711,000 13,245,600
NUMBER OF COMMON SHARE EQUIVALENTS
RESULTING FROM STOCK OPTIONS AND WARRANTS,
COMPUTED USING THE TREASURY STOCK METHOD 1,072,200 729,400
WEIGHTED AVERAGE SHARES ISSUABLE FROM
ASSUMED CONVERSION OF CONVERTIBLE
SUBORDINATED DEBENTURES SINCE ISSUANCE 0 616,400
----------- -----------
WEIGHTED AVERAGE COMMON AND DILUTIVE COMMON
SHARES OUTSTANDING 15,783,200 14,591,400
PRIMARY EARNINGS PER SHARE $ 0.30 $ 0.18
</TABLE>
20
<PAGE>
IMPERIAL BANK
CALIFORNIA'S BUSINESS BANK
MEMBER FDIC
1999 Harrison Street
Oakland, California
May 15, 1995
Borrower: Mylex Corporation
Subject: CREDIT TERMS AND CONDITIONS ("AGREEMENT")
Gentlemen,
To induce you to make loans to the undersigned (herein called "Borrower"), and
in consideration of any loan or loans you, in your sole discretion, may make to
Borrower, Borrower warrants and agrees as follows:
A. Borrower represents and warrants that:
1. EXISTENCE AND RIGHTS. Company is a / / sole proprietor, or
individual.
/ / partnership
/x/ corporation
If a partnership or corporation, Borrower is duly organized and existing and in
good standing under the laws of the State of FLORIDA (if a corporation, without
limit as to the duration of its existence) and is authorized and in good
standing to do business in the State of California. Company has powers and
adequate authority, rights and franchises to own its property and to carry on
its business as now conducted, and is duly qualified and in good standing in
each State in which the character of the properties owned by it therein or the
conduct of its business makes such qualification necessary, and Borrower has the
power and adequate authority to make and carry out this Agreement Borrower has
no investment in any other business entity, except
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
2. AGREEMENT AUTHORIZED. The execution, delivery and performance of this
Agreement are duly authorized and do not require the consent or approval of any
governmental body or other regulatory authority; are not in contravention of or
in conflict with any law or regulation or any term or provision of Borrower's
articles of incorporation, by-laws, or Articles of Association, as the case may
be, and this Agreement is the valid, binding and legally enforceable obligation
of Borrower in accordance with its terms.
3. NO CONFLICT. The execution, delivery and performance of this
Agreement are not in contravention of or in conflict with any agreement,
indenture or undertaking to which Borrower is a party or by which it or any of
its property may be bound or affected, and do not cause any lien, charge or
other encumbrance to be created or imposed upon any such property by reason
thereof.
4. LITIGATION. There is no litigation or other proceeding pending or
threatened against or affecting Borrower, and Borrower is not in default with
respect to any order, writ, injunction, decree or demand of any court or other
governmental or regulatory authority.
5. FINANCIAL CONDITION. The balance sheet of Borrower as of DECEMBER 31,
1994, and the related profit and loss statement for the TWELVE MONTHS ended on
that date, a copy of which has heretofore been delivered to you by Borrower, and
all other statements and data submitted in writing by Borrower to you in
connection with this request for credit are true and correct, and said balance
sheet and profit and loss statement truly present the financial condition of
Borrower as of the date thereof and the results of the operations of Borrower
for the period covered thereby, and have been prepared in accordance with
generally accepted accounting principles on a basis consistently maintained.
Since such date there have been no materially adverse changes in the financial
condition or business of Borrower. Borrower has no knowledge of any
liabilities, contingent or otherwise, at such date not reflected in said balance
sheet, and Borrower has not entered into any special commitments or substantial
contracts which are not reflected in said balance sheet, other than in the
ordinary and normal course of its business, which may have a materially adverse
effect upon its financial condition, operations or business as now conducted.
6. TITLE TO ASSETS. Borrower has good title to its assets, and the same
are not subject to any liens or encumbrances other than those permitted by
Section C 3 hereof.
7. TAX STATUS. Borrower has no liability for any delinquent state, local
or federal taxes, and, if Borrower has contracted with any government agency,
Borrower has no liability for renegotiation of profits.
8. TRADEMARKS, PATENTS. Borrower, as of the date hereof, possesses all
necessary trademarks, trade names, copyrights, patents, patent rights, and
licenses to conduct its business as now operated, without any known conflict
with the valid trademarks, trade names, copyrights, patents and license rights
of others.
9. REGULATION U. The proceeds of this loan shall not be used to purchase
or carry margin stock (as defined within Regulation U of the Board of Governors
of the Federal Reserve system).
B. Borrower agrees that so long as it is indebted to you, it will, unless you
shall otherwise consent in writing:
1. RIGHTS AND FACILITIES. Maintain and preserve all rights, franchises
and other authority adequate for the conduct of its business; maintain its
properties, equipment and facilities in good order and repair; conduct its
business in an orderly manner without voluntary interruption and, if a
corporation or partnership, maintain and preserve its existence.
2. INSURANCE. Maintain public liability, property damage and workers'
compensation insurance and insurance on all its insurable property against fire
and other hazards with responsible insurance carriers in the extent usually
maintained by similar businesses.
3. TAXES AND OTHER LIABILITIES. Pay and discharge, before the same
become delinquent and before penalties accrue thereon, all taxes, assessments
and governmental charges upon or against it or any of its properties, and all
its other liabilities at any time existing, except to the extent and so long
as:
(a) The same are being contested in good faith and by appropriate
proceedings in such manner as not to cause any materially adverse effect
upon its financial condition or the loss of any right of redemption from
any sale thereunder; and
(b) It shall have set aside on its books reserves (segregated to the
extent required by generally accepted accounting practice) deemed by it
adequate with respect thereto
4. NET WORTH AND WORKING CAPITAL. Maintain a tangible net worth (meaning
the excess of all assets, excluding any value for good will, trademarks,
patents, copyrights, leaseholds, organization expense and other similar
intangible items over its liabilities) of not less than $ N/A; maintain net
current assets (i.e, working capital) of not less than $ N/A; and maintain a
ratio of current assets to current liabilities of not less than 1.50 to 1.00;
all as computed and determined in accordance with generally accepted accounting
principles on a basis consistently maintained by Borrower.
5. RECORDS AND REPORTS. Maintain a standard and modern system of
accounting in accordance with generally accepted accounting principles on a
basis consistently maintained; permit your representatives to have access to,
and to examine its properties, books and records at all reasonable times; and
furnish you:
(a) As soon as available, and in any event within 45 DAYS after the close
of each QUARTER of each fiscal year of Borrower, commencing with the
QUARTER next ending, a balance sheet, profit and loss statement and
reconciliation of Borrower's capital accounts as of the close of such
period and covering operations for the portion of Borrower's fiscal year
ending on the last day of such period, all in reasonable detail and stating
in comparative form the figures for the corresponding date and period in
the previous fiscal year, prepared in accordance with generally accepted
accounting principles on a basis consistently maintained by Borrower and
certified by an appropriate officer of Borrower, subject, however, to year-
end audit adjustments.
(b) As soon as available, and in any event within 90 days after the close
of each fiscal year of Borrower, a report of audit of Company as of the
close of and for such fiscal year, all in reasonable detail and stating in
comparative form the figures as of the close of and for the previous fiscal
year, with the /x/ unqualified / / qualified opinion of accountants
satisfactory to you, or / / no third party opinion required.
119 (Rev 3/92)
Continued on Reverse
21
<PAGE>
IMPERIAL BANK
member FDIC
NOTE
$8,000,000.00 Oakland, California, May 15, 1995
On May 15, 1996, and as hereinafter provided, for value
received, the undersigned promises to pay to IMPERIAL BANK ("Bank"), a
California banking corporation, or order, at its Oakland Regional office, the
principal sum of $8,000,000.00 MAXIMUM or such sums up to the maximum if so
stated, as the Bank may now or hereafter advance to or for the benefit of the
undersigned in accordance with the terms hereof, together with interest from
date of disbursement or N/A, whichever is later, on the unpaid
principal balance / / at the rate of % per year /x / at the rate of
0.000% per year in excess of the rate of interest which Bank has announced
as its prime lending rate (the "Prime Rate"), which shall vary concurrently
with any change in such Prime Rate, or $250.00, whichever is greater. Interest
shall be computed at the above rate on the basis of the actual number of days
during which the principal balance is outstanding, divided by 360, which shall,
for interest computation purposes, be considered one year.
Interest shall be payable /x/ monthly / / quarterly / / included with
principal / / in addition to principal / / beginning June 15, 1995, and
if not so paid shall become a part of the principal. All payments shall be
applied first to interest, and the remainder, if any, on principal. / / (If
checked), Principal shall be payable in installments of $ , or more,
each installment on the day of each , beginning .
Advances not to exceed any unpaid balance owing at any one time equal to
the maximum amount specified above, may be made at the option of Bank.
Any partial prepayment shall be applied to the installments, if any, in
inverse order of maturity. Should default be made in the payment of principal
or interest when due, or in the performance or observance, when due, of any
item, covenant or condition of any deed of trust, security agreement or other
agreement (including amendments or extensions thereof) securing or pertaining
to this note, at the option of the holder hereof and without notice or
demand, the entire balance of principal and accrued interest then remaining
unpaid shall (a) become immediately due and payable, and (b) thereafter bear
interest, until paid in full, at the increased rate of 5% per year in excess
of the rate provided for above, as it may vary from time to time.
Defaults shall include, but not be limited to, the failure of the
maker(s) to pay principal or interest when due; the filing as to each person
obligated hereon, whether as maker, co-maker, endorser or guarantor
(individually or collectively referred to as the "Obligor") of a voluntary
or involuntary petition under the provisions of the Federal Bankruptcy Act;
the issuance of any attachment or execution against any asset of any Obligor;
the death of any Obligor; or any deterioration of the financial condition of
any Obligor which results in the holder hereof considering itself, in good
faith, insecure.
/ / If any installment payment or principal balance due hereunder is
delinquent ten or more days, Obligor agrees to pay a late charge in the
amount of 5% of the payment so due and unpaid, in addition to the payment;
but nothing in this paragraph is to be construed as any obligation on the
part of the holder of this note to accept payment of any installment past due
or less than the total unpaid principal balance after maturity.
If this note is not paid when due, each Obligor promises to pay all
costs and expenses of collection and reasonable attorney's fees incurred by
the holder hereof on account of such collection, plus interest at the rate
applicable to principal, whether or not suit is filed hereon. Each Obligor
shall be jointly and severally liable hereon and consents to renewals,
replacements and extensions of time for payment hereof, before, at, or after
maturity; consents to the acceptance, release or substitution of security for
this note; and waives demand and protest and the right to assert any statute
of limitations. Any married person who signs this note agrees that recourse
may be had against separate property for any obligations hereunder. The
indebtedness evidenced hereby shall be payable in lawful money of the United
States. In any action brought under or arising out of this note, each
Obligor, including successor(s) or assign(s) hereby consents to the
application of California law, to the jurisdiction of any competent court
within the State of California, and to service of process by any means
authorized by California law.
No single or partial exercise of any power hereunder, or under any deed
of trust, security agreement or other agreement in connection herewith shall
preclude other or further exercises thereof or the exercise of any other such
power. The holder hereof shall at all times have the right to proceed against
any portion of the security for this note in such order and in such manner as
such holder may consider appropriate, without waiving any rights with respect
to any of the security. Any delay or omission on the part of the holder
hereof in exercising any right hereunder, or under any deed of trust,
security agreement or other agreement, shall not operate as a waiver of such
right, or of any other right, under this note or any deed of trust, security
agreement or other agreement in connection herewith.
See Addendum attached
MYLEX CORPORATION
--------------------------------- -----------------------------------
BY /s/ Colleen Myers
--------------------------------- -----------------------------------
--------------------------------- -----------------------------------
22
<PAGE>
MYLEX CORPORATION
Note dated May 15, 1995
ADDENDUM TO NOTE
In connection with that Revolving Note made available to you by Imperial Bank
("Bank"), in the amount of $8,000,000.00 dated May 15, 1995 and expiring on
May 15, 1996 ("Revolving Note"), the undersigned ("Borrower") hereby
warrants and agrees to maintain a zero ($0) outstanding balance on said
Revolving Note for a minimum period of thirty (30) consecutive days during the
stated term of the Revolving Note.
Failure to meet this or any other term or condition of the Revolving Note
shall, at Bank's option, terminate Bank's commitment to lend and make all
sums of principal and interest then remaining unpaid on all Borrower's
indebtedness to Bank immediately due and payable, all without demand,
presentment or notice, all of which are hereby expressly waived.
MYLEX CORPORATION
By: /s/ Colleen Myers
23
<PAGE>
Exhibit A
Mylex Corporation
Credit Terms and Conditions
May 15, 1995
The Credit Terms and Conditions dated May 15, 1995 between Mylex
Corporation ("Borrower") and Imperial Bank shall also include the following
terms and conditions:
1. Maintain a ratio of total liabilities to tangible net worth less than
or equal to 1.5:1.
2. Maintain average net profit after tax equal to or grater than $500,000.
This will be calculated upon receipt of Borrower's quarterly fiscal
financial statement and will represent the average of the net profit
after tax for the current quarter and the most recent prior quarter.
3. Borrower shall not incur a negative net profit after tax for two
consecutive fiscal quarters.
24
<PAGE>
IMPERIAL BANK
Member FDIC
ITEMIZATION OF AMOUNT FINANCED
DISBURSEMENT INSTRUCTIONS
Name(s): MYLEX CORPORATION Date: May 15, 1995
<TABLE>
<C> <S>
$ paid to you directly by Cashiers Check No.
$ 7,500,000.00 credited to deposit account No. 18-045-729 when advances
are requested.
$ 500,000.00 paid on Loan(s) No. 18-9030-3
$ amounts paid to Bank for:
Amounts paid to others on your behalf:
$ to Title Insurance Company
$ to Public Officials
$ to
$ to
$ to
$ to
$ 8,000,000.00 SUBTOTAL (NOTE AMOUNT)
LESS $ 0.00 Prepaid Finance Charge (Loan fee(s))
$ 8,000,000.00 TOTAL (AMOUNT FINANCED)
</TABLE>
Upon consummation of this transaction, this document will also serve as the
authorization for Imperial Bank to disburse the loan proceeds as stated above.
MYLEX CORPORATION
By /s/ Colleen Myers
------------------------------------- ----------------------------------
Signature Signature
------------------------------------- ----------------------------------
Signature Signature
25
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> APR-30-1995
<PERIOD-END> JUN-30-1995
<CASH> 2,242
<SECURITIES> 0
<RECEIVABLES> 15,623
<ALLOWANCES> (509)
<INVENTORY> 18,868
<CURRENT-ASSETS> 37,338
<PP&E> 4,063
<DEPRECIATION> (2,563)
<TOTAL-ASSETS> 38,949
<CURRENT-LIABILITIES> 14,986
<BONDS> 0
<COMMON> 147
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 23,948
<SALES> 22,131
<TOTAL-REVENUES> 23,612
<CGS> 13,724
<TOTAL-COSTS> 17,912
<OTHER-EXPENSES> 16
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27
<INCOME-PRETAX> 4,181
<INCOME-TAX> 1,463
<INCOME-CONTINUING> 4,181
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,718
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
