<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
- ----------- OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
- ----------- 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 0-21366
TRICORD SYSTEMS, INC.
---------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 41-1590621
- ------------------------------- -------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2905 NORTHWEST BOULEVARD, SUITE 20, PLYMOUTH, MINNESOTA 55441
-------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(612) 557-9005
----------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
------- -------
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the last practicable date.
OUTSTANDING AT
CLASS APRIL 30, 2000
----- --------------
Common Stock,
$0.01 par value 24,258,236
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PART I. FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
TRICORD SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
------------------------------------------
(In thousands, except per share data) 2000 1999
-------------------- -------------------
<S> <C> <C>
Operating expenses:
Research and development $ 1,240 711
Sales and marketing 375 1,012
General and administrative 654 514
-------------------- -------------------
2,269 2,237
-------------------- -------------------
Operating loss (2,269) (2,237)
-------------------- -------------------
Other income (expense):
Interest, net 34 66
Other, net (2) 11
-------------------- -------------------
32 77
-------------------- -------------------
Loss from continuing operations (2,237) (2,160)
-------------------- -------------------
Discontinued operations:
Income from operations of legacy server business - 322
Gain on disposal of legacy server business 44 -
-------------------- -------------------
Income from discontinued operations 44 322
-------------------- -------------------
Net loss $ (2,193) (1,838)
==================== ===================
Loss per share from continuing
operations - basic and diluted $ (0.11) (0.12)
==================== ===================
Income per share from discontinued
operations - basic and diluted $ - 0.02
==================== ===================
Net loss per share - basic and diluted $ (0.11) (0.10)
==================== ===================
Weighted average common shares outstanding
- basic and diluted 20,373 18,897
==================== ===================
</TABLE>
See accompanying notes to consolidated financial statements.
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TRICORD SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
March 31, December 31,
(In thousands, except per share data) 2000 1999
------------------- -------------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,778 3,082
Other current assets 41 73
------------------- -------------------
Total current assets 2,819 3,155
Equipment and improvements, net 287 277
------------------- -------------------
Total Assets $ 3,106 3,432
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 127 98
Accrued payroll, benefits and related taxes 297 306
Other accrued expenses 195 126
------------------- -------------------
Total current liabilities 619 530
Stockholders' equity:
Common stock, $0.01 par value; 75,000 shares
authorized, 20,973 and 20,169 shares
issued and outstanding 210 202
Additional paid-in capital 93,238 91,277
Unearned stock compensation (4,864) (4,673)
Accumulated deficit (86,097) (83,904)
------------------- -------------------
Total stockholders' equity 2,487 2,902
------------------- -------------------
Total Liabilities and Stockholders' Equity $ 3,106 3,432
=================== ===================
</TABLE>
See accompanying notes to consolidated financial statements.
2
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TRICORD SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------------------------
(In thousands) 2000 1999
-------------------- --------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,193) (1,838)
Adjustments to reconcile net loss to net
cash used in operating activities:
Stock compensation 772 405
Depreciation and amortization 49 58
Other 12 75
Changes in operating assets and liabilities:
Accounts receivable - 19
Inventories - 124
Other current assets 32 (31)
Accounts payable 29 47
Accrued payroll, benefits and related taxes (9) (45)
Deferred revenue - (169)
Other accrued expenses 69 (54)
-------------------- --------------------
Net cash used in operating activities (1,239) (1,409)
-------------------- --------------------
Cash flows from investing activities:
Capital expenditures (59) (165)
-------------------- --------------------
Net cash used in investing activities (59) (165)
-------------------- --------------------
Cash flows from financing activities:
Stock option and warrant transactions 994 -
-------------------- --------------------
Net cash provided by financing activities 994 -
-------------------- --------------------
Net decrease in cash and cash equivalents (304) (1,574)
Cash and cash equivalents at beginning of period 3,082 6,215
-------------------- --------------------
Cash and cash equivalents at end of period $ $ 2,778 4,641
==================== ====================
</TABLE>
See accompanying notes to consolidated financial statements.
3
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TRICORD SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1. BASIS OF PRESENTATION
The accompanying unaudited interim consolidated statements of operations,
balance sheet and statements of cash flows reflect all adjustments of a normal
recurring nature, which are, in the opinion of management, necessary for a fair
presentation of the consolidated financial position at March 31, 2000, and of
consolidated results of operations and cash flows for the interim periods ended
March 31, 2000 and 1999. The results of operations of the server segment of the
business are reported as discontinued operations for all periods presented (see
Note 2). Tricord Systems, Inc. (the "Company") now operates as a single segment.
The unaudited consolidated financial statements should be read in conjunction
with the Company's audited consolidated financial statements for the year ended
December 31, 1999, which were included in the Company's 1999 Annual Report on
Form 10-K. The year-end balance sheet data included herein is derived from
audited financial statements, but does not include all disclosures required by
generally accepted accounting principles. The results of operations for the
interim period ended March 31, 2000 are not necessarily indicative of the
results to be expected for the full year or any future periods.
2. SALE OF ASSETS AND DISCONTINUED OPERATIONS
In August 1999, the Company sold all remaining assets related to the server line
of business (sometimes referred to as the "legacy business"). The Company has
reported results of operations of the legacy business as discontinued operations
for all periods presented. Revenues from the legacy server business included in
discontinued operations for the three months ended March 31, 1999 were $591.
Terms of the asset sale require the buyer to pay the Company up to $200 of
additional cash consideration based upon levels of revenues generated from the
legacy business through December 31, 2000. During the quarter ended March 31,
2000, the Company received $44 of such additional consideration, which has been
reported as a gain on disposal of legacy server business.
3. SUPPLEMENTAL CASH FLOW INFORMATION
During the first quarter of 2000, expenses for outside directors meeting fees of
$12 were settled through the issuance of 2,560 shares of common stock of the
Company.
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4. INCOME (LOSS) PER SHARE
Loss per share from continuing operations is computed by dividing loss from
continuing operations by the weighted average number of common shares
outstanding during each period. Income per share from discontinued operations is
computed by dividing income from discontinued operations by the weighted average
number of common shares outstanding during each period. Net loss per share is
computed by dividing net loss by the weighted average number of common shares
outstanding during each period. Potentially dilutive common shares are excluded
from the calculation of loss per share from continuing operations and net loss
per share as their impact is antidilutive. Loss per share from continuing
operations and net loss per share do not include common stock options and
warrants ultimately exercisable for the purchase of approximately 8,400,000
shares as of March 31, 2000.
5. COMPREHENSIVE INCOME (LOSS)
The Company has no significant comprehensive income (loss) items other than net
loss.
6. SUBSEQUENT EVENT - EQUITY TRANSACTION
In April 2000, the Company sold 3,250,000 shares of common stock at a price of
$8.00 per share to certain private investors. Such shares have not been
registered by the Company and are subject to certain resale restrictions. The
Company is required to register such shares on or before September 15, 2000.
5
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ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
For the first three months of 2000, the Company continued to focus its
development efforts on storage system management software, the strategy it
adopted in 1997. In addition, the Company began a focused effort to define and
implement a new line of server appliance products that incorporates the storage
systems management software. The storage system management software architecture
includes distributed file system and file-intelligent I/O ("input/output")
technology known as Tricord Storage Management Software ("TSMS"). Before 1997,
the Company focused its efforts in the data storage marketplace by designing,
manufacturing and selling enterprise servers that were used to support computer
programs that were used with Microsoft Windows NT(R), Unix and Novell(R)
NetWare(R). In 1997 the Company changed its strategy to focus on developing
software that would be used to manage data storage. In August 1999, the Company
sold the last of its assets that were used in the enterprise server business,
and the Company is now focused exclusively on developing storage system
management software. Because these products are currently under development, the
Company has not yet generated any revenues from the sale of these products.
See "Certain Important Factors" at the end of this section for a discussion of
forward looking statements.
RESULTS OF OPERATIONS
Research and Development
Research and development expenses increased to $1,240,000 for the quarter ended
March 31, 2000, compared to $711,000 for the quarter ended March 31, 1999,
primarily due to continuing efforts to complete development of TSMS and an
increase in non-cash stock compensation charges related to non-employee
contractor options. The Company anticipates that research and development costs
will rise during the remainder of 2000 compared to 1999 levels, due to
continuing TSMS development efforts.
Sales and Marketing
Sales and marketing expenses decreased to $375,000 for the quarter ended March
31, 2000 from $1,012,000 for the quarter ended March 31, 1999, primarily due to
lower expenses related to marketing research and analysis for TSMS. The Company
currently anticipates
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that sales and marketing expenses will increase significantly during the
remainder of 2000 compared to 1999 levels, due to the Company's plans to bring
to market a line of products in the server appliance category.
General and Administrative
General and administrative expenses increased to $654,000 for the quarter ended
March 31, 2000 from $514,000 for the quarter ended March 31, 1999, primarily due
to an increase in personnel costs related to an increase in team members and an
increase in non-cash stock compensation charges related to non-employee
contractor options. The Company currently anticipates that general and
administrative expenses for 2000 will continue to be greater than 1999 levels
due to the factors described herein.
LIQUIDITY AND CAPITAL RESOURCES
The aggregate net decrease in cash and cash equivalents during the first three
months of 2000 was $304,000, including $1,239,000 of cash used in operating
activities, due primarily to the net loss for the first three months of 2000
partially offset by $772,000 of non-cash stock compensation expense. Cash
provided by financing activities reflects $994,000 received from the exercise of
stock options and warrants during the quarter ended March 31, 2000. The Company
used $59,000 of cash in investing activities due to acquisitions of equipment.
The Company believes that purchases of capital equipment will increase during
the remainder of 2000, due to the Company's plans to bring to market a line of
products in the server appliance category. The Company has no material
commitments for the purchase of capital equipment.
As of March 31, 2000, the Company had $2,778,000 in cash and cash equivalents.
On April 17, 2000, the Company closed a private placement of 3,250,000 shares of
common stock which generated $26 million of gross proceeds to the Company. Net
proceeds of this equity financing were approximately $24.4 million. The Company
believes that its existing cash and cash equivalents, together with the funds
received from the April 2000 private placement, will be sufficient to fund its
operations for at least the next twelve months.
YEAR 2000
The Company is responsible for all Year 2000 issues, if any, related to its
server line of business, which the Company sold in August 1999. The Company has
had no claims related to Year 2000 issues related to its server line of
business, although there can be no assurance that claims will not be asserted in
the future.
CERTAIN IMPORTANT FACTORS
This Quarterly Report on Form 10-Q contains certain forward looking statements
within the meaning of federal and state securities laws. For this purpose, any
statements contained in this Quarterly Report that are not statements of
historical fact are deemed to
7
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be forward looking statements. Without limiting the foregoing, words such as
"may," "will," "should," "expects," "anticipates," "estimates," "believes," or
"plans," or comparable terminology, are intended to indicate forward looking
statements. These statements by their nature are based on current expectations
and assumptions and entail various risks and uncertainties that could cause
actual results to differ materially from those expressed in such forward looking
statements, including the following risks:
- The market window for the Company's products is limited inasmuch as
many competitors with established brand identity are beginning to
enter the market with products that will be positioned against the
Company's products. Although the Company believes that its technology
is superior, establishing product distribution channels may impede the
Company's product introduction and market acceptance.
- The market for distributed file system products for the network
attached storage environment is new and developing. The Company
believes that its future success will depend upon the continued growth
and acceptance of the Linux operating system and the growth in demand
for attached storage. In addition, the Company's success is dependent
upon its ability to develop, test and release products for this market
on a timely basis.
- The market for storage products currently is characterized by rapid
technological change and evolving industry standards and is expected
to be highly competitive with respect to timing of product innovation.
The introduction of products embodying new technology and the
emergence of new industry standards can render products, either
existing or under development, obsolete and unmarketable. The
Company's success is dependent in part upon its ability to anticipate
changes in technology and industry standards and to successfully
develop and introduce new and enhanced products on a timely basis. If
the Company is unable for technological or other reasons to develop
products in a timely manner in response to changes in the industry, or
if products or product enhancements that the Company develops do not
achieve market acceptance, the Company's business will be materially
and adversely affected.
- The Company will need to maintain compliance with the Nasdaq SmallCap
Market requirements.
- The Company will need to develop a brand identity and credibility
for its products and technology and the failure to do so could limit
wide-sale acceptance by the industry. Also, the Company's sales lead
time may be longer than most storage products due to the general
market reluctance to accept new entrants and due to the sensitivity of
the data on today's storage devices.
- The Company will need to attract new team members and consultants and
retain existing team members and consultants.
8
<PAGE> 10
ITEM 3:
QUANTITATIVE AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
FINANCIAL INSTRUMENTS
The Company invests excess funds not required for current operations in cash
equivalents, primarily money market funds or commercial paper. As of March 31,
2000, cash equivalents had an average maturity of less than three months. Market
risk was estimated as the potential decrease in interest income resulting from a
hypothetical one percent decrease in interest rates for the cash equivalents,
which would result in an annual interest income decrease of approximately
$35,000.
9
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PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial data schedule
(b) Reports on Form 8-K
On April 21, 1999, the Company filed a report on Form 8-K under Item 5,
related to the closing of a round of financing raising $26.0 million in a
private placement. No financial statements were included as part of that
filing on Form 8-K.
10
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SIGNATURE
Pursuant to the requirements 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.
TRICORD SYSTEMS, INC.
(REGISTRANT)
By: /s/ John J. Mitcham
-------------------
John J. Mitcham, Chairman and
Co-Chief Executive Officer
By: /s/ John F. Gribi
-----------------
John F. Gribi, Vice President
and Chief Financial Officer
(Principal Financial Officer and
Chief Accounting Officer)
Date: May 11, 2000
11
<PAGE> 13
INDEX TO EXHIBITS
Exhibit Page
Number Number
- ------- ------
27.1 Financial data schedule 13
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON
PAGES 1 AND 2 OF THE COMPANY'S FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31,
2000, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 2,778
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,819
<PP&E> 723
<DEPRECIATION> (436)
<TOTAL-ASSETS> 3,106
<CURRENT-LIABILITIES> 619
<BONDS> 0
0
0
<COMMON> 210
<OTHER-SE> 2,277
<TOTAL-LIABILITY-AND-EQUITY> 3,106
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,237)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,237)
<DISCONTINUED> 44
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,193)
<EPS-BASIC> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
