<PAGE>
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended December 31, 1997
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 0-26924
AMX CORPORATION
(Exact name of registrant as specified in its charter)
TEXAS 75-1815822
(State of Incorporation) (I.R.S. Employer
Identification No.)
11995 FORESTGATE DRIVE
DALLAS, TEXAS 75243
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (972) 644-3048
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 [ ]
COMMON STOCK, $0.01 PAR VALUE 8,221,949
(Title of Each Class) (Number of Shares Outstanding
at January 31, 1998)
<PAGE>
AMX CORPORATION
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1997
INDEX
PAGE NUMBER
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Balance Sheets at December 31, 1997
and March 31, 1997 3,4
Consolidated Statements of Operations for the Three
and Nine months ended December 31, 1997 and 1996 5
Consolidated Statements of Cash Flows for the Nine
months ended December 31, 1997 and 1996 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of Proceeds 18
Item 6. Exhibits and Reports on Form 8-K 18,19
SIGNATURES 20
<PAGE>
AMX CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars In thousands)
<TABLE>
December 31, 1997 March 31, 1997
----------------- --------------
(Unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 704 $ 2,092
Receivables - trade and other; less allowance
for doubtful accounts of $195 at December 31
1997 and $94 at March 31, 1997 9,512 6,670
Inventories 8,369 4,960
Prepaid expenses 599 472
Deferred income tax 98 98
Income taxes recoverable - 42
----------- ----------
Total current assets 19,282 14,334
Property and equipment, at cost, net 4,458 4,030
Capitalized software 219 376
Deposits and other 407 802
Deferred income tax 6 6
Goodwill, net 1,034 193
----------- ----------
Total assets $ 25,406 $ 19,741
----------- ----------
----------- ----------
</TABLE>
<PAGE>
AMX CORPORATION
CONSOLIDATED BALANCE SHEET
(Dollars In thousands, except par value)
<TABLE>
December 31, 1997 March 31, 1997
----------------- --------------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable $ 4,490 $ 3,259
Accrued compensation 1,339 1,035
Accrued sales commission 749 437
Reserve for litigation - 750
Accrued dealer incentives 335 284
Other accrued expenses 214 199
Income taxes payable 24 -
Line of credit and notes payable 3,087 188
----------- ----------
Total current liabilities 10,238 6,152
Long-term debt, less current portion 57 92
Minority interest in subsidiary 1,475 1,501
Shareholders' equity:
Common stock, $.01 par value:
Authorized shares - 40,000,000
Issued shares - 8,196,949 at December 31, 1997
and 7,832,791 at March 31, 1997 82 78
Additional paid-in capital 3,784 1,827
Retained earnings 9,817 10,138
Less treasury stock of 5,208 shares (47) (47)
----------- ----------
Total shareholders' equity 13,636 11,996
----------- ----------
Total liabilities and shareholders' equity $ 25,406 $ 19,741
----------- ----------
----------- ----------
</TABLE>
See accompanying notes.
<PAGE>
AMX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except for per share amounts)
<TABLE>
Three Months Ended Nine Months Ended
December 31 December 31
----------------------- -----------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
System sales $ 14,484 $ 10,083 $ 40,886 $ 27,661
OEM and custom product sales 657 921 2,127 2,284
--------- --------- --------- ---------
Net sales 15,141 11,004 43,013 29,945
Cost of sales 7,052 4,288 19,174 11,620
--------- --------- --------- ---------
Gross profit 8,089 6,716 23,839 18,325
--------- --------- --------- ---------
Selling and marketing expenses 4,914 3,909 15,625 10,851
Research and development expenses 896 830 2,907 2,170
General and administrative expenses 1,098 899 3,467 2,707
Acquired research and development - - - 1,230
Costs associated with acquisition of minority
interest and merger of subsidiaries 1,694 - 1,694 -
--------- --------- --------- ---------
Total operating expenses 8,602 5,638 23,693 16,958
--------- --------- --------- ---------
Operating income (loss) (513) 1,078 146 1,367
Interest expense 38 8 86 12
Other income 19 81 87 222
--------- --------- --------- ---------
Income (loss) before income taxes (532) 1,151 147 1,577
Income tax provision 195 777 469 977
Minority interest - (749) - (984)
--------- --------- --------- ---------
Net income (loss) $ (727) 1,123 $ (322) 1,584
--------- --------- --------- ---------
--------- --------- --------- ---------
Basic earnings (loss) per share $ (0.09) $ 0.14 $ (0.04) $ 0.20
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted earnings (loss) per share $ (0.09) $ 0.14 $ (0.04) $ 0.19
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
<PAGE>
AMX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
Nine Months Ended December 31,
-------------------------------
1997 1996
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (322) $ 1,584
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,758 735
Acquired research and development - 980
Costs associated with acquisition of minority interest 1,164
Provision for losses on receivables 101 (50)
Provision for inventory obsolescence 27 (12)
Changes in operating assets and liabilities:
Receivables (2,943) (1,043)
Inventories (3,436) (1,080)
Prepaid expenses (127) (83)
Accounts payable 1,231 (119)
Accrued expenses (68) 33
Income taxes recoverable/payable 65 477
------- -------
Net cash provided by (used in) operating activities (2,550) 1,422
INVESTING ACTIVITIES
Purchases of property and equipment (1,567) (1,488)
Investment in capitalized software (15) (253)
Payment to former owner of AudioEase - (180)
Minority interest in PHAST (26) 516
Increase in other assets (162) (576)
------- -------
Net cash used in investing activities (1,770) (1,981)
FINANCING ACTIVITIES
Issuance of stock 53 26
Exercise of stock options 14 86
Purchase of treasury stock - (47)
Disqualifying disposition of stock options - 44
Net increase in line of credit 2,900 -
Proceeds from long-term debt - 125
Repayments on long-term debt (35) (189)
------- -------
Net cash provided by financing activities 2,932 45
Effect of exchange rate changes on cash - 3
------- -------
Net decrease in cash and cash equivalents (1,388) (511)
Cash and cash equivalents at beginning of period 2,092 4,859
------- -------
Cash and cash equivalents at end of period $ 704 $ 4,348
------- -------
------- -------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Issuance of AMX common stock in connection with
PHAST acquisition $ 1,894 $ -
------- -------
------- -------
Issuance of AMX common stock in connection with
AudioEase acquisition $ - $ 1,500
------- -------
------- -------
</TABLE>
See accompanying notes.
<PAGE>
AMX CORPORATION
Notes to Consolidated Financial Statements
December 31, 1997
1. Basis of Presentation
The accompanying condensed consolidated financial statements, which should be
read in conjunction with the consolidated financial statements and footnotes
included in the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1997, are unaudited (except for the March 31, 1997
consolidated balance sheet, which was derived from the Company's audited
financial statements), but have been prepared in accordance with generally
accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting only
of normal recurring adjustments) considered necessary for a fair presentation
have been included.
Operating results for the nine months ended December 31, 1997 are not
necessarily indicative of the results that may be expected for the entire
fiscal year ending March 31, 1998.
2. Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128 (FAS 128), "Earnings Per Share." Statement 128 replaced the
previously reported primary and fully diluted earnings per share with basic
and diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options, warrants, and
convertible securities. Diluted earnings per share is similar to the
previously reported fully diluted earnings per share. All earnings per share
amounts for all periods have been presented, and where necessary, restated to
conform to the Statement 128 requirements.
7
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The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
Three Months Ended Nine Months Ended
December 31, December 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
Net income (loss) $ (727) $ 1,123 $ (322) $ 1,584
Denominator:
Denominator for basic earnings per
share - weighted-average shares
outstanding 8,142,146 7,798,548 7,940,088 7,750,212
Effect of dilutive securities:
Employee stock options n/a 420,112 423,163 497,951
Denominator for diluted earnings per share 8,142,146 8,218,660 8,363,251 8,248,163
Basic earnings per share $ (0.09) $ 0.14 $ (0.04) $ .020
Diluted earnings per share $ (0.09) $ 0.14 $ (0.04) $ .019
</TABLE>
3. Inventories
The components of inventories are as follows:
<TABLE>
December 31, 1997 March 31, 1997
----------------- --------------
<S> <C> <C>
Raw materials $4,124,301 $2,512,648
Work in progress 1,144,145 446,976
Finished goods 3,188,261 2,060,869
Less reserve for obsolescence (87,801) (60,302)
---------- ----------
Total $8,368,906 $4,960,191
---------- ----------
---------- ----------
</TABLE>
4. Asset Acquisition
In August 1996, the Company's chairman, Scott D. Miller acquired 14,750
shares of preferred stock of PHAST for an aggregate purchase price of
$1,475,000 and acquired 7,322 shares of the common stock of PHAST for an
aggregate purchase price of $25,000. In March 1997, Mr. Miller granted an
option to the Company, commencing on April 1, 1997 and expiring on March 31,
1998, to acquire all of Mr. Miller's preferred and common stock in PHAST for
an aggregate price of $2.5 million, subject to an independent appraisal
indicating at least an equal value.
On July 7, 1997, the Company acquired 7,322 shares of common stock,
representing 29% of the stock of its subsidiary, PHAST Corporation, from Mr.
Miller for $25,000 in a cash transaction. The Company had held 51% of the
stock of PHAST prior to the purchase.
8
<PAGE>
The Company also granted Mr. Miller the right to require the Company to
purchase his 14,750 shares of preferred stock in PHAST for a per share
purchase price of $100 (which is the liquidation preference of the preferred
stock), or an aggregate purchase price of $1,475,000, plus accrued but unpaid
dividends, at any time from April 1, 1998 through March 31, 1999. In
connection therewith, the option granted to the Company in March 1997 to
purchase such preferred stock from Mr. Miller was terminated.
On August 14, 1997, the Company announced an agreement in principle to
purchase the remaining 20% of the stock of PHAST from its shareholders. The
agreement required the Company to issue 350,814 shares of its common stock,
and a de minimis amount of cash in exchange for 6,421 shares of PHAST stock.
The agreement was executed on October 14, 1997 and the shares of AMX common
stock were issued on October 23, 1997. In conjuction with the purchase,
$890,000 of goodwill was recorded on the financial statements of the Company.
In October 1997, the Company agreed to issue up to 500,000 options to acquire
shares of AMX common stock to various employees of PHAST and AudioEase, both
of which are subsidiaries of the Company. The options issued are subject to
shareholder approval and have performance conditions which are required to be
met before the options vest.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements and Notes thereto included in the
Company's 1997 Annual Report on Form 10-K. The Company believes that all
necessary adjustments (consisting only of normal recurring adjustments) have
been included in the amounts stated below to present fairly the following
quarterly information. Quarterly operating results have varied significantly
in the past and can be expected to vary in the future. Results of operations
for any particular quarter are not necessarily indicative of results of
operations for a full year.
FORWARD LOOKING INFORMATION
Certain information contained herein contains forward-looking statements
that involve a number of risks and uncertainties. A number of factors could
cause results to differ materially from those anticipated by such
forward-looking statements. These factors include, but are not limited to,
the competitive environment in the industry and in the Company's market
areas, changes in raw materials, economic conditions in its markets and
demands placed on management. In addition, such forward-looking statements
are necessarily dependent upon assumptions, estimates and data that may be
incorrect or imprecise. Accordingly, any forward-looking statements included
herein do not purport to be predictions of future events or circumstances and
may not be realized. These risks and uncertainties could result in seasonal
revenues, gross margin compression, and higher than expected sales and
marketing expenses.
OVERVIEW
AMX designs, develops, manufactures, and markets integrated control systems
that enable end users to operate as a single system a broad range of
electronic and programmable equipment in a variety of corporate, educational,
industrial, entertainment, governmental, and residential settings. The
Company's hardware and software products provide the operating system,
machine control, and user interface necessary to operate, as an integrated
network, electronic devices from different manufacturers through easy-to-use
control panels. The Company's systems are available in a variety of
configurations and provide centralized control of a wide range of video
systems, audio systems, teleconferencing equipment, educational media,
lighting equipment, environmental control systems, security systems, and
other electronic devices. The Company has introduced several
Windows-Registered Trademark--based software applications that handle design
functions, permit scheduling control, and enable a personal computer to
operate on the Company's AXlink bus as a control panel.
The Company's quarterly operating results have varied significantly in
the past and can be expected to vary in the future. These quarterly
fluctuations have been the result of a number of factors, including the
seasonal purchasing of its dealers and distributors, particularly from
international distributors, OEMs, and other large customers; sales and
marketing expenses related to entering new markets; the Company's reliance
upon dealers
10
<PAGE>
and distributors; the timing of new product introductions by the Company and
its competitors; fluctuations in commercial and residential construction and
remodeling activity; and changes in product or distribution channel mix. In
addition, the Company generally experiences higher selling and marketing
expenses during the first fiscal quarter of each year due to costs associated
with the Company's largest trade show (occurring in June) and experiences
higher sales in the education market during the second fiscal quarter of each
year due to the buying cycles of educational institutions.
The Company's system sales are made through dealers and distributors.
The Company principally relies on over 1,600 specialized third-party dealers
of electronic and audiovisual equipment to sell, install, support and service
its products in the United States. Internationally, the Company relies on a
network of 19 exclusive distributors serving 24 countries and over 93 dealers
serving an additional 22 countries to distribute its products.
OEM and Custom Product Sales have been made only to a few customers and
have generally been large and sporadic transactions. During fiscal 1995,
1996, 1997, and the nine months ended December 31, 1997, 45%, 56%, 39%, and
28%, respectively, of the Company's OEM and Custom Product Sales have been
with one customer whose orders have fluctuated significantly based on their
own sales volumes. While the Company's OEM customers typically place orders
for products several months before the scheduled shipment date, these orders
are subject to rescheduling and cancellation. Also, OEM customers can
redesign their products without the AMX equipment in them resulting in
reduced or eliminated sales to such customers. One of the Company's
strategies for growth is to increase OEM and Custom Product Sales to large
customers that typically carry lower gross margins, but also have lower
selling expenses.
The Company's U.S. dealers pursue a wide variety of projects that can
range from small conference rooms/boardrooms to very large projects in a
university, government facility, amusement park, or corporate training
facility. The Company's international distributors tend to order in large
quantities to take advantage of volume discounts the Company offers and to
economize on shipping costs. These international orders are not received at
the same time each year. Notwithstanding the difficulty in forecasting future
sales and the relatively small level of backlog at any given time, the
Company generally must plan production, order components, and undertake its
development, selling and marketing activities, and other commitments months
in advance. Accordingly, any shortfall in revenues in a given quarter may
impact the Company's results of operations because the Company generally does
not plan to adjust expenditure levels in response to fluctuations in
quarterly revenues.
The Company purchases components that comprise approximately 28% to 32%
of its cost of sales from foreign vendors. The primary components purchased
are standard power supplies and displays for touch panels. Historically, the
Company has not had any significant cost issues related to price changes due
to purchasing from foreign vendors. However, there can be no assurance that
this will be the case in the future. The Company has experienced delays of up
to three weeks in receiving materials from foreign vendors. However, the
Company takes this issue into consideration when orders are placed and,
11
<PAGE>
therefore, this concern has not, in the past, significantly impacted the
Company's ability to meet production and customer delivery deadlines.
However, a significant shortage of or interruption in the supply of foreign
components could have a material adverse affect on the Company's results of
operations.
The Company's selling and marketing expenses category also includes
customer service and support and engineering. The engineering department of
the Company is involved in research and development as well as customer
support and service. Additionally, the Company has created sales support
teams, which are focused on specific geographic regions or customer
categories. These teams include sales personnel, system designers, and
technical support personnel, all of whom indirectly participate in research
and development activities by establishing close relationships with the
Company's customers and by individually responding to customer-expressed
needs.
The Company's selling and marketing expenses also include costs
associated with expanding its presence into the Pacific Rim region. In
August 1995, the Company formed a wholly owned subsidiary, AMX Control
Systems Pte. Ltd., as a representative company in Singapore in order to
provide customer support for the sale of its products into that region. Late
in the fiscal year ended March 31, 1997, the Company committed to expand the
operations of this subsidiary and has increased the operations of AMX Control
Systems Pte. Ltd. to include additional customer support, marketing support,
product programming, and product training for its customers in the region.
The Company also has committed resources to develop new software for
specific vertical markets to expand system sales and to provide added value
to its hardware products. The Company's investment in PHAST Corporation,
which commenced in August 1995, is an example of this commitment. This
subsidiary designed and has recently begun shipments of control systems and
products for home automation. As of December 31, 1997, the Company has
advanced $5,596,000 to PHAST. In addition, the Company has recorded net
losses of $2,110,764, $2,311,000 and $445,000 for the nine months ended
December 31, 1997 and the years ended March 31, 1997 and March 31, 1996,
respectively. Although management believes that significant investments such
as these are appropriate, such investments can and have had a negative impact
on the Company's results of operations.
12
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1997 RESULTS COMPARED TO THREE MONTHS ENDED
DECEMBER 31, 1996.
NET SALES for the third quarter were $15.1 million, up 38% over the net
sales in the third quarter of the prior year of $11.0 million. The increase in
sales was driven by growth in the residential and international markets. Sales
into the residential market increased 144% over the same quarter last year
primarily as a result of $2.2 million in sales from PHAST this year. PHAST had
no sales in the third quarter last year. International sales increased 32% over
the same quarter last year.
COST OF SALES consists of material, labor, and manufacturing overhead, and
was 46.6% of net sales for the third quarter of 1998, as compared to 39.0% of
net sales in the comparable period of the prior year. The increase in cost of
sales is due primarily to the increase in sales to the residential and
international markets noted above, both of which have historically experienced
higher percentage cost of sales than the Company's corporate market. Cost of
sales was adversely affected by the by the write-off of obsolete inventory upon
the merger of PHAST and AudioEase. These charges approximated 4% of revenue for
the quarter. The core business of the Company, which is comprised mostly of
corporate sales, has maintained its historical cost of sales percentage of
approximately 40%.
SELLING AND MARKETING EXPENSES increased from $3.9 million, or 35.5% of
net sales for the third quarter last year to $4.9 million or 32.5% of sales for
the third quarter this year. The decrease in percentage of sales was due
primarily to the fact that PHAST was generating revenue for the quarter this
year, while last year it incurred expenses and generated no revenue. The
remaining sales and marketing expenses were consistent with or lower than the
historical percentage of net sales.
RESEARCH AND DEVELOPMENT EXPENSES were $896,000, or 5.9% of net sales in
the third quarter of 1998 compared to $831,000 or 7.5% of net sales last year.
GENERAL AND ADMINISTRATIVE EXPENSES were $1.1 million, or 7.3% of net
sales during the third quarter of 1998 compared to $899,000 and 8.2% of net
sales for the third quarter last year. The decrease in expenses as a
percentage of sales is primarily due to the savings generated from the merger
of AudioEase and PHAST during the third quarter of 1998.
COSTS ASSOCIATED WITH THE ACQUISITION OF MINORITY INTEREST AND MERGER OF
SUBSIDIARIES were $1.7 million, or 10.5% of net sales during the third quarter
of 1998. These charges consist of costs associated with the purchase of the 20%
interest in PHAST, the write-off of the remaining intangibles from the
purchase of AudioEase in 1996, and costs associated with the merger and move of
AudioEase into PHAST.
13
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MINORITY INTEREST of $749,000 was recorded in the third quarter last year
due to the preferred stock investment made in the Company's subsidiary, PHAST.
In the Company's fourth quarter of last fiscal year, management decided that it
would more likely than not exercise its option to purchase the preferred stock,
and accordingly, has not recorded any additional minority interest in its
consolidated financial statements.
The Company's EFFECTIVE TAX RATE was 67.5% in the third quarter of last
year, and is incalculable in the third quarter this year. Last year the
Company was adversely affected by the acquired research and development
expenses, which it was not allowed to deduct on its tax return, and the losses
from PHAST, which it was not able to consolidate on its tax return last year.
This year, the third quarter is adversely affected by the non-recurring
charges, of which $1.1 million are non-deductible for tax purposes.
NINE MONTHS ENDED DECEMBER 31, 1997 RESULTS COMPARED TO NINE MONTHS ENDED
DECEMBER 31, 1996.
NET SALES were $43.0 million for the nine months ended December 31, 1997,
up 43.6% over the $29.9 million in sales for the comparable period in the prior
year. The increase was driven by growth in sales to the residential and
international markets. Sales into the residential market are up 133% over the
same period last year due to shipment of products from PHAST, which had not
occurred last year. International sales increased 55% over the same period
last year, driven by sales in the Company's UK subsidiary, AXCESS Technologies
and an increase in sales into the Pacific Rim region, which may not continue in
the future due to economic volatility in the region.
COST OF SALES were $19.2 million or 44.6% of net sales in the nine months
ended December 31, 1997, as compared to $11.6 million or 38.8% of net sales in
the comparable period of the prior year. The increase in cost of sales is due
primarily to the increase in sales to the residential and international markets
noted above, both of which have historically experienced higher percentage cost
of sales than the Company's corporate market. Cost of sales was adversely
affected by the write-off of obsolete inventory upon the merger of PHAST and
AudioEase. These charges approximated 1% of revenue for the nine months ended
December 31, 1997. The core business of the Company, which is comprised mostly
of corporate sales, has maintained its historical cost of sales percentage of
approximately 40%.
SELLING AND MARKETING EXPENSES increased from $10.9 million, or 36.2% of
net sales for the nine months ended December 31, 1996 to $15.6 million or 36.3%
of sales for the same period of the current year.
RESEARCH AND DEVELOPMENT EXPENSES were $2.9 million for the nine months
ending December 31, 1997 compared to $2.2 million for the same period last
year. This represents 6.8% and 7.2% of net sales respectively.
14
<PAGE>
GENERAL AND ADMINISTRATIVE EXPENSES were $3.5 million for the nine months
ending December 31, 1997, up from $2.7 million for the same period last year.
This represents a decrease from 9.0% of net sales to 8.1% of net sales. The
percentage decrease is primarily a result of the elimination of legal expenses
associated with the litigation which the Company settled in the fourth quarter
of last year.
ACQUIRED RESEARCH AND DEVELOPMENT was $1.2 million for the nine months
ended December 31, 1996 resulting from the allocation of costs associated with
the acquisitions of AudioEase and Camrobotics, which occurred in May and June
1996, respectively.
COSTS ASSOCIATED WITH THE ACQUISITION OF MINORITY INTEREST AND MERGER OF
SUBSIDIARIES were $1.7 million, or 4.0% of net sales during the nine months
ended December 31, 1998. These charges consist of costs associated with the
purchase of the 20% interest in PHAST, the write-off of the remaining
intangibles from the purchase of AudioEase in 1996, and costs associated with
the merger and move of AudioEase into PHAST.
MINORITY INTEREST of $984,000 was recorded due to the preferred stock
investment made in the Company's subsidiary, PHAST. In the Company's fourth
quarter of last fiscal year, management decided that it would more likely than
not exercise its option to purchase the preferred stock, and accordingly, has
not recorded any additional minority interest in its consolidated financial
statements.
The Company's EFFECTIVE TAX RATE was 318% for the nine months ended
December 31, 1997 and 62.0% for the same period last year. This year, despite
the fact that commencing July 1, 1997, the Company can now include the losses
from PHAST on its consolidated tax return, the tax rate is adversely affected
by the non-recurring charges, of which $1.1 million are non-deductible for tax
purposes. Last year, the effective tax rate had been adversely affected by the
Company's inability to include PHAST in its consolidated tax return. Also,
last year the Company was adversely affected by the acquired research and
development expenses, which it was not allowed to deduct on its tax return.
There remain $3.5 million in PHAST losses which will be carried forward and
applied against any future net income generated by PHAST.
LIQUIDITY AND CAPITAL RESOURCES
For the past three years, the Company has satisfied its operating cash
requirements principally through cash flow from operations. In the nine months
ended December 31, 1997, the Company used $3.7 million of cash in operations.
The Company spent $1.6 million in capital expenditures, primarily for the
purchase of computer equipment and for furniture and fixtures and leasehold
improvements associated with the expansion of its headquarters in Dallas,
Texas.
The Company has a revolving loan agreement for $5.0 million which expires
on July 15, 1998, which provides for interest at the bank's contract rate which
is expected to approximate prime. It is expected that the revolving loan
agreement will be renewed at that time at substantially the same terms which
currently exist. At December 31, 1997,
15
<PAGE>
$2.9 million was outstanding under the revolving loan agreement. The credit
agreement prohibits the payment of dividends without prior approval of the
lender and requires the Company to maintain certain covenants and rations
including working capital and net worth ratios.
The Company expects to spend approximately $1.8 million for capital
expenditures in fiscal 1998, of which $1.5 million has been spent at December
31, 1997.
The Company utilizes a significant number of computer software programs
and operating systems in its operations, including applications used in
manufacturing, product development, financial business systems, and various
administrative functions. To the extent that the Company's software
applications contain source code that is unable to appropriately interpret the
upcoming calendar year "2000," some level of modification or even possibly
replacement of such applications will be necessary. The Company is currently
in the process of completing its identification of applications that are not
"Year 2000" compliant. Given information known at this time about Company
systems having such issues, coupled with the Company's on-going, normal course-
of-business efforts to upgrade or replace business critical systems, as
necessary, it is currently not expected that these "Year 2000" costs will have
any material adverse impact on the Company's liquidity or its results of
operations.
On July 7, 1997, the Company acquired 7,322 shares of common stock,
representing 29% of the stock of its subsidiary, PHAST Corporation, from the
Company's chairman, Scott D. Miller for $25,000 in a cash transaction. The
Company had held 51% of the stock of PHAST prior to the purchase. The Company
also granted Mr. Miller the right to require the Company to purchase his 14,750
shares of preferred stock in PHAST for a per share purchase price of $100
(which is the liquidation preference of the preferred stock), or an aggregate
purchase price of $1,475,000, plus accrued but unpaid dividends, at any time
from April 1, 1998 through March 31, 1999.
On August 14, 1997, the Company announced an agreement in principle to
purchase the remaining 20% of the stock of PHAST from its shareholders. The
agreement required the Company to issue 350,814 shares of its common stock, and
a de minimis amount of of cash in exchange for 6,421 shares of PHAST stock.
The agreement was executed on October 14, 1997, and the shares of AMX common
stock were issued on October 23, 1997.
In October 1997, the Company agreed to issue up to 500,000 options to
acquire shares of AMX common stock to various employees of PHAST and AudioEase,
both of which are subsidiaries of the Company. The options are subject to
shareholder approval and have performance conditions which are required to be
met before the options vest.
The Company believes that cash flow from operations, the Company's
existing cash resources and funds available under its revolving loan facility
will be adequate to fund its working capital and capital expenditure
requirements for at least the next 12 months. An important element of the
Company's business strategy has been, and
16
<PAGE>
continues to be, the acquisition of similar businesses and complementary
products and technology and the integration of such businesses and products
and technology into the Company's existing operations. Such future
acquisitions, if they occur, may require that the Company seek additional
funds.
CONTINGENCIES
The Company is party to ordinary litigation incidental to its business,
none of which is expected to have a material adverse effect on the results of
operations, financial position, or liquidity of the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
17
<PAGE>
AMX CORPORATION
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Information pertaining to this item is incorporated herein from Part 1.
Financial Information (Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations - Contingencies).
Item 2. Changes in Securities and Use of Proceeds
On October 23, 1997, the Company issued 350,814 shares of its common stock
to the shareholders of PHAST Corporation in reliance upon an exemption
from registration under the Securities Act of 1933, as amended, by reason
of Section 4(2) or 3(b) and/or the rules and regulations promulgated
thereunder. In connection with this transaction, the shares were sold to
a very limited number of persons and such persons were provided access
either through employment or other relationships to all relevant
information regarding the Company and/or represented to the Company that
they were "sophisticated" investors.
Information pertaining to working capital restrictions and other
limitations upon the payment of dividends is incorporated herein from Part
I, Financial Information (Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources).
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
3.1 Amended and Restated Articles of Incorporation the Company.
(Incorporated by reference from Exhibit 3.1 to the Company's
Form S-8 filed March 11, 1996, File No. 333-2202).
3.2 Amended and Restated Bylaws of the Company, as amended
(Incorporated by reference from Exhibit 3.2 to the Company's
Form 10-Q, filed November 11, 1997, file No. 0-26924.
18
<PAGE>
4.1 Specimen certificate for the Common Stock of the Company
(Incorporated by reference from Exhibit 4.1 to the Company's
Registration Statement on Form S-1 filed September 13, 1995, as
amended, File No. 33-96886).
+4.2 Declaration of Registration Rights made October 14, 1997,
by the Company for the benefit of certain shareholders and
employees of PHAST Corporation pursuant to the Stock Purchase
Agreement.
10.1 Stock Purchase Agreement dated as of October 14, 1997, by
and among the Company, Will West, Eric Smith, Ron Wells, Carmelo
J. Santoro, Scott D. Miller, PHAST Corporation, and certain
employees of PHAST (the "Stock Purchase Agreement").
(Incorporated by reference from Exhibit 2.1 to the Company's
Registration Statement on Form S-3, filed November 19, 1997,
File No. 333-40557).
+27.1 Financial Data Schedule.
b. Reports on Form 8-K
Current report on Form 8-K dated as of November 7, 1997, and filed
November 18, 1997, regarding the election of John F. McHale as a member of
the Company's board of directors.
- --------------------
+ Filed herewith.
19
<PAGE>
AMX CORPORATION
SIGNATURES
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.
AMX Corporation
Date: February 13, 1998 By: /s/ David E. Chisum
-------------------------------------
David E. Chisum
Chief Financial Officer (Duly Authorized
Officer and Principal Financial Officer)
20
<PAGE>
AMX CORPORATION
DECLARATION OF REGISTRATION RIGHTS
This declaration of Registration Rights ("Declaration") is made as of
October 14, 1997, by AMX Corporation, a Texas corporation ("AMX"), for the
benefit of certain shareholders and employees of PHAST Corporation, a
Delaware corporation ("PHAST"), acquiring shares of the $.01 par value per
share Common Stock of AMX ("AMX Common Stock") pursuant to that Stock
Purchase Agreement dated as of October 14, 1997, (the "Stock Purchase
Agreement") among Will West, Eric Smith, Ron Wells, Carmelo Santoro
(collectively, the "Individual Stockholders"), joined by their respective
spouses, and Scott D. Miller, PHAST, AMX and various employees (the
"Employees") of PHAST listed on Exhibit B thereto, and in consideration of
the Individual Stockholders and Employees approving the Stock Purchase
Agreement and the transactions contemplated thereby.
1. DEFINITIONS. As used in this Declaration:
a. "1934 Act" means the Securities Exchange Act of 1934, as
amended.
b. "Act" means the Securities Act of 1933, as amended.
c. "Commission" means the Securities and Exchange Commission.
d. "Effective Time" means the time of the closing of the
transactions contemplated by the Stock Purchase Agreement.
e. "Form S-3" means such form under the Act as in effect on the
date hereof or any registration form under the Act subsequently adopted by the
Commission which similarly permits inclusion or incorporation of substantial
information by reference to other documents filed by AMX with the Commission.
f. "Holders" means (i) Will West, Eric Smith, Ron Wells and
Carmelo Santoro, the shareholders of PHAST to whom shares of Common Stock of
AMX are issued and the Employees to whom shares of Common Stock of AMX are
issued, each pursuant to the Stock Purchase Agreement.
g. "Registrable Securities" means 350,814 shares of AMX
Common Stock issued to the Holders pursuant to the Stock Purchase Agreement
rounded to the nearest integral amount.
Terms not otherwise defined herein have the meanings given to them in
the Stock Purchase Agreement.
2. REGISTRATION. AMX shall use commercially reasonable efforts to
cause the Registrable Securities held by each Holder to be registered under
the Act so as to permit the sale thereof, and in connection therewith shall
prepare and file with the Commission within 60 days following the Effective
Time a registration statement in such form as is then available under the Act
covering the Registrable Securities; provided, however, that each Holder
shall provide all such information and materials and take all such action as
may be required under the Act to be provided or taken by such Holder in order
to permit AMX to comply with all applicable requirements of the Commission
and to obtain any desired acceleration of the effective date of such
registration statement, such provision of information and materials to be a
condition precedent to the obligations of AMX pursuant to this
<PAGE>
Declaration. AMX shall not be required to effect more that one (1)
registration under this Declaration. The offerings made pursuant to such
registration shall not be underwritten.
3. POSTPONEMENT OF REGISTRATION. Notwithstanding Section 2 above, AMX
shall be entitled to postpone the declaration of effectiveness of the
registration statement prepared and filed pursuant to Section 2 for a
reasonable period of time, but not in excess of one hundred twenty (120)
calendar days, if the Board of Directors of AMX, acting in good faith,
determines that there exists material non-public information about AMX.
4. OBLIGATIONS OF AMX. AMX shall (i) prepare and file with the
Commission the registration statement in accordance with Section 2 hereof
with respect to the shares of Registrable Securities and shall use
commercially reasonable efforts to cause such registration statement to
become effective as promptly as practicable after filing and to keep such
registration statement effective until March 1, 1998; (ii) prepare and file
with the Commission such amendments and supplements to such registration
statement and the prospectus used in connection therewith as may be necessary
and to comply with the provisions of the Act with respect to the sale or
other disposition of all Registrable Securities proposed to be registered in
such registration statement until the earlier of the sale of all of the
shares of Registrable Securities so registered and March 1, 1998; (iii)
furnish to each Holder such number of copies of any prospectus (including any
preliminary prospectus and any amended or supplemented prospectus) in
conformity with the requirements of the Act, and such other documents, as
such Holder may reasonably request in order to effect the offering and sale
of the shares of the Registrable Securities to be offered and sold, but only
while AMX shall be required under the provisions hereof to cause the
registration statement to remain current; (iv) use commercially reasonable
efforts to register or qualify the shares of the Registrable Securities
covered by such registration statement under the securities or blue sky laws
of such jurisdictions as such Holder shall reasonably request (provided that
AMX shall not be required in connection therewith or as a condition thereto
to qualify to do business or to file a general consent to service of process
in any such jurisdiction where it has not been qualified), and do any and all
other acts or things which may be necessary or advisable to enable each
Holder to consummate the public sale or other disposition of the Registrable
Securities in such jurisdictions; (v) notify each Holder upon the happening
of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of
the circumstances then existing; (vi) so long as the registration statement
remains effective, promptly prepare, file and furnish to each Holder a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of the Registrable Securities, such Prospectus shall not include
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing; (vii) notify each
Holder, promptly after it shall receive notice thereof, of the date and time
the registration statement and each post-effective amendment thereto has
become effective or a supplement to any prospectus forming a part of such
registration statement has been filed; (viii) notify each Holder promptly of
any request by the Commission for the amending or supplementing of such
registration statement or prospectus or for additional information; and (ix)
advise each Holder, promptly after it shall receive notice or obtain
knowledge thereof, of the issuance of any stop order by the Commission
suspending the effectiveness of the registration statement or the initiation
or threatening of any proceeding for that purpose and promptly use its best
efforts to prevent the issuance of any stop order or to obtain its withdrawal
if such stop order should be issued.
-2-
<PAGE>
5. AVAILABILITY OF FORM S-3. If Form S-3 (or a successor form) is not
available for use by AMX, AMX shall have no obligations under Section 2
hereof and this Declaration shall be deemed terminated.
6. EXPENSES. AMX shall pay the out-of-pocket expenses incurred by AMX,
other than underwriting discounts and commissions, in connection with any
registration of Registrable Securities pursuant to this Declaration,
including, without limitation, all Commission, NASD and blue sky registration
and filing fees, printing expenses, transfer agents' and registrars' fees,
and the fees and disbursements of AMX's outside counsel and independent
accountants. Notwithstanding the above, the fees and expenses of all counsel,
accountants and advisors of the Holders shall be paid by the Holders.
7. INDEMNIFICATION. In the event of any offering registered pursuant
to this Declaration:
a. AMX will indemnify each Holder, and each person controlling
such Holder within the meaning of Section 15 of the Act, with respect to
which registration, qualification or compliance has been effected pursuant to
this Agreement, against all expenses, claims, losses, damages and liabilities
(or actions in respect thereof), including any of the foregoing incurred in
settlement of any litigation, commenced or threatened, arising out of or
based on any untrue statement (or alleged untrue statement) of a material
fact maintained in any registration statement, prospectus, offering circular
or other document, or any amendment or supplement thereto, incident to any
such registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they are made, not misleading, or any violation by AMX
of any rule or regulation promulgated under the Act, or state securities
laws, or common law, applicable to AMX in connection with any such
registration, qualification or compliance, and will reimburse each Holder,
and each person controlling such Holder, for any legal and any other expenses
reasonably incurred in connection with investigating, preparing or defending
any such claim, loss, damage, liability or action, provided that AMX will not
be liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based in any untrue statement or
omission or alleged untrue statement or omission, made in reliance upon and
in conformity with written information furnished to AMX in an instrument
(including, but not limited to the Stock Purchase Agreement of even date
herewith) duly executed by any Holder.
b. Each Holder will, if Registrable Securities held by such
Holder are included in the securities as to which registration, qualification
or compliance is being effected, indemnify AMX, each of its directors and
officers and its legal counsel and independent accountants, each underwriter,
if any, of AMX's securities covered by such a registration statement, each
person who controls AMX or such underwriter within the meaning of Section 15
of the Securities Act, against all claims, losses, damages and liabilities
(or actions in respect thereof) arising out of or based on any untrue
statement (or alleged untrue statement) or a material fact contained in any
such registration statement, prospectus, offering circular or other document,
or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse AMX, such directors, officers, legal counsel,
independent accountants, underwriters or control persons for any legal or any
other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action, in each case to
the extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to AMX in
an instrument duly executed by such Holder (including, but not limited to the
Stock Purchase
-3-
<PAGE>
Agreement of even date herewith); provided, however, that the obligations of
such Holders hereunder shall be limited to an amount equal to the net
proceeds, after deduction of expenses and commissions, to each such Holder of
Registrable Securities sold as contemplated herein.
c. Each party entitled to indemnification under this Section 7
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has written notice of any claim as to which indemnity may be sought,
and shall permit the Indemnifying Party to assume the defense of any such
claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval shall
not be unreasonably withheld), and the Indemnified Party may participate in
such defense at such party's expense, and provided further that if Holder is
the Indemnified Party and the defendants in any such action shall include
both Holder, as the Indemnified Party, and the Indemnifying Party shall have
reasonably concluded that there may be legal defenses available to it which
are different from or additional to those available to the Indemnifying
Party, the Indemnified Party shall have the right to select separate counsel
to assert such legal defenses and otherwise participate in the defense of
such action on behalf of such Indemnified Party and the fees and expenses of
such counsel shall be paid by the Indemnifying Party. The failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement, except to the
extent, but only to the extent, that the Indemnifying Party's ability to
defend against such claim or litigation is materially prejudiced as a result
of such failure to give notice. No Indemnifying Party, in the defense of any
such claim or litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in
respect to such claim or litigation.
d. The obligations of AMX and each Holder under this Section 7
shall survive the completion of any offering of stock in a registration
statement under this Declaration and otherwise.
8. TERMINATION. The registration rights set forth in this Declaration
shall terminate with respect to a Holder on March 1, 1998 or such earlier
time as such Holder has sold all Registrable Securities.
9. THIRD PARTY BENEFICIARIES. It is intended that the Holders be
third party beneficiaries to this Declaration of Registration Rights.
-4-
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<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 703,809
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<RECEIVABLES> 9,707,013
<ALLOWANCES> (194,837)
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<CURRENT-ASSETS> 19,281,860
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<BONDS> 57,402
0
1,475,000
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<TOTAL-LIABILITY-AND-EQUITY> 25,405,762
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