<PAGE> 1
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: 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 0-26496
CYBEX COMPUTER PRODUCTS CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
ALABAMA 63-0801728
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
4912 RESEARCH DRIVE
HUNTSVILLE, ALABAMA 35805
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(205) 430-4000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED
ALL REPORTS 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
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO
----- -----
AS OF FEBRUARY 17, 1998, 5,486,781 SHARES OF THE REGISTRANT'S COMMON STOCK
$.001 PAR VALUE, WERE OUTSTANDING.
<PAGE> 2
CYBEX COMPUTER PRODUCTS CORPORATION
FORM 10-Q
DECEMBER 31, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
Part I - FINANCIAL INFORMATION NUMBER
------
<S> <C> <C> <C>
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of March 31, 1997 and
December 31, 1997 .................................................... 3
Condensed Consolidated Statements of Operations for the three and nine
months ended December 31, 1996 and 1997 .............................. 4
Condensed Consolidated Statements of Cash Flows for the nine
months ended December 31, 1996 and 1997 ............................... 5
Notes to Condensed Consolidated Financial Statements .................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ............................................. 8
Part II - OTHER INFORMATION
Item 6. Exhibits ................................................................. 14
SIGNATURES ......................................................................... 15
INDEX OF EXHIBITS .................................................................. 16
</TABLE>
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS
CYBEX COMPUTER PRODUCTS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1997
--------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................. $ 2,424,385 $11,570,553
Short-term investments ................................................ 38,688,836 14,509,719
Accounts receivable- trade, less allowance for doubtful accounts
of $350,837 and $578,316, respectively .............................. 5,409,706 8,731,246
Inventories .......................................................... 3,835,356 6,503,389
Other current assets .................................................. 698,163 644,867
Deferred income taxes ................................................ 623,000 623,000
----------- -----------
Total current assets ...................................... 51,679,446 42,582,774
Investments ............................................................. 2,196,218 2,638,626
Property and equipment, net of accumulated depreciation ................. 2,422,292 5,078,208
Intangibles ............................................................ -- 3,706,435
Other assets ........................................................... 228,757 391,595
----------- -----------
$56,526,713 $54,397,638
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable ......................................................... $ 8,000,000
Accounts payable and accrued expenses.................................. 2,151,371 $ 3,859,749
Income taxes payable ................................................. 158,734 594,714
Other current liabilities ............................................. 1,149,419 3,771,887
----------- -----------
Total current liabilities ................................. 11,459,524 8,226,350
Deferred income taxes ................................................... 80,000 80,000
----------- -----------
Total liabilities ......................................... 11,539,524 8,306,350
----------- -----------
Shareholders' equity:
Preferred stock, par value $.001 per share; 5,000,000 shares
authorized; no shares issued .......................................
Common stock, par value $.001 per share; 25,000,000 shares
authorized; March 31, 1997 -- 6,090,508 shares issued,
5,429,383 shares outstanding; December 31, 1997 -- 6,101,508
shares issued, 5,440,383 shares outstanding........................... 6,091 6,102
Additional paid in capital ............................................... 34,119,697 34,166,356
Unrealized loss on investments ........................................... (77,669) --
Retained earnings ....................................................... 16,209,614 17,189,374
Treasury stock, at cost; 661,125 shares ................................. (5,270,544) (5,270,544)
----------- -----------
Total shareholders' equity ............................... 44,987,189 46,091,288
----------- -----------
$56,526,713 $54,397,638
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
CYBEX COMPUTER PRODUCTS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales ...................................................... $8,916,858 $12,537,289 $24,395,100 $34,499,443
Cost of sales .................................................. 4,221,921 5,969,949 11,479,877 16,363,324
---------- ----------- ----------- -----------
Gross profit ............................................... 4,694,937 6,567,340 12,915,223 18,136,119
Selling, general and administrative expenses 2,214,989 3,146,537 6,027,580 8,598,606
Research and development expenses .............................. 634,025 735,195 1,658,407 2,304,175
Acquired research and development .............................. -- 4,705,000 -- 4,705,000
---------- ----------- ----------- -----------
Operating income (loss) ..................................... 1,845,923 (2,019,392) 5,229,236 2,528,338
Other income ................................................... 560,328 440,179 1,417,363 1,523,423
---------- ----------- ----------- -----------
Income (loss) before provision for
income taxes ............................................. 2,406,251 (1,579,213) 6,646,599 4,051,761
Provision for income taxes ..................................... 873,000 1,080,000 2,410,000 3,072,000
---------- ----------- ----------- -----------
Net income (loss) ............................................. $1,533,251 $(2,659,213) $ 4,236,599 $ 979,761
========== =========== =========== ===========
Net income (loss) per common and common
equivalent share :
Basic ...................................................... $ .28 $ (.49) $ .77 $ .18
========== =========== =========== ===========
Diluted ................................................... $ .27 $ (.49) $ .75 $ .18
========== =========== =========== ===========
Weighted average common and common equivalent shares outstanding:
Basic .................................................... 5,491,523 5,440,383 5,500,081 5,437,179
========== =========== =========== ===========
Diluted .................................................. 5,602,126 5,440,383 5,611,969 5,600,371
========== =========== =========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
CYBEX COMPUTER PRODUCTS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
1996 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income ................................................ $ 4,236,599 $ 979,761
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation ............................................ 238,074 389,162
Amortization of discount on investments ..................... (852,138) (993,433)
Provision for losses on accounts receivable ............. 170,795 353,000
Gain on sale of investments ............................. (206,874) (214,641)
Acquired research and development ....................... -- 4,705,000
Changes in operating assets and liabilities:
Accounts receivable- trade ............................ (680,097) (3,040,125)
Inventories ........................................... (81,731) (1,281,978)
Accounts payable and accrued expenses ................. 701,321 2,409,050
Other ................................................. (171,358) (30,472)
Income taxes payable .................................. 160,000 112,000
------------ ------------
Net cash provided by operating activities ............... 3,514,591 3,387,324
Cash flows from investing activities:
Purchase of subsidiary, net of cash received .............. -- (8,663,273)
Purchases of property and equipment ....................... (1,253,408) (2,647,004)
Purchases of investments available for sale ............... (45,543,784) (23,172,255)
Proceeds from the sale of investments ..................... 3,185,468 11,059,706
Proceeds from maturities of investments ................... 49,213,658 37,135,000
------------ ------------
Net cash provided by investing activities ............... 5,601,934 13,712,174
Cash flows from financing activities:
Repayment of note payable ................................. (5,000,000) (8,000,000)
Proceeds from issuance of common stock .................... 46,670
Purchase of treasury stock ............................... (764,775)
------------ ------------
Net cash used in financing activities ................. (5,764,775) (7,953,330)
------------ ------------
Net increase in cash and cash equivalents ................ 3,351,750 9,146,168
Cash and cash equivalents, beginning of period .............. 862,878 2,424,385
------------ ------------
Cash and cash equivalents, end of period .................... $ 4,214,628 $ 11,570,553
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest .................. $ 8,021 $ 13,216
============ ============
Cash paid during the period for taxes .................... $ 2,250,000 $ 2,960,000
============ ============
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
CYBEX COMPUTER PRODUCTS CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial
statements of Cybex Computer Products Corporation (the Company) have been
prepared by management in accordance with generally accepted accounting
principles for interim financial information and in conjunction with the rules
and regulations of the Securities and Exchange Commission. In the opinion of
management, all adjustments necessary for a fair presentation of the interim
condensed consolidated financial statements have been included, and all
adjustments are of a normal and recurring nature. The condensed consolidated
financial statements as of and for the interim period ended December 31, 1997
should be read in conjunction with the Company's consolidated financial
statements as of and for the year ended March 31, 1997 included in the
Company's Form 10-K filed June 25, 1997. Operating results for the three and
nine months ended December 31, 1997 are not necessarily indicative of the
results that may be expected for the year ended March 31, 1998. The March 31,
1997 balance sheet data presented herein was derived from audited financial
statements but does not include all disclosures required by generally accepted
accounting principles.
2. ACQUISITION OF ELSNER COMPUTERTECHNIK GMBH
On December 31, 1997, Cybex Europe, Ltd., an Irish limited liability
company ("Cybex Europe"), acquired Elsner Computertechnik GmbH. ("Elsner") and
PolyCon Data Systems GmbH. ("PolyCon"), both privately held companies located
in Steinhagen, Germany, pursuant to a Purchase and Sale Agreement dated
December 31, 1997 between the Company, Cybex Europe and Edgar and Stephanie
Elsner for a combined purchase price of approximately $8.8 million including
acquisition related expenditures. The closing of the acquisition occurred on
December 31, 1997. The acquisition was accounted for using the purchase method
of accounting.
In accordance with generally accepted accounting principles, costs
allocated to research and development assets with alternative future uses have
been capitalized, and the remaining $4.7 million of acquired research and
development have been expensed as a one-time charge on December 31, 1997. The
acquisition of Elsner and PolyCon was funded by Cybex Europe from its available
cash.
6
<PAGE> 7
Following is a summary of cash and noncash assets acquired,
liabilities assumed, and consideration paid based on the Company's preliminary
allocation of the purchase price:
<TABLE>
<S> <C>
Fair value of assets acquired:
Cash and cash equivalents $ 153,000
Accounts receivable 634,000
Inventory 1,386,000
Other assets 79,000
Property and equipment 398,000
Trademarks 806,000
Acquired research and development 4,705,000
Goodwill and acquisition costs 2,873,000
----------
Fair value of liabilities assumed:
Accounts payable 1,524,000
Other liabilities 694,000
----------
Cash paid $8,816,000
==========
</TABLE>
As indicated above, the acquired research and development costs were
expensed on the date of acquisition. The trademarks will be amortized over a
fifteen year period and the goodwill will be amortized over an eight year
period.
3. LINE OF CREDIT
The Company renegotiated its line of credit on July 1, 1997, to
provide borrowings of up to $5.0 million at the bank's prime rate. The line of
credit expires July 1, 1998. There were no borrowings outstanding under the
Company's line of credit as of December 31, 1997.
The Company's newly acquired subsidiary, Elsner, had borrowings of
approximately $775,000 under its $2.5 million line of credit as of December 31,
1997. These borrowings were repaid during February, 1998.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the results of operations and financial
condition of the Company should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto included in the Company's
Form 10-K for fiscal year ended March 31, 1997 filed on June 25, 1997 and the
Company's Form 8-K filed on January 14, 1998.
GENERAL
The Company develops, produces and markets keyboard, video monitor and
mouse ("KVM") switch and extension products for use in the computer industry.
The Company's KVM switch products ("KVM Switch Products") provide up to four
users, each with a separate keyboard, video monitor and mouse, with the
capability to control up to 2160 personal computers ("PCs"), thereby eliminating
the need for individual keyboards, video monitors or mice ("KVM Peripherals")
for the controlled PCs. Elimination of KVM Peripherals can provide significant
cost reduction (lower initial investment and ongoing utility costs) and space
savings as well as more efficient technical support capabilities. The Company's
KVM Switch Products allow users to control IBM-compatible and Macintosh PCs and
many Sun, Hewlett Packard, Digital Equipment Corporation (DEC), IBM, and Silicon
Graphics workstations functioning either as stand-alone systems or as file,
communications or print servers ("Servers") operating within a local area
network ("LAN"). The Company also has computer interfaces for its Autoboot
Commander 4xP(TM)/1xP(TM), which operate with models of IBM RS/6000, Hewlett
Packard, DEC's Alpha, and Silicon Graphic's Indigo workstations. The Company's
AutoView Commander(TM), introduced in mid Fiscal 1997, utilizes a cost reduced
design, which was the basis for the following KVM Switch Product introductions:
AutoView Commander(TM), Personal Commander(TM) II, Autoboot Commander(TM) II, a
six-port switch for original equipment manufacturers (OEM), Duette
Commander(TM), AutoView Pro and QuickSwitch Commander(TM). The Company
introduced SwitchView(TM), a two and four port KVM Switch Product, in October,
1997, the Company's first product designed for the retail channel of
distribution. Certain KVM Switch Products are certified by Novell Corporation
for use with its network operating system software Netware 4.1. The Company's
KVM Switch Products are particularly useful in networking environments where
multiple computers are dedicated as Servers and in situations where multiple
computers need to be controlled from one location to facilitate network
management.
The Company's family of KVM extension products ("KVM Extension Products")
allow users to separate the KVM Peripherals up to 600 feet from the PC. In
addition, certain KVM Extension Products allow multiple users shared access to
the same PC from different KVM Peripherals. The latest version of the PC
Extender(TM) SNAP, introduced in late Fiscal 1997, reduces cabling costs by half
and utilizes standard Category 5 UTP cabling, a commonly installed cable in
Ethernet networks. KVM Extension Products are particularly useful in congested
work areas or where working conditions may be hazardous to the function of the
computer.
The Company evaluates its product line and its customer needs on an
ongoing basis to advance its competitive position in the marketplace. As part
of this process, the Company seeks expansion not only through internal
development but through strategic acquisition and expansion efforts. Consistent
with this philosophy, the Company completed its acquisition of Elsner
Computertechnik GmbH (Elsner) and PolyCon Data Systems GmbH (PolyCon) on
December 31, 1997 discussed later herein. The acquisition of Elsner and PolyCon
results in additional intellectual property that will be leveraged to expand
the Company's products and an existing product line which includes high-end
console switching solutions for mid- and large-scale networks. This acquisition
is consistent with the Company's expansion of its operations in Europe and
provides several new customer relationships and distribution channels.
The Company's net sales have increased in each fiscal year due primarily
to increases in the number of units sold to both new and existing customers.
These annual net sales increases reflect the Company's strategy of increasing
unit volume and market share through the introduction of new products as well
as continuous enhancement of already accepted products with increased
functionality which are price competitive as compared to prior generations of
the Company's products and to the products of competitors. As a part of this
strategy, the Company seeks to be price competitive and to be the high quality
provider of products in its markets. This strategy has enabled the Company to
8
<PAGE> 9
sell succeeding generations of products to existing customers as well as to
increase its market share by selling products to new customers.
The Company has broadened its marketing strategy of expanding channels of
distribution by increased penetration in the OEM market and the worldwide
catalog market. During late Fiscal 1997, the Company announced its first
products designed specifically for the OEM market. These products are intended
to expand the Company's share of sales in the OEM marketplace. During this same
period, the Company began shipping certain KVM Switch Products to a major
worldwide catalog marketer under private label. This broadened channel
distribution strategy has expanded the Company's distribution channels and
increased its market share. The Company also began distribution of its branded
products with a major distributor in the second quarter of fiscal 1998. This
relationship broadens the Company's channels of distribution of its products
and is expected to increase market share.
The Company expanded its marketing strategy to include the retail channel
of distribution with the introduction of SwitchView(TM), which targets the
desktop market. SwitchView(TM) was designed to address the high volume sales
channels and is the Company's first product packaged for the retail market. The
Company is the only KVM Switch Product manufacturer offering products ranging
from the entry level PC single user switch to multi-user, multiplatform switches
that can control thousands of computers in data centers and server farms.
The Company contracts with third parties to provide completed
subassemblies of its products. The Company also outsources entire products
(turnkey) for certain stable high volume products. The Company believes that
outsourcing manufacturing generally enables the Company to control product
costs more effectively.
The Company continually evaluates new product opportunities and engages in
substantial research and product development efforts. The Company expenses all
product research and development costs as incurred. Additionally, the Company
also incurs substantial expenses related to advertising and participation in
trade shows, and incentive programs for customers based on sales levels.
Another important part of the Company's strategy is to emphasize customer
service and support. The Company offers a 30-day money back guarantee for all
of its products plus a one year limited warranty on parts. The Company has not
incurred significant sales and warranty returns expense to date. The Company
also offers sales discounts to its customers based on the level of sales to the
customers. Such discounts have historically not had a significant impact on the
Company's results of operations.
The Company believes that increasing its international sales will be an
important aspect of future revenue growth. International sales comprised 22% of
the Company's total sales for the nine months ended December 31, 1997, and 21%
and 20% of the Company's total sales in Fiscal 1997 and Fiscal 1996,
respectively. All international sales are made in U.S. dollars.
On December 31, 1997 Cybex Europe, Ltd., an Irish limited liability
company ("Cybex Europe") and wholly owned subsidiary of the Company, acquired
Elsner Computertechnik GmbH. ("Elsner") and PolyCon Data Systems GmbH.
("PolyCon"), both privately held companies located in Steinhagen, Germany,
pursuant to the terms and conditions of a Purchase and Sale Agreement dated
December 30, 1997 between the Company, Cybex Europe and Edgar and Stephanie
Elsner for a combined purchase price of $8,800,000 including acquisition
related expenditures. In accordance with generally accepted accounting
principles, costs allocated to research and development assets with alternative
future uses have been capitalized, and the remaining $4,700,000 of acquired
research and development have been expensed as a one-time charge on December
31, 1997. The acquisition of Elsner and Polycon was funded by Cybex Europe from
its available cash.
Elsner is a German manufacturer and marketer of high-end KVM switch
products with sales for calendar year 1997 of approximately $8,400,000. PolyCon
is the German sales and marketing company for Elsner's products. Mr. Edgar
Elsner will be employed by Cybex Europe and will be responsible for overseeing
the operations of Elsner and PolyCon. Mr. Elsner had no material relationship
with the Company or Cybex Europe prior to the acquisition.
9
<PAGE> 10
RESULTS OF OPERATIONS
The following table presents selected financial information derived from
the Company's statements of operations expressed as a percentage of net sales
for the quarters ended indicated:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED DECEMBER 31, ENDED DECEMBER 31,
-------------------- -------------------
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales................................................. 100.0% 100.0% 100.0% 100.0%
Cost of sales........................................... 47.3 47.6 47.1 47.4
----- ----- ----- -----
Gross profit.............................................. 52.7 52.4 52.9 52.6
Research and development expenses....................... 7.1 5.9 6.8 6.7
Selling, general and administrative expenses............ 24.9 25.1 24.7 24.9
Acquired research and development ...................... 0 37.5 0 13.7
- ----- - -----
Operating income (loss)................................... 20.7 (16.1) 21.4 7.3
Other income .......................................... 6.3 3.5 5.8 4.4
----- ----- ----- -----
Income (loss) before income taxes......................... 27.0 (12.6) 27.2 11.7
Provision for income taxes.............................. 9.8 8.6 9.9 8.9
----- ----- ----- -----
Net income (loss) 17.2% (21.2)% 17.3% 2.8%
===== ===== ===== =====
</TABLE>
Three Months Ended December 31, 1997 Compared to the Three Months Ended
December 31, 1996
Net sales increased 40.6% to $12.5 million in the three months ended
December 31, 1997 from $8.9 million in the three months ended December 31, 1996.
The net sales increase resulted from increased sales volume of the Company's KVM
Switch Products and Extension Products. Sales of KVM Switch Products increased
45.3% to $10.9 million in the three months ended December 31, 1997 from $7.5
million in the three months ended December 31, 1996, primarily due to sales
growth of the high-end Switch segment of products including the Autoboot
Commander 4xP(TM)/1xP(TM) and also sales of the Autoview Commander(TM) and other
products based on its cost reduced design. The SwitchView(TM) product, which was
introduced during the third quarter of fiscal 1998, also contributed to the
Switch segment's sales growth. Sales of KVM Extension Products increased 20.3%
to $1.5 million in the three months ended December 31, 1997 from $1.2 million in
the three months ended December 31, 1996. The PC Extender(TM) Snap and the PC
Plus line were primarily responsible for the growth in KVM Extension Product
sales.
As a percentage of net sales, the Company's KVM Switch Products increased
to 86.7% from 83.9% and KVM Extension Products declined to 11.7% from 13.7%
during the same period in Fiscal 1997. Management anticipates that sales of KVM
Extension Products will continue to be a substantial portion of the Company's
net sales.
International sales increased 32.0% to $2.6 million in the three months
ended December 31, 1997 from $1.9 million in the three months ended December
31, 1996 and accounted for 20.7% of total revenues. Sales to customers in
Europe increased 42.4% in the three months ended December 31, 1997 from the
three months ended December 31, 1996 and represented approximately 13% of total
revenues for the quarter.
Gross profit increased 39.9% to $6.6 million in the three months ended
December 31, 1997, from $4.7 million in the three months ended December 31,
1996. Gross profit as a percentage of net sales declined slightly to 52.4% from
52.7% during the same period in Fiscal 1997. Although down slightly as a
percentage of net sales from the same quarter in the prior year due primarily
to product mix, gross profits have remained strong over the last four preceding
quarters, reflecting volume increases of the Autoview line which is designed
for strong margin retention although discounted for volume distributions.
Selling, general and administrative (SG&A) expenses increased 42.1% to
$3.1 million (25.1% of net sales) in the three months ended December 31, 1997,
from $2.2 million (24.9% of net sales) in the three months ended December 31,
1996. The increase in SG&A reflects the increased level of expenditures in
administration, sales, customer support, advertising, and marketing activities
required to support the Company's expanded sales base domestically as well as
the additional SG&A costs for the Subsidiary. Management anticipates that the
dollar amount of selling,
10
<PAGE> 11
general and administrative expense will continue to increase, however, the
anticipated expanding sales volume should cause the expenses to continue to
remain relatively constant as a percentage of net sales.
Research and development (R&D) expense grew 16.0% to $.7 million or 5.9%
of net sales in the three months ended December 31, 1997, from $.6 million or
7.1% of net sales in the three months ended December 31, 1996. The increase in
dollars spent for R&D reflects Management's commitment to new product
development and existing product enhancement. Management anticipates that the
dollar amount of research and development expenses will continue to increase.
As a result of the factors discussed above, operating income before the
one-time write-off of $4,705,000 related to the Elsner acquisition, increased
45.5% to $2.7 million (21.4% of net sales) in the three months ended December
31, 1997, from $1.8 million (20.7% of net sales) in the three months ended
December 31, 1996.
Other income decreased 21.4% to $.4 million (3.5% of net sales) in the
three months ended December 31, 1997, compared to $.6 million in the three
months ended December 31, 1996. The decrease is attributed to the decrease in
realized gains on investments in equities between the periods. Also, funds
available to invest decreased as a direct result of progress payments made for
the construction of the new facility in Huntsville.
Net income, before the one-time write-off related to the Elsner
acquisition, increased 33.5% to $2.0 million (16.3% of net sales) in the three
months ended December 31, 1997, from $1.5 million (17.2% of net sales) in the
three months ended December 31, 1996, as a result of the factors discussed
above.
Nine Months Ended December 31, 1997 Compared to the Nine Months Ended December
31, 1996.
Net sales increased 41.4% to $34.5 million for the nine months ended
December 31, 1997. The increase in net sales was due to increased sales of the
Company's KVM Switch and KVM Extension Products. Sales of KVM Switch Products
increased 46.6% to $29.3 million in the nine months ended December 31, 1997 from
$20.1 million in the nine months ended December 31, 1996. Sales of KVM Extension
Products increased 21.1% to $4.5 million in the nine months ended December 31,
1997 from $3.7 million in the nine months ended December 31, 1996 primarily due
to increases in sales of PC Extender(TM) SNAP and PC Plus Products. As a
percentage of net sales, the Company's KVM Switch Products increased to 85.1%
from 81.2% and KVM Extension Products declined to 12.9% from 15.1% during the
same period. International sales increased 51.1% to $7.5 million or 22.0% of net
sales in the nine months ended December 31, 1997 as compared to $5.0 million or
20.4% of net sales in the nine months ended December 31, 1996.
Gross profit increased 42.8% to $18.1 million in the nine months ended
December 31, 1997 from $12.9 million in the nine months ended December 31,
1996. Gross profit as a percent of net sales decreased to 52.6% from 52.9%
during the same period due primarily to changes in the product mix. Gross
margins also reflect volume increases of the Autoview line which is designed
for strong margin retention although discounted for volume distributions.
Selling, general and administrative expenses increased 42.6% to $8.6
million or 24.9% of net sales in the nine months ended December 31, 1997 from
$6.0 million or 24.7% of net sales in the nine months ended December 31, 1996.
The increase in SG&A reflects the increased level of expenditures in
administration, sales, customer support, advertising, and marketing activities
required to support the Company's expanded sales base domestically as well as
the additional SG&A costs for Cybex Europe.
Research and development expense was $2.3 million or 6.7% of net sales in
the nine months ended December 31, 1997 as compared to $1.7 million or 6.8% of
net sales for the nine months ended December 31, 1996. The increase in R&D
dollars reflects Management's commitment to new product development and
existing product enhancement. Management anticipates that the dollar amount of
research and development expenses will increase and will increase slightly as a
percentage of net sales.
11
<PAGE> 12
As a result of the factors discussed above, operating income before the
one-time write-off of $4,705,000 related to the Elsner acquisition, increased
38.4% to $7.2 million or 21.0% of net sales for the nine months ended December
31, 1997 as compared to $5.2 million or 21.4% of net sales for the nine months
ended December 31, 1996.
Interest income increased to $1.5 million or 4.4% of net sales in the nine
months ended December 31, 1997 from $1.4 million or 5.8% of net sales in the
nine months ended December 31, 1996. The increase in dollars is primarily
attributed to realized gains on investments in equities.
Net income, before the one-time write-off of $4,705,000 related to the
Elsner acquisition, increased 34.25% to $5.7 million or 16.5% of net sales for
the nine months ended December 31, 1997 from $4.2 million or 17.3% of net sales
for the nine months ended December 31, 1996 due to the factors described above.
LIQUIDITY AND CAPITAL RESOURCES
Prior to its initial public offering in July 1995, the Company financed
its operations primarily through cash flow from operations, supplemented with
borrowings under its line of credit as needed. As of December 31, 1997, the
Company and it subsidiaries had an available line of credit of $7.5 million
with approximately $775,000 outstanding at December 31, 1997. The amount
outstanding was repaid in February, 1998.
The Company's working capital position declined from $42,416,140 as of
March 31, 1997 to $36,995,050 as of December 31, 1997 (adjusted to include
$2,196,218 and $2,638,626 of long term-investments, respectively). This decline
in the Company's working capital position was due primarily to the offsetting
impact of increased earnings during the nine months ended December 31, 1997 and
the acquisition of Elsner and PolyCon which is discussed in Footnote 2 of the
notes to condensed consolidated financial statements.
Cash provided from operating activities decreased from approximately $3.5
million for the nine months ended December 31, 1996 to $3.4 million for the
nine months ended December 31, 1997. This net decrease was caused by the
offsetting effect of a decrease in net income due to the one time noncash
write-off of $4.7 million of acquired research and development associated with
the acquisition and increases in accounts receivable, inventory and accounts
payable. The increase in accounts receivable is attributed to the increase in
sales. The increase in inventory is attributed to the overall anticipated
demand for new products introduced in the products mix, as well as additional
inventory levels at Cybex Europe. The Company will continue to increase the
level of turnkey manufacturing of products as they mature and designs
stabilize, thereby reducing the level of inventory relative to those products
that the Company must maintain. The increase in accounts payable relates
directly to the increase in inventory.
Capital expenditures totaled $2.7 million in the first nine months of
Fiscal 1998. Capital expenditures related primarily to the construction of the
new building for the Huntsville facility. The remaining capital expenditures
were used to purchase equipment for the Company and Cybex Europe.
The Company began construction of a new facility in Hunstville, Alabama
during the first quarter of Fiscal 1998 on land purchased in fiscal year 1997.
The new facility will contain approximately 120,000 square feet with space for
future expansion. The facility is designed to house the Company's sales,
marketing, research and development, manufacturing and administrative
functions. Occupancy is expected during the second quarter of Fiscal 1999. The
project is expected to cost aproximately $7.2 million.
The Company believes that its current financial position and existing cash
and investments along with earnings and amounts available under its line of
credit will be sufficient to meet the Company's cash requirements over the next
twelve months.
FINANCIAL ACCOUNTING DEVELOPMENTS
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share. SFAS
No.128, which supersedes existing generally accepted accounting
12
<PAGE> 13
principles relative to the calculation of earnings per share, is effective for
interim periods and years ending after December 15, 1997, and requires
restatement of all prior period earnings per share information upon adoption.
Generally, SFAS No.128 requires a calculation of basic earnings per share,
which takes into consideration income (loss) available to common shareholders
and the weighted average of common shares outstanding. SFAS No. 128 also
requires the calculation of a diluted earnings per share, which takes into
effect the impact of all additional common shares that would have been
outstanding if all dilutive potential common shares relating to options,
warrants, and convertible securities had been issued, as long as their effect
is dilutive, with a related adjustment of income available for common
shareholders, as appropriate. SFAS No. 128 requires dual presentation of basic
and diluted earnings per share on the face of the statement of income and
requires a reconciliation of the numerator and denominator of the basic
earnings per share computation. The Company adopted SFAS No. 128 in the quarter
ended December 31, 1997.
YEAR 2000 COMPLIANCE
The Company has and will continue to make certain investments in its
software systems and applications to ensure the Company is year 2000 compliant.
The financial impact has not been and is not anticipated to be material to its
financial position or its results of operations in any given year.
FORWARD LOOKING STATEMENTS
When used in this Form 10-Q , the words "believe," "anticipate," "think,"
"intend," "will be," and similar expressions identify forward looking
statements. Such statements are subject to certain risks and uncertainties
which could cause actual results to differ materially from those projected.
Readers are cautioned not to place undue reliance on these forward looking
statements which speak only as of the date hereof. Readers are also urged to
carefully review and consider the various disclosures made by the Company which
attempt to advise interested parties of the factors which affect the Company's
business, including the disclosures made in other periodic reports on Forms
10-K, 10-Q and 8K filed with the Securities and Exchange Commission.
13
<PAGE> 14
PART II - OTHER INFORMATION
Item 6. Exhibits
(a) The following exhibits are being filed with this report:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
11 Statement Regarding Computation of Per Share Earnings
27 Financial Data Schedule (For SEC use only)
</TABLE>
14
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
CYBEX COMPUTER PRODUCTS CORPORATION
/s/ Doyle C. Weeks
--------------------------------------
Doyle C. Weeks
Senior Vice President - Finance and
Chief Financial Officer and Treasurer
Date: February 17, 1998
15
<PAGE> 16
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ----------- --------
<S> <C> <C>
11 Statement Regarding Computation of Per Share Earnings 17
27 Financial Data Schedule (For SEC use only)
</TABLE>
16
<PAGE> 1
EXHIBIT 11
CYBEX COMPUTER PRODUCTS CORPORATION
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
1996 1997 1996 1997:
---- ---- ---- ----
<S> <C> <C> <C> <C>
Basic:
Weighted average common shares outstanding 5,491,523 5,440,383 5,500,081 5,437,179
Net income (loss) $ 1,533,251 $(2,659,213) $ 4,236,599 $ 979,791
============ =========== =========== ===========
Net income (loss) per common shares ........... $ .28 $ (.49) $ .77 $ .18
============ =========== =========== ===========
Diluted:
Weighted average common shares outstanding 5,491,523 5,440,383 5,500,081 5,437,179
Net weighted average common stock options
outstanding under the treasury stock method 110,603 0* 111,888 163,192
------------ ----------- ----------- -----------
Weighted average common and common
equivalent shares outstanding 5,602,126 5,440,383 5,611,969 5,600,371
============ =========== =========== ===========
Net income (loss) $ 1,533,251 $(2,659,213) $ 4,236,599 $ 979,791
============ =========== =========== ===========
Net income (loss) per common and common
equivalent share ........................... $ .27 $ (.49) $ .75 $ .18
============= =========== =========== ===========
</TABLE>
* Net weighted average stock options excluded as they were antidilutive to the
calculation.
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CYBEX PRODUCTS CORPORATION FOR THE NINE MONTHS ENDED
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 11,571
<SECURITIES> 17,148
<RECEIVABLES> 9,310
<ALLOWANCES> 578
<INVENTORY> 6,503
<CURRENT-ASSETS> 42,583
<PP&E> 6,338
<DEPRECIATION> 1,260
<TOTAL-ASSETS> 54,398
<CURRENT-LIABILITIES> 8,226
<BONDS> 0
0
0
<COMMON> 6
<OTHER-SE> 51,356
<TOTAL-LIABILITY-AND-EQUITY> 54,398
<SALES> 34,499
<TOTAL-REVENUES> 34,499
<CGS> 16,363
<TOTAL-COSTS> 16,363
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 353
<INTEREST-EXPENSE> 6
<INCOME-PRETAX> 4,052
<INCOME-TAX> 3,072
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 980
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
