<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: JULY 3, 1998
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 AUGUST 14, 1998, 8,292,771 SHARES OF THE REGISTRANT'S COMMON STOCK
$.001 PAR VALUE, WERE OUTSTANDING.
<PAGE> 2
CYBEX COMPUTER PRODUCTS CORPORATION
FORM 10-Q
JULY 3, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
Part I - FINANCIAL INFORMATION NUMBER
------
Item 1. Financial Statements:
<S> <C>
Condensed Consolidated Balance Sheets as of March 31, 1998 and
July 3, 1998 .................................................... 3
Condensed Consolidated Statements of Income for the
three months ended June 30, 1997 and July 3, 1998 ............... 4
Condensed Consolidated Statements of Cash Flows for
the three months ended June 30, 1997 and July 3, 1998 ........... 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 ........................................................ 13
SIGNATURES .............................................................. 14
INDEX OF EXHIBITS ....................................................... 15
</TABLE>
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS
CYBEX COMPUTER PRODUCTS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, JULY 3,
1998 1998
----------- -------------
<S> <C> <C>
ASSETS (UNAUDITED)
Current assets:
Cash and cash equivalents.............................................................. $ 2,411,085 $11,379,889
Short-term investments ................................................................ 34,919,924 12,669,574
Accounts receivable- trade, less allowance for doubtful accounts
of $963,083 and $1,128,914, respectively .............................................. 11,430,990 12,394,704
Inventories .......................................................................... 6,046,919 6,898,910
Other current assets .................................................................. 517,179 715,099
Deferred income taxes ................................................................ 1,144,000 1,144,000
----------- -----------
Total current assets ...................................................... 56,470,097 45,202,176
Investments available for sale, at market ............................................... 3,040,833 2,908,680
Property and equipment, net of accumulated depreciation ................................. 7,251,912 10,126,796
Intangibles, net ....................................................................... 3,821,371 3,776,217
Other assets ........................................................................... 134,691 81,743
----------- -----------
$70,718,904 $62,095,612
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable ......................................................................... $12,000,000 $ --
Accounts payable and accrued expenses.................................................. 4,697,027 4,112,628
Income taxes payable ................................................................. 1,313,415 2,306,315
Other current liabilities ............................................................. 3,027,939 3,177,438
----------- -----------
Total current liabilities ................................................. 21,038,381 9,596,381
Deferred income taxes ................................................................... 109,000 109,000
Note payable ............................................................................ 136,719 120,041
----------- -----------
Total liabilities ......................................................... 21,284,100 9,825,422
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, 1998 -- 9,246,274 shares issued,
8,252,671 shares outstanding; July 3, 1998 -- 9,268,374
shares issued, 8,274,771 shares outstanding ....................................... 9,246 9,268
Additional paid in capital ............................................................. 34,714,753 34,991,231
Accumulated other comprehensive income ................................................. 230,731 (18,228)
Retained earnings ..................................................................... 19,780,627 22,588,461
Treasury stock, at cost; 993,603 shares ............................................... (5,300,553) (5,300,542)
----------- -----------
Total shareholders' equity ............................................. 49,434,804 52,270,190
----------- -----------
$70,718,904 $62,095,612
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
CYBEX COMPUTER PRODUCTS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, JULY 3,
1997 1998
---- -----
<S> <C> <C>
Net sales ....................................................... $10,694,694 $18,565,573
Cost of sales ................................................... 5,048,921 8,723,570
----------- -----------
Gross profit ................................................ 5,645,773 9,842,003
Research and development expenses ............................... 774,712 1,177,932
Selling, general and administrative expenses .................... 2,712,023 4,630,815
----------- -----------
Operating income ............................................ 2,159,038 4,033,256
Other income .................................................... 485,386 341,718
----------- -----------
Income before provision for income taxes .................... 2,644,424 4,374,974
Provision for income taxes ...................................... 942,000 1,567,140
----------- -----------
Net income .................................................. $ 1,702,424 $ 2,807,834
----------- -----------
Net income per common and common equivalent share:
Basic........................................................ $ .21 $ .34
=========== ===========
Diluted ..................................................... $ .21 $ .33
=========== ===========
Weighted average common and common equivalent shares outstanding:
Basic ........................................................ 8,148,525 8,264,778
=========== ===========
Diluted ...................................................... 8,299,178 8,569,279
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements
4
<PAGE> 5
CYBEX COMPUTER PRODUCTS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, JULY 3,
1997 1998
--------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income ........................................................... $ 1,702,424 $ 2,807,834
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization ...................................... 123,987 298,460
Amortization of discount on investments ............................ (353,641) (155,708)
Provision for losses on accounts receivable ........................ 104,000 164,394
Gain on sale of investments ........................................ (29,969) (18,726)
Changes in operating assets and liabilities:
Accounts receivable- trade ....................................... (907,799) (1,128,107)
Inventories ...................................................... (904,765) (851,991)
Accounts payable and accrued expenses ............................ 369,316 (670,274)
Other ............................................................ 74,867 (58,414)
Income taxes payable ............................................. 822,035 992,900
------------ ------------
Net cash provided by operating activities .......................... 1,000,455 1,380,368
Cash flows from investing activities:
Purchases of property and equipment .................................. (296,844) (3,065,250)
Purchases of investments available for sale .......................... (6,093,347) (15,455,868)
Proceeds from the sale of investments ................................ 2,128,977 2,905,140
Proceeds from maturities of investments .............................. 18,060,000 34,925,000
------------ ------------
Net cash provided by investing activities ........................... 13,798,786 19,309,022
Cash flows from financing activities:
Repayment of note payable ............................................ (8,000,000) (12,016,678)
Proceeds from issuance of common stock ............................... 13,335 276,511
------------ ------------
Net cash used in financing activities .............................. (7,986,665) (11,740,167)
------------ ------------
Effect of exchange rate changes ...................................... -- 19,581
------------ ------------
Net increase in cash and cash equivalents ............................ 6,812,576 8,968,804
Cash and cash equivalents, beginning of period ......................... 2,424,385 2,411,085
------------ ------------
Cash and cash equivalents, end of period ............................... $ 9,236,961 $ 11,379,889
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for interest ............................. $ 13,216 $ 23,852
------------ ------------
Cash paid during the period for income taxes.......................... $ -- $ 515,500
============ ============
</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 July 3, 1998 should be read in
conjunction with the Company's consolidated financial statements as of and for
the year ended March 31, 1998 included in the Company's Form 10-K filed June 26,
1998. Operating results for the three months ended July 3, 1998 are not
necessarily indicative of the results that may be expected for the year ended
March 31, 1999. The March 31, 1998 balance sheet data presented herein was
derived from audited financial statements but does not include all disclosures
required by generally accepted accounting principles.
Beginning in the first quarter of Fiscal 1999, the Company elected to
report quarterly results based on a 13 week quarter. The change was made to
reflect the results of operations and financial position of the Company and its
subsidiaries on a more timely basis and to increase operating and financial
reporting efficiency.
2. LINE OF CREDIT
The Company renegotiated its line of credit in July, 1998, to provide
borrowings of up to $7.5 million at the LIBOR plus 2.5%. The line of credit
expires in August, 1999. There were no borrowings outstanding under the
Company's line of credit as of July 3, 1998, or March 31, 1998.
Polycon Computertechnik, GmbH ("PolyCon"), a subsidiary of the
Company, has a bank line of credit which provides for borrowings up to
$2,500,000. The Company had no amounts outstanding under the line of credit at
July 3, 1998, or March 31, 1998.
3. STOCK OPTIONS
Options to purchase 380,736 shares of common stock were issued on
varying dates throughout the quarter to employees under the 1995 Employee Stock
Option Plan and the 1995 Outside Directors' Stock Option Plan at the market
price as of the effective date. Also, options to purchase 22,100 shares of
common stock were exercised during the quarter.
4. COMPREHENSIVE INCOME
As of April 1, 1998, the Company adopted Financial Accounting Standards
Board Statement 130, Reporting Comprehensive Income ("Statement 130"). Statement
130 establishes new rules for the reporting and display of comprehensive income
and its components; however, the adoption of Statement 130 has no impact on net
income or shareholders' equity. Statement 130 requires unrealized gains or
losses on the Company's foreign currency translation adjustments and unrealized
6
<PAGE> 7
holding gains or losses on securities, which prior to adoption were reported
separately in shareholders' equity, to be included in accumulated other
comprehensive income. Prior year financial statements have been reclassified to
conform to the requirements of Statement 130. During the first quarter of
Fiscal 1999 and Fiscal 1998, total comprehensive income amounted to $2,558,875
and $1,780,093, respectively.
5. EARNINGS PER SHARE
A summary of the calculation of basic and diluted earnings per share
("EPS") for the three months ended June 30, 1997, and July 3, 1998, is as
follows:
<TABLE>
<CAPTION>
Income Shares Per-Share
(Numerator) (Denominator) Amount
<S> <C> <C> <C>
For the quarter ended June 30, 1997
Basic EPS
Income available to common shareholders $1,702,424 8,148,525 $0.21
Effect of Dilutive Securities
Stock Options 150,653
Diluted EPS
Income available to common shareholders
and assumed conversions $1,702,424 8,299,178 $0.21
For the quarter ended July 3, 1998
Basic EPS
Income available to common shareholders $2,807,834 8,264,778 $0.34
Effect of Dilutive Securities
Stock Options 304,501
Diluted EPS
Income available to common shareholders
and assumed conversions $2,807,834 8,569,279 $0.33
</TABLE>
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 the year ended March 31, 1998 filed with the Securities and
Exchange Commission on June 26, 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 2,160 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 4xPTM/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, and was the basis for mid and high range products developed
since its introduction. The Company introduced SwitchView(TM), a two and four
port KVM Switch Product in mid Fiscal 1998, and is the Company's first product
designed to be mass marketed. As a result of the acquisition of PolyCon the
Company obtained several switching solutions including the PolyCon/S, a console
switching hub, and the PolyCon/XS, a matrix console switching hub. 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 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 PC ExtenderTM SNAP, introduced in late Fiscal
1997, utilizes standard Category 5 UTP cabling, a commonly installed cable in
Ethernet networks, and reduces cabling costs by half. 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 products 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 PolyCon on December 31,
1997 discussed later herein. The acquisition of PolyCon included intellectual
property that the Company plans to leverage and integrate with its research and
development resources worldwide to expand the Company's high-end console
switching products for mid- and large-scale networks. The acquisition of PolyCon
was consistent with the Company's strategy to expand its operations in Europe
and immediately added new customer relationships and expanded 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
increasingly enhanced generations 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
sell succeeding generations of products to existing customers as well as to
increase its market share by selling products to new customers.
8
<PAGE> 9
The Company has broadened its marketing strategy of expanding channels of
distribution by increased penetration in the OEM market, major distribution and
catalog markets. In 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. During the second quarter of Fiscal 1998,
the Company also began distribution of its branded products with a major
distributor. These relationships have broadened the Company's channels of
distribution of its products and are 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 targeted to the mass market. With
the acquisition of PolyCon, the Company believes it is the only KVM Switch
Product manufacturer offering products ranging from the entry level PC single
user switch to multi-user, multiplatform switches and console switching
solutions 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 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, participation in trade
shows and other sales promotions.
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, a one year warranty on parts and allows additional rights of
return to certain of its customers. The Company estimates and accrues a
liability for sales and warranty returns. Actual returns have not been
significant to date. The Company also offers sales discounts to its customers
based on the level of sales. Such discounts have historically not had a
significant impact on the Company's results of operations.
The Company believes that increasing its international sales is an
important element in the overall strategy of future revenue growth.
International sales comprised 31% of the Companies sales for the quarter ended
July 3, 1998 and 26% and 21% of the Company's total sales in Fiscal 1998 and
Fiscal 1997, respectively.
On July 9, 1996, the Company formally established operations in Shannon,
Ireland, through its subsidiary, Cybex Europe Ltd. ("Cybex Europe").
Subsequently, the Company entered into a month to month lease with the Shannon
Development Authority for temporary startup facilities located within the
Shannon Free Trade Zone. The lease for the 12,500 square foot facility expired
in May of 1998 when Cybex Europe moved into its new 35,000 square foot lease
facility, also located in the Shannon Free Trade Zone.
On December 31, 1997, Cybex Europe acquired PolyCon, a privately held
company 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
approximately $8,800,000 including acquisition related expenditures. In
accordance with generally accepted accounting principles, costs allocated to
acquired research and development assets with alternative future uses were
capitalized, and the remaining $4,705,000 of acquired research and development
costs were expensed as a one-time charge on December 31, 1997. The acquisition
of PolyCon was funded by Cybex Europe from its available cash.
On March 30, 1998, the Company announced a 3-for-2 stock split, effected as
a 50% stock dividend. The additional new shares were distributed to shareholders
on April 28, 1998.
9
<PAGE> 10
RESULTS OF OPERATIONS
The following table presents selected financial information derived from
the Company's statements of income expressed as a percentage of net sales for
the quarters ended indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, JULY 3,
-------- -------
1997 1998
---- ----
<S> <C> <C>
Net sales............................................................................... 100.0% 100.0%
Cost of sales......................................................................... 47.2 47.0
----- -----
Gross profit............................................................................ 52.8 53.0
Research and development expenses...................................................... 7.3 6.4
Selling, general and administrative expenses.......................................... 25.4 24.9
----- -----
Operating income........................................................................ 20.1 21.7
Other income ......................................................................... 4.6 1.8
----- -----
Income before income taxes.............................................................. 24.7 23.5
Provision for income taxes............................................................ 8.8 8.4
----- -----
Net income.............................................................................. 15.9% 15.1%
===== =====
</TABLE>
Three Months Ended July 3, 1998 Compared to the Three Months Ended June 30, 1997
Net sales increased 73.6% to $18.6 million in the three months ended July
3, 1998 from $10.7 million in the three months ended June 30, 1997. The net
sales increase resulted from increased sales volume of the Company's KVM Switch
Products and Extension Products, as well as additional revenues provided from
the acquisition of PolyCon in December 1997. Sales of KVM Switch Products
increased 82.2% to $16.6 million in the three months ended July 3, 1998 from
$9.1 million in the three months ended June 30, 1997 primarily due to sales
growth of the mid- and high-end KVM Switch Products, as well as the entry level
KVM Switch Products. The mid- to high-end products grew 82.7% from fiscal 1998
to fiscal 1999, while the entry level product segment grew 215%. The entry level
product sales growth was fueled by sales of SwitchViewTM, which was introduced
in mid Fiscal 1998. Sales of KVM Extension Products increased 18.0% to $1.6
million in the three months ended July 3, 1998 from $1.4 million in the three
months ended June 30, 1997. The PC Plus line and the PolyCon RC line accounted
primarily for the growth in KVM Extension Product sales.
As a percentage of net sales, the Company's KVM Switch Products increased
during the current fiscal quarter to 89.3% from 85.1% and KVM Extension Products
declined to 8.8% from 13.0% during the same period in Fiscal 1998. Management
anticipates that sales of KVM Extension Products will continue to be a
substantial portion of the Company's net sales.
International sales increased 133.7% to $5.7 million in the three months
ended July 3, 1998 from $2.4 million in the three months ended June 30, 1997 and
accounted for 31% of total revenues. Sales to customers in Europe represented
approximately 22.8% of total revenues for the quarter.
Gross profit is affected by many factors including: product mix, discounts,
price competition, new product introductions and start-up costs, increasing
material and labor costs and the levels of outsourcing of manufacturing and
assembly services. Gross profit increased 74.3% to $9.8 million in three months
ended July 3, 1998 from $5.6 million in the three months ended June 30, 1997.
Gross profit as a percentage of net sales increased from 52.8% to 53.0% due to
increased volume of newer products designed for margin retention while being
discounted for volume distributions, cost reductions due to volume efficiencies
and increased outsourcing, and design changes, all of which were offset somewhat
by increases in warranty and inventory reserves. The increase in reserves was
the result of the Company's evaluation of the composition of inventory and the
increased sales to major distributors and OEMs. The Company believes its
potential exposure to these risks is adequately reserved.
Selling, general and administrative (SG&A) expenses increased 70.8% to $4.6
million (24.9% of net sales) in the three months ended July 3, 1998, from $2.7
million (25.4% of net sales) in the three months ended June 30, 1997.
10
<PAGE> 11
The increase in dollars spent for 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 PolyCon acquired in
December 1997. The increase also includes additional amounts reserved for legal
costs associated with the defense of a patent infringement claim. Management
anticipates that the dollar amount of selling, general and administrative
expense will continue to increase.
Research and development (R&D) expense grew 52.0% to $1.2 million or 6.4%
of net sales in the three months ended July 3, 1998, from $.8 million or 7.3% of
net sales in the three months ended June 30, 1997. The increase in dollars spent
can be attributed to the additional expenses of PolyCon acquired in December
1997 and an increase in contracted research and development services. Management
anticipates that the dollar amount of research and development expenses will
increase and as a percentage of net sales will increase slightly.
As a result of the factors discussed above, operating income increased
86.8% to $4.0 million (21.7% of net sales) in the three months ended July 3,
1998, from $2.2 million (20.1% of net sales) in the three months ended June 30,
1997.
Other income decreased 29.5% to $342,000 (1.8% of net sales) in the three
months ended July 3, 1998, compared to $485,000 in the three months ended June
30, 1997. The decrease in other income recognized was the result of a decrease
in funds invested as a result of the cash requirements for the acquisition of
PolyCon ($8.8 million including transaction fees) in December 1997 as well as a
decline in realized gains on the sale of certain investments.
Net income increased 65.0% to $2.8 million (15.1% of net sales) in the
three months ended July 3, 1998, from $1.7 million (15.9% of net sales) in the
three months ended June 30, 1997, as a result of the factors discussed 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 July 3, 1998, and for the
three months then ended, the Company had an available line of credit of $5
million with no outstanding borrowings. The Company renegotiated a $2.5 million
increase in the line of credit during July 1998, bringing the available line to
$7.5 million. The Company's German subsidiary, PolyCon, has a bank line of
credit which provides for borrowings up to $2,500,000. The Company had no
amounts outstanding under the lines of credit at July 3, 1998.
The Company's working capital position improved from $38,472,549 as of
March 31, 1998 to $38,514,475 as of July 3, 1998 (adjusted to include $3,040,833
and $2,908,680 of long term-investments, respectively). This slight improvement
in the Company's working capital position was due primarily to increased
earnings during the quarter ended July 3, 1998 partially offset by the Company's
investment in a new corporate headquarters.
Cash provided from operating activities increased from approximately $1.0
million for the three months ended June 30, 1997 to $1.4 million for the three
months ended July 3, 1998. This increase was caused by the offsetting effect of
increases in net income, accounts receivable and inventory. The increase in net
income and 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. 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.
Capital expenditures totaled $3.1 million in the first three months of
Fiscal 1999. Approximately $2.9 million of the capital expenditures related to
the construction of the new corporate facility in Huntsville, Alabama. The
remaining capital expenditures related to purchases of equipment for the Company
and its subsidiaries.
The Company began construction of the new corporate facility in
Hunstville, Alabama during the first quarter of Fiscal 1998 on land purchased in
Fiscal 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
construction of the facility is expected to cost aproximately $7.5 million.
11
<PAGE> 12
The Company believes that its current financial position and existing cash
and investments along with earnings and amounts available under its lines of
credit will be sufficient to meet its cash requirements over the next twelve
months.
YEAR 2000 COMPLIANCE
The Company is in the process of reviewing current software and hardware to
assess the impact of the year 2000 issue. Initially, the Company has determined
that most of the Company's current business process software and hardware are
year 2000 compliant. The Company expects to complete its year 2000 analysis by
the end of Fiscal 1999 and does not believe that costs associated with bringing
the Company's computer systems into full compliance with year 2000 will result
in material costs to the Company. The Company's products are year 2000 compliant
as well and therefore, the Company does not believe that they have any material
exposure to contingencies related to the year 2000 issue for products it has
sold.
The Company is also in the preliminary stages of assessing the impact of
the year 2000 issue on its major vendors and suppliers to determine the extent
to which the Company is vulnerable to those third parties' failure to remediate
their own year 2000 issue. Based on information presently available, the Company
does not anticipate any material impact on its financial condition or results of
operations from the effect of the year 2000 issue on the Company's internal
systems or those of its major suppliers and customers. However, there can be no
guarantee that the systems of other companies on which the Company's systems
rely will be timely converted, or that a failure to convert by another company
would not have a material adverse impact on the Company.
CONTINGENCIES
The Company has certain contingent liabilities resulting from litigation
initiated by Apex PC Solutions ("Apex"). Apex contends in a lawsuit filed in
February 1998 against the Company and others, in the US District Court in
Seattle, Washington, that the Company has infringed Patent No. 5,721,842.
Although the outcome of any litigation can never be certain, the Company does
not believe that any of its products are covered by any valid claim of Apex's
patent. It is the Company's opinion that the outcome of such contingencies will
not materially affect its business, operations, financial conditions or cash
flows. The Company has also been involved from time to time in litigation in the
normal course of its business. In the opinion of management, the Company is not
aware of any other pending or threatened matter that will have a material
adverse effect on the Company's business, operations, financial condition or
cash flows.
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.
12
<PAGE> 13
PART II - OTHER INFORMATION
Item 6. Exhibits
(a) The following exhibits are being filed with this report:
EXHIBIT NO. Description
----------- -----------
27 Financial Data Schedule (For SEC use only)
13
<PAGE> 14
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: August 14, 1998
14
<PAGE> 15
INDEX OF EXHIBITS
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- ----------- --------
27 Financial Data Schedule (For SEC use only)
15
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> JUL-3-1998
<EXCHANGE-RATE> 1
<CASH> 11,380
<SECURITIES> 15,578
<RECEIVABLES> 13,524
<ALLOWANCES> 1,129
<INVENTORY> 6,899
<CURRENT-ASSETS> 45,202
<PP&E> 11,723
<DEPRECIATION> 1,596
<TOTAL-ASSETS> 62,096
<CURRENT-LIABILITIES> 9,596
<BONDS> 0
0
0
<COMMON> 9
<OTHER-SE> 57,561
<TOTAL-LIABILITY-AND-EQUITY> 62,096
<SALES> 18,566
<TOTAL-REVENUES> 18,566
<CGS> 8,724
<TOTAL-COSTS> 8,723
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 164
<INTEREST-EXPENSE> 11
<INCOME-PRETAX> 4,375
<INCOME-TAX> 1,567
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,808
<EPS-PRIMARY> .34
<EPS-DILUTED> .33
</TABLE>
