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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER: 000-26496
CYBEX COMPUTER PRODUCTS CORPORATION
(Exact Name of Registrant as Specified in its Charter)
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ALABAMA 63-0801728
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
4991 CORPORATE DRIVE, HUNTSVILLE, ALABAMA 35805
(Address of Principal Executive Offices) (Zip Code)
(256) 430-4000
(Registrant's Telephone Number, Including Area Code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK
$.001 Par Value
Indicate by check mark whether 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, and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the Registrant as of June 16, 2000, was approximately $614,940,000
As of June 16, 2000, the number of shares of Registrant's Common Stock was
19,434,162.
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TABLE OF CONTENTS
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PART I
Item 1. Business...........................................................................................4
General............................................................................................4
Recent Developments................................................................................5
The Industry.......................................................................................7
Cybex Solutions....................................................................................8
Business Strategy..................................................................................9
Products..........................................................................................10
Research and Product Development..................................................................12
Customers, Sales and Marketing....................................................................12
Customer Service and Support......................................................................13
Manufacturing.....................................................................................13
Trademark Information.............................................................................14
Competition ......................................................................................14
Proprietary Technology............................................................................15
Employees.........................................................................................15
Factors Affecting the Company's Business and Prospects............................................16
Item 2. Properties........................................................................................21
Item 3. Legal Proceedings.................................................................................22
Item 4. Submission of Matters to a Vote of Security Holders...............................................22
PART II ...........................................................................................................23
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters. ...........................23
Item 6. Selected Financial Data...........................................................................24
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. ...........25
Item 7A. Quantitative and Qualitative Disclosures about Market Risk........................................34
Item 8. Financial Statements and Supplementary Data.......................................................35
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. ............56
PART III ...........................................................................................................56
Item 10. Directors and Executive Officers of the Registrant...............................................56
Item 11. Executive Compensation...........................................................................59
Item 12. Security Ownership of Certain Beneficial Owners and Management...................................66
Item 13. Certain Relationships and Related Transactions...................................................67
PART IV ...........................................................................................................68
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.................................68
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FORWARD LOOKING STATEMENTS AND
FACTORS THAT MAY AFFECT FUTURE RESULTS
Any statement contained in this Annual Report on Form 10-K that is not a
historical fact, or that might otherwise be considered an opinion or projection
concerning Cybex Computer Products Corporation (the "Company") or its business,
whether express or implied, is meant as and should be considered a
forward-looking statement as such term is defined in the Private Securities
Litigation Reform Act of 1995. Such statements represent management's opinions
concerning future operations, strategies, financial results or other
developments and are based upon estimates and assumptions that are subject to
significant business, economic and competitive risks and uncertainties, many of
which are beyond the control of management.
Risks and uncertainties that could cause actual results to differ materially
from those projected or implied include, but are not limited to:
- rapid technological change and the need to continue to develop new
products;
- potential reductions or delays in orders from new or existing
customers;
- potential fluctuations in quarterly results;
- product returns;
- dependence on limited product lines and technological obsolescence;
- intensely competitive industry with increasing price competition;
- further development of international distribution networks and sales;
- dependence on key personnel;
- dependence upon suppliers and outsourced manufacturing;
- ability to manage growth;
- reliance on the PC/server market;
- improved reliability of networks;
- ability to obtain and protect proprietary rights;
- expansion of distribution channels;
- increased demands on customer support operations;
- ability to grow new businesses and successfully integrate and operate
any acquired businesses;
- insufficient, excess or obsolete inventory;
- ability to develop and introduce new products on a timely basis;
- general business and economic conditions; and
- other factors described from time to time in the Securities and
Exchange Commission filings of Cybex Computer Products Corporation.
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For a discussion of factors affecting the Company's business and prospects,
see "Item 1 Business Factors Affecting the Company's Business and Prospects."
Readers are cautioned not to place undue reliance on forward-looking
statements, which speak only as of the date of this filing. Cybex Computer
Products Corporation undertakes no obligation to update or revise
forward-looking statements to reflect subsequent events or circumstances.
PART I
ITEM 1. BUSINESS.
GENERAL
Cybex Computer Products Corporation develops, produces and markets keyboard,
video monitor and mouse ("KVM") switch, extension and remote access products for
use in the computer industry. The Company's KVM switch products provide multiple
users, each with a separate keyboard, video monitor and mouse, with the
capability to control thousands of personal computers, thereby eliminating the
need for individual keyboards, video monitors or mice for the controlled PCs.
Elimination of these KVM peripherals can provide significant cost reductions
including lower initial investment, reduced 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, IBM, Compaq, and Silicon Graphics workstations functioning
either as stand-alone systems or as file, communications or print servers
operating within a local area network ("LAN"). 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 allows 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. 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's remote access line of KVM extension products allows
users to control servers from remote locations using a standard modem, Internet
or network connection without the necessity of remote access hardware or
software on the PCs or servers being accessed. When used in conjunction with a
KVM switch product, the Company's remote access line of KVM extension products
permits users to control attached PCs remotely.
The Company offers visual display products related to high
information-content digital display solutions. The SMARTGLAS(TM) technology
offers users working in time or mission critical environments simultaneous
access to large amounts of information. This technology permits the
consolidation of information from multiple sources to be displayed on single or
multiple flat panel displays, forming a "tiled" display solution.
The Company's products have benefited from the dramatic growth in the use of
PCs and the accompanying growth in servers. The Company's products solve many of
the space management, security and maintenance problems faced by facilities
managers, network administrators and support personnel responsible for
monitoring and servicing PCs and servers. All of the Company's products utilize
technology developed, enhanced or acquired by the Company that allows the
boosting, splitting, switching and converting of KVM signals over distances
greater than allowed by conventional computer hardware and cabling. Although the
Company does not rely exclusively on patent protection, the Company seeks to
protect its technology through patents and nondisclosure agreements.
The Company's goal is to be the market leader in providing KVM switch,
extension and remote access products to PC and server users. The Company
believes that it offers a more comprehensive family of KVM switch and extension
products than any of its competitors. The Company intends to build on its
position as an
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industry leader by continuing its aggressive research and development efforts to
develop new and enhanced products to meet the network management challenges
faced by its customers. In order to concentrate its capital resources on
research and development, product design, marketing and customer support, the
Company outsources most manufacturing functions.
The Company markets its products to a diversified group of dealers,
distributors, original equipment manufacturers ("OEMs") and end users, primarily
through its inside and outside sales and customer support staff, advertisements
in trade publications and participation in major industry trade shows. The
Company intends to increase its marketing efforts by:
(i) expanding existing relationships and developing new relationships with
dealers, major distributors, end users and OEMs;
(ii) expanding domestic and international sales through new and existing
distributors and utilizing its sales, distribution and manufacturing
facility in Shannon, Ireland, and its sales offices in Germany, Japan
and Singapore;
(iii) recruiting and training additional internal and field sales personnel
domestically and abroad;
(iv) expanding its direct mail advertising and telemarketing programs; and
(v) increasing web-enabled management of leads to resellers.
From Fiscal 1998 to Fiscal 1999 and from Fiscal 1999 to Fiscal 2000, the
Company's annual growth rates in net sales were 56.4% and 46.5%, respectively.
From Fiscal 1998 to Fiscal 1999, net income grew 64.5%, excluding a $1.85
million write-off of purchased research and development costs in connection with
the acquisition of certain assets of Fox Network Systems Corporation. In Fiscal
2000, 81.0% of net sales was attributable to KVM switch products, 10.6% was
attributable to KVM extension products and 7.2% was attributable to visual
display products. From Fiscal 1999 to Fiscal 2000 net income grew 56.2%,
excluding a $2.4 million write-off of purchased research and development and
acquisition costs in connection with the acquisition of PixelVision Technology,
Inc. and $900,000 in legal, accounting and investment banking costs incurred in
connection with the anticipated merger with Apex Inc. See "Recent Developments"
below.
The Company operates predominantly in one industry: the design, production,
marketing and selling of keyboard, video monitor and mouse switch, extension,
remote access and display products. The Company's method of internal reporting,
however, is disaggregated operationally. The two reportable segments, Cybex-U.S.
and Cybex-International, are evaluated based on gross profit; therefore,
selling, general and administrative costs, as well as research and development,
interest income/expense and provision for taxes, is reported on an entity wide
basis only. Reference is made to the information regarding operational
distribution of the Company's revenues and gross margin and to the operational
distribution of the Company's identifiable assets in "Management's Discussion
and Analysis of Financial Condition and Results of Operations" on pages 25
through 34 of this Annual Report on Form 10-K and in Note 19 to the Consolidated
Financial Statements set forth on pages 54 and 55 of this Annual Report on Form
10-K.
RECENT DEVELOPMENTS
On October 5, 1999, the Company acquired substantially all the assets,
including the related intellectual property and patents, of PixelVision
Technology Inc. pursuant to an asset purchase agreement dated October 5, 1999,
between the Company and PixelVision. PixelVision, a privately held company,
designs, manufactures and markets products and services related to
high-information content digital display solutions. The Company paid
approximately $6.7 million, including acquisition related expenses, to acquire
the assets of PixelVision. The acquisition, which was funded from available
cash, was accounted for using the purchase method of accounting.
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On January 20, 2000, the Company announced a 3 for 2 stock split, effected
as a 50% stock dividend. The new shares were distributed on or about February
18, 2000, for shareholders of record as of January 31, 2000.
In March, 2000, Victor Odryna was appointed to the position of Senior Vice
President of Corporate Strategic Marketing. Mr. Odryna was founder and Chief
Executive Officer of PixelVision from 1991 until October 1999 when PixelVision
was acquired by Cybex.
On March 8, 2000, the Company and Apex Inc. signed a definitive merger
agreement under which they have agreed to combine the two companies in a merger,
resulting in a new combined corporation temporarily named Aegean Sea Inc. Apex,
a publicly traded company, currently designs, manufactures and sells stand-alone
switching systems and remote access products for the client/server computer
market. Like Apex and the Company, Aegean Sea will design, manufacture and
market progressive solutions for network management, including
keyboard/video/mouse switching systems, KVM extension products, digital video
solutions and remote access management tools.
Upon completion of the merger, Apex shareholders will receive 1.0905 shares
of Aegean Sea common stock for each share of Apex common stock they own, and the
Company shareholders will receive one share of Aegean Sea common stock for each
share of Cybex common stock they own. After the merger, former shareholders of
Apex will hold approximately 54.5%, and former shareholders of the Company will
hold approximately 45.5%, of the outstanding common stock of Aegean Sea.
Assuming all conditions are satisfied, the Company expects the merger to be
completed in late June or July of 2000. Aegean Sea has applied to list its
common stock on The Nasdaq National Market under the symbol "ASEA."
The merger will be completed when all of the conditions to completion of the
merger are satisfied or waived, some of which have been waived or satisfied as
of the date of this Annual Report, including:
(i) approval and adoption of the merger agreement and the merger by
the shareholders of Apex;
(ii) the approval and adoption of the merger agreement and the
merger by the shareholders of the Company;
(iii) Aegean Sea's registration statement is effective, no stop
order suspending its effectiveness is in effect and no
proceedings for suspension of its effectiveness are pending
before or threatened by the SEC;
(iv) no law, regulation or order has been enacted or issued which
has the effect of making the merger illegal or otherwise
prohibiting completion of the merger substantially on the
terms contemplated by the merger agreement;
(v) all applicable waiting periods under applicable antitrust laws
have expired or been terminated;
(vi) Apex and the Company have each received from their respective
tax counsel an opinion to the effect that the merger will
constitute a tax-free reorganization within the meaning of
Section 368(a) of the Internal Revenue Code;
(vii) the shares of Aegean Sea common stock to be issued in the
merger must be authorized for the listing on Nasdaq, subject
to notice of issuance;
(viii) Apex's and the Company's representations and warranties in the
merger agreement must be true and correct unless the failure
to be true and correct would not have a material adverse
effect; and
(ix) Apex and the Company must have complied in all material
respects with the agreements and covenants that each has made
in the merger agreement.
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In May 2000, the Company announced the resignation of Remigius Shatas as
Executive Vice President of Special Projects and Secretary of the Company. Mr.
Shatas will remain a director of the Company. Mr. Shatas left the Company to
become Chief Executive Officer of CyCom, LLC, a joint venture with the Company
focusing on computer technology and research.
THE INDUSTRY
The computer industry has experienced dramatic changes during the past 20
years. The personal computer has evolved from stand alone PCs with limited
application into powerful information management tools as part of
enterprise-wide networks. The evolution of computer hardware and software has
allowed PCs in many instances to replace larger and more expensive mainframe
computers as the preferred information management tool for individuals and
organizations of all types and sizes throughout the world. Additionally,
internet service providers ("ISPs") and application service providers ("ASPs")
have experienced dramatic growth as a result of increased individual and
business demand for use of and access to the Internet.
In the corporate environment, enterprise computing is evolving from large,
centralized mainframe computers to distributed network computing through PCs
interconnected using a client/server design. The typical client/server
installation consists of a LAN with multiple centralized PCs operating as
"servers" dedicated to performing specific functions, such as file servers,
communications servers, and print servers, for multiple "client" PCs connected
to the LAN. Separate LANs within a single facility or in geographically
dispersed locations often are interconnected through a wide area network
("WAN"). Although IBM-compatible systems constitute the majority of the LANs in
operation in the United States, many corporate information systems also include
LANs comprised of Sun, Hewlett-Packard, Macintosh, Silicon Graphics, and Compaq
workstations and servers.
The expansion of computer networks in recent years has created several
problems for corporate users. The computer hardware and peripheral devices
required to operate LANs, WANs, ISPs and ASPs can consume substantial physical
space. Unlike mainframe computers, which were designed for central configuration
and support of key components, PC-based systems were originally designed to
operate as stand-alone systems where each server connected to the LAN was
required to have its own central processing unit ("CPU"), keyboard, video
monitor and mouse, even though generally only the CPU was necessary for the
server to perform its designated function within the LAN. There are significant
initial investment and ongoing utilities costs and space requirements associated
with the KVM peripherals dedicated to each server. The multiple KVM peripherals
required to operate individual servers consume valuable space and also make it
more difficult for technical staff to support the network. Currently, many
organizations have dealt with the space requirements by housing network servers
on special racks in dedicated rooms. While this approach has alleviated part of
the problem, the keyboards, video monitors and mice continue to occupy space and
consume energy. Thus, the resulting facility space and network administration
costs required to support LANs, WANs, ISPs and ASPs have grown significantly.
Computer networks have also created additional access, security, and
maintenance problems. Unlike terminal-based mainframe computer systems, PC-based
network systems generally require a separate CPU, keyboard, video monitor and
mouse for each user of the network. The hardware required for each PC causes
problems in space-constrained environments, such as brokerage firm trading
areas, and creates additional equipment replacement and maintenance expenses in
harsh work environments, such as manufacturing plants, where damage to the
PCs/servers is more likely to occur. In addition, many organizations are
concerned about the security of the system (i.e., unauthorized copying of files
or loading of unauthorized programs into the system).
Finally, increased concurrent use of Macintosh, Sun, and other systems
alongside PC-based LANs compounds the maintenance and efficiency problems faced
by facilities managers and systems administrators. Servers that are needed to
control separate operating systems also require space in the computer room for
separate CPUs and KVM peripherals.
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CYBEX SOLUTIONS
The Company develops products designed to solve many of the problems faced
by facilities managers, network administrators, and support personnel
responsible for monitoring and servicing the PCs/servers comprising network
installations. The Company's products provide solutions in the following ways:
- The Company's announced DS1800, which is expected to ship in mid-Fiscal
2001, is a digital switching solution allowing administrators secure
access to an unlimited number of servers, using the existing networking
infrastructure. This solution was developed partially with technology
obtained from acquisitions.
- The Company's high-end XP 4000(TM) Series, which includes the XP 4040,
the XP 4080 and the XP 4400 provides multiple users, each utilizing one
keyboard, video monitor and mouse, with the capability to monitor and
control thousands of interconnected PCs and network servers, and its
high-end PolyCon/XS Matrix Console Switching Hub permits 32 independent
consoles to control up to 256 PCs/servers in a matrix format.
- Elimination of KVM peripherals for each of the connected servers through
use of the KVM switch products provides significant cost reductions
including lower initial investment, reduced utility costs and space
savings, as well as more efficient technical support capabilities.
- Because the KVM switch products incorporate technology that
intelligently manages the boot process ("AutoBoot(TM) Technology"),
these products allow support personnel to automatically boot all
connected servers after a power failure or other problem without
operator intervention.
- With these switch products, users can organize, maintain, and support
banks of IBM-compatible, Macintosh, and Unix-based servers with the same
conveniences previously available with mainframe computers controlled
from a single user console. For instance, using the KVM switch products,
multiple technicians can simultaneously monitor and diagnose multiple
servers located in different areas of a facility.
- The Company's KVM extension products provide greater systems design
flexibility by allowing customers to locate keyboards, video monitors
and mice up to 600 feet away from a PC/server. Certain KVM extension
products also permit the addition of one or more keyboards, monitors,
and mice to a single PC/server. These products are particularly useful
in providing access to PCs/servers in harsh environments such as
manufacturing plants where it is not desirable to locate PCs/servers on
the plant floor. The use of KVM peripherals separated from the PC/server
in this situation decreases the cost of replacing damaged equipment
because the PC/server can be relocated to a safe area of the facility.
- The Company's KVM remote access line of extension products allows users
to control servers from remote locations using a standard modem,
Internet or network connection, without the necessity of remote access
hardware or software on the PCs or servers being accessed. When used in
conjunction with a KVM switch product, the Company's remote access line
of KVM extension products permits users to control attached PCs
remotely.
- The extension products also provide advantages in work environments with
limited space, such as brokerage firm trading areas, because the
PCs/servers can be located outside of the principal work area.
- In both harsh work environments and limited space work areas, KVM
extension products improve efficiency by allowing maintenance and
support functions to be performed from outside of the main work areas.
In addition, these products allow the PC/server to be placed in a secure
area thereby limiting a user's ability to copy files onto transportable
disks and preventing the insertion of unauthorized programs into the
network.
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- The Company's visual display products offer users simultaneous access to
large amounts of information by allowing the consolidation of
information from multiple sources to be displayed on single or multiple
flat panel displays, forming a "tiled" display solution.
BUSINESS STRATEGY
The Company's strategy is to be the market leader in developing, producing
and marketing KVM switch, extension, remote access and visual display products
for the computer industry around the world. The key elements of this strategy
are as follows:
Capitalize on Opportunities Created by Networking Trends and Internet
Growth. The Company believes that its KVM switch, extension and remote access
products address many of the challenges faced by facilities managers, network
administrators, and support personnel dealing with multiple hardware
configurations and operating platforms as a result of the growth in the
PC/server market in recent years. The networking trend and Internet growth has
created various markets for products that increase space utilization, improve
network management and maintenance functions, lower computer hardware and
operating costs and provide security. The Company intends to continue to develop
products that enhance its customers' ability to utilize and support standard
PC/server hardware in stand-alone and network configurations.
Expand Market/Product Position. The Company believes that it offers a more
comprehensive family of KVM switch, extension and remote access products than
any of its competitors. The Company intends to build on its position in the KVM
switch, extension and remote access products markets by continuing its
aggressive research and development efforts aimed at introducing enhanced and
new products ahead of its competitors. Given the high level of competition in
and the continually evolving nature of its product markets, the Company believes
that the introduction of products ahead of its competitors allows for greater
sales and profit potential and an enhanced reputation in its markets. Many of
the Company's new products have been and will continue to be enhanced versions
of existing KVM switch, extension and remote access products, which offer
increased application of existing or additional functions.
Increase Marketing and Sales. The Company intends to continue to emphasize
marketing and sales by:
(i) expanding existing relationships and developing new relationships with
dealers, major distributors, end users and OEMs;
(ii) expanding domestic and international sales through new and existing
distributors and utilizing its sales, distribution and manufacturing
facility in Shannon, Ireland and its sales offices in Germany, Japan
and Singapore;
(iii) recruiting and training additional internal and field sales personnel
domestically and abroad;
(iv) expanding its direct mail advertising and telemarketing programs;
(v) increasing web-enabled management of leads to resellers; and
(vi) relying on trade publication advertising, trade show participation and
repeat business from existing customers to generate sales.
Continue Customer-Driven R&D. The Company's products and research and
development efforts focus on meeting the challenges encountered by customers
seeking to achieve efficient and cost-effective utilization of computing
resources. The Company intends to continue its customer-driven research and
development efforts, which focus on responding to the needs of its customers by
producing innovative, practical and marketable products that have immediate
applications in their markets. By maintaining extensive contact with customers
throughout the installation and technical support process, the Company
identifies and tests potential design
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modifications and improvements as well as new applications of existing products.
This process also leads to the development of entirely new product categories
and applications based on existing technology developed to meet specific
customer needs.
Outsource Manufacturing Operations. The Company intends to maintain the high
degree to which it outsources the manufacturing of its products. Outsourcing of
manufacturing functions enables the Company to avoid the capital investment
required to establish and maintain an in-house manufacturing capability, thereby
allowing the Company to allocate more of its resources to sales and marketing,
research and development, product design and customer support.
Emphasize Customer Service and Support. The Company emphasizes 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 customers. Additional rights of return generally extend the
return period from 30 to 90 days. The Company estimates and accrues a liability
for sales and warranty returns. The Company also offers sales discounts to its
customers based on the level of sales.
Identify Strategic Merger and Acquisition Candidates. 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.
PRODUCTS
KVM Switch Products
KVM switch products provide multiple users, each with a separate keyboard,
video monitor and mouse, with the capability to control thousands of PCs,
thereby eliminating the need for individual keyboards, video monitors and mice
for the controlled PCs. The Company's products enable users to control
multiplatform configurations, either as a stand-alone system or as a dedicated
server operating within a LAN.
A PC/server network utilizing the Company's products is configured so that
each PC/server is attached to a specific channel of the KVM switch. The user
simply selects the attached PC/server he wishes to observe or control through
push buttons on the front panel of the switch, a keyboard "hot-key" sequence or
an optional on-screen menu system. The user's keyboard, video monitor and mouse
operate as though they are attached directly to the selected PC/server. The KVM
switch emits signals that emulate the existence of a keyboard, video monitor and
mouse, thereby causing the controlled PC/server to operate just as if the user's
KVM peripherals were connected directly to the PC/server whether or not
selected. The Company's major KVM switch products include the following:
- The XP 4000(TM) Series, which includes the XP 4040, the XP 4080 and the
XP 4400, adds multimedia, multiplatform and multiuser features providing
the user with the capability to configure multiple user consoles
simultaneously managing an array of thousands of PCs/servers located up
to 500 feet from the control unit. The XP 4000(TM) Series can also be
used to control terminals, routers, hubs and other equipment with one
keyboard, video monitor and mouse. It is "hot-pluggable" and can be
reconfigured while in operation without disruption of the operation of
the switch or the attached PCs/servers.
- The DS1800, which is expected to ship in mid-Fiscal 2001, is a digital
switching solution allowing administrators secure access to an unlimited
number of servers, using existing networking infrastructure. This
solution was developed partially with technology obtained from
acquisitions.
- The AutoView 200(TM) four and eight port matrix KVM switch is designed
to allow 2 users access to up to 64 servers. When combined with the
Company's Long View(TM) product receiver, the second user can be
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located up to 500 feet from the AutoView 200(TM). Additionally, the
AutoView 400(TM) eight port matrix KVM switch allows 2 users to access
64 servers and supports Sun, USB and PC based servers.
- The AutoView Commander(TM) adds computer selection through an optional
on-screen menu system and adds hot pluggable operations to the
AutoBoot(TM) Technology. Both a four-port and an eight-port model are
available.
- The SwitchView(R) two and four port KVM switch is designed to switch KVM
signals among up to 4 computers. The SwitchView(R) is the Company's
first product designed for mass marketing. The SwitchView OSD is an
eight port KVM switch designed for small and medium-sized businesses
with on-screen display.
- The PolyCon/S Console Switching Hub is designed to control eight servers
and can be configured to control 32 PCs/Servers from one console. A
console is made up of a keyboard, a monitor and the PolyCon/S Switching
Hub.
- The purpose of the PolyCon/XS Matrix Console Switching hub is to
simultaneously and independently control multiple PCs/servers from
multiple consoles in a matrix format. Available in eight or 16 ports,
the PolyCon/XS product can be configured such that 256 PCs/servers can
be controlled from 32 independent consoles. In concert with other
PolyCon products, the number of PCs/servers can be increased to 1,024.
KVM switch products (other than the XP 4000(TM) Series) can be combined with
the Company's KVM converter products to mix Macintosh and Sun systems with IBM
PC-compatible systems within one configuration. The XP 4000(TM) Series and
AutoView 400 products support multiple operating platforms without the need for
separate converter devices. Most of the Company's KVM switch products attach to
PCs/servers using the Company's proprietary cable assemblies and some do not
require an external power source.
KVM Extension and Remote Access Products
KVM extension products allow users to separate the keyboard, video monitor
and mouse up to 600 feet from the PC without significantly degrading the video
quality, as compared to six to eight feet allowed by conventional cables. In
addition, certain KVM extension products allow multiple users shared access to
the same PC from KVM peripherals. KVM extension products are particularly useful
in work areas where space is constrained, where working conditions may be
hazardous to the function of the computer, or where PC/server security is an
important consideration. The Company's remote access line of KVM extension
products allows users to control servers from remote locations using a standard
modem, Internet or network connection, without the necessity of remote access
hardware or software on the PCs or servers being accessed. When used in
conjunction with a KVM switch product, the Company's remote access line of KVM
extension products permits users to control attached PCs remotely.
The Company's products utilize the Company's proprietary technology that
allows the boosting, splitting, switching and converting of usable video signals
over distances greater than allowed by conventional computer hardware and
cabling. The Company's KVM extension and remote access products include:
- The Key-View II(TM) products provide remote access hardware solutions
that allow users to control servers via modem, Internet or network
connection. Used alone or in conjunction with a KVM switch product, a
user can access all levels of PCs and servers.
- The LongView(TM) allows control of servers from distances of up to 500
feet using a single Category 5 UTP cable. The LongView(TM) features
AutoTuning (patent pending), which automatically configures systems
without requiring user intervention. The Long View(TM) Companion allows
for a second workstation to be located near a PC for convenient system
maintenance.
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- The PolyCon/RC and the RC+ (Remote Controller) allows the remote control
of the PolyCon/S and the PolyCon/XS configurators with a single cable.
Visual Display Products
The Company offers display products related to high information-content
digital solutions. The SMARTGLAS(TM) technology offers users working in time or
mission critical environments simultaneous access to large amounts of
information. This technology permits the consolidation of information from
multiple sources to be displayed on a single or multiple flat panel displays,
forming a "tiled" display solution. The Company's products include 18" and 20"
desktop flat panel displays and the Company's SMARTGLAS(TM) multi-tile solution
that increases the amount of viewable information, the flexibility and format of
the information on the desktop and the consequent value of the information to
the user.
RESEARCH AND PRODUCT DEVELOPMENT
The Company believes that the continued, timely development of new products
and enhancements to its existing products is essential to maintaining its
competitive position. The Company's research and development efforts focus on
responding to the needs of its customers by producing innovative, practical and
marketable products that have immediate applications in their markets. By
maintaining extensive contact with customers throughout the installation and
technical support process, the Company is able to identify and test potential
design modifications and improvements as well as new applications and extensions
for existing products. This process also leads to the development of entirely
new product categories and applications based on existing technology developed
to meet specific customer needs. The Company believes that product development
activities directed toward solving the practical needs of its customers provides
a competitive advantage in introducing new and enhanced products ahead of its
competitors. While continuing to introduce enhanced and new products through the
various sales channels at different price points, the Company continues to
develop its high-end switching products and console switching solutions in
Europe in order to leverage and integrate its research and development resources
around the world to develop enhanced and new high-end products in the future. In
Fiscal 1998, Fiscal 1999 and Fiscal 2000, the Company's research and development
expenditures were $3.3 million, $5.2 million, and $7.0 million respectively
(6.3%, 6.4%, and 5.8% of net sales, respectively). As of April 30, 2000, the
Company's research and development staff consisted of 58 full-time employees.
The Company's products utilize components manufactured by third parties that
are generally available to the Company's competitors and potential competitors.
The Company's success in the future will depend in part upon its ability to
continue to apply such commercially available components to the development of
new products and new product categories and enhancement of existing products
designed to meet technological changes and customer needs in a cost-effective
manner. By emphasizing customer-driven research and development, the Company has
been able to develop innovative, practical and marketable products that have had
immediate application and acceptance in its markets. The failure by the Company
to respond timely to technological changes or customer requirements could have a
material adverse effect on the Company's business, financial condition, results
of operations and cash flows.
To meet the challenges of the rapidly changing technology in the computer
industry, the Company expects to continue to increase the level of investment in
research and development in the future. The Company's primary product
development efforts emphasize new or enhanced versions of its KVM switch,
extension and remote access products or related products. There can be no
assurance that these new or enhanced versions or any other product development
efforts of the Company will lead to commercially viable products, will be
completed on a timely basis, or will include the features required to achieve
market acceptance.
CUSTOMERS, SALES AND MARKETING
The Company's principal customers include a diversified group of dealers and
major distributors (64% of net sales in Fiscal 2000), OEMs (26% of net sales in
Fiscal 2000) and end users (10% of net sales in Fiscal 2000).
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The Company believes that its broad range of products sold at different price
points offers the Company the opportunity to market its products to customers of
all sizes, in different industries, and with varying degrees of technical
sophistication. In Fiscal 2000, Tech Data Corporation accounted for 17.3% of the
Company's net sales. No other customer accounted for more than 10% of the
Company's net sales in Fiscal 2000.
The Company markets its products primarily through an inside and outside
sales and customer support staff, advertising in trade publications and
participating in major industry trade shows. The Company's staff of inside sales
and customer support personnel process written and telephonic orders, service
existing customers and respond to information inquiries. The Company devotes a
substantial portion of its marketing efforts to developing, monitoring, and
enhancing its relationships with its network of independent dealers,
distributors, OEMs and end users. The sales personnel are supported by the
Company's engineering department and its customer service representatives who
provide "hot line" technical support and advice to customers. While the Company
continues to emphasize its traditional marketing efforts, it has also increased
its inside and outside sales and customer support personnel staff and increased
its direct mail advertising, telemarketing, publicity programs and enhanced its
home page on the World Wide Web. In addition to enhancing its relationships with
its existing customer base, the Company seeks to establish relationships with
additional distributors, OEMs and systems integrators. As of April 30, 2000, the
Company's total sales and customer support staff consisted of 103 full-time
employees.
The Company's international sales accounted for approximately 26%, 35% and
32% of net sales in Fiscal 1998, Fiscal 1999 and Fiscal 2000, respectively, and
are placed primarily through distributors located in Europe, Canada and other
foreign countries. The Company is expanding international sales within the
European community, Asia and the Pacific Rim through the utilization of its
facilities in Shannon, Ireland and Steinhagen, Germany.
CUSTOMER SERVICE AND SUPPORT
The Company emphasizes customer service and support by developing quality
products, encouraging customer feedback through extensive contact with key
customers, maintaining extensive documentation of technical support requests and
customer profiles and providing a customer hot-line that offers technical
support for the life of its products. Any problems that cannot be solved by the
technical support personnel are referred to the Company's engineering
department. The Company offers a 30-day money-back guarantee for all of its
products and a one year limited warranty on parts and service and incidental
repairs. The Company seeks to respond quickly to customers' requests for
technical support and service, including overnight exchange of defective parts
or products. The Company also allows one of its customers an extended return
period from 30 to 90 days.
MANUFACTURING
The Company does not manufacture any of its products in their entirety. In
order to avoid the capital investment required to establish and maintain
in-house manufacturing capabilities, the Company relies on subcontractors for
assembly of printed circuit board assemblies, subassemblies, chassis, equipment
enclosures and flat panel displays. The Company believes that such assembly can
typically be done by subcontractors at a lower cost than if the Company
assembled such items internally. Outsourcing manufacturing operations allows the
Company to concentrate its resources on marketing, research and development,
product design, quality assurance and customer support. The Company or its
subcontractors subject all of the components and products to automated testing,
equipment burn-in procedures, comprehensive quality audits, functional testing
and regulatory screening to assure quality and reliability.
The Company outsources substantially all capital intensive manufacturing
functions and intends to continue to use third-party manufacturers to control
more effectively the unit cost of the Company's products. This reliance on third
party subcontractors for the assembly of its products involves several risks,
including reduced control over product quality, delivery schedules,
manufacturing yields and costs. The Company attempts to diversify its outsourced
manufacturing operations and believes it has an adequate supply of alternative
subcontractors.
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The Company purchases industry-standard parts and components for the
assembly of its products from multiple vendors and suppliers through a
world-wide sourcing program. Custom molded cables and certain turnkey products
procured from outside sources have significant delivery times (10 to 12 weeks),
and failure to obtain adequate supplies could adversely affect product
deliveries. In the past, the Company has experienced delays in the receipt of
certain components, which have resulted in delays in related product deliveries.
The Company attempts to manage such risks through developing alternative sources
and maintaining relationships and close personal contact with each of its
suppliers. There can be no assurance, however, that delays in component and
product deliveries will not occur in the future. The inability to obtain
sufficient components or to develop alternative sources if and as required in
the future, could result in delays or reductions in product shipments, which, in
turn, could have a material adverse effect on the Company's business, financial
condition, results of operations and cash flows. The Company believes that there
are adequate alternative sources for its components.
A substantial portion of the Company's shipments in any fiscal period
relates to orders received in that period. To meet this demand, the Company
maintains a substantial level of inventory. The Company believes that because a
substantial portion of customer orders are filled within the fiscal quarter of
receipt, the Company's backlog is not a meaningful indicator of actual sales for
any succeeding period.
TRADEMARK INFORMATION
Various trademarks, service marks and trade names to which reference is made
in this Annual Report on Form 10-K are the property of owners other than the
Company. Such owners have all applicable rights with respect to their respective
trademarks, service marks and trade names.
COMPETITION
The market for the Company's products is highly fragmented and competitive,
and the Company expects competition to increase in the future. The Company
believes that its primary competitors are other manufacturers of keyboard, video
monitor and mouse access devices, such as Apex, Raritan Computer, Inc., Rose
Electronics, CCC Network Systems Ltd., Minicom Advanced Systems, Inc., Aten
International Co., Ltd., CompuCable Mfg. Group, Belkin and StarTech Computer
Accessories Ltd. Large OEM server manufacturers, such as Compaq Computer
Corporation, offer switch products supplied by the Company's competitors. The
Company competes for customers on the basis of performance in relation to price,
product features, adherence to standards, quality, reliability, development
capabilities, product availability and support.
The Company's future success will depend to a significant degree upon its
ability to remain competitive in the areas of marketing, research and
development, technology and distribution. As the Company's channels of
distribution expand, the Company expects to experience increased price
competition. Increased competition could result in price reductions and loss of
market share which would adversely affect the Company's business, financial
condition, results of operations and cash flows.
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PROPRIETARY TECHNOLOGY
The Company's future success is dependent in part upon its ability to
protect its proprietary rights in its products. The Company seeks to protect its
intellectual property rights by invoking the benefits of the patent, trademark,
copyright, trade secret and unfair competition laws of the United States, which
afford only limited protection. The Company has various patent applications
pending under the provisions of the Patent Cooperation Treaty (which permits the
filing of corresponding foreign patent applications in numerous foreign
countries within a limited time period). The Company also has other United
States and foreign patent applications pending. There can be no assurance that
any additional patents will issue from any of the Company's pending
applications, that any patents will be issued in any additional countries where
the Company's products can be sold, or that any claims allowed in the Company's
patents or in any pending patent applications will be of sufficient scope or
strength for, or provide any meaningful protection or any commercial advantage
to, the Company. Moreover, competitors of the Company may challenge the validity
of, or be able to design around, these patents or any other patents that may be
issued to the Company. The laws of certain foreign countries in which the
Company's products are or may be developed, manufactured or sold may not protect
the Company's products or intellectual property rights to the same extent as do
the laws of the United States and thus increase the likelihood of piracy of the
Company's technology and products.
In an effort to protect its intellectual property rights, the Company filed
multiple motions for partial summary judgment in the patent lawsuit brought by
Apex against the Company in the United States District Court for the Western
District of Washington in early 1999. On February 24, 1999, the Company
announced that, by the mutual agreement and stipulation of Apex and the Company,
the patent lawsuit brought by Apex has been dismissed without prejudice. As a
result and pursuant to the Stipulation and Agreed Order to Dismiss Without
Prejudice, patent validity and ownership issues raised in connection with the
District Court lawsuit will now be heard before the United States Patent and
Trademark Office. The Company has requested a patent interference proceeding in
the United States Patent and Trademark Office seeking to invalidate the
5,721,842 patent (the patent asserted in the lawsuit) and claim ownership of the
invention claimed by the 5,721,842 patent as a result of a prior patent, United
States Patent No. 5,732,212, which was formerly owned by Fox prior to its
acquisition by the Company in February 1999. The parties jointly requested the
District Court to urge accelerated consideration of these issues by the United
States Patent and Trademark Office. At the conclusion of the Patent and
Trademark Office proceeding, the lawsuit can be re-filed upon the request of
either party. With the voluntary dismissal of the lawsuit in February 1999, the
PTO proceedings have now been dormant for more than a year, and it is
anticipated that there will not be a final decision from the PTO for at least 20
months (which would likely be subject to further litigation in the courts). The
lawsuit and the PTO proceedings have not had any meaningful impact on the
Company since the voluntary dismissal of the litigation. The Company believes
that, when the anticipated merger with Apex is completed, the PTO proceedings
will be dismissed since both the Company's re-issue application and Apex's
patents will be owned by the new combined company, Aegean Sea.
In the future, the Company may file lawsuits against companies regarding the
alleged infringement of its patents. Patent litigation, and any other litigation
relating to the Company's intellectual property to which the Company becomes a
party, is subject to numerous risks and uncertainties, and there can be no
assurance that the Company will be successful in any such litigation. See
"- Factors Affecting the Company's Business and Prospects - Limited Protection
of Proprietary Rights; Risks of Third Party Infringement." There can be no
assurance that the steps taken by the Company to protect its intellectual
property rights will be adequate to prevent misappropriation of its technology
or that the Company can use its intellectual property rights to successfully
prevent competitors from commercializing technologies that are substantially
equivalent or superior to the Company's technology. See "- Factors Affecting the
Company's Business and Prospects - Limited Protection of Proprietary Rights;
Risks of Third Party Infringement."
EMPLOYEES
As of April 30, 2000, the Company had 233 full-time employees working in the
United States. Of the Company's domestic full-time employees, 66 were in
marketing, sales and customer support; 39 were in engineering, research and
development; 101 were in manufacturing and operations; and 27 were in
administration.
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As of April 30, 2000, there were 90 full-time employees working in the Shannon,
Ireland facility; 27 full-time employees working in the Steinhagen, Germany
facility; and 8 full-time employees working in Asia-Pacific. Of the Company's
international full-time employees, 37 were in marketing, sales and customer
support; 19 were in engineering, research and development; 45 were in
manufacturing and operations; and 22 were in administration. None of the
Company's employees are represented by a collective bargaining agreement, nor
has the Company ever experienced any work stoppage. Management believes that the
Company has a good relationship with its employees.
FACTORS AFFECTING THE COMPANY'S BUSINESS AND PROSPECTS
The Company's business, operations and financial condition are subject to
certain risks. Some of these risks are described below, and readers of this
Annual Report on Form 10-K should take these risks into account in evaluating
the Company or any investment decision involving the Company. This section does
not describe all risks applicable to the Company, and it is intended only as a
summary of certain material factors. More detailed information concerning the
factors described below is contained in other sections of this Annual Report on
Form 10-K.
Technological Changes; Need to Continue Developing New Products
The markets for the Company's products are characterized by rapidly changing
technologies, evolving industry standards and continuing improvements. If
technologies used in the Company's products become obsolete or fail to gain
widespread commercial acceptance, the Company's business may be adversely
affected. Moreover, the introduction of products embodying superior or
alternative technologies (such as switching software), the emergence of new
industry standards, or changes in the market's pricing structure could adversely
affect the Company's ability to sell its products. While the Company has
competed favorably with its competitors by continually developing a high
performance line of products utilizing leading technologies, competitors have
developed products which offer similar features. Although historically the
timing of the introduction of new products or enhancements to existing products
by the Company has not had a material adverse effect on the business, financial
condition, results of operations or cash flows of the Company, there can be no
assurance that these circumstances will continue in the future. The Company
expects that the continued development of comparable products by competitors
will require that it develop new and/or enhanced products on an ongoing basis to
meet the competitive demands of these markets. The Company's sales and
profitability in the past have resulted to a significant extent from its ability
to anticipate or react quickly to its customers' needs and to develop and
introduce new and enhanced products. The Company's continued ability to adapt to
customer needs and technological change will be a significant factor in
maintaining or improving its competitive position and its prospects for growth.
However, the Company's failure to respond on a timely basis to technological
developments, changes in industry standards or customer requirements, software
innovations or any significant delay in product development or introduction
would have a material adverse effect on the Company's business, financial
condition, results of operations and cash flows.
Potential Fluctuations in Quarterly Results; Product Returns
Most of the Company's sales in each quarter result from orders booked in
that quarter. The Company typically does not have firm commitments for the
purchase of products to be delivered in the future. Furthermore, many purchasers
typically require prompt delivery of products. This results in a limited backlog
of orders for these products and requires the Company to maintain sufficient
inventory levels to satisfy anticipated customer demand. If demand for the
Company's products declines or if significant sales in any quarter do not occur
as anticipated, the Company's financial results will be materially adversely
affected. The Company's operating results are affected by a number of other
factors, including: the timing of shipments; the timing of new product
introductions and enhancements by the Company and its competitors; changes in
product or distribution channel mixes; changes in pricing policies or price
reductions by the Company; competition and price reductions by the Company's
competitors; the availability and cost of supplies and components; sales and
marketing expenses related to entering into new markets, introducing new
products and retaining current customers; seasonal
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customer demand; and fluctuations in sales of servers due to changes in economic
conditions or capital spending levels.
The Company offers a 30-day unconditional money-back guarantee and a twelve
to fifteen month limited warranty for all of its products and allows additional
rights of return to certain customers. Additional rights of return generally
extend the return period from 30 to 90 days. Although the Company's historical
return experience has not been significant, such returns, should they occur,
would have an adverse effect on sales and on the Company's net sales. Operating
expenses are relatively fixed over the short term, and, therefore, a shortfall
in quarterly revenues could impact the Company's financial results significantly
in a quarter. Furthermore, maintaining sufficient inventory levels to assure
prompt delivery of the Company's products increases the amount of inventory that
may become obsolete and increases the risk that the obsolescence of such
inventory may have a material adverse effect on the Company's business and
operating results. The Company's operating results may also fluctuate as a
result of a number of other factors, including increased competition, changes in
customer order patterns, changes in product mix and announcements of new
products by the Company or its competitors.
Current Dependence on Limited Product Lines; Technological Obsolescence
Almost all of the Company's net sales during the last three fiscal years
have been derived from sales of the Company's KVM switch, extension, remote
access and display products. Sales of these products accounted for approximately
99% of net sales in Fiscal Year 2000, 99% of net sales in Fiscal 1999 and 98% of
net sales in Fiscal 1998 and Fiscal 1997. There can be no assurance that the
Company's sales of its KVM switch and extension products will continue at this
level or that new product releases will be successful. A significant decline in
sales of KVM switch, extension, remote access and display products would have a
material adverse effect on the Company's business, financial condition, results
of operations and cash flows. A principal feature of KVM switch products is
their ability to emulate a computer's associated keyboard. Technology exists
today that would allow computers to perform various functions and to be accessed
without electronic impulses from an associated keyboard or keyboard emulation
device. To date, this technology has not gained acceptance, but to the extent
that widespread commercial acceptance of this technology occurred, it would have
a material adverse effect on the Company's business, financial condition,
results of operations and cash flows.
Intense Competition
The markets for the Company's products are highly fragmented and intensely
competitive. The Company's business is becoming increasingly sensitive to new
product introductions, price changes and marketing efforts by its competitors.
Accordingly, the Company's future success will be highly dependent upon timely
completion and introduction of new products and product features at competitive
price and performance levels which address the evolving needs of the Company's
customers. The Company is currently experiencing increased price competition in
the market for KVM switch, extension, remote access and display products and
expects that pricing pressures will increase in the future. Increased
competition could result in price reductions and loss of market share, which
would adversely affect the Company's business, financial condition, results of
operations and cash flows. In the market for KVM switch products, the Company
competes with independent third parties such as Apex, Raritan Computer Inc.,
Rose Electronics, CCC Network Systems Ltd., Minicom Advanced Systems, Inc., Aten
International Co., Ltd., CompuCable Mfg. Group, Belkin and StarTech Computer
Accessories Ltd. The Company may in the future face competition from software
providers who are able to offer a software solution to address many of the
problems the Company's switching systems are designed to address.
The Company's current and potential competitors may be able to respond more
quickly to new or emerging technologies and changes in customer requirements or
to devote greater resources to the development, promotion and sale of their
products than the Company. In addition, current and potential competitors have
established or may establish cooperative relationships among themselves or with
third parties that enhance the ability of their products to address the needs of
the Company's prospective customers. There can be no assurance that the Company
will be able to compete successfully against current and future competitors or
that competitive pressure faced by the Company will not have a material adverse
effect on the Company's business, financial condition, results of operations and
cash flows.
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Risks Relating to Expansion of International Distribution Network and
International Sales
The Company's strategy contemplates additional development and expansion of
its international distribution network through Cybex Computer Products
International, Ltd. in an effort to increase international sales of its
products. There can be no assurance that the Company will be successful in
expanding its international distribution network or in increasing sales of its
products in foreign markets. If the revenues generated by international sales
are not adequate to recover the expense of establishing, expanding and
maintaining an international distribution network, the Company's business,
financial condition, results of operations and cash flows will be materially
adversely affected. If international sales become a more significant component
of the Company's net sales, the Company's business will become more vulnerable
to the risks inherent in doing business on an international level, including
difficulties in managing foreign distributors, longer payment cycles and
problems in collecting accounts receivable, the effects of seasonal customer
demand, changes in regulatory requirements, risks relating to intellectual
property rights, export restrictions, tariffs and other trade barriers,
fluctuations in currency exchange rates, potentially adverse tax consequences
and political instability. The existence or occurrence of any one of these
factors could have a material adverse effect on the Company's business,
financial condition, results of operations and cash flows.
Dependence on Key Personnel
The Company is dependent in large part upon its ability to retain its key
management and technical personnel, including Stephen F. Thornton, Chairman of
the Board, President and Chief Executive Officer; Doyle C. Weeks, Executive Vice
President of Group Operations and Business Development and Secretary; Douglas E.
Pritchett, Senior Vice President Finance, Chief Financial Officer, Treasurer and
Assistant Secretary; Gary R. Johnson, Senior Vice President of Sales;
Christopher L. Thomas, Senior Vice President - Engineering; R. Byron Driver,
Senior Vice President and Chief Operating Officer; Victor Odryna, Senior Vice
President - Corporate Strategic Marketing; and Kieran MacSweeney, Managing
Director of International Operations. The future success of the Company will be
highly dependent upon the personal efforts of these individuals and other key
management and technical personnel, and the loss of services of any one of them
could have a material adverse effect on the Company's business, financial
condition, results of operations and cash flows. The Company has entered into
employment agreements with all of the above named officers. The Company
maintains "key man" life insurance on Mr. Thornton. The Company's success will
also be dependent in part upon its ability to attract, retain and motivate
highly skilled employees. Competition for employees with the skills required by
the Company, particularly engineering and other technical personnel, is intense,
and there can be no assurance that the Company will be able to attract and
retain highly skilled employees in sufficient numbers to sustain its current
business or to support future growth.
Management of Growth
In recent periods, the Company has experienced rapid revenue and customer
growth and expansion in the number of its employees, its product offerings and
the scope and complexity of its financial systems. This growth has placed
significant strain on the Company's management, operational and financial
resources and has resulted in new and increased responsibilities for management
personnel. The Company's officers have had limited or no experience in managing
companies larger than the Company. There can be no assurance that the Company's
management, personnel, systems, procedures and controls will be adequate to
support the Company's existing and future operations. The Company's ability to
effectively manage its recent growth and any future growth will require the
Company to continue to implement and improve its operational, financial and
information systems and will likely require additional management personnel. In
addition, the Company believes that it must develop greater engineering,
marketing, sales and customer support capabilities in order to develop new
products and product enhancements, secure new customers at a rate necessary to
achieve desired growth and effectively serve the evolving needs of present and
future customers. There can be no assurance that the Company will be successful
in strengthening these capabilities. Without adequate management, engineering,
product development, marketing and sales and customer support capabilities, the
Company's ability to effectively manage its growth, expand and enhance its
product line, further penetrate its existing markets and develop new markets
will be
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significantly limited. If the Company's management is unable to effectively
manage the Company's growth, the business, financial condition, results of
operations and cash flows of the Company will be materially adversely affected.
Dependence Upon Suppliers and Outsourced Manufacturing
The principal components of the Company's KVM switch products are power
supplies, cable assemblies, line filters, enclosures, printed circuit boards and
electronic components, all of which are purchased from outside vendors. The
Company buys components under purchase orders and generally does not have
long-term agreements with its suppliers. While the Company attempts to maintain
multiple outside sources for all of the materials and components it purchases,
there can be no assurance that the materials or components of any one or more of
those sources could be promptly or adequately replaced. Any termination of or
significant disruption in the Company's relationship with suppliers of its
product components may prevent the Company from filling customer orders in a
timely manner, as the Company generally does not maintain large inventories of
its products or components.
The Company purchases a number of the components for its KVM switch products
from sole or a limited number of suppliers. The Company has occasionally
experienced and may in the future experience delays in delivery of such
components. Although alternate suppliers are available for most of the
components and services needed to produce the Company's products, the number of
suppliers of some components is limited, and qualifying a replacement supplier
and receiving components from alternate suppliers could take several months. The
Company depends upon its suppliers to deliver quality components that are cost
competitive and in compliance with the Company's specifications. Disruption in
supply, a significant increase in the cost of one or more components, failure of
a third party supplier to remain competitive in price or the failure of a
supplier to comply with any of the Company's procurement needs could delay or
interrupt the Company's ability to manufacture and deliver its products to
customers on a timely basis, thereby adversely affecting the Company's business,
financial condition, results of operations and cash flows.
The Company relies on third party manufacturers for subassembly of the
Company's products. These outsourcing arrangements and any future outsourcing
arrangements involve numerous risks, including reduced control over product
quality, delivery schedules, manufacturing yields and costs. Moreover, although
arrangements with such manufacturers may contain provisions for warranty
obligations on the part of such manufacturers, the Company remains primarily
responsible to its customers for warranty obligations.
Reliance on PC/Server Market; Improving Network Reliability and Tools
The Company's business is largely dependent upon the continued acceptance of
the PC/server model of network computing. Although distributed network computing
utilizing PC/server architecture has gained increasing acceptance, there can be
no assurance that use of this networking model will continue to grow or that it
will not be replaced by new technologies for network computing, thereby
rendering the Company's products obsolete. In addition, the market for the
Company's products is driven in part by the inherent unreliability of networks.
As networks continue to proliferate, however, PC/server manufacturers and
software developers or providers may develop greater reliability and better
tools for managing networks. To the extent that greater reliability and better
network management tools are successfully developed, the Company's products
could be rendered obsolete, which would have a material adverse effect on the
Company's business, financial condition, results of operations and cash flows.
Limited Protection of Proprietary Rights; Risks of Third Party Infringements
The Company's success is highly dependent on proprietary technology. The
Company has been granted some patents, and applications for additional patents
are pending. The Company also relies upon copyright, trademark and trade secret
laws to establish its proprietary rights in its products. The laws of certain
foreign countries in which the Company's products are or may be developed,
manufactured or sold may not protect the Company's products or intellectual
property rights to the same extent as do the laws of the United States and thus
increase the
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likelihood of piracy of the Company's technology and products. There can be no
assurance that the steps taken by the Company to protect its intellectual
property rights will be adequate to prevent misappropriation of its technology
or that the Company can use its intellectual property rights to successfully
prevent competitors from commercializing technologies that are substantially
equivalent or superior to the Company's technology.
There can be no assurance that any additional patents will issue from any of
the Company's pending applications, that any patents will be issued in any
additional countries where the Company's products can be sold, or that any
claims allowed in the U.S. patents or in any pending patent applications will be
of sufficient scope or strength for, or provide meaningful protection or any
commercial advantage to, the Company. Moreover, competitors of the Company may
challenge the validity of, or be able to design around, the U.S. patents or any
other patents that may be issued to the Company. The laws of certain foreign
countries in which the Company's products are or may be developed, manufactured
or sold may not protect the Company's products or intellectual property rights
to the same extent as do the laws of the United States and thus increase the
likelihood of piracy of the Company's technology and products. There can be no
assurance that the steps taken by the Company to protect its intellectual
property rights will be adequate to prevent misappropriation of its technology
or that the Company can use its intellectual property rights to successfully
prevent competitors from commercializing technologies that are substantially
equivalent or superior to the Company's technology.
The Company seeks to protect its proprietary rights through a variety of
means, including confidentiality agreements and, if necessary, litigation. The
network server, electronics and related industries in which the Company competes
are characterized by vigorous pursuit and protection of intellectual property
rights or positions, which have resulted in significant and often protracted and
expensive litigation. The Company has requested a patent interference proceeding
in the United States Patent and Trademark Office seeking to invalidate the
5,721,842 patent (the patent asserted in the lawsuit) and claim ownership of the
invention claimed by the 5,721,842 patent as a result of a prior patent, United
States Patent No. 5,732,212, which was formerly owned by Fox prior to its
acquisition by the Company in February 1999. The parties jointly requested the
District Court to urge accelerated consideration of these issues by the United
States Patent and Trademark Office. At the conclusion of the United States
Patent and Trademark Office proceeding, the lawsuit can be re-filed upon the
request of either party. If the merger with Apex is completed (see "Recent
Developments"), then the patent interference proceeding will be dismissed since
both the Company's re-issue application and Apex's patents will be owned by the
new combined company, Aegean Sea. See "Legal Proceedings."
If necessary or desirable, the Company may seek licenses under the
intellectual property rights of third parties. However, there can be no
assurance that licenses will be offered or that the terms of any offered license
will be acceptable to the Company. The failure to obtain a license from a third
party for technology used by the Company could cause the Company to incur
substantial liabilities and to suspend or cease the manufacture of products
requiring such technology.
Risks Relating to Expansion of Distribution Channels
The Company expects to rely increasingly on major distributors, value-added
resellers, systems integrators and OEMs for the distribution and sale of its
products, and the Company's strategy contemplates the expansion of its
distribution channels both domestically and internationally. The Company's
future success will depend in part on its ability to expand existing
relationships and develop new relationships in these distribution channels.
There can be no assurance that the Company will be successful in expanding its
distribution channels. The Company will be required to invest significant
additional resources in order to expand its distribution channels, and there can
be no assurance that the cost of the Company's investment in further developing
and expanding these channels will not exceed the revenues generated from such
investment.
The Company provides and expects to continue providing discounts and other
special pricing arrangements throughout its distribution channels, which may
have an adverse impact on gross margins. The Company expects that as sales
through these distribution channels increase, such arrangements could result in
an increased risk of significant product returns. There can be no assurance that
actual returns in the future will not have a material
20
<PAGE> 21
adverse effect on the Company's business, financial condition, results of
operations or cash flows. (See - "Potential Fluctuations in Quarterly Results;
Product Returns").
The Company's distribution agreements generally are nonexclusive and may be
terminated on short notice by either party without cause. Companies in these
distribution channels are not within the control of the Company, are not
obligated to purchase products from the Company and frequently offer products of
several different manufacturers, including products competitive with the
Company's products. There can be no assurance that companies in these
distribution channels will not give higher priority to the sale of such other
products. A reduction in sales efforts by the companies in these distribution
channels could lead to reduced sales by the Company and could materially
adversely affect the Company's business, financial condition, results of
operations and cash flows.
Increased Demands on Customer Support Operations
Growth of the Company's sales, should it occur, is likely to be accompanied
by increasing demands on the Company's customer support operations. As a result
of the Company's commitment to a high level of customer support, the Company is
likely to need to invest significant resources in the maintenance and
improvement of its customer support resources. Any failure to maintain adequate
customer support could cause customer dissatisfaction, result in reduced sales
of the Company's products and, accordingly, materially adversely affect the
Company's business, financial condition, results of operations and cash flows.
Control by Certain Shareholders
As of June 16, 2000, the executive officers and directors of the Company
beneficially owned or controlled approximately 14.13% of the outstanding shares
of common stock. Accordingly, such persons, if they were to act in concert,
would likely control the Company's Board of Directors and, therefore, the
business, policies and affairs of the Company. Furthermore, such control could
preclude any unsolicited acquisition of the Company and, consequently, adversely
affect the market price of the common stock.
Possible Volatility of Stock Price
There may be significant volatility in the market price for the common
stock. Quarterly operating results of the Company or companies within the same
or similar industry segments, changes in the general conditions of the economy,
the financial markets, the technology industry, adverse press or news
announcements or other developments affecting the Company or its competitors
could cause the market price of the common stock to fluctuate substantially.
Furthermore, the stock market may experience significant price and volume
fluctuations which may affect the price of the Company's common stock for
reasons unrelated to its operating performance.
ITEM 2. PROPERTIES.
The Company's headquarters, occupying 126,000 square feet and containing
administrative, sales, marketing, research and development, engineering,
manufacturing and distribution facilities, are located in Huntsville, Alabama on
an 18-acre tract of land owned by the Company in Cummings Research Park.
Cybex International is located in a 44,000 square foot, leased facility
located in the Shannon Free Trade Zone in Shannon, Ireland, which houses
administrative, sales, marketing, research and development, engineering,
manufacturing and distribution operations. The lease with the Shannon
Development Authority is for twenty years and provides for annual rent of
approximately $230,000.
The PolyCon Companies' headquarters, containing sales and administrative
facilities, are located on leased property in Steinhagen, Germany. The lease,
which provides for annual rent of approximately $54,000, can be terminated in
July 2002. During Fiscal 1999, the engineering and manufacturing operations of
the PolyCon Companies were consolidated with the operations of Cybex
International in Shannon, Ireland.
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<PAGE> 22
The Company also leases approximately 22,000 square feet for $14,675 per
month in Acton, Massachusetts. This facility houses the engineering team
responsible for visual display technology and products.
ITEM 3. LEGAL PROCEEDINGS.
In early 1999, the Company filed multiple motions for partial summary
judgment in the patent lawsuit brought by Apex against the Company in the United
States District Court for the Western District of Washington. On February 24,
1999, the Company announced that, by the mutual agreement and stipulation of
Apex and the Company, the patent lawsuit brought by Apex had been dismissed
without prejudice. As a result and pursuant to the Stipulation and Agreed Order
to Dismiss Without Prejudice, patent validity and ownership issues raised in
connection with the District Court lawsuit will not be heard before the United
States Patent and Trademark Office. The Company has requested a patent
interference proceeding in the United States Patent and Trademark Office seeking
to invalidate the 5,721,842 patent (the patent asserted in the lawsuit) and
claim ownership of the invention claimed by the 5,732,212, which was formerly
owned by Fox prior to its acquisition by the Company in February 1999. The
parties jointly requested the District Court to urge accelerated consideration
of these issues by the United States Patent and Trademark Office. At the
conclusion of the Patent and Trademark Office proceeding, the lawsuit can be
re-filed upon the request of either party.
With the voluntary dismissal of the lawsuit in February 1999, the PTO
proceedings have now been dormant for more than a year, and it is anticipated
that there will not be a final decision from the PTO for at least 20 months
(which would likely be subject to further litigation in the courts). The lawsuit
and the PTO proceedings have not had any meaningful impact on the Company since
the voluntary dismissal of the litigation. The Company believes that, when the
anticipated merger with Apex is completed, the PTO proceedings will be dismissed
since both the Company's re-issue application and Apex's patents will be owned
by the new combined company, Aegean Sea.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company did not submit any matters to a vote of its security holders
during the fourth quarter of its fiscal year ended March 31, 2000.
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<PAGE> 23
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
Price Range of Common Stock; Record Holders
The Company's Common Stock is traded in the over-the-counter market and is
quoted on the NASDAQ National Market System under the symbol CBXC. The following
table sets forth, for the fiscal periods indicated, the reported high and low
sale prices and gives retroactive effect to the stock splits discussed herein:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Fiscal 1999
Quarter ended July 3, 1998............................... $ 11.44 $ 8.59
Quarter ended October 2, 1998............................ 14.94 8.89
Quarter ended January 1, 1999............................ 19.58 9.56
Quarter ended March 31, 1999............................. 24.67 10.79
Fiscal 2000
Quarter ended July 2, 1999............................... $19.667 $ 9.917
Quarter ended October 1, 1999............................ 23.625 13.833
Quarter ended December 31, 1999.......................... 34.917 20.000
Quarter ended March 31, 2000............................. 48.500 24.830
Fiscal 2000
Quarter ended June 30, 2000 (through June 16, 2000)...... $ 41.53 $ 23.00
</TABLE>
On June 16, 2000, the closing sale price for the Company's Common Stock was
$36.00 per share. At June 16, 2000, there were 262 holders of record of the
Company's Common Stock.
Dividend Policy
The Company paid no cash dividends to its shareholders during the last two
fiscal years. Future dividends will be dependent upon the Company's earnings,
financial requirements and other relevant factors.
23
<PAGE> 24
ITEM 6. SELECTED FINANCIAL DATA.
The following selected consolidated financial data as of and for each of the
fiscal years in the five-year period ended March 31, 2000, has been derived from
the audited financial statements of the Company.
This data should be read in conjunction with the Company's Consolidated
Financial Statements, the notes thereto and Management's Discussion and Analysis
of Results of Operations and Financial Condition included elsewhere in this
document.
<TABLE>
<CAPTION>
Fiscal Years Ended March 31,
----------------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Net Sales $25,010 $34,568 $52,564 $82,195 $120,439
Cost of Sales 11,152 16,408 24,980 38,302 55,953
Gross Profit 13,858 18,160 27,584 43,893 64,485
Research and development expenses 1,686 2,374 3,312 5,225 7,023
Purchased research and development --- --- 4,705 1,850 3,368
expenses and merger related expenses
Selling, general and administrative 6,096 8,455 13,386 20,177 27,197
expenses
Operating income 6,076 7,331 6,181 16,641 26,897
Interest income (expense), net 1,157 1,611 1,626 1,258 1,748
Other Income 52 291 272 358 (157)
Income before income taxes 7,285 9,233 8,079 18,257 28,488
Provision for income taxes 2,592 3,393 4,508 5,825 9,705
Net Income 4,693 5,840 3,571 12,432 18,783
Net income per common and common
equivalent share:
Basic .29 .32 .19 .66 .98
Diluted .27 .31 .19 .63 .91
Weighted average common and common
equivalent shares outstanding:
Basic 16,074 18,515 18,390 18,737 19,163
Diluted 17,195 18,878 18,918 19,714 20,538
</TABLE>
<TABLE>
<CAPTION>
March 31,
---------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital $39,394 $40,220 $35,432 $43,852 $54,181
Total assets 47,418 56,527 70,719 92,850 127,295
Total debt 5,000 8,000 12,137 16,000 23,000
Shareholders' equity 40,621 44,987 49,435 64,196 85,042
</TABLE>
24
<PAGE> 25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
THE INFORMATION IN THIS ITEM 7 - "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" CONTAINS FORWARD-LOOKING
STATEMENTS, INCLUDING, WITHOUT LIMITATION, STATEMENTS RELATING TO THE COMPANY'S
REVENUES, EXPENSES, MARGINS, LIQUIDITY AND CAPITAL NEEDS. SUCH FORWARD-LOOKING
STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THE
FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE,
BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "BUSINESS FACTORS AFFECTING THE
COMPANY'S BUSINESS AND PROSPECTS."
The following discussion is intended to facilitate the understanding and
assessment of significant changes and trends related to the consolidated results
of operations and financial condition of the Company. This discussion and
analysis should be read in conjunction with the Company's Consolidated Financial
Statements and notes thereto included elsewhere in this Annual Report.
GENERAL
The Company develops, produces and markets KVM switch, extension, remote
access and display products for use in the computer industry. The Company's KVM
switch products provide multiple users, each with a separate KVM peripheral,
with the capability to control thousands of PCs, thereby eliminating the need
for individual KVM peripherals for the controlled PCs. Elimination of KVM
peripherals can provide significant cost reduction including lower initial
investment, ongoing utility cost 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, Compaq,
IBM and Silicon Graphics workstations functioning either as stand-alone systems
or as file, communications or servers operating within a LAN.
The Company also has interfaces for its XP4040(TM) (formerly known as the
AutoBoot Commander 4xP(TM)/1xP(TM)), which operates with models of IBM RS/6000,
Hewlett Packard, Compaq's Alpha, and Silicon Graphic's Indigo workstations. The
Company's AutoView Commander(TM) utilizes a cost-reduced architecture that
continues to provide the architecture for mid-range and entry level products.
SwitchView(R), a two and four port KVM switch product, is the Company's first
product designed to be mass marketed. The Company completed its first full
quarter of shipping AutoView(TM) 200 during the second quarter of Fiscal 2000.
AutoView(TM) 200 extends the capabilities of KVM switching technology by
allowing two users independent and simultaneous access to any of eight attached
servers. The Company also markets several mid-range to high-end switching
solutions including the PolyCon/S, a single user console switching hub, and the
PolyCon/XS, a multi-user matrix console switching hub.
Novell Corporation certified certain KVM switch products for use with its
network software Netware(R) 4.1. Also, Microsoft Corporation certified certain
KVM switch products for use with its Windows NT and Windows 98 operating
systems. 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.
Certain products within the Company's family of 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. During the third quarter of Fiscal 1999, the
Company introduced LongView(TM), which allows the extension of KVM peripherals
and multimedia functions up to 500 feet using a single Category 5 cable. 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's remote access line of extension products allows users to control
servers from remote locations using a standard modem, the Internet or a network
connection, without the necessity of remote access hardware or software on the
PCs or servers being accessed. The Company began shipping Key-View(TM) II, its
second generation and newest remote access solution,
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<PAGE> 26
during the first quarter of Fiscal 2000. When used in conjunction with a KVM
switch product, the Company's remote access line of extension products permits
users to control attached PCs remotely.
As a result of the PixelVision acquisition, the Company now offers display
products related to high information-content digital display solutions. The
SMARTGLAS(TM) technology offers users working in time or mission critical
environments simultaneous access to large amounts of information. This
technology permits the consolidation of information from multiple sources to be
displayed on single or multiple flat panel displays, forming a "tiled" display
solution.
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 as well
as sales to customers of the PolyCon Companies and customers of PixelVision
discussed below. Net sales increases are expected to continue with the
consummation of the pending consolidation with Apex. The increases in annual net
sales 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. These new
and enhanced products are price competitive when 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.
The Company markets its products to a diversified group of dealers,
distributors, OEM's and end users, primarily through its inside and outside
sales and customer support staff, advertisements in trade publications and
participation in major industry trade shows. 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 the
third quarter of Fiscal 2000, the Company began shipments of an OEM product to a
major U.S. computer manufacturer.
The Company expanded its marketing strategy to include the retail channel of
distribution with the introduction of SwitchView(R), which targets the desktop
market. SwitchView(R) was designed to address the high volume sales channels and
is the Company's first product targeted to the mass market. 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, multi-platform 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 reviews its hardware solutions for the computer
industry and 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 and a one-year warranty on parts. The Company also allows
additional rights of return to certain of its distributors, which generally
extend the return period to ninety days. The Company accrues for sales returns
as a reduction of revenue and cost of sales at the time the product revenue is
recognized based on historical sales return experience, which management
believes provides a reasonable estimate of future returns. The Company accrues
for warranty returns at cost to repair or replace products. The Company also
offers sales discounts to its customers based on the level of sales.
The Company generally records sales upon shipment of the related product,
net of any discounts, as the Company generally has no significant post delivery
obligations, the product price is fixed and determinable,
26
<PAGE> 27
collection of the resulting receivable is probable, and product returns are
reasonably estimable. Revenue on products shipped FOB destination is recorded
when the customer takes possession of the goods.
The Company believes that increasing its international sales is an important
element in the overall strategy of future revenue growth. International sales
comprised 32%, 35%, and 26% of the Company's total sales in Fiscal 2000, Fiscal
1999, and Fiscal 1998, respectively.
STRATEGIC MERGERS
In March 2000 the Company announced a proposed merger with Apex, a provider
of server console management and switching technology. The Company and Apex have
entered into a merger agreement under which they have agreed to combine the two
companies in a merger, resulting in a new combined corporation temporarily named
Aegean Sea Inc. As of the date of this filing, the companies were awaiting the
merger's final approval by the shareholders of the respective companies. Refer
to the Form S-4 filed on March 31, 2000 and later amendments for additional
discussion of the proposed merger. Merger expenses of over $900,000 were
incurred during the year in relation to the anticipated merger with Apex. These
costs related to legal, accounting and investment banking costs and are required
to be expensed as incurred.
STRATEGIC ACQUISITIONS
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 new and enhanced product
development, but also through strategic acquisition and expansion efforts.
Consistent with this philosophy, on October 5, 1999 the Company acquired
substantially all the assets, including the related intellectual property and
patents, of PixelVision Technology, Inc., pursuant to an asset purchase
agreement dated October 5, 1999 between the Company and PixelVision.
PixelVision, a privately held company, designs, manufactures and markets
products and services related to high-information content digital display
solutions. The Company paid approximately $6.7 million including
acquisition-related expenses to acquire PixelVision. The acquisition, which was
funded from available cash, was accounted for using the purchase method of
accounting. In accordance with generally accepted accounting principles, costs
totaling $370,000 were allocated to research and development assets with
alternative future uses and were capitalized. The remaining $2.2 million of
purchased research and development were expensed as a one-time charge during the
third quarter of Fiscal 2000.
The Company obtained an independent valuation of PixelVision and values
were assigned to developed technology, in-process research and development,
assembled workforce, customer base and patents. The valuations of developed
technology, in-process R&D and patents were established using an income-based
approach. The valuation of the assembled workforce and customer base were valued
using a cost-based approach. Revenue estimates for the technology under
development were based on discussions with management, anticipated product
development schedules, product sales cycles and estimated life of the
technology. Revenues for the products under development were estimated beginning
in the fourth quarter of calendar 1999 and through the years ended December 31,
2000 through 2004. Projected expenses were based on historical selling, general
and administrative expenses and maintenance research and development expenses of
both the Company and PixelVision. It is anticipated that future profit margins
and growth will vary significantly from the historical operating results of
PixelVision. The resulting operating income was adjusted for income tax expense
using the Company's tax rate. In addition, estimated required returns on
beginning net working capital, assembled workforce, customer base, patents,
other assets and developed technologies, along with a deduction for cash flow
attributable to the assembled workforce, other assets, customer base, patents,
developed technologies, were considered in the discounted cash flow analysis.
The risk-adjusted discount rate applied to after-tax cash flow was 25% for
completed technology and 35% for in-process technology, compared to an estimated
weighted-average cost of capital for PixelVision of approximately 35%.
The total value of in-process R&D was estimated to be approximately $2.2
million. The estimated in-process research and development was attributable to
certain specific component technologies within PixelVision's products that were
still in development at the time of the acquisition. The products under
development were at
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<PAGE> 28
various stages of completion and include: new circuit cards for digitizing and
displaying images (Pearl and Super B-Video), monitors that incorporate the new
cards (18QX, 20MC and 15@SG3 monitor). Most of these products were completed
on-time and began shipping in the latter part of Fiscal 2000. The 15"SG3 is
expected to be completed and available for shipping in late Fiscal 2001. The
completed products include the Pearl and Super B-Video circuit cards as well as
the 18QX and 20MC monitors incorporating these cards.
On February 1, 1999, the Company acquired substantially all of the assets,
including the related intellectual property and patents, of Fox Network Systems
Corporation. The Company paid approximately $2.5 million at closing and may pay
an additional amount of up to $2.5 million in future payments based on future
sales of Fox's products over a maximum period of five years. Fox technology and
products include remote access and power control products solutions for
management of PCs and Servers. Fox's major development project was a
Windows(TM)-based remote access device that allows control of servers over
ordinary telephone lines and the Internet from a remote location ("Key-View(TM)
II"). The acquisition, which was funded from available cash, was accounted for
using the purchase method of accounting. In accordance with generally accepted
accounting principles, costs totaling $26,000 were allocated to research and
development assets with alternative future uses and were capitalized. The
remaining $1.85 million of purchased research and development were expensed as a
one-time charge during the fourth quarter of Fiscal 1999.
The Company obtained an independent valuation of Fox and values were
assigned to developed technology, in-process research and development,
employment and consulting agreements, and customer base. The valuations of
developed technology, in-process R&D and customer base were established using an
income-based approach. The valuation of the employment and consulting agreements
were valued using a cost-based approach. The total value of in-process R&D was
estimated to be approximately $1.85 million. All of the estimated in-process
research and development was attributable to the development of Key-View(TM).
The development of Key-View(TM) II was estimated to be 90% complete and was
completed on time with initial shipments in the first quarter of Fiscal 2000.
In December 1997, the Company acquired the PolyCon Companies for a combined
purchase price of $8.8 million including acquisition-related expenses. The
acquisition of the PolyCon Companies included intellectual property that the
Company is integrating with its research and development resources worldwide to
expand the Company's high-end console switching products for mid- and
large-scale networks.
The Company obtained an independent valuation of the PolyCon Companies and
values were assigned to completed technology, in-process R&D, in-process R&D
with alternative future uses and trade names. The valuations of developed
technology and in-process R&D were established using an income-based approach.
The value of R&D with alternative future uses was determined to be $392,000. The
total value of in-process R&D was estimated to be approximately $4.7 million.
Approximately 90% of the estimated in-process research and development was
attributable to the fiber-optics solution technology, the console switch
technology and the digital switching technology. The development of the console
switch technology was completed on time in Fiscal 1999 and is currently
available to ship in certain PolyCon products. The development of fiber-optic
solution technology was completed on time and began shipping in early Fiscal
2000. The development of the digital switching technology was expected to take a
minimum of two years to complete. Some digital technology is included in certain
products within the XP4000 series. This XP4000 series began shipping in the
third quarter of Fiscal 2000. Additionally, a new digital switch solution was
announced in May 2000 and product is expected to ship in Mid-Fiscal 2001.
RECENT STOCK SPLITS
On November 13, 1998, the Company announced a 3-for-2 stock split, effected
as a 50% stock dividend. The additional shares were distributed to shareholders
on December 15, 1998. All capital stock information included in the condensed
consolidated financial statements and notes thereto gives retroactive effect to
the splits.
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<PAGE> 29
On January 20, 2000, the Company announced a 3-for-2 stock split, effected as a
50% stock dividend. The additional shares were distributed to shareholders on
February 18, 2000, for all shareholders of record as of January 31, 2000. All
capital stock information included in the condensed consolidated financial
statements and notes give retroactive effect to the splits.
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
fiscal years indicated:
<TABLE>
<CAPTION>
Years Ended March 31,
---------------------
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Net Sales 100.0% 100.0% 100.0%
Cost of Sales 47.5 46.6 46.5
----- ----- -----
Gross profit 52.5 53.4 53.5
Research and development expenses 6.3 6.4 5.8
Selling, general and administrative expenses 25.5 24.5 22.6
Purchased research and development expenses
and other acquisition expenses 8.9 2.3 2.8
----- ----- -----
Operating income 11.8 20.2 22.3
Other income 3.6 2.0 1.3
----- ----- -----
Income before income taxes 15.4 22.2 23.6
Provision for income taxes 8.6 7.1 8.0
----- ----- -----
Net income 6.8% 15.1% 15.6%
----- ----- -----
</TABLE>
The Company operates predominantly in one industry: the design, production,
marketing, and selling of keyboard, video monitor and mouse switch, extension,
remote access products and display products. The Company's method of internal
reporting is disaggregated operationally, however. The two reportable segments,
Cybex-U.S. and Cybex-International, are evaluated based on gross profit;
therefore, selling, general and administrative costs, as well as research and
development, interest income/expense, provision for taxes, is reported on an
entity wide basis only. Reference is made to the information regarding
operational distribution of the Company's revenues and gross margin, and to the
operational distribution of the Company's identifiable assets, in Note 19 to the
Consolidated Financial Statements set forth on pages 54 and 55 of this Annual
Report on Form 10-K.
Fiscal 2000 Compared to Fiscal 1999
Net sales increased 46.5% to $120.4 million in Fiscal 2000 from $82.2
million in Fiscal 1999. Additionally, sales for the reportable segment
Cybex-U.S. increased 55.2% from $56.1 million in Fiscal 1999 to $87.0 million in
Fiscal 2000, while sales for the reportable segment Cybex-International
increased 27.9% from $26.1 million in Fiscal 1999 to $33.4 million in Fiscal
2000. Approximately $8.9 million of the increase in sales was attributed to the
display product line, obtained as a result of the PixelVision acquisition in
October 1999. The display product sales included a large order that accounted
for almost 38% of display product sales. As these large orders follow
29
<PAGE> 30
a long sales cycle, quarter to quarter revenues are expected to fluctuate. The
increased sales also resulted from increased sales of the Company's KVM switch,
extension and remote access products. Sales of the KVM switch product family
increased 32.9% to $97.5 million in Fiscal 2000 from $73.4 million in Fiscal
1999. Sales of the KVM extension product and remote access family increased
65.1% to $12.8 million in Fiscal 2000 from $7.7 million in Fiscal 1999.
LongView(TM) and Key-View(TM) II, a remote access solution, accounted primarily
for the growth in KVM extension and remote access product sales.
The Company's international sales volume (sales to locations outside the
U.S) continued to increase in Fiscal 2000, causing international sales to
increase 33.5% to $38.1 million in Fiscal 2000 from $28.5 million in Fiscal
1999. International sales as a percentage of net sales were 32% as compared to
35% in Fiscal 1999. European sales accounted for approximately $28.9 million, or
76% of international sales, and grew 34% from Fiscal 1999 to Fiscal 2000.
Gross profit is affected by many factors: 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 46.9% to $64.5 million in Fiscal 2000 from
$43.9 million in Fiscal 1999. Gross profit for the reportable segment Cybex-U.S.
increased 55.7% from $30.6 million in Fiscal 1999 to $47.4 million in Fiscal
2000, while the gross profit for Cybex-International increased 46.1% from $13.4
million in Fiscal 1999 to $17.1 million in Fiscal 2000. Gross profit as a
percentage of net sales increased slightly to 53.5% in Fiscal 2000 from 53.4% in
Fiscal 1999. The increase in gross profit benefited from product cost reductions
in the year, offset significantly by the diluting effect of lower margin display
product sales. Display product gross margin for Fiscal 2000 was 26.4% versus
switch, extension and remote access product gross margin of 55.7%. The display
product line operates on a different model than that of the Company's switch and
extension business. The display product sales are typically for large
installations sold directly to the financial services industry. The Company
intends to de-emphasize the sale of flat panel display products as stand alone
sales, and these sales should decline as a percentage of overall sales in future
periods.
Selling, general and administrative expenses increased 34.8% to $27.2
million (22.6% of net sales) in Fiscal 2000 from $20.2 million (24.5% of net
sales) in Fiscal 1999. This increase reflects increased expenditures in
administration, sales, customer support, channel development and marketing
activities required to support the Company's expanded sales base domestically
and abroad, as well as additional costs from PixelVision. The increase was
offset somewhat by a reduction in expenses incurred for legal costs associated
with the defense of a patent infringement claim, which was dismissed without
prejudice by mutual agreement of both parties in February 1999 (see
Contingencies). The percentage of sales decline was primarily attributed to the
volume of display product sales with the relatively low selling expenses.
Management anticipates that the dollar amount of selling, general and
administrative expense will continue to increase.
For Fiscal 2000, total costs for research and development were $7.0 million
(5.8% of net sales) compared to $5.2 million (6.4 % of net sales), excluding
one-time write-offs for purchased research and development expense and other
acquisition expenses, in Fiscal 2000 and Fiscal 1999, representing a 34.4%
increase. The Company anticipates that expenses for research and development
will continue to increase slightly in dollars.
As a result of the factors discussed above, operating income before
write-offs and acquisition costs of $3.4 million from the PixelVision
acquisition and announced Apex merger in Fiscal 2000 and $1.85 million from the
Fox acquisition in Fiscal 1999, each relating to purchased research and
development and other expenses from the acquisitions, increased 63.7% to $30.3
million (25.1% of net sales) in Fiscal 2000 from $18.5 million (22.5% of net
sales) in Fiscal 1999.
Interest and other income amounted to $1.6 million (1.3% of net sales), net,
in Fiscal 2000 compared to $1.6 million (2.0% of net sales) in Fiscal 1999.
Interest income and other expense includes realized gains on the sale of certain
investments, interest income and expense and the accretion of U.S. Treasury Bill
discounts. Other expense also includes foreign currency loss of almost $700,000
for Fiscal 2000 as compared to a foreign currency gain of over $200,000 in
Fiscal 1999. This fluctuation is attributed to the weakening of the Euro against
the
30
<PAGE> 31
dollar during the period. Management intends to reduce the foreign currency risk
by decreasing the amounts of foreign currency on hand.
As a result of the factors discussed above, income, before the one-time
write-offs related to the acquisitions in Fiscal 2000 and Fiscal 1999, increased
56.1% to $21.3 million (17.6% of net sales) in Fiscal 2000 from $13.6 million
(16.6% of net sales, 15.1% after the write-off) in Fiscal 1999. Net income
increased 57.1% to $18.8 million (15.6% of net sales) in Fiscal 2000 from $12.4
million (15.1% of net sales) in Fiscal 1998.
Fiscal 1999 Compared to Fiscal 1998
Net sales increased 56.4% to $82.2 million in Fiscal 1999 from $52.6 million
in Fiscal 1998. Additionally sales for the reportable segment Cybex-U.S.
increased 32.6 % from $42.3 million in Fiscal 1998 to $56.1 in Fiscal 1999,
while sales for the reportable segment Cybex-International increased 154.9% from
$10.2 million in Fiscal 1998 to $26.1 million in Fiscal 1999. The increased
sales resulted from increased sales of the Company's KVM Switch Products and
from additional revenues provided from the acquisition of the PolyCon Companies
at the end of the third quarter of Fiscal 1998. Sales of KVM Switch Products
increased 62.1% to $73.4 million in Fiscal 1999 from $45.3 million in Fiscal
1998, primarily due to increased sales of the Company's mid- and high-end KVM
Switch Products, as well as the entry-level KVM Switch Products. The mid- to
high-end product sales grew approximately 49% from Fiscal 1998 to Fiscal 1999,
while the entry-level product sales increased 55% from Fiscal 1998 to Fiscal
1999. The SwitchView(R) product, introduced in mid-Fiscal 1998, was a major
contributor to the increase in the entry-level product sales. Sales from the
acquired PolyCon Companies products accounted for approximately 10% of the
Company's revenues in Fiscal 1999, up from 4% of revenues in Fiscal 1998.
The Company's international sales volume (sales to locations outside the
U.S.) continued to increase in Fiscal 1999, causing international sales as a
percentage of net sales to increase to 35% as compared to 26% in Fiscal 1998.
International sales increased 111.9% to $28.5 million in Fiscal 1999 from $13.5
million in Fiscal 1998. European sales accounted for approximately $21.5
million, or 76% of international sales, and grew 157% from Fiscal 1998 to Fiscal
1999.
Gross profit is affected by many factors: 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 59.1% to $43.9 million in Fiscal 1999 from
$27.6 million in Fiscal 1998. Gross profit for the reportable segment Cybex-U.S.
increased 33.3% from $22.8 million in Fiscal 1998 to $30.3 million in Fiscal
1999, while the gross profit for Cybex-International increased over 180.8% from
$4.8 million in Fiscal 1998 to $13.5 million in Fiscal 1999. The Company's gross
profit as a percentage of net sales increased to 53.4% due to increased volume
in 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 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 level of
sales to major distributors and OEMs.
Selling, general and administrative expenses increased 48.0% to $19.8
million (24.5% of net sales) in Fiscal 1999 from $13.4 million (25.5% of net
sales) in Fiscal 1998. The increase in selling, general and administrative
expenses reflects increased expenditures in administration, sales, customer
support, channel development, and marketing activities required to support the
Company's expanded sales base. The increase also reflects the added selling,
general and administrative costs attributable to the PolyCon Companies
acquisition at the end of the third quarter of Fiscal 1998. Management
anticipates that the amount of selling, general and administrative expense will
continue to increase; however, the anticipated expanding sales volume may cause
the expenses to decline as a percentage of net sales.
For Fiscal 1999, total costs for research and development, exclusive of the
one-time write-off of purchased research and development expenses, were $5.2
million (6.4% of net sales) compared to $3.3 million (6.3% of net sales),
exclusive of a one-time write-off of purchased research and development expenses
in Fiscal 1998, representing a 57.8% increase.
31
<PAGE> 32
As a result of the factors discussed above, operating income before the
one-time write-offs of $1.85 from the acquisition of Fox in Fiscal 1999 and $4.7
million from the acquisition of the PolyCon Companies in Fiscal 1998, each
relating to purchased research and development expenses from the acquisitions,
increased 69.9% to $18.5 million (22.5% of net sales) in Fiscal 1999, from $10.9
million (20.7% of net sales) in Fiscal 1998.
Interest and other income amounted to $1.6 million (2.0% of net sales), net,
in Fiscal 1999 compared to $1.9 million (3.6% of net sales) in Fiscal 1998.
Interest and other income includes realized gains on the sale of certain
investments, interest income and expense, and the accretion of U.S. Treasury
Bill discounts.
As a result of the factors discussed above, income, before the one-time
write-offs related to the acquisitions in Fiscal 1999 and Fiscal 1998, increased
64.5% to $13.6 million (16.6% of net sales) in Fiscal 1999, from $8.3 million
(16.9% of net sales, 6.8% after the write-off) in Fiscal 1998. Net income
increased 248.1% to 12.4 million (15.1% of net sales) in Fiscal 1999 from $3.6
million (6.8% of net sales) in Fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company financed its operations primarily through cash flow from
operations and cash reserves as needed. As of March 31, 2000, the Company had an
available line of credit of $7.5 million with no outstanding borrowings. A
short-term note in the amount of $23.0 million was outstanding on March 31,
2000. The Company repaid the note during the first week of April 2000.
The Company's working capital position increased from $46.8 million as of
March 31, 1999, to $62.2 million (adjusted to include $2.9 million and $8.0
million of long-term, equity investments, respectively) as of March 31, 2000.
This increase in the Company's working capital position was due primarily to the
increased earnings during Fiscal 2000. The increase was offset somewhat by the
acquisition of PixelVision and the merger expenses related to Apex, discussed
above.
Cash provided from operating activities increased from $10.9 million to
$16.2 million for Fiscal 1999, and Fiscal 2000, respectively. This increase was
caused primarily by an increase in net income. The increase in net income is
attributed to an increase in sales. Additionally, increases in accounts payable
attributed to the increase in net cash provided by operating activities. These
increases to net operating cash were offset somewhat by increases in inventory
and accounts receivable from Fiscal 1999 to Fiscal 2000. The increases in
accounts receivable can be attributed to the general increase in sales and the
addition of sales to PixelVision customers acquired in October 1999. The
increase in inventory is also attributed to the addition of PixelVision . The
Company expects to 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 $1.8 million in Fiscal 2000. These capital
expenditures related to purchases of shop equipment and office furniture for the
Company's Huntsville facility and purchases of equipment for the Company and its
Subsidiaries. A minor portion of the computer purchases related to the Year 2000
readiness program (see Year 2000 Readiness Disclosure).
Additionally, in January 2000, the Company invested approximately $1.6
million to purchase its former headquarters building in Huntsville, Alabama. The
Company also executed a five-year agreement to lease the building to an
unrelated party. The lease agreement contains renewal options for up to two
three-year extensions, subject to certain conditions. The lease agreement also
provides for early termination at the option of the lessee after three or four
years, subject to certain conditions, including termination fees.
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.
32
<PAGE> 33
FINANCIAL ACCOUNTING DEVELOPMENTS
In June 1999, the Financial Accounting Standards Board issued SFAS No. 137,
Accounting for Derivative Instruments and Hedging Activities Deferral of the
Effective Date of FASB No. 133, which deferred the effective date provisions of
SFAS No. 133 for the Company until the first quarter of 2001. SFAS No. 133
require all derivatives to be measured at fair value and recognized as either
assets or liabilities on the balance sheet. Changes in such fair value are
required to be recognized immediately in net income (loss) to the extent the
derivatives are not effective as hedges. The Company is evaluating the effect of
this new standard but does not believe it will be material to the Company.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin ("SAB") 101, "Revenue Recognition in Financial Statements."
This pronouncement summarizes certain of the SEC staff's views on applying
generally accepted accounting principles to revenue recognition. The Company has
reviewed the requirements of SAB 101 and believes that its existing accounting
policies are in accordance with the guidance provided in the SAB.
YEAR 2000 READINESS DISCLOSURE
The "Year 2000 Issue" is the result of computer programs that were written
using two digits rather than four to define the applicable year. If the
Company's computer programs with date-sensitive functions were not Year 2000
compliant, they may have recognized a date using "00" as the Year 1900 rather
than the Year 2000. This could have resulted in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices or engage
in similar normal business activities. As part of a Year 2000 project to
evaluate and determine the areas of risk, as well as to provide assurance that
the Year 2000 problem was adequately addressed, the Company identified its Year
2000 risk in four categories: products; internal business software; internal
non-financial software and manufacturing equipment; and external noncompliance
by customers and suppliers. All phases of the Year 2000 compliance program were
completed on time and within budget.
Costs. The total costs associated with becoming Year 2000 compliant were not
expected to be material to the Company's financial position. The estimated total
cost of the Year 2000 project was approximately $1.2 million. The total amount
expended on the project through March 31, 2000, was almost $1.2 million, of
which $900,000 related to the purchase and installation of the Enterprise
Resource Planning System ("ERP") in Fiscal 1999, which has been capitalized. All
remaining costs were expensed as incurred. The remaining amount related to
replacement of non-compliant software and hardware and related to costs
associated with evaluating and communicating with significant customers and
suppliers. Funds for the ERP System purchase and installation were included in
the Company's capital expenditure budget. The remaining costs were funded by
cash flows from operations and were expensed as incurred.
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
results of operations, liquidity and financial condition. However, as of the
date of this filing there were no known reported failings as a result of the
Year 2000, and there has been no material impact to the Company. The Year 2000
project did reduce the Company's level of uncertainty about the Year 2000
problem and about the Year 2000 readiness and compliance of its significant
customers and suppliers.
THE ESTIMATES AND CONCLUSIONS CONTAINED IN THIS SECTION ARE FORWARD-LOOKING
STATEMENTS, AND ARE BASED ON MANAGEMENT'S BEST ESTIMATES OF FUTURE EVENTS. RISKS
TO COMPLETING THE PLAN INCLUDE THE AVAILABILITY OF RESOURCES, THE COMPANY'S
ABILITY TO DISCOVER AND CORRECT THE POTENTIAL YEAR 2000 SENSITIVE PROBLEMS WHICH
COULD HAVE A SERIOUS IMPACT ON SPECIFIC FACILITIES, AND THE ABILITY OF
CUSTOMERS, SUPPLIERS, VENDORS, AND SERVICE PROVIDERS TO BRING THEIR SYSTEMS INTO
YEAR 2000 COMPLIANCE.
33
<PAGE> 34
CONTINGENCIES
The Company has certain contingent liabilities resulting from litigation
initiated by Apex. Apex contended in a patent lawsuit filed in February 1998
against the Company and others in the United States District Court in Seattle,
Washington, that the Company has infringed Patent No. 5,721,842. By mutual
agreement and stipulation of Apex and the Company, the patent lawsuit was
dismissed without prejudice. Patent validity and ownership issues raised in
connection with the District Court lawsuit will now be heard before the United
States Patent and Trademark Office. The parties jointly requested the District
Court to urge accelerated consideration of these issues by the United States
Patent and Trademark Office. At the conclusion of the United States Patent and
Trademark Office proceeding, the lawsuit can be reinstated upon the request of
either party. After extensive review of the claims at issue, management does not
believe any of its products are covered by any valid claim of Apex's patent. As
a result, it is management's opinion that the probable resolution of such
contingencies will not have a material adverse affect on the financial position,
results of operations, or cash flows of the Company.
The Company has 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 litigation matter that will have a material
adverse affect on the financial position, results of operations, or cash flows
of the Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The market risk inherent in the Company's financial instruments represents
the potential loss arising from adverse changes in interest rates. The Company
is exposed to market risk in the area of interest rate changes impacting the
fair value of its investment securities. The Company's investment policy is to
manage its investment portfolio to preserve principal and liquidity while
maximizing the return on the investment portfolio through the investment of
available funds. The Company diversifies the investment portfolio by investing
in a variety of highly-rated investment-grade securities and through the use of
different investment managers. The Company's marketable securities portfolio is
primarily invested in short-term securities with at least an investment grade
rating to minimize interest rate and credit risk as well as to provide for an
immediate source of funds. Market risk is estimated as the potential change in
fair value in the investment portfolio resulting from a hypothetical 10 percent
change in interest rates, which is not material at March 31, 2000. The Company
generally holds investments until maturity and carries the securities at
amortized cost, which approximates fair market value.
34
<PAGE> 35
Item 8. Financial Statements and Supplementary Data.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
CYBEX COMPUTER PRODUCTS CORPORATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report.................................................... 35
Consolidated Balance Sheets as of March 31, 1999 and 2000....................... 36
Consolidated Statements of Income for the years ended March 31, 1998, 1999
and 2000..................................................................... 37
Consolidated Statements of Changes in Shareholders' Equity for the years ended
March 31, 1998, 1999 and 2000................................................. 38
Consolidated Statements of Cash Flows for the years ended March 31, 1998, 1999
and 2000...................................................................... 39
Notes to Consolidated Financial Statements...................................... 40
</TABLE>
[LETTERHEAD OF PRICEWATERHOUSECOOPERS LLP]
Report of Independent Accountants
To the Shareholders and Board of Directors
Cybex Computer Products Corporation
Huntsville, Alabama
In our opinion, the accompanying consolidated balance sheets and related
consolidated statements of income, shareholders' equity, and cash flows present
fairly, in all material respects, the consolidated financial position of Cybex
Computer Products Corporation (the Company) as of March 31, 1999 and 2000, and
the results of its operations and its cash flows for each of the three years in
the period ended March 31, 2000, in conformity with accounting principles
generally accepted in the United States. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States, which require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
May 4, 2000, except for Note 18, as to which
the date is June 2, 2000
35
<PAGE> 36
Cybex Computer Products Corporation
Consolidated Balance Sheets
March 31, 1999 and 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 2000
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,060,565 $ 9,703,072
Short-term investments 26,000,778 25,480,653
Short-term investments, pledged as collateral for note payable 16,000,000 23,000,000
Accounts receivable - trade, less allowance for doubtful accounts
of $1,338,863 and $2,214,195 in 1999 and 2000, respectively 15,948,952 23,151,321
Inventories 7,447,252 11,240,635
Other current assets 1,209,852 1,175,372
Deferred income taxes 1,838,300 2,684,099
------------- -------------
Total current assets 72,505,699 96,435,152
Investments available for sale 2,930,404 8,016,340
Property held for lease 1,593,221
Property, plant, and equipment, net of accumulated depreciation 12,552,112 12,481,939
Intangibles, net of accumulated amortization 3,709,712 6,560,475
Deferred income taxes 832,224 1,879,487
Other assets 320,270 328,880
------------- -------------
$ 92,850,421 $ 127,295,494
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable $ 16,000,000 $ 23,000,000
Accounts payable and accrued expenses 5,256,745 9,185,765
Income taxes payable 1,617,471 2,644,955
Other current liabilities 5,780,231 7,423,142
------------- -------------
Total current liabilities 28,654,447 42,253,862
Commitments and contingencies (Notes 14 and 17)
Shareholders' equity:
Preferred stock, par value $.001 per share; 5,000,000 shares
authorized; no shares issued
Common stock, par value $.001 per share; 50,000,000 shares authorized;
1999 - 21,259,922 shares issued, 19,024,316 shares outstanding
2000 - 21,584,664 shares issued, 19,345,605 shares outstanding 21,260 21,585
Additional paid-in capital 37,507,991 40,062,786
Accumulated other comprehensive income:
Unrealized loss on investments, net of deferred taxes (32,642) (215,860)
Foreign currency translation adjustment, net of deferred taxes (198,566) (444,704)
Retained earnings 32,198,484 50,981,395
Treasury stock, at cost; 1999 - 2,235,606 shares; 2000 - 2,239,059 shares (5,300,553) (5,363,570)
------------- -------------
Total shareholders' equity 64,195,974 85,041,632
------------- -------------
$ 92,850,421 $ 127,295,494
============= =============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
36
<PAGE> 37
Cybex Computer Products Corporation
Consolidated Statements of Income
For the Years Ended March 31, 1998, 1999, and 2000
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1999 2000
------------- ------------- -------------
<S> <C> <C> <C>
Net sales, switch and extension products $ 52,563,507 $ 82,194,662 $ 111,538,065
Net sales, display products 8,900,626
------------- ------------- -------------
Net sales 52,563,507 82,194,662 120,438,691
Cost of sales, switch and extension products 24,979,458 38,301,732 49,400,485
Cost of sales, display products 6,552,709
------------- ------------- -------------
Cost of sales 24,979,458 38,301,732 55,953,194
------------- ------------- -------------
Gross profit 27,584,049 43,892,930 64,485,497
Research and development expenses 3,311,988 5,225,056 7,023,345
Purchased research and development expenses
and other acquisition costs (Note 4) 4,705,000 1,850,000 3,368,063
Selling, general and administrative expenses 13,385,924 20,177,274 27,196,786
------------- ------------- -------------
Operating income 6,181,137 16,640,600 26,897,303
Interest income, net 1,625,363 1,258,060 1,747,835
Other income (expense), net 272,062 357,883 (157,348)
------------- ------------- -------------
Income before provision for income taxes 8,078,562 18,256,543 28,487,790
Provision for income taxes 4,507,549 5,824,222 9,704,879
------------- ------------- -------------
Net income $ 3,571,013 $ 12,432,321 $ 18,782,911
============= ============= =============
Net income per common and common equivalent share:
Basic $ 0.19 $ 0.66 $ 0.98
Diluted $ 0.19 $ 0.63 $ 0.91
Weighted average common and common equivalent shares outstanding:
Basic 18,390,240 18,737,468 19,162,814
========== ========== ==========
Diluted 18,918,057 19,713,600 20,538,146
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
37
<PAGE> 38
Cybex Computer Products Corporation
Consolidated Statements of Shareholders' Equity
For the Years Ended March 31, 1998, 1999, and 2000
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Unrealized Foreign
Common Stock Additional Gain Currency
-------------------- Paid-In (Loss) On Translation Retained Treasury
Shares Amount Capital Investments Adjustment Earnings Stock Total
---------- ------- ----------- ----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1997 20,555,462 $20,555 $34,119,697 $ (77,669) $16,195,150 $(5,270,544) $44,987,189
Net income 3,571,013 3,571,013
Change in unrealized
gains, net of
deferred income
taxes of $88,481 242,414 242,414
Reclassification
adjustment for
amounts included
in net income,
net of income tax
of $24,085 65,986 65,986
-----------
Comprehensive income 3,879,413
-----------
Issuance of common
stock 248,655 249 192,420 192,669
Income tax benefit from
exercise of non-qualified
stock options 405,542 405,542
Purchase of 4,308 shares
of treasury stock (30,009) (30,009)
---------- ------- ----------- --------- --------- ----------- ----------- -----------
Balance, March 31, 1998 20,804,117 20,804 34,717,659 230,731 19,766,163 (5,300,553) 49,434,804
Net income 12,432,321 12,432,321
Change in foreign
currency translation
adjustment, net of
deferred income
taxes of $114,137 $(198,566) (198,556)
Change in unrealized
losses, net of deferred
income taxes of $68,848 (119,777) (119,777)
Reclassification
adjustment for amounts
included in net income,
net of income tax
of $82,539 (143,596) (143,596)
-----------
Comprehensive income 11,970,382
-----------
Issuance of common stock 455,805 456 2,191,574 2,192,030
Income tax benefit from
exercise of non-qualified
stock options 598,758 598,758
---------- ------- ----------- --------- --------- ----------- ----------- -----------
Balance, March 31, 1999 21,259,922 21,260 37,507,991 (32,642) (198,566) 32,198,484 (5,300,553) 64,195,974
Net income 18,782,911 18,782,911
Change in foreign
currency translation
adjustment, net of
deferred income
taxes of $141,480 (246,138) (246,138)
Change in unrealized
losses, net of deferred
income taxes of $38,144 (66,360) (66,360)
Reclassification
adjustment for amounts
included in net income,
net of income tax
of $67,171 (116,858) (116,858)
-----------
Comprehensive income 18,353,555
-----------
Issuance of common stock 324,742 325 1,999,559 1,999,884
Income tax benefit from
exercise of non-qualified
stock options 555,236 555,236
Purchase of 3,453 shares
of treasury stock (63,017) (63,017)
---------- ------- ----------- --------- --------- ----------- ----------- -----------
Balance, March 31, 2000 21,584,664 $21,585 $40,062,786 $(215,860) $(444,704) $50,981,395 $(5,363,570) $85,041,632
---------- ------- ----------- --------- --------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
38
<PAGE> 39
Cybex Computer Products Corporation
Consolidated Statements of Cash Flows
For the Years Ended March 31, 1998, 1999, and 2000
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1999 2000
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,571,013 $ 12,432,321 $ 18,782,911
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 574,917 1,230,676 1,940,337
Amortization of intangibles 121,291 443,712 712,007
Amortization of discount on investments (1,159,415) (495,616) (558,037)
Provision for losses on accounts receivable 717,722 813,000 268,294
Loss on disposal of property, plant and equipment 17,345 7,119 2,346
Purchased research and development expenses
and other acquisition costs 4,705,000 1,850,000 2,461,915
Gain on sale of investments (363,000) (263,492) (734,717)
Deferred income taxes (492,000) (1,370,000) (1,646,267)
Changes in operating assets and liabilities:
Accounts receivable - trade (6,105,006) (5,228,771) (6,477,944)
Inventories (825,563) (1,263,792) (2,784,156)
Accounts payable and accrued expenses 1,021,656 559,718 4,058,980
Other 1,435,338 1,874,040 (893,003)
Income taxes payable 1,154,681 304,056 1,027,484
------------ ------------ ------------
Net cash provided by operating activities 4,373,979 10,892,971 16,160,150
Cash flows from investing activities:
Purchases of property held for lease (1,639,225)
Purchases of property, plant and equipment (5,106,200) (6,589,555) (1,815,716)
Purchases of investments available for sale (59,040,639) (75,484,552) (91,989,658)
Proceeds from sale of investments 13,513,303 17,576,475 34,289,068
Proceeds from maturities of investments 50,282,448 51,282,000 47,139,000
Purchase of Polycon, net of cash acquired (Note 4) (8,663,000)
Purchase of Fox, net of cash acquired(Note 4) (2,481,947)
Purchase of PixelVision, net of cash acquired (Note 4) (5,621,512)
Investment in intangible assets (119,403) (41,655) 314,808
Proceeds from dispositions of property, plant, and equipment 41,291 61,325 2,534
------------ ------------ ------------
Net cash used in investing activities (9,092,200) (15,677,909) (19,320,701)
Cash flows from financing activities:
Proceeds from note payable and line of credit 12,136,719 16,000,000 23,000,000
Repayment of note payable and line of credit (8,000,000) (12,136,719) (16,000,000)
Proceeds from issuance of common stock 192,669 2,192,030 1,999,884
Income tax benefit from exercise of nonqualified stock options 405,542 598,758 555,236
Purchase of treasury stock (30,009) (63,017)
------------ ------------ ------------
Net cash provided by financing activities 4,704,921 6,654,069 9,492,103
Net (decrease) increase in cash and cash equivalents (13,300) 1,869,131 6,331,552
Effect of exchange rate changes on cash and cash equivalents (219,651) (689,045)
Cash and cash equivalents, beginning of year 2,424,385 2,411,085 4,060,565
------------ ------------ ------------
Cash and cash equivalents, end of year $ 2,411,085 $ 4,060,565 $ 9,703,072
============ ============ ============
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 21,083 $ 20,913 $ 20,559
============ ============ ============
Cash paid during the year for income taxes, net of refunds
received $ 3,857,000 $ 6,890,000 $ 10,179,143
============ ============ ============
</TABLE>
Noncash transactions:
During the 1998, 1999, and 2000 fiscal years, the Company recorded $308,400,
$(414,760), and $(288,533) of unrealized gains and losses, respectively,
related to its available for sale investments. The unrealized gains losses
were recorded as non-cash changes of long-term investments and shareholders'
equity, respectively.
The accompanying notes are an integral part of these
consolidated financial statements.
39
<PAGE> 40
Cybex Computer Products Corporation
Notes to Consolidated Financial Statements
March 31, 1999 and 2000
-------------------------------------------------------------------------------
1. Nature of Business
Cybex Computer Products Corporation (the Company) develops, produces and
markets computer keyboard, video monitor and mouse switch, extension and
remote access products. The Company sells its products to dealers,
end-users and original equipment manufacturers in the United States,
Canada, and Europe, as well as in other foreign markets. The Company has
operating facilities located in Huntsville, Alabama; Shannon, Ireland;
Steinhagen, Germany; and Acton, Massachusetts. In addition, the Company
has a wholly owned subsidiary, Cybex International Corporation (CIC), to
facilitate sales shipped from the Huntsville facility to certain overseas
markets and obtain more favorable U.S. income tax treatment on those
sales. International sales (sales outside of the U.S. principally to
customers in European countries) accounted for approximately 26%, 35%, and
32% of the Company's net sales for the years ended March 31, 1998, 1999,
and 2000, respectively. During 1999 and 2000, sales to one company
amounted to approximately 17% and 18% of total sales, respectively. No
customer amounted to more than 10% of sales in 1998.
2. Summary of Significant Accounting Policies
The principal accounting policies of the Company are as follows:
Principles of Consolidation - The Company's consolidated financial
statements include the Company and its three wholly owned subsidiaries,
CIC, Polycon Investment, Inc. (PII), and Cybex Computer Products
International, Ltd. (Cybex International). All significant intercompany
amounts and transactions have been eliminated in consolidation.
Cash Equivalents - The Company considers all highly liquid debt
instruments purchased with an original maturity of three months or less to
be cash equivalents.
Inventories - Raw materials, work in process, and finished goods are
recorded using the lower of standard cost, which approximates first-in
first-out (FIFO), or market.
Financial Instruments - The carrying amounts reported in the balance
sheets for cash and cash equivalents, accounts receivable, accounts
payable, and notes payable approximate fair value because of the immediate
or short-term maturity of these financial instruments.
Investments - The Company's investments consist of U.S. treasury bills,
U.S. treasury notes, commercial paper, and common stock. Debt securities
that the Company has the positive intent and ability to hold to maturity
are classified as held-to-maturity securities and are reported at
amortized cost. Debt and equity securities that are bought and held
principally for the purpose of selling them in the near term are
classified as trading securities and are reported at fair value, with
unrealized gains and losses included in earnings. Debt and equity
securities not classified as either held-to- maturity securities or
trading securities and that have readily determinable fair values are
classified as available-for- sale securities and are reported at fair
value, with unrealized gains and losses excluded from earnings and
reported in a separate component of shareholders' equity. Certain equity
securities which are not publicly traded and do not have readily
determinable fair values are carried at cost. The original cost of the
investment is adjusted if there is an impairment in value that is deemed
to be other than temporary. All of the Company's investments at March 31,
1999 and 2000 have been classified as available for sale (see Note 6).
Realized gains or losses on the Company's investments are computed using
the specific identification method.
Property Held for Lease - Property held for lease is carried at cost, less
accumulated depreciation, which is computed using the straight-line method
over the estimated useful lives of the assets. Rental income is recorded
on a monthly basis in accordance with the lease terms. Initial direct
costs are deferred and matched against rental income over the lives of the
leases.
40
<PAGE> 41
Cybex Computer Products Corporation
Notes to Consolidated Financial Statements
March 31, 1999 and 2000
-------------------------------------------------------------------------------
Property, Plant and Equipment - Property, plant and equipment are carried
at cost, less accumulated depreciation, and include expenditures that
substantially increase the useful lives of existing assets. Maintenance
and repairs are charged to current operations as incurred. Upon sale,
retirement, or other disposition of these assets, the cost and related
accumulated depreciation are removed from the respective accounts, and any
gain or loss on the disposition is included in earnings.
Provisions for depreciation are computed using the straight-line method
over the following estimated useful lives:
Description Useful Life
----------- -----------
Land improvements 30
Buildings 39
Computer software and equipment 3 - 5
Other equipment 5 - 7
The Company recognizes impairment losses on long-lived assets used in
operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the
assets' carrying values. There were no such losses recognized during 1998,
1999, or 2000.
Intangible Assets - Intangible assets are being amortized on a
straight-line basis over the following estimated useful lives:
Description Useful Life
----------- -----------
Trademarks 10 - 15
Patents 10
Goodwill 7 - 8
Licenses 3
At each balance sheet date, or as changes in circumstances arise, the
Company evaluates the recoverability of intangible assets based upon
utilization of related tangible assets and expectations of future cash
flows. The Company believes that no impairment of remaining intangibles
exists at March 31, 2000.
Liability For Sales And Warranty Returns - The Company's sales generally
include a one-month unconditional return policy and a twelve-month
warranty for product defects. The Company also allows additional rights of
return to certain of its distributors, which generally extend the return
period to ninety days. The Company accrues for sales returns as a
reduction of revenue and cost of sales at the time the product revenue is
recognized based on historical sales return experience, which management
believes provides a reasonable estimate of future returns. The liability
for sales returns totaled approximately $2,347,000 and $2,442,000 at March
31, 1999 and 2000, respectively. The Company accrues for warranty returns
at cost to repair or replace products. The liability for warranty returns
totaled approximately $813,000 and $915,000 at March 31, 1999 and 2000,
respectively. These liabilities are included in other current liabilities
in the consolidated balance sheets.
Income Taxes - The Company accounts for income taxes using the asset and
liability method. The Company provides for income taxes currently payable
and, in addition, provides deferred income taxes for temporary differences
between the tax bases of assets and liabilities and their reported amounts
in the financial statements. Temporary differences relate principally to
the allowance for doubtful accounts, liability for sales and warranty
returns, purchased research and development expenses, accrued vacation,
accumulated depreciation, and inventory reserves. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount
expected to be realized.
Foreign Currency - The Company records transactions denominated in foreign
currencies on a monthly basis using the average monthly exchange rate.
Bank accounts denominated in foreign currencies are translated as of the
ending balance sheet dates using the current exchange rates. Resulting
translation adjustments are recorded as a separate
41
<PAGE> 42
Cybex Computer Products Corporation
Notes to Consolidated Financial Statements
March 31, 1999 and 2000
-------------------------------------------------------------------------------
component of shareholders' equity. Approximately 55% of all bank accounts
are denominated in United States currency.
Revenue Recognition - The Company generally records sales upon shipment of
the related product, net of any discounts, as the Company generally has no
significant post delivery obligations, the product price is fixed and
determinable, collection of the resulting receivable is probable, and
product returns are reasonably estimable. Product shipments occur upon
receipt of a purchase order from a customer. Shipping terms are evaluated,
and revenue on products shipped FOB destination is recorded when the
customer takes possession of the goods.
Government Grants - The Company records government grants received in
connection with its Ireland operations (see Note 3) as reductions of the
corresponding expense in the consolidated statements of income. Proceeds
from the rent reduction grant are recognized as reductions to rent expense
as the related rent expense is incurred. Proceeds from the employment
grant, which are received in multiple installments, are amortized as
reductions of expense over a twelve month period from the creation of the
related job. Grants recognized during fiscal years 1998, 1999, and 2000 as
a reduction of related expenses totaled approximately $545,000, $490,000,
and $313,000, respectively. Accounts receivable of approximately $321,000
and $158,000 and deferred revenue of approximately $160,000 and $39,000
related to the grants were included in the consolidated balance sheets at
March 31, 1999 and 2000, respectively.
Research and Development Expense - Research and development expenses for
Company- sponsored projects are expensed as incurred.
The software development cost components of the Company's products
incurred between achieving technological feasibility and the integration
into the Company's products available for sale to customers have not been
material to date. Such costs, if material, would be capitalized.
Additionally, costs related to development of internal use software, other
than those incurred during the application development stage, are expensed
as incurred. Costs incurred during the application development stage have
not been material to date.
Advertising Expense - Advertising costs are expensed as incurred.
Advertising expense totaled approximately $2,865,000, $3,323,000, and
$5,353,000 for the years ended March 31, 1998, 1999, and 2000,
respectively.
Use of Estimates - The preparation of the Company's consolidated financial
statements in conformity with accounting principles generally accepted in
the United States requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures
of contingent assets and liabilities at the dates of the financial
statements and reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Comprehensive Income - Comprehensive income includes all changes in equity
(net assets) during a period from nonowner sources. Items included in
comprehensive income include net income, foreign currency translation
adjustments and unrealized gain/loss on available-for-sale securities.
Recently Issued Accounting Standards - In June 1999, the Financial
Accounting Standards Board issued SFAS No. 137, Accounting for Derivative
Instruments and Hedging Activities Deferral of the Effective Date of FASB
No. 133, which deferred the effective date provisions of SFAS No. 133 for
the Company until the first quarter of 2001. SFAS No. 133 requires all
derivatives to be measured at fair value and recognized as either assets
or liabilities on the balance sheet. Changes in such fair value are
required to be recognized immediately in net income (loss) to the extent
the derivatives are not effective as hedges. The Company is evaluating the
effect of this new standard but does not believe it will be material to
the Company.
In December 1999, the Securities and Exchange Commission released Staff
Accounting Bulletin ("SAB") 101, "Revenue Recognition in Financial
Statements." This pronouncement summarizes certain of the SEC staff's
views on applying generally accepted accounting principles to revenue
recognition. The Company has reviewed the requirements of SAB 101 and
believes its existing accounting policies are consistent with the guidance
provided in the SAB.
42
<PAGE> 43
Cybex Computer Products Corporation
Notes to Consolidated Financial Statements
March 31, 1999 and 2000
-------------------------------------------------------------------------------
Reclassifications - Certain reclassifications have been made to the 1998
and 1999 consolidated financial statements in order to conform to the 2000
presentation. These reclassifications had no effect on previously reported
net income, operating cash flows, or total shareholders' equity.
3. Grants
On July 9, 1996, the Company formally established operations in Shannon,
Ireland through its newly-formed subsidiary, Cybex International.
Cybex International executed an agreement with the Shannon Free Airport
Development Company Limited (Shannon Development) under which Cybex
International receives grant monies related to salary and rent expense.
The maximum amount attainable under the agreement is approximately $1.6
million. The grant monies are repayable, in whole or in part, should (1)
Cybex International fail to meet certain business related objectives
established under the agreement which are to be achieved over a three-year
implementation period and/or (2) the Company discontinue operations in
Ireland prior to the termination of the agreement. The agreement
terminates five years from the date the last claim is made by the Company
for grant monies paid by Shannon Development.
4. Acquisitions
On December 31, 1997, the Company, through Cybex International, acquired
Elsner Computertechnik GmbH and PolyCon Data Systems GmbH (collectively
Polycon), both privately held companies in Steinhagen, Germany, for a
combined purchase price of approximately $8.8 million, including
acquisition related expenditures. The acquisition of Polycon was funded by
Cybex International from its available cash. The acquisition was accounted
for using the purchase method of accounting and, accordingly, the purchase
price has been allocated to the assets and liabilities of Polycon based on
their fair values at the date of acquisition. Operating results of Polycon
since December 31, 1997 are included in the Company's consolidated
financial statements.
Costs allocated to research and development assets with alternative future
uses totaling $392,000 were capitalized, and the remaining $4,705,000 of
acquired in-process research and development costs were expensed on
December 31, 1997. The research and development assets are included in
goodwill and are being amortized over 8 years.
43
<PAGE> 44
Cybex Computer Products Corporation
Notes to Consolidated Financial Statements
March 31, 1999 and 2000
-------------------------------------------------------------------------------
The fair value of assets acquired and liabilities assumed in the
acquisition is as follows:
Cash 153,000
Accounts receivable 634,000
Inventory 1,386,000
Other assets 37,973
Property and equipment 398,000
Trademarks 806,000
Acquired in-process research and development 4,705,000
Goodwill and other intangibles 2,914,027
Fair value of liabilities assumed:
Accounts payable 1,524,000
Other liabilities 694,000
----------
Cash paid $8,816,000
==========
On January 29, 1999, the Company purchased certain assets of Fox Network
Systems Corporation (Fox) for approximately $2.5 million. The acquisition
was recorded under the purchase method of accounting, and the purchase
price has been allocated to the assets acquired based on their fair values
at the date of acquisition. Operating results of Fox since January 29,
1999 are included in the Company's consolidated financial statements.
Costs allocated to research and development assets with alternative future
uses totaling $26,000 were capitalized and the remaining $1,850,000 of
acquired in-process research and development costs were expensed during
the year ended March 31, 1999. The research and development assets are
included in goodwill and are being amortized over 8 years.
The fair value of assets acquired in the acquisition is as follows:
Cash $ 5,164
Accounts receivable 102,191
Inventory 136,541
Property and equipment 20,235
Acquired in-process research and development 1,850,000
Goodwill and other intangibles 372,980
----------
$2,487,111
==========
The purchase agreement provides for additional cash consideration of up to
$2,500,000 in contingent future payments based on future sales of certain
products over a maximum period of five years. At March 31, 2000, the
Company had made payments totaling approximately $178,000 in relation to
the contingent future payments.
On October 5, 1999, the Company acquired substantially all the assets,
including the related intellectual property and patents, of PixelVision
Technology, Inc. (PixelVision) for approximately $6.7 million, including
transaction fees. The acquisition was recorded under the purchase method
of accounting, and the purchase price has been allocated to the assets
acquired and liabilities assumed based on their fair values at the date of
acquisition. Operating results of PixelVision since October 5, 1999 are
included in the Company's consolidated financial statements. Costs
allocated to research and development assets with alternative future uses
totaling $370,000 were capitalized, and the remaining $2,190,000 of
acquired in-process research and development costs were expensed during
the year ended March 31, 2000. The research and development assets are
included in goodwill and are being amortized over 7 years.
The fair value of assets acquired and liabilities assumed in the
acquisition is as follows:
44
<PAGE> 45
Cybex Computer Products Corporation
Notes to Consolidated Financial Statements
March 31, 1999 and 2000
-------------------------------------------------------------------------------
Cash $1,123,446
Accounts receivable, net 992,719
Inventory 1,577,244
Other assets 48,319
Property and equipment 134,009
Acquired in-process research and development 2,190,000
Goodwill and other intangibles 3,033,093
Fair value of liabilities assumed:
Accounts payable 1,496,159
Accrued expenses and other 857,713
----------
Cash paid $6,744,958
==========
The following unaudited pro forma summary for the year ended March 31,
1999 presents the results of operations of the Company as if the
acquisition of Fox and PixelVision had occurred at the beginning of the
1999 fiscal year. For the year ended March 31, 2000, the pro forma summary
presents the results of operations of the Company as if the acquisition of
PixelVision had occurred at the beginning of the 2000 fiscal year. Certain
adjustments have been made to reflect the impact of the purchase
transactions. These pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of what would have
occurred had the acquisitions been made at the beginning of the respective
fiscal years, or of results which may occur in the future.
1999 2000
------- --------
Net sales (in thousands) $90,013 $128,530
Net income (in thousands) $13,330 $ 19,673
Earnings per share - diluted $ .68 $ .96
Pro forma earnings per share for the years ended March 31, 1998, 1999, and
2000 is calculated by dividing pro forma net income by the weighted
average shares outstanding of 18,918,057, 19,713,600 and 20,538,146,
respectively.
5. Inventories
A summary of inventories at March 31, 1999 and 2000 is as follows:
1999 2000
---------- -----------
Raw materials $5,672,650 $ 7,122,308
Work in process 490,090 471,043
Finished goods 1,284,512 3,647,284
--------- ---------
$7,447,252 $11,240,635
========== ===========
45
<PAGE> 46
Cybex Computer Products Corporation
Notes to Consolidated Financial Statements
March 31, 1999 and 2000
-------------------------------------------------------------------------------
6. Investments
The cost and approximate market values of short-term investments and
available-for-sale securities at March 31, 1999 and 2000 are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Values
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
1999
U.S. Treasury bills $42,000,778 $42,000,778
Marketable equity securities 3,114,432 $157,841 $(341,869) 2,930,404
----------- -------- --------- -----------
$45,115,210 $157,841 $(341,869) $44,931,182
=========== ======== ========= ===========
2000
U.S. Treasury bills $48,480,653 $48,480,653
Marketable equity securities 3,482,006 $ 73,269 $(545,831) 3,009,444
----------- -------- --------- -----------
$51,962,659 $ 73,269 $(545,831) $51,490,097
=========== ======== ========= ===========
</TABLE>
All debt instruments with fixed maturities at March 31, 1999 and 2000 are
due in one year or less.
Gross realized gains on the sale of investments available for sale were
approximately $704,000, $1,375,000 and $2,810,000 in 1998, 1999, and 2000,
respectively. Gross realized losses were approximately $341,000,
$1,111,000, and $2,075,000 in 1998, 1999, and 2000, respectively.
Investments which do not have a readily determinable fair value and which
are carried at cost totaled $5,006,896 at March 31, 2000.
7. Property Held for Lease
In January 2000, the Company purchased its former headquarters building in
Huntsville, Alabama and executed a five year agreement to lease the
building to an unrelated party. The lease agreement contains renewal
options for up to two three-year extensions, subject to certain
conditions. The lease agreement also provides for early termination at the
option of the lessee after three or four years, subject to certain
conditions, including termination fees. Rental income totaled $12,000 for
the year ended March 31, 2000. There was no rental income for the years
ended March 31, 1998 and 1999.
A summary of property held for lease at March 31, 2000 is as follows:
Building $1,639,225
Accumulated depreciation (46,004)
-----------
$1,593,221
==========
46
<PAGE> 47
Cybex Computer Products Corporation
Notes to Consolidated Financial Statements
March 31, 1999 and 2000
-------------------------------------------------------------------------------
Minimum future rentals on noncancelable operating leases are approximately
as follows:
Year ending March 31:
---------------------
2001 $ 196,333
2002 221,200
2003 221,200
2004 221,200
2005 221,200
Thereafter 36,867
----------
$1,118,000
==========
8. Property, Plant and Equipment
Property, plant and equipment consists of the following at March 31, 1999
and 2000:
1999 2000
----------- -----------
Land and land improvements $ 1,733,071 $ 1,735,171
Building 6,718,481 6,751,659
Computer software and equipment 2,896,437 3,466,859
Other equipment 3,729,948 4,736,462
Construction in progress 18,435 208,100
----------- -----------
15,096,372 16,898,251
Less accumulated depreciation (2,544,260) (4,416,312)
----------- -----------
$12,552,112 $12,481,939
=========== ===========
9. Intangibles
Intangible assets as of March 31, 1999 and 2000 consist of the following:
<TABLE>
<CAPTION>
1999 2000
---------- -----------
<S> <C> <C>
Trademarks and patents $1,017,088 $ 1,463,921
Acquisition costs 57,866 1,054,042
Goodwill and other 3,204,052 5,729,443
---------- -----------
Total intangible assets 4,279,006 8,247,406
Less accumulated amortization (569,294) (1,686,931)
---------- -----------
Intangible assets, net of accumulated amortization $3,709,712 $ 6,560,475
========== ===========
</TABLE>
10. Short-Term Borrowings
At March 31, 1999 and 2000, the Company had $16,000,000 and $23,000,000,
respectively, outstanding under short-term notes payable bearing interest
at the bank's prime rate (7.25% and 7.64% at March 31, 1999 and 2000,
respectively). Corresponding amounts of U.S. treasury bills are pledged as
collateral for the notes payable. The amounts outstanding at March 31,
1999 and 2000 were repaid on April 1, 1999 and April 3, 2000,
respectively.
47
<PAGE> 48
Cybex Computer Products Corporation
Notes to Consolidated Financial Statements
March 31, 1999 and 2000
-------------------------------------------------------------------------------
The Company has a bank line of credit which provides for borrowings of up
to $7,500,000. Interest on outstanding advances was payable monthly at
LIBOR plus 2.5% at March 31, 1999 and 2000 (7.44% and 8.63% at March 31,
1999 and 2000, respectively). The line of credit is collateralized by the
Company's accounts receivable, inventories, and certain intangible assets
and is due on demand. The line of credit expires August 10, 2000. The
Company had no amounts outstanding on the line of credit at March 31, 1999
or 2000.
11. Income Taxes
The provision (benefit) for income taxes for the years ended March 31,
1998, 1999, and 2000 is comprised of the following:
<TABLE>
<CAPTION>
1998 1999 2000
---------- ----------- -----------
<S> <C> <C> <C>
U. S. operations:
Current:
Federal $4,326,000 $ 5,823,000 $ 8,675,180
State 481,000 651,000 832,953
---------- ----------- -----------
4,807,000 6,474,000 9,508,133
---------- ----------- -----------
Deferred:
Federal (468,000) (1,233,000) (1,020,067)
State (52,000) (137,000) (104,304)
---------- ----------- -----------
(520,000) (1,370,000) (1,124,371)
---------- ----------- -----------
Total U. S. operations tax provision 4,287,000 5,104,000 8,383,762
Total foreign operations tax provision 220,549 720,222 1,321,117
---------- ----------- -----------
Total provision $4,507,549 $ 5,824,222 $ 9,704,879
========== =========== ===========
</TABLE>
The provision for federal income taxes differs from the amount computed
by applying the statutory rate to taxable income as follows:
<TABLE>
<CAPTION>
1998 1999 2000
----------- ----------- -----------
<S> <C> <C> <C>
Computed "expected" federal income tax expense $ 2,746,711 $ 6,389,790 $ 9,970,727
Add (deduct):
CIC foreign sales corporation income (22,473) (21,174) (29,975)
State income tax deduction (145,860) (308,457) (257,543)
Change in valuation allowance 2,352,500 (157,000) (157,000)
Tax effect resulting from foreign activities (1,025,935) (1,287,289) (2,175,223)
Expenses related to pending merger with Apex 317,152
Other (46,943) (25,870) (13,025)
----------- ----------- -----------
$ 3,858,000 $ 4,590,000 $ 7,655,113
=========== =========== ===========
</TABLE>
48
<PAGE> 49
Cybex Computer Products Corporation
Notes to Consolidated Financial Statements
March 31, 1999 and 2000
--------------------------------------------------------------------------------
The components of the deferred income tax assets and liabilities at March
31, 1999 and 2000 are as follows:
<TABLE>
<CAPTION>
1999 2000
----------- -----------
<S> <C> <C>
Current deferred income tax asset:
Allowance for doubtful accounts $ 346,700 $ 565,610
Liability for sales and warranty returns 1,047,000 1,030,535
Accrued vacation 200 74,599
Inventory 444,400 1,013,355
----------- -----------
$ 1,838,300 $ 2,684,099
=========== ===========
Net noncurrent deferred income tax asset (liability):
Accumulated depreciation $ (101,000) $ (140,596)
Foreign subsidiary intangibles and other 2,195,500 2,038,500
Acquired in-process research and development expenses 667,700 1,519,569
Other 265,524 500,514
----------- -----------
3,027,724 3,917,987
Less valuation allowance (2,195,500) (2,038,500)
----------- -----------
$ 832,224 $ 1,879,487
=========== ===========
</TABLE>
As discussed in Note 4, the Company expensed $4,705,000 of acquired in
process research and development costs during the year ended March 31,
1998 in connection with the acquisition of Polycon. For German tax
purposes, the amount was capitalized as part of goodwill and will be
amortized over 15 years. The Company has a full valuation allowance
recorded against this asset at March 31, 1999 and 2000. The Company
intends to fully reserve this asset until it is determined that it is more
likely than not that the asset can be realized through future taxable
income from its German operations.
12. Shareholders' Equity
Preferred Stock - The Company has 5,000,000 shares of $.001 per value
preferred stock authorized and no shares issued and outstanding at March
31, 1999 or 2000.
Common Stock - The Company has 50 million shares of $.001 par value common
stock authorized. The Company has repurchased shares of common stock from
time-to-time under authorization from its Board of Directors. There is no
active stock buy-back program at March 31, 2000.
The Company declared 3-for-2 stock splits on March 31, 1998, November 13,
1998, and January 18, 2000. All capital stock and stock option information
included in the consolidated financial statements and notes thereto gives
retroactive effect to the splits.
49
<PAGE> 50
Cybex Computer Products Corporation
Notes to Consolidated Financial Statements
March 31, 1999 and 2000
-------------------------------------------------------------------------------
13. Earnings Per Share
A summary of the calculation of basic and diluted earnings per share for
the years ended March 31, 1998, 1999, and 2000 is as follows:
<TABLE>
<CAPTION>
Income Shares Per-Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
<S> <C> <C> <C>
For the Year Ended 1998
-----------------------
Basic EPS
Income available to common shareholders $ 3,571,013 18,390,240 $ 0.19
Effect of Dilutive Securities
Stock options 527,817
Diluted EPS
Income available to common shareholders and
assumed conversions $ 3,571,013 18,918,057 $ 0.19
For the Year Ended 1999
-----------------------
Basic EPS
Income available to common shareholders $12,432,321 18,737,468 $ 0.66
Effect of Dilutive Securities
Stock options 976,132
Diluted EPS
Income available to common shareholders and
assumed conversions $12,432,321 19,713,600 $ 0.63
For the Year Ended 2000
-----------------------
Basic EPS
Income available to common shareholders $18,782,912 19,162,814 $ 0.98
Effect of Dilutive Securities
Stock options 1,375,332
Diluted EPS
Income available to common shareholders and
assumed conversions $18,782,912 20,538,146 $ 0.91
</TABLE>
The following options were outstanding during the respective year but were
not included in the computation of that year's diluted EPS because the
options' exercise price was greater than the average market price of the
common shares in the respective year:
<TABLE>
<CAPTION>
Options Exercise
Granted Price Expiration
------- -------------- ----------
<S> <C> <C> <C>
For the years ended March 31:
1998 93,236 $5.93 - $7.11 2000 - 2005
1999 19,421 $15.00 - $21.21 2003 - 2009
2000 43,978 $24.13 - $37.45 2004 - 2010
</TABLE>
50
<PAGE> 51
Cybex Computer Products Corporation
Notes to Consolidated Financial Statements
March 31, 1999 and 2000
-------------------------------------------------------------------------------
14. Commitments
The Company leases buildings and certain equipment under various operating
leases. Rent expense under these leases totaled approximately $401,000,
$776,000, and $592,000 for the years ended March 31, 1998, 1999, and 2000,
respectively. Minimum future rental payments under the noncancelable
operating leases are approximately as follows:
Year ending March 31:
2001 $ 601,000
2002 452,000
2003 421,000
2004 361,000
2005 343,000
----------
$2,178,000
==========
15. Stock Options
On July 10, 1995, the Company's shareholders adopted the 1995 Employee
Stock Option Plan (the 1995 Plan). Under the 1995 Plan, options vest and
are exercisable in twenty percent increments beginning one year from the
date of grant and expire ten years from the date of grant. The Company set
aside 949,218 shares of common stock for the 1995 Plan. During 1998, the
shareholders approved 1,012,500 additional shares of common stock to be
set aside for the 1995 plan.
The Company's shareholders also approved options for 611,298 shares of
common stock for the directors who are not employees of the Company under
the Company's Directors' Compensation Equity Program (the Program). During
1995, the Company's shareholders approved changes to the Company's stock
option plans whereby the Program was terminated and replaced by the 1995
Outside Directors Stock Option Plan (the 1995 Directors Plan). Under the
1995 Directors Plan, options vest and are immediately exercisable on date
of grant. Options expire either (1) ninety days after the time the
participant ceases to be a Director if the Director is terminated for
cause or, (2) three years after the date of termination if such
termination is due to retirement, permanent disability, or death. The
Company has set aside 189,843 shares of common stock for the 1995
Directors Plan.
In 1998, the Company adopted the Employee Stock Incentive Plan (the 1998
Plan), whereby the Board of Directors may, from time to time, grant stock
options to officers and key employees of the Company. The Company set
aside 1,687,500 shares of common stock for the 1998 Plan. Vesting is
determined by the Board of Directors at the time of grant. Both incentive
stock options and nonqualified options are allowed under the 1998 Plan.
51
<PAGE> 52
Cybex Computer Products Corporation
Notes to Consolidated Financial Statements
March 31, 1999 and 2000
--------------------------------------------------------------------------------
Pertinent information regarding the plans is as follows:
<TABLE>
<CAPTION>
Weighted
Range of Average
Number of Exercise Exercise Vesting
Options Prices Price Provisions
---------- -------------- ---------- ----------
<S> <C> <C> <C> <C>
Options outstanding, March 31, 1997 1,017,143 $0.53 - $7.11 $3.54 Various
Options granted 25,313 $6.41 $6.41 100%/year
Options granted 528,188 $4.30 - $7.74 $5.51 20%/year
Options exercised (248,655) $0.53 - $5.93 $0.78 Various
Options forfeited (4,050) $5.93 $5.93 20%/year
---------
Options outstanding, March 31, 1998 1,317,939 $0.53 - $7.74 $4.90 Various
Options granted 32,625 $9.48 - $15.50 $10.52 100%/year
Options granted 1,084,280 $7.71 - $21.21 $10.32 20%/year
Options exercised (455,805) $0.53 - $9.48 $4.82 Various
Options forfeited (87,075) $5.93 - $12.00 $9.47 20%/year
---------
Options outstanding, March 31, 1999 1,891,964 $0.79 - $21.21 $7.91 Various
Options granted 15,000 $12.00 - $30.38 $21.19 100%/year
Options granted 668,749 $12.00 - $37.45 $16.01 Various
Options exercised (324,742) $0.79 - $20.38 $6.16 Various
Options forfeited (118,061) $4.44 - $21.21 $11.30 20%/year
---------
Options outstanding, March 31, 2000 2,132,910 $3.78 - $37.45 $10.62 Various
---------
</TABLE>
The following table summarizes information about stock options outstanding
at March 31, 2000:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------- -----------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
--------------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$3.78 320,331 6.72 $ 4.55 77,006 $ 4.40
$5.04 - $7.22 294,442 6.66 $ 5.71 118,875 $ 5.80
$9.00 - $12.67 1,260,013 8.48 $10.47 212,051 $10.68
$15.00 - $21.21 80,625 8.89 $18.59 13,875 $17.72
$22.92 - $30.50 134,250 9.57 $24.78 7,500 $30.38
$32.98 - $37.45 43,249 9.83 $34.77
--------- -------
2,132,910 429,307
========= =======
</TABLE>
The options above were issued with exercise prices which approximate fair
value at the date of grant. At March 31, 2000, 969,263 shares are
available for grant under the plans.
The Company applies Accounting Principles Board Opinion 25 and related
Interpretations in accounting for its stock plans. Accordingly, no
compensation cost has been recognized related to stock options. Had
compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under
those plans consistent with the method prescribed in SFAS No. 123,
Accounting for Stock-Based Compensation, the Company's net income and
earnings per share would have been reduced to the pro forma amounts
indicated below:
52
<PAGE> 53
Cybex Computer Products Corporation
Notes to Consolidated Financial Statements
March 31, 1999 and 2000
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1999 2000
---------- ----------- -----------
<S> <C> <C> <C>
Net income - as reported $3,571,013 $12,432,321 $18,782,911
Net income - pro forma $3,074,098 $10,963,598 $16,116,891
Diluted earnings per share - as reported $ .19 $ .63 $ .91
Diluted earnings per share - pro forma $ .16 $ .56 $ .78
</TABLE>
The pro forma amounts reflected above are not representative of the
effects on reported net income in future years because, in general, the
options granted typically do not vest for several years and additional
awards are made each year. The fair value of each option grant is
estimated on the grant date using the Black-Scholes option-pricing model
with the following weighted-average assumptions:
<TABLE>
<CAPTION>
1998 1999 2000
------------- ------------- -------------
<S> <C> <C> <C>
Dividend yield 0 0 0
Expected life (years) 3 - 5 3 - 5 3 - 5
Expected volatility 44.2 - 45.7% 44.2 - 53.9% 44.2 - 53.9%
Risk-free interest rate (range) 5.98% - 6.35% 5.08% - 5.14% 5.91 - 5.98%
</TABLE>
16. Retirement Plans
The Company has 401(k) savings and profit sharing plans covering
substantially all employees. The Company will match 50% of an employee's
contributions up to 6% of the employee's compensation. The Company's
expense for matching contributions totaled approximately $91,000,
$120,000, and $277,000 for the years ended March 31, 1998, 1999, and 2000,
respectively. The Company may also elect to make discretionary
contributions as determined by its Board of Directors. The Company did not
make discretionary contributions during the fiscal years ended March 31,
1998, 1999, or 2000.
17. Contingencies
The Company has certain contingent liabilities resulting from litigation
enacted by Apex PC Solutions, Inc. (Apex). Apex contends in a lawsuit
filed against the Company in the U.S. District Court in Seattle,
Washington that the Company has infringed Patent No. 5,721,842. By mutual
agreement and stipulation of APEX and the Company, the patent lawsuit was
dismissed without prejudice. Patent validity issues raised in connection
with the District Court lawsuit will now be heard before the U.S. Patent
and Trademark Office. The parties jointly requested the District Court to
urge accelerated consideration of these issues by the U.S. Patent and
Trademark Office. At the conclusion of the U.S. Patent and Trademark
Office proceeding, the lawsuit can be reinstated upon the request of
either party. After extensive review of the claims at issue, management
does not believe that any of its products are covered by any valid claim
of Apex's patent. As a result, it is management's opinion that the
probable resolution of such contingencies will not have a material adverse
affect on the financial position, results of operations, or cash flows of
the Company.
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 litigation matter that
will have a material adverse effect on the Company's business, operations,
financial condition, or cash flows.
53
<PAGE> 54
Cybex Computer Products Corporation
Notes to Consolidated Financial Statements
March 31, 1999 and 2000
--------------------------------------------------------------------------------
18. Proposed Merger with Apex
In March 2000, the Company announced a proposed merger with Apex, Inc.
(Apex), a provider of server console management and switching technology.
The Company and Apex (collectively "the companies") have entered into a
merger agreement under which they have agreed to combine the two companies
in a merger, resulting in a new combined corporation under a newly created
parent registrant. On March 31, 2000, the newly created registrant and the
companies filed a registration statement on Form S-4, which was declared
effective by the Securities and Exchange Commission on June 2, 2000. The
companies are awaiting final approval of the merger by the shareholders of
the respective companies.
19. Segment Reporting
The Company's reportable segments are based on the Company's method of
internal reporting which is disaggregated operationally. The two
reportable segments, U.S. and International, are evaluated based on gross
profit; therefore, selling, general, and administrative costs, as well as
research and development, interest income/expense, and provision for
taxes, is reported on an entity-wide basis only.
The accounting policies of the segments are the same as those described in
the Summary of Significant Accounting Policies to the extent such policies
affect the reported segment information. The operational distributions of
the Company's revenues and gross margin for its reportable segments for
the years ended March 31, 1998, 1999, and 2000 are summarized as follows:
1998 1999 2000
------- ------- --------
(In Thousands)
Net sales:
Cybex - U.S. $43,040 $56,921 $ 89,112
Cybex International 10,235 26,471 34,809
Less inter-company sales (712) (1,197) (3,482)
------- ------- --------
$52,563 $82,195 $120,439
======= ======= ========
Gross profit:
Cybex - U.S. $22,720 $30,426 $ 47,121
Cybex International 4,824 13,546 17,350
Eliminations 40 (79) 14
------- ------- --------
$27,584 $43,893 $ 64,485
======= ======= ========
54
<PAGE> 55
Cybex Computer Products Corporation
Notes to Consolidated Financial Statements
March 31, 1999 and 2000
--------------------------------------------------------------------------------
The operational distribution of the Company's identifiable assets as of
March 31, 1999 and 2000 are as follows:
1999 2000
-------- --------
(In Thousands)
Assets:
Cybex - U.S. $ 88,815 $122,039
Cybex International 16,678 21,510
-------- --------
Total identifiable assets 105,493 143,549
Eliminations (12,643) (16,254)
-------- --------
Total assets $ 92,850 $127,295
======== ========
20. Summarized Quarterly Financial Data (Unaudited)
The following table presents unaudited quarterly operating results for
each of the Company's last eight fiscal quarters. This information has
been prepared by the Company on a basis consistent with the Company's
audited financial statements and includes all adjustments, consisting only
of normal recurring adjustments, that the Company considers necessary for
a fair presentation of the data.
<TABLE>
<CAPTION>
Three Months Ended
(In Thousands, Except for Share Amounts) ----------------------------------------------
July 3, October 2, January 1, March 31,
1998 1998 1999 1999
------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Net sales $18,566 $19,600 $20,497 $23,532
Gross profit $ 9,842 $10,466 $10,982 $12,603
Operating income $ 3,945 $ 4,471 $ 4,364 $ 3,861
Net income $ 2,808 $ 3,229 $ 3,533 $ 2,863
Net income per share (1):
Basic $ .15 $ .17 $ .19 $ .15
Diluted $ .15 $ .17 $ .18 $ .14
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
(In Thousands, Except for Share Amounts) ----------------------------------------------
July 2, October 1, December 31, March 31,
1999 1999 1999 2000
------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Net sales $24,300 $27,500 $34,049 $34,590
Gross profit $13,101 $15,408 $17,560 $18,416
Operating income $ 5,932 $ 7,230 $ 5,982 $ 7,753
Net income $ 4,248 $ 5,023 $ 4,326 $ 5,186
Net income per share (1):
Basic $ .22 $ .26 $ .23 $ .27
Diluted $ .21 $ .25 $ .21 $ .25
</TABLE>
(1) The net income per share for each quarter within a fiscal year does not
necessarily equal the net income per share for the particular fiscal year
due to variations in the estimated value of Company's common stock during
the year and the effect these variations had on the shares outstanding
calculation.
55
<PAGE> 56
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Directors
The following table sets forth certain information with respect to the
Company's Directors.
<TABLE>
<CAPTION>
Principal Occupation and Director
Name Age All Positions with the Company Since
---- --- ------------------------------- --------
<S> <C> <C> <C>
Stephen F. Thornton 60 Chairman of the Board, President and Chief Executive 1984
Officer and Director
Remigius G. Shatas 52 Executive Vice President - Special Projects and 1981
Secretary (resignation from position effective
May 8, 2000) and Director
Doyle C. Weeks 54 Executive Vice President - Group Operations and 1998
Business Development and Director
Douglas E. Pritchett 44 Senior Vice President - Finance, Chief Financial 1995
Officer, Treasurer and Assistant Secretary
and Director
David S. Butler 58 Director 1984
John R. Cooper 52 Director 1998
</TABLE>
Stephen F. Thornton has been Chairman of the Board of the Company since 1987
and President and Chief Executive Officer of the Company since 1984. From 1981
to 1984, Mr. Thornton was President of Schiller Industries, an ultra precision
machining, specialty cable and laser scanning company in the aerospace industry.
Mr. Thornton also serves as a director of First Commercial Bank of Huntsville.
Remigius G. Shatas served as Executive Vice President of Special Projects and
Secretary of the Company from April 1999 to May 2000. Effective May 2000, Mr.
Shatas resigned as a director of the Company to serve as Chief Executive Officer
of CyCom LLC. Mr. Shatas will remain a Director of the Company. See "Recent
Developments." Mr. Shatas served as Executive Vice President - Technology and
Acquisitions and Secretary of the Company from April 1997 to April 1999, as
Senior Vice President, Chief Technical Officer and Secretary of the Company from
1995 to 1997 and as Chief Technical Officer, Secretary and Treasurer of the
Company from 1984 to 1995.
Doyle C. Weeks has been Executive Vice President - Group Operations and
Business Development of the Company since August 1998. Mr. Weeks served as
Senior Vice President - Finance, Chief Financial Officer, and Treasurer of the
Company from 1995 to August 1998 and as Assistant Secretary of the Company
during 1998. Prior to joining the Company, Mr. Weeks served as Vice President -
Finance, Chief Financial Officer and Treasurer of Phoenix Microsystems, Inc.
from 1985 to 1994 and a member of the Board of Phoenix Microsystems, Inc. during
1994.
56
<PAGE> 57
Douglas E. Pritchett has been Senior Vice President - Finance, Chief
Financial Officer, Treasurer and Assistant Secretary of the Company since
September 1998. Prior to joining the Company as an executive officer, Mr.
Pritchett was Chief Financial Officer of Barber Dairies, Inc. from 1992 to 1998
and a Partner with Coopers & Lybrand L.L.P. (predecessor of
PricewaterhouseCoopers LLP) from 1987 to 1992.
David S. Butler has served as President of Electronic Manufacturer's Agents,
a manufacturer's representative, since 1974.
John R. Cooper has been Vice President - Finance and Chief Financial Officer
of ADTRAN, Inc., a company that designs, develops, manufactures, markets and
services a broad range of high-speed digital transmission products utilized by
telephone companies and corporate end-users to implement advanced digital data
services over existing telephone networks, since 1996. Mr. Cooper was President
of Sauty Group from 1995 to 1996 and a Partner with Coopers & Lybrand L.L.P.
(predecessor of PricewaterhouseCoopers LLP) from 1991 to 1995.
Executive Officers
The following table sets forth certain information with respect to the
Company's executive officers:
<TABLE>
<CAPTION>
Officer
Name Age Principal Occupation Since
---- --- -------------------- --------
<S> <C> <C> <C>
Stephen F. Thornton 60 Chairman of the Board, President and Chief Executive 1984
Officer and Director
Remigius G. Shatas (1) 52 Executive Vice President - Special Projects and Secretary 1981
and Director
Doyle C. Weeks 54 Executive Vice President - Group Operations and Business 1995
Development and Director
Douglas E. Pritchett 44 Senior Vice President - Finance, Chief Financial Officer, 1998
Treasurer and Assistant Secretary and Director
R. Byron Driver 59 Senior Vice President -- Operations and Chief Operating
Officer 1992
Christopher L. Thomas 44 Senior Vice President of Engineering 1996
Gary R. Johnson 50 Senior Vice President of Sales 1996
Victor Odryna 42 Senior Vice President - Corporate Strategic Marketing 2000
Kieran MacSweeney 42 Managing Director - International Operations 2000
</TABLE>
(1) Mr. Shatas resigned as an officer of the Company effective May 2000. See
"Business - Recent Developments."
Biographical information for Messrs. Thornton, Shatas, Weeks and
Pritchett is set forth above under this Item, "Directors and Executive Officers
of the Registrant -- Directors."
R. Byron Driver has been employed by the Company since 1992 and was
elected Senior Vice President -- Operations and Chief Operating Officer in 1995.
From 1985 to 1992, he was Vice President of Astrocom Corporation, a data
communications company. From 1982 to 1985, Mr. Driver was vice president of
Complexx Systems, Inc., which was acquired by Astrocom Corporation in 1985.
57
<PAGE> 58
Christopher L. Thomas served as the Company's Engineering Product
Manager from February 1995 to March 1996, Vice President of Engineering from
March 1996 to April 1997 and currently serves as Senior Vice President of
Engineering. Prior to joining the Company, Mr. Thomas served from 1993 to 1995
as Vice President of Technology for Max Vision, a company specializing in
medical imaging systems. Mr. Thomas was employed by Intergraph, a graphics
workstations company, from 1978 to 1993.
Gary R. Johnson has been Senior Vice President of Sales since April
1997, was formerly Vice President of Sales Channel Development from March 1996
to March 1997. From May 1986 to February 1996, he was the owner of Sales and
Marketing Solutions, Inc.
Victor Odryna was appointed Senior Vice President of Corporate Strategic
Marketing for Cybex in March 2000. Mr. Odryna was founder and Chief Executive
Officer of PixelVision Technology Inc. from 1991 until October 1999 when
PixelVision was acquired by Cybex. From 1989 to 1991, Mr. Odryna served as a
Senior Consulting Engineer for Graphics and Display Technology at
Hewlett-Packard Corporation, a developer and producer of engineering
workstations. From 1983 to 1989 he was employed by Apollo Computer, which was
acquired by Hewlett-Packard. As Senior Consulting Engineer for Graphics and
Display Technology, Mr. Odryna received a BSEE degree and MSCS degree from the
University of Connecticut.
Kieran MacSweeney has been Managing Director of International Operations
since joining the Company in 1996. From January 1992 to October 1996, Mr.
MacSweeney was general manager of the European distribution facility of
Maidenform International Ltd., a maker of women's apparel.
General
A Board of Directors consisting of no less than three and no more than
15 persons is authorized by the Company's Bylaws. The present Directors were
elected to the Board of Directors of the Company during Fiscal 2000 by the
shareholders. Oscar L. Pierce served on the Board of Directors until the end of
the second quarter. Executive officers of the Company are elected annually by,
and serve at the discretion of, the Board of Directors.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and executive officers, and persons who own
more than 10% of the Company's Common Stock, to file with the SEC initial
reports of ownership and reports of changes in ownership of the Common Stock.
The executive officers, directors and greater than 10% stockholders of the
Company are required by SEC rules to furnish the Company with copies of all
Section 16(a) reports they file. There are specific due dates for these reports,
and the Company is required to report any failure to file reports as required
during Fiscal 2000. Based upon a review of these filings, the Company believes
that the reporting and filing requirements relating to ownership of Common Stock
were complied with during all of Fiscal 2000.
58
<PAGE> 59
Item 11. Executive Compensation.
Executive Compensation - General
The following table sets forth compensation paid or awarded to the Chief
Executive Officer and each of the other four most highly compensated executive
officers of the Company (the "Named Executive Officers") for all services
rendered to the Company and its subsidiaries in 1998, 1999 and 2000.
<TABLE>
<CAPTION>
Long-Term
Compensation
------------
Annual No. of
Compensation Securities
-------------------------------- Underlying All Other
Name/Position Year Salary Bonus Options(1) Compensation(2)
------------- ---- -------- -------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Stephen F. Thornton 2000 $250,000 $317,650 $ 45,000 $ 6,773
Chairman of the Board, 1999 185,015 51,953 67,500 6,303
Chief Executive Officer and President 1998 165,150 89,800 50,625 5,055
Doyle C. Weeks 2000 175,000 222,400 37,500 6,470
Executive Vice President - 1999 135,857 38,521 68,593 3,604
Group Operations and 1998 115,150 97,588 33,750 3,826
Business Development
Douglas E. Pritchett 2000 150,000 190,650 22,500 4,947
Senior Vice President - Finance, 1999 69,058 24,712 56,250 1,225
Chief Financial Officer, Treasurer and 1998 -- -- -- --
Assistant Secretary and Director
Remigius G. Shatas 2000 150,000 168,150 15,000 6,265
Executive Vice President of 1999 139,610 42,150 33,750 4,013
Special Projects and Secretary 1998 139,650 75,921 42,187 3,712
Gary R. Johnson 2000 136,000 159,270 15,000 3,922
Senior Vice President of Sales 1999 112,008 52,097 84,375 3,640
1998 100,150 75,890 -- 2,214
</TABLE>
(1) The amounts listed in this column represent the number of securities
underlying options after taking into account the 3- for-2 stock splits
effected by the Company on April 28, 1998, December 15, 1998 and February
18, 2000, as a 50% stock dividend.
(2) The amounts listed in this column represent for 2000, 1999 and 1998,
respectively: (i) employer contributions to the Company's 401(k) Retirement
Plan: Stephen F. Thornton, $2889, $2,723 and $1,843; Doyle C. Weeks,
$5,242, $2,422 and $2,728; Douglas E. Pritchett, $3,719, $935 and 0;
Remigius G. Shatas, $5,037, $2,833 and, $2,502; and Gary R. Johnson,
$2,758, $2,585 and $1,184; and (ii) life insurance premiums: Stephen F.
Thornton, $3,340, $3,036 and $2,638; Doyle C. Weeks, $684, $638 and $524;
Douglas E. Pritchett, $684 and $154 and 0; Remigius G. Shatas, $684, $636
and $636; and Gary R. Johnson, $620, $511 and $456; and (iii) disability
insurance premiums: Stephen F. Thornton, $544, $544 and $574; Doyle C.
Weeks, $544, $544 and $574; Douglas E. Pritchett, $544 and $136 and 0;
Remigius G.
Shatas, $544, $544 and $574; and Gary R. Johnson, $544, $544 and $574.
59
<PAGE> 60
Option Grants in Fiscal 2000
The following table sets forth certain information concerning individual
grants of stock options made during Fiscal 2000 to certain of the Named
Executive Officers:
<TABLE>
<CAPTION>
Potential Realizable
Number of Value at Assumed
Securities $ of Total Rates of Stock
Underlying Options Exercise Price Appreciation for
Options Granted to or Base Option Terms(2)
Granted Employees in Price Expiration ----------------------
Name (#)(1) Fiscal Year ($/Share) Date 5%($) 10%($)
---- --------- ------------- --------- ----------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Stephen F. Thornton 45,000 6.58% 12.00 4/23/09 339,603 860,621
Doyle C. Weeks 37,500 5.48% 12.00 4/23/09 283,003 717,184
Douglas E. Pritchett 22,500 3.29% 12.00 4/23/09 169,802 430,310
Remigius G. Shatas 15,000 2.19% 12.00 4/23/09 113,201 286,874
Gary R. Johnson 15,000 2.19% 12.00 4/23/09 113,201 286,874
</TABLE>
(1) The amounts listed in this column represent the number of securities
underlying options after taking into account the Stock Split. All options
outstanding were issued under the Company's 1998 Employee Stock Incentive
Plan. Options are exercisable 25% per year commencing on the grant date,
with the exception of Stephen F. Thornton. All options granted to Stephen
F. Thornton under the 1998 Stock Incentive Plan became immediately
exercisable on the date of grant.
(2) Based upon the market price on the date of grant and an annual appreciation
at the rate stated of such market price through the expiration date of such
options. The dollar amounts under these columns are the result of
calculations at the 5% and 10% rates set by the SEC and, therefore, are not
intended to forecast possible future appreciation, if any, of the Company's
stock price. The Company did not use an alternative formula for a grant
date valuation, as the Company is not aware of any formula which will
determine with reasonable accuracy a present value based on future unknown
or volatile factors.
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<PAGE> 61
Option Exercises and Year-End Values
The following table sets forth certain information concerning the exercise
of stock options during Fiscal 2000 by each of the Named Executive Officers and
the fiscal year-end value of unexercised options.
<TABLE>
<CAPTION>
Number of Number of Value of Value of
Securities securities unexercised unexercised
Shares Underlying underlying in-the- in-the-
Acquired Unexercised unexercised money money
on Value Options at options at options at options at
exercise realized FY-end (#) FY-end (#) FY-end ($) FY-end ($)
Names (#) ($) Exercisable unexercisable Exercisable unexercisable
-------- --------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stephen F. Thornton -- -- 80,277 104,625 2,236,259 3,154,739
Doyle C. Weeks 36,562 975,076 34,725 123,499 1,007,950 3,591,362
Douglas E. Pritchett -- -- 16,875 61,875 466,172 1,720,547
Remigius G. Shatas 52,686 466,053 -- 80,438 -- 2,431,102
Gary R. Johnson 50,625 1,194,845 20,625 129,375 646,015 3,852,732
</TABLE>
401(k) Retirement Plan
The Company maintains a retirement plan pursuant to Section 401(k) of the
Code, which requires, subject to certain limited exceptions, three months of
service and a minimum of 1,000 hours worked annually to become a participant in
the plan. The Company will match 50% of an employee's contributions up to 6% of
the employee's compensation. The Company's expense for matching contributions
totaled $58,088, $86,834, and $201,128 for Fiscal 1998 Fiscal 1999, and Fiscal
2000, respectively.
The Company may make discretionary contributions to the plan in an amount
determined annually by the Board of Directors. The Company elected to make no
discretionary contributions to the plan for Fiscal 1998, Fiscal 1999 and Fiscal
2000. Company contributions are allocated to each participant on the basis of
compensation. Participants may make contributions to the plan on a payroll
deduction basis, and the Company may make matching contributions on behalf of
each participant. A separate salary reduction account and matching employer
contribution account are maintained for each participant. All accounts are
vested at retirement, death, or disability. Upon any other termination of
employment, matching and discretionary contributions are vested after the fifth
year of service. Subject to certain restrictions and tax penalties, participants
may make early withdrawals from their salary reduction accounts.
The Company also maintains a defined contribution plan for employees of its
wholly owned subsidiary, Cybex International. The contribution plan provides for
employer contributions of 5% of employee base salary and permits voluntary
employee contributions of 5% of base salary. All employee contributions vest
immediately upon contribution, and employer contributions vest ratably over five
years. For Fiscal 1999 and Fiscal 2000, the Company contributed $33,204 and
$75,399, respectively, to the contribution plan.
Employment and Confidentiality Agreements
Employment Agreements
Each of the Named Executive Officers of the Company is a party to an
Employment and Noncompetition Agreement. Each Employment Agreement is effective
as of July 1, 1999, and has a five-year term. Under each Employment Agreement,
the employee receives an annual base salary, subject to annual increases at the
discretion of the Compensation Committee (not less than the annual cost of
living increase percentage), and is entitled to receive an annual bonus at the
discretion of the Compensation Committee and to participate in the
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<PAGE> 62
Company's stock option plans and all other benefit programs generally available
to executive officers of the Company.
Under the terms of the Employment Agreements, Mr. Thornton and Mr. Shatas
have each agreed that during the term of his employment with the Company and for
a term of 18 months thereafter, he will not compete, without the prior written
consent of the Company, with the Company by engaging in any capacity in any
business which is competitive with the business of the Company. Messrs. Weeks,
Pritchett and Driver have agreed not to compete with the Company for a period of
12 months after termination of employment with the Company.
Under the terms of the Employment Agreements, the Company may terminate an
executive's employment for "cause," which includes acts of (i) willful
dishonesty, fraud, or deliberate injury or attempted injury to the Company or
(ii) the executive's willful material breach of the Employment Agreement which
has resulted in material injury to the Company, in which event, the executive
shall receive salary, bonus, and other benefits through the date of termination.
Under the terms of the Employment Agreements, if a participating executive is
terminated by the Company without cause, he is entitled to receive his accrued
salary, earned bonus and other benefits through the date of termination. In
addition, Messrs. Thornton and Shatas would each receive severance compensation
equal to his base salary for a period of 18 months following the date of
termination and an amount equal to his average annual bonus during the two years
immediately preceding his termination. Messrs. Weeks, Pritchett and Driver would
each receive severance compensation equal to his base salary for a period of 12
months following the date of termination and an amount equal to the average
annual bonus received during the two years immediately preceding his
termination. At the executive officer's election, he may receive a lump sum
severance amount equal to the present value of such severance payments (using a
discount rate equal to the 90-day Treasury bill interest rate in effect on the
date of delivery of such election notice). The executive officers are also
entitled to accelerated vesting of any award granted under stock option plans
upon termination without cause.
If a "change-in-control" occurs, each executive officer may terminate his
Employment Agreement and receive the severance compensation described above.
The Company has agreed to indemnify each executive officer under his
Employment Agreement for certain liabilities arising from actions taken by the
executive officer within the scope of his employment.
Confidentiality Agreements
All key employees of the Company, including the executive officers, have
signed nondisclosure agreements pursuant to which each has agreed not to
disclose any of the Company's confidential information and to assign to the
Company any rights he or she may have in any design, invention, software,
process, trade secret, or intellectual property that relates to or resulted from
work performed at the Company.
Compensation Committee Report
Introduction. This report of the Compensation Committee of the Board of
Directors discusses the compensation policies and the basis for the compensation
paid to the Company's executive officers and to Stephen F. Thornton, the
Company's President, Chief Executive Officer and Chairman of the Board, during
the fiscal year ended March 31, 2000.
The Company's policy with respect to executive compensation has been
designed to (i) adequately and fairly compensate executive officers in relation
to their responsibilities, capabilities and contributions to the Company, (ii)
reward executive officers for the achievement of short-term operating goals and
for the enhancement of the long-term shareholder value of the Company; and (iii)
align the interest of executive officers with those of the Company's
shareholders with respect to short-term operating results and long-term
increases in the price of the Company's Common Stock.
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<PAGE> 63
The components of compensation paid to executive officers consist of (i)
base salary, (ii) incentive compensation in the form of an annual bonus, (iii)
long-term incentive compensation in the form of options awarded by the Company
under the 1995 Employee Stock Option Plan, (iv) long-term incentive compensation
in the form of options or shares of restricted stock awarded by the Company
under the 1998 Employee Stock Incentive Plan, (v) amounts paid on behalf of
executives under the Company's 401(k) Plan and (vi) certain other benefits
provided to executive officers.
The Compensation Committee establishes the general compensation policy
for the Company and has the responsibility for approving cash compensation and
increases in compensation paid to executive officers of the Company. The
Compensation Committee also administers the Company's 1995 Employee Stock Option
Plan and the 1998 Employee Stock Incentive Plan (collectively, the "Incentive
Plans"). The Compensation Committee selects the individuals who will receive
awards under the Incentive Plans and determines the timing, pricing and amounts
of options or shares of restricted stock granted under the Incentive Plans, each
in accordance with the terms of the respective Incentive Plan. The Compensation
Committee consists of three non-employee directors of the Company. The Board of
Directors of the Company is responsible for determining annual contributions by
the Company under the Company's 401(k) Plan.
The Company's executive compensation program has historically emphasized
the use of incentive based compensation to reward members of senior management
for the achievement of short-term operating goals and for increasing the
long-term shareholder value of the Company, and the Compensation Committee
intends to continue that policy. Annual bonus payments are discretionary and are
related primarily to the operating performance of the Company, in general, and
the executive, in particular. The Company believes that its compensation
policies reward management when the Company and its shareholders have benefited
from short-term operating results and long-term increases in the price of the
Company's Common Stock.
Executive officers are rewarded based upon corporate performance,
business unit performance and individual performance. Corporate performance and
business unit performance are evaluated by reviewing the extent to which
strategic and business plan goals are met, including such factors as
profitability, performance relative to competitors, timely product enhancements,
new product introductions and new product acquisitions. Individual performance
is evaluated by reviewing organizational and management development progress
against set objectives and the degree to which teamwork and Company values are
fostered.
Compensation Vehicles. The Company has had a long and successful history
of using a simple total compensation program that consists of cash-based and
equity-based compensation. Having a compensation program that allows the Company
to successfully attract and retain key employees permits it to provide useful
products and services to customers, enhance shareholder value, motivate
technological innovation, foster teamwork, and adequately reward employees.
Base Salary. Each year, the Compensation Committee reviews and approves
the base salaries paid by the Company to the executive officers. All of the
Named Executive Officers executed employment agreements with the Company. These
employment agreements provide for a base salary for each executive officer. At
its meeting on May 2, 2000, the Compensation Committee reviewed base salaries of
executive officers and the performance of the executive officers and the Company
against the targets and expectations set for the year. The Compensation
Committee approved increases in the base salaries of all executive officers of
the Company for Fiscal 2001 in amounts that the Compensation Committee believed
would provide base salaries commensurate with executive officers performing
comparable services for comparable companies based on the results achieved in
Fiscal 2000. The Compensation Committee believes that base salaries earned by
the Company's executive officers have historically been reasonable in relation
to the Company's performance.
Annual Bonus. The compensation plan for the Company's executive officers
contemplates consideration of discretionary annual bonuses. The annual bonus is
designed to reward the achievement of short-term operating goals and long-term
increases in shareholder value. The Compensation Committee adopted a bonus
program for senior executive officers of the Company designed to award bonuses
to the senior executives based upon the
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<PAGE> 64
achievement of certain financial goals. The bonus program is divided into two
elements. The first element is based on the achievement of certain sales and net
income goals. In particular, the bonus program awards a 10% bonus if a specific
revenue target is achieved and an additional 10% bonus if a specific earnings
per share target is achieved, excluding mergers, acquisitions and
reorganizations during the fiscal year. Both of these targets were achieved in
Fiscal 2000.
The second element is determined by comparing the closing stock price on
the last day of the prior year to the highest sustained closing price during the
year (determined by selecting the highest closing price which was equaled or
exceeded for twenty consecutive trading days during the fiscal year). The change
in stock price is measured by selecting the highest of the lowest reported
closing prices for the Common Stock for each twenty day trading period during
the fiscal year. A cash bonus equal to two percent (2%) of base salary is paid
to each executive officer of the Company for each five percent (5%) increase in
the market price of the Common Stock at March 31 of the current fiscal year, as
compared to the market price of the Common Stock at March 31 of the prior fiscal
year. Similarly, a reduction in the market price of the Common Stock reduces the
bonus under the first element by an amount equal to two percent (2%) of base
salary for each five percent (5%) decrease in the market price of the Common
Stock. Under this formula, the price of the Common Stock appreciated 230.31%
from March 31, 1999 to March 31, 2000. The Compensation Committee contemplates
that this portion of the bonus for Fiscal 2001 will be calculated by comparing
the highest sustained closing price during Fiscal 2000 to the highest sustained
closing price during Fiscal 2001.
If the total bonus earned in the fiscal year via the two elements
described is less than 30%, the executive officers can earn additional bonuses
up to a maximum total bonus of 30% if the Company's earnings per share ("EPS")
exceeds the specific earnings per share target. For each 1% that actual EPS
exceeds targeted EPS, an additional 2% bonus is earned.
On May 2, 2000, the Compensation Committee authorized the payment of
bonuses to its executive officers and staff employees based upon their
respective performance and contribution toward the attainment of the goals of
the Company for Fiscal 2000. During Fiscal 2000, the goals of the Company were
to increase net sales and net income, introduce new products, introduce
enhancements to existing products, expand the Company's customer base, expand
its manufacturing, marketing and distribution facilities in Europe, increase
international sales, and increase the coverage of the Company by analysts.
Substantially all of its goals for Fiscal 2000 were achieved, including the
specific revenue and earnings per share targets. The Compensation Committee
evaluated the performance of each executive officer and concluded that the
successful performance of the Company during Fiscal 2000 was due largely to the
efforts of all of the executive officers. The amount of the bonuses for the
executive officers was based on the achievement of the financial goals by the
Company in Fiscal 2000 as set out in the bonus program and bonuses for other
employees were based upon a subjective assessment of the performance of the
Company during Fiscal 2000 and the individual performance of such employees as
compared with the Company's and the employee's goals for the year.
Because both targets set under the first element of the executive bonus
plan were achieved, the Compensation Committee approved a 20% bonus to the Named
Executive Officers under the first element of the plan. The increase in the
price of the Common Stock during Fiscal 2000 resulted in a bonus for the Named
Executive Officers for Fiscal 2000 under the second element of the plan of 92%.
Therefore, the total bonus percentage for all elements under the plan was 112%
for Fiscal 2000. The Compensation Committee approved the payment of bonuses to
all Named Executive Officers.
In addition, the Compensation Committee had established a bonus goal for
certain executive officers of 5% for each qualified analyst that begins to
follow the Company. The definition of who constitutes a qualified analyst is
made by the Compensation Committee. Based upon the results achieved during
Fiscal 2000, the Compensation Committee awarded additional bonuses of 15% of
base salary to each of Stephen F. Thornton, Doyle C. Weeks and Douglas E.
Pritchett and 5% of base salary to Gary R. Johnson.
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<PAGE> 65
Incentive Compensation. The purpose of the Company's Incentive Plans is
to provide additional incentives to employees to work to maximize shareholder
value. The Company also recognizes that a stock incentive program is a necessary
element of a competitive compensation package for its employees. The Plan
utilizes vesting periods to encourage key employees to continue in the employ of
the Company and thereby acts as a retention device for key employees. The
Company believes that the program encourages employees to maintain a long-term
perspective. The Company grants stock options annually to a broad-based group of
the total employee population. For Fiscal 2000, the Company granted options to
purchase 240,000 shares of Common Stock to certain key employees, of which
options to purchase shares were granted to the Named Executive Officers as
follows: 45,000 to Stephen F. Thornton, 37,500 to Doyle C. Weeks, 22,500 to
Douglas C. Pritchett, 15,000 to Remigius Shatas and 15,000 to Gary R. Johnson.
In determining the size of an option award for an executive officer, the
Compensation Committee's primary considerations are the "grant value" of the
award and the performance of the officer measured against the same performance
criteria described above under "Introduction" which is used to determine salary.
In addition to considering the grant value and the officer's performance, the
Committee also considers the number of outstanding unvested options which the
officer holds and the size of previous option awards to that officer. The
Company does not assign specific weights to these items. Options to purchase
shares of the Company's Common Stock are generally at the fair market value of
such shares as reported by the NASDAQ Stock Market on the date of grant. Under
the terms of the Incentive Plans, the Compensation Committee has sole authority,
within the terms of the Incentive Plans, to select the employees who will be
granted options under the Incentive Plans and to determine the timing, pricing
and amount of options awarded. The Compensation Committee has adopted guidelines
with respect to the granting of options under the Plan to employees upon their
promotion to important managerial or supervisory classifications. These
guidelines, which were developed over a number of years, are designed to reward
employees upon promotion to important positions and to provide such employees
with the opportunity to share in increases in the long-term shareholder value of
the Company in amounts that are consistent with their managerial
responsibilities. The Compensation Committee believes that stock options granted
under the Incentive Plans reward executive officers only to the extent that
shareholders have benefitted from increases in the value of the Company's Common
Stock.
CEO Compensation. Stephen F. Thornton has been President and Chief
Executive Officer of the Company since 1984 and Chairman of the Board since
1987. The Compensation Committee used the same compensation policy described
above for all employees to determine Mr. Thornton's Fiscal 2000 compensation. In
setting Mr. Thornton's compensation, the Compensation Committee made an overall
assessment of Mr. Thornton's leadership in achieving the Company's long-term
strategic and business goals. Mr. Thornton's base salary reflects a
consideration of both the Company's performance and Mr. Thornton's individual
performance. The Company does not assign specific weights to these categories.
In May 2000, the Compensation Committee increased Mr. Thornton's base
salary from $250,000 to $275,000 and approved a bonus to Mr. Thornton of
$317,650 for Fiscal 2000, which was approximately 127% of base salary and in
accordance with the Company's bonus program for senior executive officers
adopted by the Compensation Committee.
Members of the Compensation Committee:
David S. Butler
John R. Cooper
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<PAGE> 66
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth information with respect to ownership of
shares of the Company's Common Stock as of June 16, 2000, by (i) each of the
Company's directors; (ii) the Company's chief executive officer ("CEO") and the
Named Executive Officers, (iii) each person known to the Company to be the
beneficial owner of more than five percent of the outstanding shares of the
Common Stock, and (iv) all directors and Named Executive Officers of the Company
as a group. Unless otherwise indicated, each of the shareholders listed below
has sole voting and investment power with respect to the shares beneficially
owned.
<TABLE>
<CAPTION>
Common Stock Beneficially Owned
----------------------------------------
Name Number of Shares(1) % of Class
---- ------------------- -----------
<S> <C> <C>
Stephen F. Thornton 1,189,360 (2) 6.08
Remigius G. Shatas 954,811 (3) 4.91
FMR Corporation 1,250,250
82 Devonshire Street
Boston, MA 02109
Gary R. Johnson 114,375 (4) (*)
David S. Butler 231,461 (5) 1.19
R. Byron Driver 62,220 (6) (*)
Doyle C. Weeks 71,319 (7) (*)
Douglas E. Pritchett 32,325 (8) (*)
John R. Cooper 14,625 (9) (*)
Chris Thomas 95,250 (10) (*)
Kieran MacSweeney 44,112 (11) (*)
Victor Odryna -- (*)
All executive officers and directors 2,809,858 (12) 14.13
as a group (11 persons)
</TABLE>
(*) Less than 1%
(1) The number of shares set forth in the table reflects the 3-for-2 stock
splits effected by the Company on April 28, 1998, December 15, 1998 and
February 18, 2000, as a 50% stock dividend.
(2) Includes (i) 718,971 shares owned directly by Stephen F. Thornton (of
which 114,027 shares are represented by exercisable options); (ii)
231,139 shares owned by Judy Thornton, his wife; and (iii) 239,250
shares held by the Thornton Family Limited Partnership, of which Mr.
Thornton is a general partner and as to which he may be deemed to share
voting and investment power.
(3) Includes (i) 533,781 shares owned directly by Remigius G. Shatas; (ii)
7,593 shares owned by his wife; (iii) 75,937 shares held by Mr.
Shatas's minor child, and (iv)337,500 shares held by Shatas Partners,
Ltd., of which Mr. Shatas is a general partner and as to which he may
be deemed to share voting and investment power.
(4) All of the reported 114,375 shares are owned directly by Gary R.
Johnson (of which 41,250 shares are represented by exercisable
options).
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<PAGE> 67
(5) Includes (i) 196,738 shares owned directly by David S. Butler (of which
24,374 shares are represented by exercisable options); (ii) 7,498
shares held by him in his 401(k) Plan; (iii) 225 shares held by him in
his IRA; and (iv) 27,000 shares owned by his wife.
(6) Includes (i) 62,052 shares owned directly by R. Byron Driver (of which
31,500 shares are represented by exercisable options); and (ii) 168
shares owned by his wife.
(7) All of the reported 71,319 shares are represented by exercisable
options.
(8) Includes (i) 25,200 shares owned directly by Douglas E. Pritchett (of
which 22,500 shares are represented by exercisable options); (ii) 6,975
shares held by him in his IRA; and (iii) 150 shares held by Mr.
Pritchett's minor child.
(9) Includes (i)13,125 shares represented by exercisable options; and (ii)
1,500 shares held by him in his IRA.
(10) All of the reported 95,250 shares are represented by exercisable
options.
(11) All of the reported 44,112 shares are owned directly by Kieran
MacSweeney (of which 44,000 shares are represented by exercisable
options).
(12) Includes 457,345 shares represented by exercisable options.
Item 13. Certain Relationships and Related Transactions.
There were no such transactions in Fiscal 2000.
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<PAGE> 68
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) The following documents are filed as a part of this report:
1. Financial Statements
The consolidated financial statements of the Company and its
subsidiaries are filed as a part of this Annual Report on Form 10-K are listed
in Item 8 of this Annual Report on Form 10-K, which listing is hereby
incorporated by reference.
2. Schedules to Financial Statements
The financial statement schedules required by Regulation S-X are filed
under Item 14(d) of this Annual Report on Form 10-K, as listed below:
Schedules Supporting the Financial Statements
Schedule II - Valuation and Qualifying Accounts
3. Exhibits
Exhibit
Number Description
------- -----------
2.1 Purchase and Sale Agreement by and between the Company, Cybex
International and Edgar and Stephanie Elsner effective December
31, 1997 incorporated by reference (pursuant to the provisions of
Rule 12(b)-32) to Exhibit No.2.1(b) to the Company's Current
Report on Form 8-K filed January 14, 1998.
2.2 Agreement and Plan of Reorganization by and between Apex Inc.,
Aegean Sea Inc. and the Company, dated March 8, 2000.
3.1 Amended and Restated Articles of Incorporation of the Company,
incorporated by reference (pursuant to the provisions of Rule
12(b)-32) to Exhibit No. 3.1 to Amendment No. 1 to Registration
Statement No. 33-93124.
3.2 Amended and Restated By-Laws of the Company, incorporated by
reference (pursuant to the provisions of Rule 12(b)-32) to
Exhibit No. 3.2 to Amendment No. 1 to Registration Statement No.
33-93124.
4.1 Specimen of Common Stock Certificate of the Company, incorporated
by reference (pursuant to the provisions of Rule 12(b)-32) to
Exhibit No. 4 to Amendment No. 1 to Registration Statement No.
33-93124.
10.1 Restated 1989 Employee Incentive Stock Option Plan, incorporated
by reference (pursuant to the provisions of Rule 12(b)-32) to
Exhibit No. 10.2 to Registration Statement No. 33- 93124, and
Amendment to 1989 Employee Incentive Stock Option Plan,
incorporated by reference (pursuant to the provisions of Rule
12(b)- 32) to Exhibit No. 10.13 to Amendment No. 1 to
Registration Statement No. 33- 93124.
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<PAGE> 69
10.2 1995 Employee Stock Option Plan, incorporated by reference
(pursuant to the provisions of Rule 12(b)-32) to Exhibit No. 10.3
to Registration Statement No. 33-93124.
10.3 1995 Outside Directors Stock Option Plan, incorporated by
reference (pursuant to the provisions of Rule 12(b)-32) to
Exhibit No. 10.4 to Registration Statement No. 33-93124.
10.4 1998 Employee Stock Incentive Plan, incorporated by reference to
Exhibit No. 10.7 (pursuant to the provisions of Rule 12(b)-32) to
the Company's Annual Report on Form 10- K filed June 26, 1998.
10.5 Smith Barney Shearson Flexible Prototype Nonstandardized 401(k)
Plan Adoption Agreement #007 and Smith Barney Shearson Prototype
Defined Contribution Plan Document #005 and Trust Agreement,
incorporated by reference (pursuant to the provisions of Rule
12(b)-32) to Exhibit 10.6 of the Company's Form 10-K for the
fiscal year ended March 31, 1997.
10.6 Employment and Noncompetition Agreement dated as of July 1, 1999
by and among PolyCon Investments, Inc., a Texas corporation d/b/a
Cybex Employment Services Co., the Company, and Stephen F.
Thornton, incorporated by reference (pursuant to the provisions
of Rule 12(b)-32) to Exhibit 10.1 of the Company's Quarterly
Report on Form 10-Q as filed on February 14, 2000
10.7 Amendment to Employment and Noncompetition Agreement dated as of
March 7, 2000 by and among PolyCon Investments, Inc., a Texas
corporation d/b/a Cybex Employment Services Co., Cybex Computer
Products Corporation, and Stephen F. Thornton, incorporated by
reference (pursuant to the provisions of Rule 12(b)-32) to
Exhibit 10.8 to Registration Statement on Form S-4 No. 333-33768
10.8 Employment and Noncompetition Agreement dated as of July 1, 1999
by and among PolyCon Investments, Inc., a Texas corporation d/b/a
Cybex Employment Services Co., the Company and Doyle C. Weeks,
incorporated by reference (pursuant to the provisions of Rule
12(b)-32) to Exhibit 10.2 of the Company's Form 10-Q for the
quarterly period ended December 31, 1999.
10.9 Amendment to Employment and Noncompetition Agreement dated as of
March 7, 2000 by and among PolyCon Investments, Inc., a Texas
corporation d/b/a Cybex Employment Services Co., Cybex Computer
Products Corporation, and Doyle C. Weeks, incorporated by
reference (pursuant to the provisions of Rule 12(b)-32) to
Exhibit 10.10 to Registration Statement on Form S-4 No. 333-33768
10.10 Employment and Noncompetition Agreement dated as of July 1, 1999
by and among PolyCon Investments, Inc., a Texas corporation d/b/a
Cybex Employment Services Co., the Company, and Douglas E.
Pritchett, incorporated by reference (pursuant to the provisions
of Rule 12(b)-32) to Exhibit 10.3 of the Company's Form 10-Q for
the quarterly period ended December 31, 1999.
10.11 Amendment to Employment and Noncompetition Agreement dated as of
March 7, 2000 by and among PolyCon Investments, Inc., a Texas
corporation d/b/a Cybex Employment Services Co., Cybex Computer
Products Corporation, and Douglas E. Pritchett, incorporated by
reference (pursuant to the provisions of Rule 12(b)-32) to
Exhibit 10.8 to Registration Statement on Form S-4 No. 333-33768
10.12 Employment and Noncompetition Agreement dated as of July 1, 1999
by and among PolyCon Investments, Inc., a Texas corporation d/b/a
Cybex Employment Services Co., the Company, and R. Byron Driver,
incorporated by reference (pursuant to the provisions of Rule
12(b)-32) to Exhibit 10.4 of the Company's Form 10-Q for the
quarterly period ended December 31, 1999.
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<PAGE> 70
10.13 Employment and Noncompetition Agreement dated as of July 1, 1999
by and among PolyCon Investments, Inc., a Texas corporation d/b/a
Cybex Employment Services Co., the Company, and Gary R. Johnson,
incorporated by reference (pursuant to the provisions of Rule
12(b)-32) to Exhibit 10.5 of the Company's Form 10-Q for the
quarterly period ended December 31, 1999.
10.14 Employment and Noncompetition Agreement dated as of July 1, 1999
by and among PolyCon Investments, Inc., a Texas corporation d/b/a
Cybex Employment Services Co., the Company, and Christopher
Thomas, incorporated by reference (pursuant to the provisions of
Rule 12(b)-32) to Exhibit 10.6 of the Company's Form 10-Q for the
quarterly period ended December 31, 1999.
10.15 Employment and Noncompetition Agreement dated as of July 1, 1999
by and among the Company and Kieran MacSweeney, incorporated by
reference (pursuant to the provisions of Rule 12(b)-32) to
Exhibit 10.7 of the Company's Form 10-Q for the quarterly period
ended December 31, 1999.
21(*) List of Subsidiaries of the Company.
23(*) Consent of PricewaterhouseCoopers LLP
27(*) Financial Data Schedule for current period (for SEC use only).
99 Registration Statement on Form S-4 No. 333-33768, as filed on
March 31, 2000, and subsequent Amendment No. 1 to Registration
Statement on Form S-4, as filed on May 11, 2000; Amendment No. 2
to Registration Statement on Form S-4, as filed on May 30, 2000;
and Amendment No. 3 to Registration Statement on Form S-4, as
filed on June 1, 2000.
(*) As filed herewith.
THE COMPANY WILL FURNISH TO EACH SHAREHOLDER, UPON WRITTEN REQUEST, COPIES
OF THE EXHIBITS REFERRED TO ABOVE AT A COST OF TEN CENTS PER PAGE. REQUESTS
SHOULD BE ADDRESSED TO: DOUGLAS E. PRITCHETT, SENIOR VICE PRESIDENT, FINANCE AND
CHIEF FINANCIAL OFFICER, CYBEX COMPUTER PRODUCTS CORPORATION, 4991 CORPORATE
DRIVE, HUNTSVILLE, ALABAMA 35805.
(b) Current Reports on Form 8-K:
Current Report on Form 8-K, filed May 26, 2000, reporting the press release
announcing the results of operations for the fourth fiscal quarter and year
ended March 31, 2000.
(c) Exhibits. See Item 14(a)(3) above and the separate Exhibit Index attached
hereto.
(d) Financial Statement Schedules
Schedule II: Valuation and Qualifying Accounts
70
<PAGE> 71
[LETTERHEAD OF PRICEWATERHOUSECOOPERS LLP]
Report of Independent Accountants
To the Board of Directors
Cybex Computer Products Corporation
Huntsville, Alabama
Our audit of the consolidated financial statements referred to in our report
dated May 4, 2000, except for Note 18, as to which the date is June 2, 2000
appearing in this Form 10-K of Cybex Computer Products Corporation also included
an audit of the financial statement schedule listed in item 14(d) of this Form
10-K. In our opinion, the financial statement schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
Birmingham, Alabama
May 4, 2000
Schedule II
Valuation and Qualifying Accounts
For the years ended March 31, 1998, 1999, and 2000
<TABLE>
<CAPTION>
Charged Charged
Beginning to to Ending
Balance Expenses Accounts Deductions(1) Other(2) Balance
----------- ----------- --------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Year ended March 31, 1998:
Allowance for doubtful accounts $ 350,837 $ 717,721 $ -- $ (200,680) $ 95,205 $ 963,083
Allowance for inventory obsolescence 497,840 667,955 -- -- 199,980 1,365,775
Liability for sales and warranty returns 344,654 2,836,339 (2,395,373) -- -- 785,620
Valuation allowance for income taxes -- 2,352,500 -- -- 2,352,500
Year ended March 31, 1999:
Allowance for doubtful accounts 963,083 813,000 -- (437,220) -- 1,338,863
Allowance for inventory obsolescence 1,365,775 1,139,746 (575,521) -- -- 1,930,000
Liability for sales and warranty returns 785,620 5,680,332 (3,305,952) -- -- 3,160,000
Valuation allowance for income taxes 2,352,500 -- (157,000) -- 2,195,500
Year ended March 31, 2000:
Allowance for doubtful accounts 1,338,863 619,727 (351,433) 607,039 2,214,196
Allowance for inventory obsolescence 1,930,000 1,919,151 (1,316,359) 627,507 3,160,299
Liability for sales returns 2,347,000 2,406,665 (2,423,025) 111,000 2,441,640
Liability for warranty returns 813,000 1,311,341 (1,268,981) 60,000 915,360
Valuation allowance for income taxes 2,195,500 -- (157,000) 2,038,500
</TABLE>
(1) Deductions consist of specific accounts receivable written off against the
allowance for doubtful accounts
(2) Other consists of beginning balances from acquisitions
71
<PAGE> 72
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Cybex Computer Products Corporation has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
CYBEX COMPUTER PRODUCTS CORPORATION
Dated: June 22, 2000 By: /s/ Stephen F. Thornton
----------------------------------
Stephen F. Thornton, Chairman of
the Board of Directors, President
and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Cybex
Computer Products Corporation and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Stephen F. Thornton Chairman of the Board, President and Chief June 22, 2000
---------------------------------- Executive Officer (Principal Executive
Stephen F. Thornton Officer)
/s/ Douglas E. Pritchett Senior Vice President - Finance, Chief June 22, 2000
---------------------------------- Financial Officer, Treasurer and Director
Douglas E. Pritchett (Principal Financial and Accounting Officer)
/s/ Doyle C. Weeks Executive Vice President, Group Operations June 22, 2000
---------------------------------- and Business Development, and Director
Doyle C. Weeks
/s/ Remigius G. Shatas Director June 22, 2000
----------------------------------
Remigius G. Shatas
/s/ David S. Butler Director June 22, 2000
----------------------------------
David S. Butler
/s/ John R. Cooper Director June 22, 2000
----------------------------------
John R. Cooper
</TABLE>
72
<PAGE> 73
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description Page Number
------- ----------- -----------
<S> <C> <C>
2.1 Purchase and Sale Agreement by and between the Company, Cybex
International and Edgar and Stephanie Elsner effective December
31, 1997 incorporated by reference (pursuant to the provisions of
Rule 12(b)-32) to Exhibit No.2.1(b) to the Company's Current
Report on Form 8-K filed January 14, 1998.
2.2 Agreement and Plan of Reorganization by and between Apex Inc.,
Aegean Sea Inc. and the Company, dated March 8, 2000.
3.1 Amended and Restated Articles of Incorporation of the Company,
incorporated by reference (pursuant to the provisions of Rule
12(b)-32) to Exhibit No. 3.1 to Amendment No. 1 to Registration
Statement No. 33-93124.
3.2 Amended and Restated By-Laws of the Company, incorporated by
reference (pursuant to the provisions of Rule 12(b)-32) to
Exhibit No. 3.2 to Amendment No. 1 to Registration Statement No.
33-93124.
4.1 Specimen of Common Stock Certificate of the Company, incorporated
by reference (pursuant to the provisions of Rule 12(b)-32) to
Exhibit No. 4 to Amendment No. 1 to Registration Statement No.
33-93124.
10.1 Restated 1989 Employee Incentive Stock Option Plan, incorporated
by reference (pursuant to the provisions of Rule 12(b)-32) to
Exhibit No. 10.2 to Registration Statement No. 33-93124, and
Amendment to 1989 Employee Incentive Stock Option Plan,
incorporated by reference (pursuant to the provisions of Rule
12(b)- 32) to Exhibit No. 10.13 to Amendment No. 1 to
Registration Statement No. 33- 93124.
10.2 1995 Employee Stock Option Plan, incorporated by reference
(pursuant to the provisions of Rule 12(b)-32) to Exhibit No. 10.3
to Registration Statement No. 33-93124.
10.3 1995 Outside Directors Stock Option Plan, incorporated by
reference (pursuant to the provisions of Rule 12(b)-32) to
Exhibit No. 10.4 to Registration Statement No. 33-93124.
10.4 1998 Employee Stock Incentive Plan, incorporated by reference to
Exhibit No. 10.7 (pursuant to the provisions of Rule 12(b)-32) to
the Company's Annual Report on Form 10-K filed June 26, 1998.
10.5 Smith Barney Shearson Flexible Prototype Nonstandardized 401(k)
Plan Adoption Agreement #007 and Smith Barney Shearson Prototype
Defined Contribution Plan Document #005 and Trust Agreement,
incorporated by reference (pursuant to the provisions of Rule
12(b)-32) to Exhibit 10.6 of the Company's Form 10-K for the
fiscal year ended March 31, 1997.
</TABLE>
1
<PAGE> 74
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description Page Number
------- ----------- -----------
<S> <C> <C>
10.6 Employment and Noncompetition Agreement dated as of July 1, 1999
by and among PolyCon Investments, Inc., a Texas corporation d/b/a
Cybex Employment Services Co., the Company, and Stephen F.
Thornton, incorporated by reference (pursuant to the provisions
of Rule 12(b)-32) to Exhibit 10.1 of the Company's Quarterly
Report on Form 10-Q as filed on February 14, 2000
10.7 Amendment to Employment and Noncompetition Agreement dated as of
March 7, 2000 by and among PolyCon Investments, Inc., a Texas
corporation d/b/a Cybex Employment Services Co., Cybex Computer
Products Corporation, and Stephen F. Thornton, incorporated by
reference (pursuant to the provisions of Rule 12(b)-32) to
Exhibit 10.8 to Registration Statement on Form S-4 No. 333-33768
10.8 Employment and Noncompetition Agreement dated as of July 1, 1999
by and among PolyCon Investments, Inc., a Texas corporation d/b/a
Cybex Employment Services Co., the Company and Doyle C. Weeks,
incorporated by reference (pursuant to the provisions of Rule
12(b)-32) to Exhibit 10.2 of the Company's Form 10-Q for the
quarterly period ended December 31, 1999.
10.9 Amendment to Employment and Noncompetition Agreement dated as of
March 7, 2000 by and among PolyCon Investments, Inc., a Texas
corporation d/b/a Cybex Employment Services Co., Cybex Computer
Products Corporation, and Doyle C. Weeks, incorporated by
reference (pursuant to the provisions of Rule 12(b)-32) to
Exhibit 10.10 to Registration Statement on Form S-4 No. 333-33768
10.10 Employment and Noncompetition Agreement dated as of July 1, 1999
by and among PolyCon Investments, Inc., a Texas corporation d/b/a
Cybex Employment Services Co., the Company, and Douglas E.
Pritchett, incorporated by reference (pursuant to the provisions
of Rule 12(b)-32) to Exhibit 10.3 of the Company's Form 10-Q for
the quarterly period ended December 31, 1999.
10.11 Amendment to Employment and Noncompetition Agreement dated as of
March 7, 2000 by and among PolyCon Investments, Inc., a Texas
corporation d/b/a Cybex Employment Services Co., Cybex Computer
Products Corporation, and Douglas E. Pritchett, incorporated by
reference (pursuant to the provisions of Rule 12(b)-32) to
Exhibit 10.8 to Registration Statement on Form S-4 No. 333-33768
10.12 Employment and Noncompetition Agreement dated as of July 1, 1999
by and among PolyCon Investments, Inc., a Texas corporation d/b/a
Cybex Employment Services Co., the Company, and R. Byron Driver,
incorporated by reference (pursuant to the provisions of Rule
12(b)-32) to Exhibit 10.4 of the Company's Form 10-Q for the
quarterly period ended December 31, 1999.
10.13 Employment and Noncompetition Agreement dated as of July 1, 1999
by and among PolyCon Investments, Inc., a Texas corporation d/b/a
Cybex Employment Services Co., the Company, and Gary R. Johnson,
incorporated by reference (pursuant to the provisions of Rule
12(b)-32) to Exhibit 10.5 of the Company's Form 10-Q for the
quarterly period ended December 31, 1999.
10.14 Employment and Noncompetition Agreement dated as of July 1, 1999
by and
</TABLE>
2
<PAGE> 75
<TABLE>
<CAPTION>
Exhibit Sequential
Number Description Page Number
------- ----------- -----------
<S> <C> <C>
among PolyCon Investments, Inc., a Texas corporation d/b/a Cybex
Employment Services Co., the Company, and Christopher Thomas,
incorporated by reference (pursuant to the provisions of Rule
12(b)-32) to Exhibit 10.6 of the Company's Form 10-Q for the
quarterly period ended December 31, 1999.
10.15 Employment and Noncompetition Agreement dated as of July 1, 1999
by and among the Company and Kieran MacSweeney, incorporated by
reference (pursuant to the provisions of Rule 12(b)-32) to
Exhibit 10.7 of the Company's Form 10-Q for the quarterly period
ended December 31, 1999.
21(*) List of Subsidiaries of the Company.
23(*) Consent of PricewaterhouseCoopers LLP
27(*) Financial Data Schedule for current period (for SEC use only).
99 Registration Statement on Form S-4 No. 333-33768, as filed on
March 31, 2000, and subsequent Amendment No. 1 to Registration
Statement on Form S- 4, as filed on May 11, 2000; Amendment No. 2
to Registration Statement on Form S-4, as filed on May 30, 2000;
and Amendment No. 3 to Registration Statement on Form S-4, as
filed on June 1, 2000.
</TABLE>
(*) As filed herewith.
3
