The purpose of this amendment is to include the Financial Data Schedule
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED JANUARY 28, 1995
COMMISSION FILE NUMBER 0-15487
XYLOGICS, INC.
(Exact name of registrant as specified in its charter)
Delaware 04-2669596
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
53 Third Avenue, Burlington, Mass. 01803
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 272-8140
None
(Former name, former address and
former fiscal year if changed since last report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock as of January 28, 1995.
Common Stock, par value $.10 5,080,455
(Titles of each class) (Number of Shares)
XYLOGICS, INC.
TABLE OF CONTENTS
Page
Part I - FINANCIAL INFORMATION (UNAUDITED):
Consolidated balance sheets at January 28, 1995
and October 31, 1994 3
Consolidated statements of operations for the
three-month periods ended January 28, 1995 and
January 29, 1994 4
Consolidated statements of cash flows for the
three-month periods ended January 28, 1995 and
January 29, 1994 5
Notes to consolidated financial statements 6
Management's discussion and analysis of financial
condition and results of operations 8
Part II - OTHER INFORMATION 12
XYLOGICS, INC.
PART I - FINANCIAL INFORMATION - CONSOLIDATED BALANCE SHEETS
($000's)
ASSETS
January 28, 1995 October 31, 1994
(Unaudited)
Current Assets:
Cash and Cash Equivalents $12,200 $10,834
Accounts Receivable 9,966 9,070
Refundable Income Taxes 333 608
Inventories 5,539 5,971
Prepaid Expenses 260 159
Prepaid Income Taxes 1,883 1,628
Total Current Assets $30,181 $28,270
Equipment and Improvements, at cost:
Equipment $13,723 $13,215
Furniture 555 550
Leasehold Improvements 694 694
$14,972 $14,459
Less: Accumulated Depreciation
and Amortization (12,183) (11,932)
$ 2,789 $ 2,527
Other Assets, net $ 4,176 $ 4,250
$37,146 $35,047
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Accounts Payable $ 3,042 $ 2,696
Accrued Expenses 4,671 4,699
Total Current Liabilities $ 7,713 $ 7,395
Deferred Income Taxes $ 2,893 $ 2,679
Commitments
Stockholders' Investment:
Common Stock, $.10 Par Value -
Authorized -- 25,000,000 shares.
Issued -- 5,090,455 shares at
January 28, 1995 and 5,028,032
shares at October 31, 1994 $ 509 $ 503
Additional Paid-in Capital 14,719 14,181
Retained Earnings 11,546 10,355
Treasury Stock - 10,000 at January
28, 1995 and 4,776 shares at
October 31, 1994 (234) (66)
Total Stockholders' Investment $26,540 $24,973
$37,146 $35,047
See accompanying notes to the consolidated financial statements.
XYLOGICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in $000's except per share data)
Three Months Ended
January 28, 1995 January 29, 1994
Net Sales $14,545 $11,324
Cost of Goods Sold 7,570 5,777
Gross Profit $6,975 $5,547
Operating Expenses
Engineering, R&D $1,527 $1,401
Sales and Marketing 2,715 2,097
General and Administrative 1,147 1,031
Total Expenses $5,389 $4,529
Income from Operations 1,586 1,018
Interest Income, Net 126 59
Foreign Exchange Loss (11) (9)
Income Before Provision for
Income Taxes $1,701 $1,068
Provision for Income Taxes 510 395
Net Income $1,191 $ 673
Net Income per Share $ .20 $ .13
Weighted Average Number of Common
and Common Equivalent Shares
Outstanding
Primary 5,746 5,279
Fully Diluted 5,824 5,359
See accompanying notes to the consolidated financial statements.
XYLOGICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
($000's)
Three Months Ended
January 28, 1995 January 29, 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,191 $673
Adjustments to reconcile net income
to net cash provided by (used for)
operating activities:
Depreciation and amortization 759 553
Deferred (prepaid) income taxes (41) (5)
Changes in assets and liabilities:
Refundable income taxes 275 -
Accounts receivable (896) (1,977)
Inventories 432 (308)
Prepaid expenses (101) (267)
Accounts payable 346 615
Accrued expenses (28) (393)
Accrued income taxes - 343
Net cash provided by (used for)
operating activities $1,937 ($766)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and improvements ($ 513) ($196)
Capitalization of software development
costs (440) (304)
Decrease in other assets 5 66
Net cash used for investing
activities ($ 948) ($ 434)
CASH FLOWS FROM FINANCING ACTIVITIES:
Sales of common stock, net of related
expenses $ 611 $248
Purchases of treasury stock (234) ( 560)
Net cash provided by (used for)
financing activities $ 377 ($ 312)
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS $1,366 ($1,512)
CASH AND CASH EQUIVALENTS, beginning
of period 10,834 9,033
CASH AND CASH EQUIVALENTS, end of period $12,200 $7,521
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for income taxes $9,072 $ -
Cash paid for interest $ - $ -
See accompanying notes to the consolidated financial statements.
XYLOGICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries.
All material intercompany balances and transactions have been
eliminated.
2. The consolidated financial statements as of January 28, 1995
and for the three-month periods ended January 28, 1995 and
January 29, 1994 are unaudited, but include all adjustments
(consisting of normal, recurring adjustments) that the Company
considers necessary for a fair presentation of such interim
financial statements. The results of operations for the
three-month period ended January 28, 1995 are not necessarily
indicative of the results for the entire year. The consolidated
financial statements and notes are presented as permitted by Form
10-Q and do not contain certain information included in the
Company's consolidated annual financial statements and notes.
3. Inventories are stated at the lower of cost (first-in, first-
out) or market and include materials, labor and manufacturing
overhead. Inventories consist of the following:
1/28/95 10/31/94
($000's)
Purchase parts and materials $2,404 $2,295
Work-in-process and finished goods 3,135 3,676
$5,539 $5,971
4. Net income per share is based on the weighted average number
of primary and fully diluted shares of common stock and common
stock equivalents (stock options) outstanding during the period.
5. One November 4, 1994, the Company declared a two-for-one
stock split of the Company's common stock effected as a 100%
stock dividend to shareholders of record on November 18, 1994.
The distribution of the dividend was completed on December 2,
1994. All share and per share amounts have been restated to
reflect the two-for-one stock split.
6. The Company had sales to one customer of approximately
$2,745,000 (19% of net sales) in the first quarter of 1995.
During the same quarter of 1994, sales to this customer were
$2,037,000 (18% of net sales). Sales to a second customer for
the first quarter of 1995 were approximately $1,870,000 (13% of
net sales). Sales to this same customer in the first quarter of
1994 were $1,516,000 (13% of net sales).
7. The Company capitalizes certain computer software
development costs in accordance with Statement of Financial
Accounting Standards No. 86. These costs are amortized on a
straight-line basis over two years beginning at the time of the
initial shipment to customers of the related products.
Amortization expense recorded for the periods ending January 28,
1995 and January 29, 1994 were approximately $287,000 and
$140,000, respectively, and is reflected in cost of goods sold.
During the first quarters of 1995 and 1994, approximately $440,000
and $304,000, respectively, of certain software development costs
were capitalized in accordance with Statement of Financial
Accounting Standards No. 86. The unamortized balance of these
capitalized costs at January 28, 1995 and January 29, 1994 is
approximately $2,421,000 and $1,590,000, respectively, and is
included in other assets.
8. In July 1994 the Company completed payment for the
acquisition of certain Novell/IPX remote access and dial-up
routing technology, as well as the LANmodem product line from
Microtest, Inc. of Phoenix, Arizona. The fixed and variable
components of the acquisition price totalled $1,573,000. The
Company also paid Microtest, Inc. approximately $600,000 for
LANmodem inventory in the first quarter of 1994.
In the first quarter of 1995, the Company began amortizing
Novell/IPX remote access and dial-up routing technology as a
result of initial shipments. The amortization expense for the
first quarter of fiscal 1995 was approximately $144,000. This
amortization expense is reflected in engineering, research and
development expenses.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
First Quarter of Fiscal 1995 Compared to the First Quarter of
Fiscal 1994:
Net Sales: Net sales for the first quarter of 1995 increased by
$3,221,000 or 28% over the first quarter of 1994. The increase
was primarily attributable to the networking product line through
the reseller channel.
Net sales to resellers increased $2,607,000 or 66% and sales to
OEMs increased $615,000 or 8% in the first quarter of 1995 as
compared to the first quarter of 1994. The growth in sales to
resellers consisted of a $2,646,000 or 70% increase in sales of
networking products offset by a $39,000 or 26% decline in
controller products. The $615,000 increase in sales to OEMs
consisted of a $681,000 or 12% increase in sales of networking
products, offset by a decrease of $66,000 or 4% in sales of the
controller product.
While our two largest OEMs realized impressive growth, a few
other OEMs were not as successful. Our OEMs frequently refer
their customers to Xylogics' resellers when the OEMs end-user
customer wants more Xylogics' features or configurations than
the OEMs carry in their product line. This contributes to our
reseller channel growing at a faster rate than our OEMs.
Networking revenue increased $3,327,000 or 35% in the first
quarter of 1995 over the first quarter of 1994. Networking
revenue, as a percentage of total revenue, increased from 83% in
the first quarter of 1994 to 87% in the first quarter of 1995.
Controller revenue declined $105,000 or 5% in the first quarter
of 1995 compared to the first quarter of 1994. Controller
revenue, as a percentage of total revenue, decreased from 17% in
the first quarter of 1994 to 13% in the first quarter of 1995.
Revenue grew significantly in both the domestic and international
markets. Net domestic sales in the first quarter of 1995
increased $1,490,000 or 21% over the first quarter of 1994. The
increase in domestic revenue was attributable to a $1,914,000 or
30% increase in networking revenue, which more than offset a
$424,000 or 48% decrease in controller sales. The domestic
reseller channel grew $1,573,000 or 66%, representing a
$1,628,000 or 72% growth in networking revenue offset by a
$55,000 or 37% decline in controller sales. International sales
increased $1,732,000 or 43% in the first quarter of 1995 over the
first quarter of 1994. International sales represented 40% of
total revenue as compared to 36% a year ago. The increase in
international revenue was attributable to a $1,413,000 increase
in networking revenue and a $319,000 increase in controller
revenue. The international reseller channel grew $1,033,000 or
67%. Almost all of this growth represented networking revenue.
The international OEM channel grew $699,000 or 28% due to
increases in sales of networking and controller products.
The market for the Company's products is characterized by rapidly
changing technology, evolving industry standards and frequent new
product introductions. The Company's future success depends on
its ability to enhance its existing products and to introduce new
products and features to meet and adapt to changing customer
requirements and emerging technologies. The Company will be
required, therefore, to invest significant amounts in marketing
and research and development. Because of these and other
factors, including those discussed below, there can be no
assurance that the Company will be able to continue its growth in
revenues and sustain its profitability on a quarterly or annual
basis.
The Company does not require resellers to carry inventory. The
only exception is Westcon, Inc., a two-tier distributor that
carries inventory for its own resellers. Therefore, the
Company's ability to fill orders within a seven-day period is
critical to the Company's overall success. The Company's OEM
customers do carry inventory; however, just-in-time inventory
procurement and management practices are generally applied, and
our customers, both OEMs and resellers, are demanding shorter and
shorter lead-times to obtain product. This adds a significant
element of risk, as the Company is required to anticipate what
products will be required for sale before any firm orders or
forecasts are received from the customer. In addition, over one
half of each quarter's revenue is typically booked in the second
half of each fiscal quarter. These factors require the Company
to carry more inventory and raise the risk that the Company will
not properly forecast the mix or timing of when actual orders are
received. This trend is expected to continue over the
foreseeable future.
Gross Profit: Gross profit as a percentage of sales was 48% in
the first quarter of 1995, as compared to 49% in 1994. Gross
profit was unfavorably impacted by significantly lower gross
margins on controller products. Gross profit margins on
controller products decreased to 44% in the first quarter of 1995
as compared to 47% in the same quarter of 1994, primarily as a
result of lower volumes manufactured and shipped. Gross profit
margins on networking products were 48.5% in the first quarter of
1995 as compared to 49.4% in the same quarter one year ago.
Increases in product start-up expenses and amortization of
previously capitalized software development costs resulted in
lower gross margins on networking products.
Operating Expenses: Engineering, research and development
expenses were $1,527,000 during the first quarter of fiscal 1995,
reflecting an increase of $126,000 or 9% over the same period in
fiscal 1994. As a percent of revenue, these expenses decreased
from 12.4% in the first quarter of 1994 to 10.5% in the first
quarter of 1995. Most of the growth in expenses was due to an
increase in the labor force and software consulting for our
networking product line. The 1995 and 1994 first quarter
expenses do not include the capitalization of $440,000 and
$304,000, respectively, capitalized pursuant to Statement of
Financial Accounting Standards Number 86 (SFAS No. 86).
Engineering, research, and development expenses also exclude
$287,000 and $140,000 of amortization expense of previously
capitalized expenses pursuant to SFAS No. 86 which appear in cost
of sales.
Sales and marketing expenses were $2,715,000 during the first
quarter of 1995, reflecting an increase of $618,000 or 29% over
the same period in 1994. As a percent of revenue, these expenses
remained the same at 19% in both the first quarter of 1995 and
1994. The growth in spending was primarily attributable to an
increase in sales and marketing labor expenses and increased
sales promotional activities.
General and administrative expenses were $1,147,000 during the
first quarter of 1995, reflecting an increase of $115,000 or 11%
from the same period in 1994. As a percentage of revenue, the
expenses decreased from 9% in the first quarter of 1994 to 8% in
the first quarter of 1995. The increase in spending was
primarily due to payroll related expenses and an investor
relations program to promote the Company to the financial
community.
The Company has targeted the networking market as the focus of
its development efforts, and has carefully restricted resources
devoted to the controller business. As a result, the controller
products continue to generate a greater share of the Company's
income than might normally be expected.
Interest Income: Net interest income was $126,000 in the first
quarter of 1995 as compared to $59,000 during the same period in
fiscal 1994. Higher cash balances coupled with higher interest
rates led to the increase in interest income.
Foreign Exchange and Translation Loss: The Company
incurred an insignificant foreign exchange loss of $11,000 and
$9,000 in the first quarter of 1995 and 1994, respectively. The
Company records foreign currency gains or losses when translating
the financial statements of the Company's foreign subsidiaries in
accordance with Statement of Financial Accounting Standards
Number 52 (SFAS No. 52).
Income Taxes: The Company's effective federal and state income
tax rate during the first fiscal quarter ended January 28, 1995
was 30% as compared to an effective income tax rate of 37% for
the comparable period in 1994. The lower effective income tax
rate in 1995 is due primarily to increased research and
development tax credits.
Liquidity and Capital Resources
At January 28, 1995, the Company had cash and cash equivalents of
$12,200,000, which represents an increase of $1,366,000 during the
quarter. The increase in cash was partially due to receiving
$611,000 from the sale of common stock related to employee stock
options and employee stock purchase plans. Cash was also
generated by a $432,000 decrease in inventory.
The Company expended $513,000 for the purchase of equipment and
capitalized $440,000 of software development costs in the first
quarter of 1995. The Company repurchased 10,000 shares of its
own stock for $234,000 solely for the purpose of partially
funding employee stock purchase and option plans.
Working capital at January 28, 1995 was $22,468,000 as compared
to $16,668,000 at October 31, 1994. The current ratio was 3.9 to
1.0 at January 28, 1995 as compared with 3.6 to 1.0 at October 31,
1994.
The Company believes that the available cash balances, together
with cash balances from operations, will be sufficient to meet
the Company's operating requirements through its fiscal year
ending October 31, 1995.
XYLOGICS, INC.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
None
b. Reports on Form 8-K
None
Item 7. Exhibit 27
a. Financial Data Schedule
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
Xylogics, Inc.
(Registrant)
Date:_______________
Maurice L. Castonguay
Vice President, Finance,
Treasurer and Chief
Financial Officer