UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to _______________
Commission File Number 0-50464
Netrix Corporation
(Exact name of registrant as specified in charter)
Delaware 54-1345159
(State of Incorporation) (IRS Employer Identification No.)
13595 Dulles Technology Drive, Herndon, Virginia 20171
(Address of principal executive offices) (Zip Code)
(703) 742-6000
(Registrant's telephone number, including area code)
Indicate by check number 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 _________
At November 12, 1999 there were 11,609,217 shares of the registrant's
Common Stock, $.05 par value per share, outstanding.
NETRIX CORPORATION
FORM 10-Q
September 30, 1999
INDEX
Page No.
--------
PART I -- FINANCIAL INFORMATION (UNAUDITED)
ITEM 1 -- FINANCIAL STATEMENTS
Condensed Consolidated Statements of Operations for the nine
and the three months ended September 30, 1999 and 1998 2
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Cash Flows 4
Notes to Unaudited Condensed Consolidated Financial Statements 5
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 11
PART II -- OTHER INFORMATION
ITEM 2 -- CHANGES IN SECURITIES AND USE OF PROCEEDS 17
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K 18
SIGNATURE 19
1
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
NETRIX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands, Except Per Share Amounts)
Nine Months Ended Three Months Ended
September 30 September 30
----------------------------- -----------------------------
1999 1998 1999 1998
---- ---- ---- ----
Revenues:
Product.................................... $16,079 $16,272 $6,148 $5,849
Service.................................... 5,309 7,111 1,913 2,462
--------- --------- --------- ---------
Total revenues....................... 21,388 23,383 8,061 8,311
Cost of revenues:
Product..................................... 7,512 7,543 2,632 2,847
Service..................................... 3,638 4,024 1,130 1,264
--------- -------- -------- --------
Total cost of revenues................ 11,150 11,567 3,762 4,111
Gross profit.................... 10,238 11,816 4,299 4,200
Operating expenses:
Sales and marketing.......................... 4,621 7,774 1,589 1,788
Research and development..................... 5,337 4,939 1,979 1,696
General and administrative................... 3,683 3,080 1,365 912
Stock compensation expense................... 763 --- 763 ---
Restructuring reserve........................ 900 --- --- ---
--------- -------- -------- --------
Loss from operations.................... (5,066) (3,977) (1,397) (196)
Interest and other income, net..................... (218) (20) (45) 16
Foreign exchange gain.............................. --- 87 --- 40
--------- -------- -------- --------
Net Loss........................................... (5,284) (3,910) (1,442) (140)
Dividends and accretion on preferred stock......... (574) --- (534) ---
--------- -------- -------- --------
Net loss attributable to common stock.............. (5,858) (3,910) (1,976) (140)
- -----------------------------------------------------------------------------------------------------------------------
Other comprehensive (loss)/gain.................... (40) (257) 61 (199)
Comprehensive loss................................. ($5,324) ($4,167) ($1,381) ($339)
- -----------------------------------------------------------------------------------------------------------------------
Basic and diluted loss per share.................... ($0.51) ($0.37) ($0.17) ($0.01)
============= ============ ============ ============
Shares used in per share calculation.............. 11,513 10,702 11,566 11,451
============= ============ ============ ============
See notes to unaudited condensed consolidated financial statements.
2
NETRIX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Amounts)
September 30, December 31,
1999 1998
------------------ ----------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents.................................. $1,645 $2,488
Restricted cash............................................ 3,053
Accounts receivable, net of allowance for doubtful
accounts of $788 and $796, respectively.............. 6,957 7,499
Inventories................................................ 4,761 5,265
Other current assets....................................... 359 472
------------ -----------
Total Current assets: 16,775 15,724
Property and equipment, net of accumulated depreciation
of $21,727 and $20,473, respectively........................ 3,043 3,823
Deposits and other assets........................................ 121 165
Goodwill, net of accumulated amortization of $1,911
and $1,712, respectively................................... 330 529
============ ===========
TOTAL ASSETS $20,269 $20,241
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit............................................. $1,174 $2,167
Accounts payable........................................... 3,907 3,011
Accrued liabilities........................................ 3,018 2,946
------------ ------------
Total current liabilities................................... 8,099 8,124
Stockholders' equity:
Preferred stock, $0.05 par value; 1,000,000 shares
authorized; 298,187 issued and outstanding,
preference in liquidation............................. 4,424 ---
Common stock, $0.05 par value; 15,000,000
shares authorized; 11,609,217 and 11,490,000
shares issued and outstanding, respectively........... 581 575
Warrants................................................... 862 257
Additional paid-in capital................................. 59,231 57,679
Deferred Compensation...................................... (637) ---
Accumulated other comprehensive loss....................... (160) (120)
Accumulated deficit........................................ (52,131) (46,274)
------------ ------------
Total stockholders' equity................................ 12,170 12,117
------------ ------------
TOTAL LIABILITIES & STOCKHOLDER'S EQUITY $20,269 $20,241
============ ============
See notes to unaudited condensed consolidated financial statements.
3
NETRIX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended September 30,
CASH FLOWS FROM OPERATING ACTIVITIES: 1999 1998
--------------- ------------
Net loss................................................................. ($5,283) ($3,910)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization........................................ 1,453 1,876
Decrease in deferred rent credit (96)
Non-Cash Interest Expense............................................ 179 ---
Deferred Compensation Expense........................................ 763
Changes in assets and liabilities -
Accounts receivable............................................... 542 (1,211)
Inventories....................................................... 504 1,439
Other current assets.............................................. 289 314
Deposits and other assets......................................... 44 260
Accounts payable.................................................. 896 (420)
Accrued liabilities............................................... 72 (684)
Other liabilities................................................. --- 0
--------------- ------------
Net cash used in operating activities............................. (541) (2,432)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.................................. (474) (918)
--------------- ------------
Net cash (used in) provided by investing activities.................. (474) (918)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from private placement...................................... 4,100 2,076
Payments on line of credit, net..................................... (993) 553
Proceeds from exercise of stock options.............................. 198 14
Proceeds from employee stock purchase plan........................... 48 90
Payment of Private Placement Costs................................... (88) ---
--------------- ------------
Net cash provided by (used in) financing activities.................. 3,265 2,733
Effect of foreign currency exchange rate changes on
cash and cash equivalents............................................ (40) (256)
--------------- ------------
2,210 (873)
Cash and cash equivalents, beginning of period.................................. 2,488 2,758
=============== ============
Cash and cash equivalents, end of period........................................ $4,698 $1,885
=============== ============
Supplemental disclosure of cash flow information
Cash paid during the period for interest..................... $293 $136
Cash paid during the period for income taxes................. --- ---
See notes to unaudited condensed consolidated financial statements.
4
NETRIX CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION:
Netrix Corporation ("Netrix" or the "Company") is a worldwide provider
of VoIP and data networking products. The Company develops, manufactures,
markets, and supports networking equipment for voice, data, and image networks.
Netrix products are designed to transport voice over data networks to enable its
customers to realize significant cost savings. Netrix was incorporated in 1985.
The Company conducts operations in the United Kingdom and Hong Kong through its
wholly owned subsidiary, Netrix International Corporation (a Delaware
corporation), and in Germany and Italy through its wholly owned subsidiaries
Netrix GmbH and Netrix S.r.l., respectively. These condensed consolidated
financial statements include the accounts of the Company and its subsidiaries.
All significant intercompany transactions have been eliminated.
The Company's operations are subject to certain risks and uncertainties
including, among others, rapidly changing technology and markets, current and
potential competitors with greater financial, technological, production and
marketing resources, reliance on certain sole source suppliers and third party
contract manufacturers, and dependence on key management personnel.
The unaudited condensed financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission and include, in the opinion of
management, all adjustments, consisting of normal, recurring adjustments,
necessary for a fair presentation of interim period results. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. The Company believes, however,
that its disclosures are adequate to make the information presented not
misleading. The results for such interim periods are not necessarily indicative
of results to be expected for the full year.
PROPOSED MERGER
On September 30, 1999, Netrix sigend a definitive merger agreement
with OpenROUTE Networks, Inc. (OpenROUTE) whereby OpenROUTE will merge with and
into Netrix and Netrix will be the surviving corporation. As consideration for
the merger, each holder of OpenROUTE common stock will receive one share of
Netrix common stock for each share of OpenROUTE common stock that it holds. The
agreement has been approved by the boards of directors of both companies and is
subject to the approval of the stockholders of each company.
RISKS AND OTHER IMPORTANT FACTORS
For the three months ended September 30, 1999, the Company reported
revenues of $8.1 million and a net loss attributable to common stock of $2.0
million, compared to revenues of $8.3 million and a net loss attributable to
common stock of $140,000 for the three months ended September 30, 1998. For the
nine months ended September 30, 1999, revenues were $21.4 million and the net
loss was $5.8 million, compared to revenues of $23.4 million and a net loss of
$3.9 million for the nine months ended September 30, 1998.
5
On May 14,1999 the Company completed a private placement by selling and
issuing 298,187 shares of Series A 8% Convertible Preferred Stock, par value
$.05 per share, at a price of $13.75 per share, and by issuing warrants to
purchase an additional 49,818 share of Common Stock at an exercise price of
$2.75 per share. Each share of Preferred Stock has a liquidation preference
equal to its purchase price, plus accrued and unpaid dividends. Dividends are
cumulative from May 14, 1999, and are payable semi-annually, in arrears, on
April 30 and October 31 of each year, commencing October 31, 1999. Dividends are
payable in cash or shares of Common Stock, at the Company's election. The
Preferred Stock is convertible at any time prior to redemption, at the option of
the holder, into Common Stock at a conversion rate equal to five shares of
Common Stock for each share of Preferred Stock, subject to adjustment in certain
circumstances. The fair value of the Preferred Stock's beneficial conversion
feature, reflective of the difference between the conversion price of the
Preferred Stock and the market value of the underlying Common Stock on the date
of issue, constitutes, for accounting purposes, a dividend by the Company. The
beneficial conversion feature is approximately $1.2 million and the Company will
reflect the dividend as a non-cash charge to earnings in its consolidated
statement of operations in connection with the lapse of the transfer
restrictions on the underlying Common Stock. The transfer restrictions lapse in
May 2000 or in 25 percent installments when the average closing price for the
common stock over a period of 10 consecutive trading days is at least 125
percent, 156 percent, 195 percent and 244 percent of the initial conversion
price of the Preferred Stock, $2.75 per share. The Preferred Stock is redeemable
at the option of the Company at any time after the closing bid price for the
Common Stock on the NASDAQ Stock Market has equaled or exceeded $6.00 for 10
consecutive trading days. The redemption price is $17.50 per share plus accrued
but unpaid dividends to the date of repurchase.
In connection with the private placement, the Company received net
proceeds of $4.0 million which use is restricted for severance and other
restructuring activities, and marketing and sales initiatives. On June 15, 1999
the Company filed with the Securities and Exchange Commission (SEC) a
registration statement covering the resale of the Common Stock underlying the
Preferred Stock. The Company is to undertake all reasonable efforts to cause the
registration statement to be declared effective by the SEC.
As a result of the combination of the net loss for the quarter and the
proceeds of the private placement, the Company's tangible net worth increased
from $10.0 million at March 31, 1999 to $11.8 million at September 30, 1999. The
Company's initial line of credit agreement negotiated in November 1997 required
it to maintain a tangible net worth of at least $13.5 million measured at the
end of each month. Between October 31, 1998 and March 31, 1999 the Company was
in violation of this covenant. This covenant violation allowed the Company's
lending institution to call for collection of the outstanding loan balance. On
April 12, 1999 the lending institution granted the Company a waiver of past
covenant violations and waived its right to call the line of credit for these
covenant violations. The lending institution amended the line of credit
agreement to measure the Company's tangible net worth on a quarterly basis
effective January 1, 1999, and set the minimum tangible net worth covenant at
$9.8 million as of March 31, 1999 and $9.0 million for all subsequent quarters.
At March 31, 1999, June 30, 1999 and September 30,1999 the Company was in
compliance with the new covenant, and management believes that this new covenant
will be adequate for the Company to operate under in the foreseeable future.
However, there can be no assurances that the Company will not violate the new
covenant or that the outstanding loan balance will not be called by the lending
institution upon violation of the new covenant.
The success and the future of the Company is dependent on its ability
to generate net income or to increase its net worth by the sale of additional
equity. The Company's ability to generate net income is in large part dependent
on its success at increasing sales of its new products and/or controlling costs.
The Company's plan to increase revenues through sales of its Network Exchange
product line is continuing to evolve in order to exploit new marketing channels;
however, due to market conditions, competitive pressures, and other factors
beyond its control, the Company has been unable to achieve sufficient
incremental growth in new product sales to generate net income and there can be
no assurances that the Company will be able to adequately increase new product
sales and generate net income in the future.
The success of the Company is also dependent on its ability to generate
adequate cash for operations and capital needs. Its ability to generate adequate
cash for such needs is in part dependent on its success at increasing sales of
its products. The Company's plan is to increase revenues through sales of its
Network Exchange product line; however, due to market conditions and other
factors beyond its control, there can be no assurance the Company will be able
to adequately increase product sales. Therefore, the Company may have to
6
generate additional cash through the sale of assets, including technologies or
the sale of debt or equity securities. Although the Company believes it has the
ability to generate additional cash through such sales, such sales may be
dilutive and there can be no assurances that adequate funds will be available or
available on terms that are reasonable or acceptable to the Company. If the
Company is unable to generate adequate cash, there could be a material and
adverse effect on the business and financial condition of the Company. The
Company has implemented cost control measures and is continually evaluating
expense levels to mitigate its liquidity risk.
For the nine months ended September 30, 1999 the Company's operating
activities used $541,000 and $2.4 million of cash, respectively. The cash used
by operations was primarily due to continued net losses from operations. At
September 30, 1999, the Company had $4.7 million in cash and cash equivalents
with $1.2 million outstanding of the $1.5 million available under the line of
credit agreement. The Company is relying on future sales and the collection of
the related accounts receivable to meet its cash obligations. The Company may be
unable to meet these obligations as they become due and may be required to
curtail its operations. If the Company is required to curtail its operations
there can be no assurances that the carrying value of the Company's assets will
be fully realized.
The Company may have to generate additional equity or cash through
other means, which may include the sale of assets, including intellectual
property and proprietary technology, the sale of equity, additional borrowings,
the sale of selected operations, or one or more strategic partnerships. Although
the Company believes it has the ability to generate additional equity and cash
through such sales, such sales may be dilutive and there can be no assurances
that adequate funds will be available, or available on terms that are reasonable
or acceptable to the Company. If the Company is unable to generate additional
equity and adequate cash, there will be a material and adverse effect on the
business and financial condition of the Company, to the extent that a sale,
liquidation or restructuring of the Company will be required, in whole or in
part.
Future operating results may be affected by a number of other factors
including the timing of new products in the market place, competitive pricing
pressures and economic conditions. As the market for the Company's products is
characterized by rapidly changing technology, the development, introduction and
evolution of competitive products may require a significant investment of
financial resources. Additionally, the Company relies on reseller channels that
are not under its control for a significant portion of its revenues,
particularly in its international regions. Also, while the Company has generally
been able to obtain adequate supplies of components to date, the interruption or
termination of the Company's current manufacturing relationships could have an
adverse effect on the Company's operating results.
2. NEW ACCOUNTING PRONOUNCEMENTS:
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Disclosure about Segments of
an Enterprise and Related Information." SFAS No. 130 requires that an enterprise
(a) classify items of other comprehensive income by their nature in a financial
statement and (b) display the accumulated balance of other comprehensive income
separately from retained earnings and additional paid-in-capital in the equity
section of a statement of financial position. The Company implemented SFAS No.
130 in the first quarter of 1998, and it did not have a material impact on the
financial statements. SFAS No. 131 requires the Company to report financial and
descriptive information about its reportable operating segments. The Company
adopted SFAS No. 131 for the year ended December 31, 1998.
3. CASH EQUIVALENTS:
Cash equivalents are primarily bank deposits, commercial paper, and
government agency securities with original maturities of three months or less.
These investments are carried at cost which approximates market value.
7
4. INVENTORIES:
Inventories consisted of the following (in thousands):
September 30, 1999 December 31, 1998
------------------ -----------------
Raw materials $ 305 $ 350
Work in process 1,016 364
Finished goods 3,440 4,551
------------------ ----------------------
Total inventories $4,761 $5,265
================== ======================
5. COMMITMENTS AND CONTINGENCIES:
LINE OF CREDIT
In November 1997, the Company negotiated a $3.0 million line of credit
agreement with a lending institution to be used for working capital. This
agreement provided for interest at a per annum rate equal to the lender's prime
rate plus 2%, subject to a minimum monthly interest based on 40% utilization of
$3.0 million. In August 1998, as a result of concerns about the deterioration of
aged international accounts receivable, the Company's lending institution
eliminated international receivables as qualified accounts receivable for
borrowing collateral. The lending institution also increased the interest rate
for outstanding loan amounts to prime plus 3 1/2% from prime plus 2%. In October
1998, the lending institution reinstated a sub-line of credit up to an amount of
$600,000 for selected foreign accounts receivable.
The Company's initial line of credit agreement negotiated in November
1997 required it to maintain a tangible net worth covenant of at least $13.5
million measured at the end of each month. Between October 31, 1998 and March
31, 1999 the Company was in violation of this covenant. This covenant violation
allowed the Company's lending institution to call for collection of the
outstanding loan balance. On April 12, 1999 the lending institution granted the
Company a waiver of past covenant violations and waived its right to call the
line of credit for these covenant violations. The lending institution amended
the line of credit agreement to measure the Company's tangible net worth on a
quarterly basis effective January 1, 1999, and set the minimum tangible net
worth covenant at $9.8 million as of March 31, 1999 and $9.0 million for all
subsequent quarters. At September 30, 1999, the Company was in compliance with
the new covenant, and management believes that this new covenant will be
adequate for the Company to operate under in the foreseeable future. However,
there can be no assurances that the Company will not violate the new covenant or
that the outstanding loan balance will not be called by the Company's lending
institution upon violation of the new covenant. Concurrent with the April 1999
waiver of default, the lending institution extended the line of credit agreement
to May 31, 2001. In connection with the waiver of default and extension of the
line of credit agreement, the Company granted the lending institution 50,000
warrants to purchase Common Stock at an exercise price of $2.00 per share.
During the quarter ended March 31, 1999, the Company recognized additional
interest charges of $97,000 in relation to the fair value of these warrants.
Borrowings under the current line of credit are based on qualified
domestic accounts receivable and are collateralized by the Company's assets. At
September 30, 1999, the Company had $1.2 million outstanding of the $1.5 million
available under the line of credit agreement. At December 31, 1998, the Company
had $2.2 million outstanding of the $2.4 million available under the line of
credit.
6. SEGMENT INFORMATION:
For the year ended December 31, 1998, the Company adopted the Statement
on Financial Accounting Standards ("SFAS") No. 131, "Disclosures about Segments
of an Enterprise and Related Information". The Company's two reportable segments
are products and services. The Company evaluates the performance of its segments
based on gross profit. Under SFAS No. 131, the Company is required to provide
enterprise-wide disclosures about revenues by segment, long-lived assets by
geographic area and revenues from major customers.
8
Revenues consisted of the following (in thousands):
Nine Months Ended Septmber 30, Three Months Ended September 30,
------------------------------ --------------------------------
Product Group 1999 1998 1999 1998
------------- ---- ---- ---- ----
2200 $8,780 $5,453 $3,954 $1,713
2500 5,250 5,939 1,837 3,005
S1000 664 633 23 161
S10 1,173 3,221 334 603
Telecom 212 1,026 - 367
------------ ------------ ------------ -------------
Total product revenues 16,079 16,272 6,148 5,849
Service revenues 5,309 7,111 1,913 2,462
============ ============ ============ =============
Total revenues $21,388 $23,383 $8,061 $8,311
============ ============ ============ =============
GEOGRAPHIC INFORMATION
The Company sells its products and services through its foreign
affiliates in the United Kingdom, Germany and Italy. Information regarding
revenues and long-lived assets attributable to the United States and to all
foreign countries is stated below. The geographic classification of product and
service revenues is based upon the location of the customer.
The Company's product and service revenues for 1999 and 1998 were
generated in the following geographic regions (in thousands):
Nine Months Ended Sept 30, Three Months Ended Sept 30,
----------------------------- ------------------------------
1999 1998 1999 1998
---- ---- ---- ----
United States $12,745 $12,384 $5,462 $5,166
Europe, Middle East and Africa 6,371 7,713 1,782 1,668
Pacific Rim and Other 2,272 3,286 817 1,477
------------ ------------ ------------ ------------
Total $21,388 $23,383 $8,061 $8,311
============ ============ ============ ============
Included in domestic product and service revenues are sales through systems
integrators and distributors to the Federal Government of $25,000 for the three
months ended September 30, 1999 and $160,000 for the three months ended
September 30, 1998. For the nine months ended September 30, 1999, these sales
were $214,000 compared to $342,000 for the nine months ended September 30, 1998.
The Company's long-lived assets were located as follows:
Nine Months Ended Sept 30,
----------------------------
1999 1998
---- ----
United States $3,135 $4,808 (includes Goodwill)
United Kingdom 205 272
Germany 15 25
Italy 18 76
======== ========
Total long-lived assets $3,373 $5,181
======== ========
19
SIGNIFICANT CUSTOMERS
There were no customers that accounted for greater than 10% of total
revenues for the nine months ended September 30, 1999 and 1998.
7. RESTRUCTURING CHARGE:
In April 1999, the Company implemented a restructuring of operations to
reduce and economize its work force as part of an overall plan to return to
profitability. The restructuring charges of $900,000 resulted from $843,000 of
accrued severance and benefit costs associated with a reduction-in-force of 36
employees across all functional areas of the Company, and $57,000 of accrued
facility costs resulting from the consolidation of facilities and premature
termination of various office leases. As of September 30, 1999, severance of
$602,000 and lease termination costs of $57,000 have been paid, and the
remaining severance payments of $241,000 will occur over the next six months.
The Company also paid $100,000 of final severance payments to certain
international employees that resulted from an April 1997 restructuring of
operations.
8. FOREIGN CURRENCY EXCHANGE GAIN:
Generally, assets and liabilities denominated in foreign currencies are
translated into US dollars at current exchange rates. Operating results are
translated into US dollars using the average rates of exchange prevailing during
the period. Gains or losses resulting from translation of assets and liabilities
are included in the cumulative translation adjustment account in stockholders'
equity, except for the translation effect of intercompany balances that are
anticipated to be settled in the foreseeable future. The Company had no foreign
exchange gains or losses for the nine months ended September 30, 1999, and had a
net foreign exchange gain of $87,000 for the nine months ended September 30,
1998.
9. BASIC AND DILUTED EARNINGS (LOSS) PER SHARE:
Basic earnings (loss) per share amounts are computed using the weighted
average number of common shares. Diluted earnings (loss) per share amounts are
computed using the weighted average number of common shares and common
equivalent shares having a dilutive effect during the periods; however, for the
three and nine months ended September 30, 1999 and 1998, the effect of common
stock equivalents has not been considered as they would have been antidilutive.
10. STOCKHOLDERS' EQUITY
On May 14,1999 the Company completed a private placement by selling and
issuing 298,187 shares of Series A 8% Convertible Preferred Stock, par value
$.05 per share, at a price of $13.75 per share, and by issuing warrants to
purchase an additional 49,818 share of Common Stock at an exercise price of
$2.75 per share. Each share of Preferred Stock has a liquidation preference
equal to its purchase price, plus accrued and unpaid dividends. Dividends are
cumulative from May 14, 1999, and are payable semi-annually, in arrears, on
April 30 and October 31 of each year, commencing October 31, 1999. Dividends are
payable in cash or shares of Common Stock, at the Company's election. The
Preferred Stock is convertible at any time prior to redemption, at the option of
the holder, into Common Stock at a conversion rate equal to five shares of
Common Stock for each share of Preferred Stock, subject to adjustment in certain
circumstances. The fair value of the Preferred Stock's beneficial conversion
feature, reflective of the difference between the conversion price of the
Preferred Stock and the market value of the underlying Common Stock on the date
of issue, constitutes, for accounting purposes, a dividend by the Company. The
beneficial conversion feature is approximately $1.2 million and the Company will
reflect the dividend as a non-cash charge to earnings in its consolidated
statement of operations in connection with the lapse of the transfer
restrictions on the underlying Common Stock. The transfer restrictions lapse in
May 2000 or in 25 percent installments when the average closing price for the
common stock over a period of 10 consecutive trading days is at least 125
percent, 156 percent, 195 percent and 244 percent of the initial conversion
price of the Preferred Stock, $2.75 per share. The Preferred Stock is redeemable
at the option of the Company at any time after the closing bid price for the
10
Common Stock on the NASDAQ Stock Market has equaled or exceeded $6.00 for 10
consecutive trading days. The redemption price is $17.50 per share plus accrued
but unpaid dividends to the date of repurchase. In connection with the private
placement, the Company received net proceeds of $4.0 million which use is
restricted for severance and other restructuring activities, and marketing and
sales initiatives. On June 15, 1999 the Company filed with the Securities and
Exchange Commission (SEC) a registration statement covering the resale of the
Common Stock underlying the Preferred Stock. The Company is to undertake all
reasonable efforts to cause the registration statement to be declared effective
by the SEC.
11
NETRIX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains forward-looking statements. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the foregoing, the words "believes," "anticipates," "plans," "expects" and
similar expressions are intended to identify forward-looking statements. There
are a number of important factors that could cause the Company's actual results
to differ materially from those indicated by such forward-looking statements.
These factors include, without limitation, those set forth below under the
caption "Certain Factors That May Affect Future Results".
RESULTS OF OPERATIONS
RECENT DEVELOPMENTS. The company announced on April 21, 1999 the
appointment of two senior telecommunications executives to its board of
directors. The additions of Douglas J. Mello and Richard Yalen, formerly of The
Bell Atlantic Corporation (NYSE: BEL) and Cable and Wireless, USA (NYSE: CWP),
respectively, expands the Netrix board from 4 to 6 members. The appointments
reflect a recruitment strategy adopted by the Company's new Chairman, Steven T.
Francesco, to attract to the Board of Directors senior executives with
significant telecommunications industry experience and contacts. Both Mello and
Yalen have led telecommunications service providers that are deploying voice and
data networks based on ATM, frame relay and voice over Internet protocol.
The board also formed two new oversight committees. Board members Richard
Yalen and William T. Rooker, Jr. will head the audit committee, and John
Faccibene and Douglas Mello will direct the company's compensation committee.
The Company announced on April 26, 1999 that its newly elected Board of
Directors is overseeing an immediate operational restructuring as part of an
overall plan to return to profitability. The effort is focusing on a reduction
of fixed costs, outsourcing non-critical manufacturing and services, and an
accelerated phase-out of older/low margin products. In addition, Netrix is
aggressively expanding its direct sales force and focusing on service providers
such as ISP's, CLEC's and telecommunication carriers. In connection with the
operational restructuring, the Company has implemented a reduction-in-force
that, when combined with previous actions, has reduced headcount 25% across all
functional areas since the beginning of 1999.
The Company announced on May 11, 1999, that Stephen T. Francesco, Chairman,
was appointed CEO, and that Lynn C. Chapman will maintain his position as
President and assume the role of COO.
On May 14,1999 the Company completed a private placement by selling 298,187
shares of Series A 8% Convertible Preferred Stock, par value $.05 per share, at
a price of $13.75 per share. In connection with the private placement, the
Company received net proceeds of $4.0 million to be used to fund operations,
severance and other restructuring activities, and marketing and sales
initiatives.
On June 16, 1999, the Company announced the appointment of a senior
Microsoft executive to the board. Mr. Greg McNulty has over 23 years of
experience in the high technology sales and marketing environment, and is Senior
Group Manager of Business Development for Microsoft-Web TV Network Services
managing Web TV's relationships with RBOC's, ILEC's, CLEC's, and ISP's.
On July 12, 1999, the Company issued a joint press release with Sonus
Communications, Inc. announcing a significant milestone in the development of
the Voice Over Internet Protocol (VoIP) telephony market. The VoIP services that
Sonus Communications provides for telecommunications carriers to China using
Netrix' 2210 Series Gateways is now comparable in terms of voice quality,
connect rates and dial tone delay with direct service from China Telecom, at an
average 30 percent lower base cost to carriers.
12
On July 27, 1999, the Company announced the appointment of Sean Rooney
as Senior Vice President of Sales. Rooney, formerly General manager of
Diversified markets for Sony Electronics, Inc., will lead a staff of 20
salespeople including 15 newly acquired professionals from industry competitors.
On August 5, 1999, the Company announced the appointment of Peter J.
Kendrick as Vice president and Chief Financial Officer, replacing Norman Welsch
in his day to day activities. Mr. Kendrick joins the Company with 16 years
experience as a CFO and former investment banker with a background in financial
operations, initial public offerings and mergers and acquisitions.
BACKGROUND. The results for the three and nine months of 1999 reflect
an overall decrease in the revenues and increase in expenses of the Company from
the comparable period in 1998. The increase in expenses is due primarily to an
increase in G&A expense for legal and accounting fees associated with the
changes in capital structure and management. During the first nine months of
1999, Netrix continued to experience a decline in revenues in the product line
it acquired from Republic Telcom, and a net increase in its new products, the
2210, which combines the Republic technology with Netrix switching capability.
Geographically, during the first nine months of 1999, the Company continued to
experience declining revenues from international customers, which was partially
offset by an increase in revenues from domestic customers.
In April 1999, the Company implemented a restructuring of operations to
reduce and economize its work force as part of an overall plan to return to
profitability. The restructuring charges of $900,000 resulted from $843,000
thousand of accrued severance and benefit costs associated with a
reduction-in-force of 36 employees across all functional areas of the Company,
and $57,000 of accrued facility costs resulting from the consolidation of
facilities and premature termination of various office leases. The
reduction-in-force and payment of severance will occur over a six-month period.
REVENUES. For the three months ended September 30, 1999, revenues
decreased $200,000 or 3% to $ 8.1 million, from $8.3 million for the three
months ended September 30, 1998. The decrease in revenues was due primarily to a
decrease in service revenues of $549,000, or 22%, to $1.9 million from $2.5
million. For the nine months ended September 30, 1999, revenues decreased $2.0
million, or 8.5% to $21.4 million, from $23.4 million for the nine months ended
September 30, 1998. For the three months ended September 30, 1999 product
revenues increased $300,000 or 5% to $6.1 million from $5.8 million for the
three months ended September 30, 1998. The increase in product revenues is
primarily a result of increase sales of the 2210 series product line. For the
nine months ended September 30, 1999 product sales remained essentially the same
as compared to the nine months ended September 30, 1998. For the nine months
ended September 30, 1999 service revenues decreased $1.8 million or 25% to $5.3
million from $7.1 million for the nine months ended September 30, 1998. The
decrease is a result of cancellations and non-renewals of maintenance contracts
by various customers using legacy equipment.
GROSS PROFIT. For the three months ended September 30, 1999, gross
profit increased by $100,000, or 2%, to $4.3 million, from $4.2 million for the
three months ended September 30, 1998. As a percentage of revenues, gross profit
increased to 53% for the three months ended September 30, 1999, from 51% for the
three months ended September 30, 1998. For the nine months ended September 30,
1999 gross profit decreased $1.6 million or 13% to $10.2 million from $11.8
million for the nine months ended September 30, 1998. For the three months ended
September 30, 1999 gross profit for product revenue increased $514,000 or 17% to
$3.5 million from $3.0 million for the three months ended September 30, 1998.
For the three months ended September 30, 1999 gross profit for service revenues
decreased $415,000 or 3% to $783,000 from $1.2 million for the three months
ended September 30, 1998. For the nine months ended September 30, 1999, gross
profit for product decreased $200,000 or 2% to $8.5 million from $8.7 million
for the nine months ended September 30, 1998. For the nine months ended
September 30, 1999 gross profit for service revenue decreased $1.8 million or
58% to $1.3 million from $3.1 million for the nine months ended September 30,
1998. The three and nine month gross profit changes are primarily a result of a
lower-margin product mix, a greater proportion of sales made through
distributors, which generally have higher discounts than direct retail sales,
and competitive pricing pressures. The gross profit in any particular quarter is
dependent upon the mix of products sold and the channels of distribution. As a
result, the gross profit on a quarter to quarter basis can vary within a wide
range. The three and nine month decrease in service gross profit is primarily
the result of lower service revenues from cancellations and non-renewals of
maintenance contracts by various customers using legacy equipment.
13
SALES AND MARKETING. For the three months ended September 30, 1999
sales and marketing expenses decreased by $199,000, or 11%, to $1.6 million from
$1.8 million for the three months ended September 30, 1998. The quarterly
decrease is the result of reduced marketing material expenditures of $90,000 and
other cost reductions of $109,000. Sales and marketing expenses decreased $3.2
million, or 41%, to $4.6 million for the nine months ended September 30, 1999
from $7.8 million for the nine months ended September 30, 1998. The year over
year decreases are the result of a decrease in bad debt expense of $1.1 million,
and other reductions totaling $1.8 million in personnel, trade show initiatives
and advertising and marketing materials
RESEARCH AND DEVELOPMENT. For the three months ended September 30,
1999, research and development expenses increased $300,000 or 17% to $1.9
million from $1.6 million for the three months ended September 30, 1998. For the
nine months ended September 30, 1999, research and development expenses
increased $300,000 or 8% to $5.3 million from, from $5 million for the nine
months ended September 30, 1998. The year over year increase in research and
development expenses is due primarily to an increase in personnel costs of
$100,000 and an increase in consulting fees of $250,000. All of the Company's
research and development costs are expensed to operations as incurred during the
periods reported.
GENERAL AND ADMINISTRATIVE. For the three months ended September 30,
1999 General and administrative (G&A) expenses increased $450,000 or 50% to $1.4
million from $900,000 for the three months ended September 30, 1998. For the
nine months ended September 30, 1999 G&A expenses increased $600,000 or 20% to
$3.7 million from $3.1 million for the nine months ended September 30, 1998. The
increase in G&A was the result of higher accounting and legal expenses
associated with the restructuring of operations, changes to the Company's
capital structure, the renegotiation of the line of credit, the default waiver
with the Company's lending institution, and costs associated with the renewal of
the headquarters office lease.
STOCK COMPENSATION. The company incurred stock compensation expense of
$763,000 associated with stock options issued to Mr. Steven Francesco, Chairman
& CEO in July of 1999.
RESTRUCTURING RESERVE. In April 1999, the Company implemented a
restructuring of operations to reduce and economize its work force as part of an
overall plan to return to profitability. The restructuring charges of $900,000
resulted from $843,000 of accrued severance and benefit costs associated with a
reduction-in-force of 36 employees across all functional areas of the Company,
and $57,000 of accrued facility costs resulting from the consolidation of
facilities and premature termination of various office leases. The
reduction-in-force and payment of severance will occur over a six-month period.
INTEREST AND OTHER INCOME, NET. For the three months ended September
30, 1999, the company had net interest expenses of $89,000 compared to $45,000
for the three months ended September 30, 1998. The quarter over quarter increase
was primarily the result of lower interest income due to less cash available for
overnight investments. For the nine months ended September 30, 1999, net
interest expense was $293,000, compared to $138,000 for the nine months ended
September 30, 1998. The year over year increase in net interest expense is the
combined result of a $97,000 charge related to the fair value of warrants issued
to the Company's lending institution, $43,000 lower interest income due to less
cash available for overnight investments, and higher interest costs resulting
from higher rates and loan balances during 1999.
FOREIGN EXCHANGE GAIN OR LOSSES. For the three months ended September
30, 1999 the Company had no foreign exchange gains or losses compared to a
$40,000 foreign exchange gain for the three months ended September 30, 1998. For
the nine months ended September 30, 1999, the Company had no foreign exchange
gains or losses, compared to a foreign exchange gain of $87,000 for the nine
months ended September 30, 1998.
14
NET LOSS. For the three months ended September 30, 1999, the Company
had a net loss of $2.0 million, compared to a net loss of $140,000 for the three
months ended September 30, 1998. For the nine months ended September 30, 1999,
the Company had a net loss of $5.8 million, compared to a net loss of $3.9
million for the nine months ended September 30, 1998. The increase in net loss
is due primarily to increase in G&A costs associated with legal and accounting
expenses of $350,000, R&D costs of $250,000, stock compensation expense of
$763,000 and a dividend on preferred stock of $534,000. The three and nine month
changes in net loss were the combined result of all of the above factors.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, the Company had $4.7 million of cash and cash
equivalents and net working capital of $8.7 million, compared to $2.5 million of
cash and cash equivalents and net working capital of $7.6 million at December
31, 1998. For the nine months ended September 30, 1999, total cash used by
operations was $541,000 compared to $2.4 million for the nine months ended
September 30, 1998. The cash used by operations was primarily due to continued
net losses from operations. The decrease in cash used in operating activities
during the nine months ended September 30, 1999, was primarily the result of a
decrease in accounts receivable of $542,000, compared to an increase in accounts
receivable of $1.2 million for the nine months ended September 30, 1998. During
the nine months ended September 30, 1999, the Company used cash to pay-down the
line of credit by $1.0 million.
In May 1999, the Company received net proceeds of $4.0 million from a
private placement of Series A Convertible Preferred Stock. In April 1998, the
Company received net proceeds of $2.1 million through a private placement of
Common Stock.
Capital acquisitions during the nine months ended September 30, 1999
were $474,000 compared to $918,000 for the nine months ended September 30, 1998.
These acquisitions were primarily equipment used for research and development
purposes and computer and test equipment.
In November 1997, the Company negotiated a $3.0 million line of credit
agreement with a lending institution to be used for working capital. This
agreement provided for interest at a per annum rate equal to the lender's prime
rate plus 2%, subject to a minimum monthly interest based on 40% utilization of
$3.0 million. In August 1998, as a result of concerns about the deterioration of
aged international accounts receivable, the Company's lending institution
eliminated international receivables as qualified accounts receivable for
borrowing collateral. The lending institution also increased the interest rate
for outstanding loan amounts to prime plus 3 1/2% from prime plus 2%. In October
1998, the lending institution reinstated a sub-line of credit up to an amount of
$600,000 for selected foreign accounts receivable. Borrowings under the line are
based on qualified domestic accounts receivable and are collateralized by the
Company's assets. At September 30, 1999, the Company had $4.7 million in cash
and cash equivalents with $1.2 million outstanding of the $1.5 million available
under the line of credit agreement. At December 31, 1998, the Company had $2.4
million of eligible borrowing availability and $2.2 million outstanding under
the line of credit. As of September 30, 1999, the Company's domestic accounts
receivable have generated adequate borrowing for operations, and the Company has
not had to use the foreign sub-line of credit.
As a result of the combination of the net loss for the quarter and the
proceeds of the private placement, the Company's tangible net worth increased
from $10 million at March 31, 1999 to $11.8 million at September 30, 1999. The
line of credit agreement negotiated in November 1997 required the Company to
maintain a tangible net worth of at least $13.5 million measured at the end of
each month. Beginning October 31, 1998 the Company had been in violation of this
covenant. This covenant violation allows the Company's lending institution to
call for collection of the outstanding loan balance. On April 12, 1999 the
lending institution granted the Company a waiver of past covenant violations and
waived its right to call the line of credit for these covenant violations.
Concurrent with the April 1999 waiver of default, the lending institution
extended the line of credit agreement to May 31, 2001. The lending institution
amended the line of credit agreement to measure the Company's tangible net worth
on a quarterly basis effective January 1, 1999, and set the minimum tangible net
worth covenant at $9.8 million as of March 31, 1999 and $9.0 million for all
subsequent quarters. As of September 30, 1999, the Company was in compliance
with the new covenant, and management believes that this new covenant will be
adequate for the Company to operate under in the foreseeable future. However,
there can be no assurances that the Company will not violate the new covenant or
that the outstanding loan balance will not be called by the lending institution
upon violation of the new covenant.
15
The success of the Company is dependent on its ability to generate
adequate cash for operations and capital needs. Its ability to generate adequate
cash for such needs is in part dependent on its success in increasing sales of
its products. The Company's plan is to increase revenues through sales of its
Network Exchange product line; however, due to market conditions and other
factors beyond its control, there can be no assurance the Company will be able
to adequately increase product sales. Therefore, the Company may have to
generate additional cash through the sale of assets including technologies or
the sale of debt or equity securities. Although the Company believes it has the
ability to generate additional cash through such sales, such sales may be
dilutive and there can be no assurances that adequate funds will be available or
available on terms that are reasonable or acceptable to the Company. If the
Company is unable to generate adequate cash, there could be a material and
adverse effect on the business and financial condition of the Company. The
Company has implemented cost control measures and is continually evaluating
expense levels to mitigate its liquidity risk.
YEAR 2000
The Year 2000 presents concerns for business and consumer computing.
Aside from the well-known problems with the use of certain 2-digit date formats
as the year changes from 1999 to 2000, the Year 2000 is a special case leap
year, and dates such as 9/9/99 were used by certain organizations for special
functions. The problem exists for many kinds of software and hardware, including
mainframes, mini-computers, PCs, and embedded systems.
Netrix Corp has divided the year 2000 task into three areas of concern,
Netrix Product, Netrix Suppliers, and Netrix Internal Systems. The Company's
core products have been reviewed, tested and if required, corrective measures
have been implemented to ensure no year 2000 issues. This task is complete with
information regarding the Netrix Products available via Internet access and
software release notes. NETRIX suppliers are being asked to respond to the year
2000 issue. This will be an ongoing process and is considered a low risk to the
Company. Netrix has audited its Internal Systems and corrective measures are
being taken to correct identified year 2000 issues.
Internal Systems represent the largest area of concern for the Company.
The Internal Systems category has been further broken down into hardware and
software areas, business / operations applications, engineering applications,
Unix based technologies and PC based technologies. The Company has identified
all major hardware and software components that need to be assessed and has
performed an assessment of all hardware and software identified.
The Company has updated a majority of hardware in use and is in the
process of converting all software applications that are known to have year 2000
issues. In August 1999, NETRIX successfully completed the Y2K software
conversion upgrade for the Company's primary business / operations application
for live production use in the third quarter of 1999.
Vendors or other third parties that could affect the Company's
operations include suppliers of utility services, travel and hotel services,
office supply vendors, equipment and technology vendors, mail, telephone,
Internet and other communications services. Each of the Company's departmental
directors has been instructed to communicate with their major suppliers with
respect to such vendors' year 2000 compliance status. All of the Company's
departments have been directed to make arrangements with an alternative vendor
if it appears that the current vendor will not achieve compliance by the year
2000. There can be no guarantee, however, that the systems of the Company's
major vendors, including providers of public utilities, will be timely
converted, or that a failure to convert by another company or organization, or a
conversion that is incompatible with the Company's systems, would not have an
adverse effect on the Company.
Although the Company anticipates that minimal business disruptions will
occur as a result of year 2000 issues, possible consequences include loss of
communications with members, inability to conduct marketing efforts and on-site
16
seminars as a result of travel and communications disruptions, delay in the
production and distribution of studies and reports, inability to conduct
research and surveys, and disruption of similar normal business activities. The
Company believes that the conversion and modification efforts by the Company and
its vendors will mitigate the risks associated with year 2000 issues. If,
however, the Company or its essential vendors do not complete the necessary
modifications or conversions in a timely manner or if such modifications or
conversions fail to achieve the proper results, the Company's operations may be
adversely effected.
The Company does not intend to develop any contingency plans to address
possible failures by the Company or its vendors to the year 2000 compliant with
respect to information technology systems. The Company does not believe that
such contingency plans are required because it believes that the Company and its
information technology suppliers will be year 2000 compliant before January
2000. The Company currently does not have any contingency plans to address
possible failures by its vendors to be year 2000 compliant with respect to
non-information technology systems, but expects to develop such plans by
September 1999.
While Year 2000 issues present a potential risk to the Company's
internal systems, distribution and supply chain, and facilities, the Company is
minimizing its risk with a concentrated effort. The Company is performing an
extensive assessment and is in the process of testing and remediating mission
critical components. The Company has already identified and resolved a majority
of these components, and expects that all components will be resolved by the
fourth quarter. Management currently believes that all critical systems will be
ready by January 1, 2000 and that the costs to address these issues will not
exceed the budgeted amounts. Management estimates the cost to address and
resolve Year 2000 issues will approximate $500,000, and these costs have been
included in the Company's operating plan for 1999.
PART II -- OTHER INFORMATION
Item 1.
None.
Item 2.
On September 29, 1999 Netrix issued 100,000 warrants to Kaufman Bros.,
L.P., our investment banker in connection with the OpenROUTE merger, as part of
the consideration paid to Kaufman Bros. for its services in connection with the
merger. The warrants have an exercise price of $3.00 per share and are
exercisable through August 2004. The issuance was not registered under the
Securities Act of 1933 in reliance upon Section 4(2) under the Securities Act.
Pursuant to a consulting agreement with Renwick Corporate Finance Inc.,
as part of their monthly compensation we agreed to issue to them warrants to
acquire 3,333 shares of common stock at $3.75 per share for each month of
services. The agreement was in effect during the quarter until mid-September.
The issuance was not registered under the Securities Act of 1933 in reliance
upon Section 4(2) under the Securities Act.
In September 1999, we issued warrants to a consultant who is providing
advice to us related to reducing costs associated with certain of our
operations. As consideration, we issued 7,500 warrants to the consultant,
exercisable through September 2004 at $3.00 per share. In issuing these
warrants, the company relied upon the exemption from registration under the
Securities Act provided by Section 4(2) of the Securities Act.
In connection with the offering of the Series A preferred stock, we
agreed to pay compensation to certain persons who introduced investors to us. We
offered these persons the right to receive payment either (1) in cash or (2) in
warrants to acquire common stock, and each of such persons requested payment in
warrants. Accordingly, in September 1999 the company issued 17,818 warrants
exercisable at $3.50 per share and 32,000 warrants exercisable at $2.75 per
share to these persons. Each warrant expires in 2004. In issuing these warrants,
the company relied upon the exemption from registration under the Securities Act
provided by Section 4(2) of the Securities Act.
17
Item 3.
None.
Item 4.
We held our annual meeting of stockholders on July 27, 1999. The agenda
for the meeting was to discuss and vote upon four proposals:
1. The election of Richard Yalen and Gregory McNulty as directors to
serve until the annual meeting in 2002;
2. An increase in our authorized common stock to 29,000,000 shares;
3. Adoption of the 1999 Long-Term Incentive Plan; and
4. Ratification of Arthur Andersen LLP as independent public
accountants.
At the meeting Proposals 1, 2 and 4 were presented to stockholders for
approval. The meeting was adjourned until August 26, 1999 with respect to
proposal 3, and it was discussed and voted upon on that date.
The results of the votes are as follows:
Votes
Proposal Votes For Against Abstain Not voted
- -------- --------- ------- ------- ---------
1a- Election of 89.75% 6.83% - 3.42%
Richard Yalen
1b- Election of 89.72% 6.86% - 3.42%
Gregory McNulty
2- Increase in 73.14% 17.25% 0.29% 9.32%
Capital Stock
3- Adoption of Long 75.71% 17.91% 0.28% 6.10%
Term Incentive Plan
4- Approval of 94.00% 2.40% 0.18% 3.42%
Accountants
Item 5.
None.
Item 6.
(a) Exhibit Index:
-------------
The exhibits listed below have been filed as part of this report.
3.1 Amended and restated certificate of incorporation
(incorporated by reference to Exhibit 3.1 to Netrix's
registration statement on Form S-1 filed on September 18,
1992, as amended (File No. 33-50464) (the "1992 S-1").
3.2 Amendment to Certificate of Incorporation dated August 26,
1999 (incorporated by reference to Exhibit 4.8 to Netrix's
registration statement on Form S-3, filed on June 16, 1999,
as amended (File No. 333-81109) (the "1999 S-3")).
18
3.3 Amended and restated by-laws of Netrix (incorporated into
this registration statement by reference to Exhibit 3.2 of
the 1992 S-1).
4.1 Specimen certificate of common stock of the registrant
(incorporated by reference to Exhibit 4.2 to the 1992 S-1).
4.2 Certificate of designations for the form of Series A 8%
convertible preferred stock (incorporated by reference to
Exhibit 4.4 to the 1999 S-3).
4.3 Supplemental certificate of designations for the form of
Series A 8% convertible preferred stock (incorporated by
reference to Exhibit 4.2 to Netrix's quarterly report on
Form 10-Q filed on August 16, 1999, Commission File No.
0-50464).
4.4 Form of Warrant issued to Renwick Securities, Inc.
(incorporated by reference to Exhibit 10.3 to Netrix's
quarterly report on Form 10-Q filed on August 16, 1999,
Commission File No. 0-50464).
4.5 Form of Warrant issued to Coast Business Credit
(incorporated by reference to Exhibit 10.2 to Netrix's
quarterly report on Form 10-Q filed on August 16, 1999,
Commission File No. 0-50464).
4.6 Form of Warrant issued to Kaufman Bros., L.P.
10.1 Loan and Security Agreement dated November 18, 1997 with
Coast Business Credit, a division of Southern Pacific Bank
(incorporated by reference to Exhibit 10.8 to Netrix's
annual report on Form 10-K filed on March 31, 1998,
Commission File No. 0-50464).
10.2 Amendment to Loan an Security Agreement dated April 19, 1999
with Coast Business Credit, a division of Southern Pacific
Bank (incorporated by reference to Exhibit 10.3 to Netrix's
quarterly report on Form 10-Q filed on August 16, 1999,
Commission File No. 0-50464).
10.3 Agreement and Plan of Merger dated September 30, 1999
between Netrix Corporation and OpenROUTE Networks, Inc.
(incorporated by reference to Exhibit 2.1 to Netrix's
current report on Form 8-K filed on October 14, 1999,
Commission File No. 0-50464).
10.4 Amendment to Agreement and Plan of Merger between Netrix
Corporation and OpenROUTE Networks, Inc. dated November 9,
1999.
10.5* Employment Agreement with Steven Francesco dated March 3,
1999.
10.6* Employment Agreement with Peter Kendrick dated August 3,
1999.
10.7* Form of Retention Agreement with Executive Officers.
10.8 Manufacturing Agreement dated September 1999 with SMT Centre
S.E., Inc.
10.9* Long Term Incentive Plan, as amended.
10.10* Amended and Restated Incentive Stock Option Plan, as amended
(incorporated by reference to Exhibit 10.1 of the Annual
Report of Form 10-K for the fiscal year ended December 31,
1995 (the "1995 10-K").
10.11* 1992 Employee Stock Purchase Plan (incorporated by reference
to Exhibit 10.2 of the 1995 10-K).
10.12* 1992 Directors Stock Option Plan (incorporated by reference
to Exhibit 10.3 of the 1995 10-K).
10.13* 1996 Stock Option Plan (incorporated by reference to Exhibit
10.4 of the 1995 10-K).
19
10.14 Office Sublease, dated September 30, 1999 between Netrix and
Scoreboard, Inc..
--------------------------------
* This exhibit is a compensatory plan or arrangement in which
executive officers or directors of the Registrant participate.
+ Portions of this exhibit have been omitted subject to a pending
confidential treatment request.
(b) Reports on Form 8-K.
--------------------
None.
20
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
NETRIX CORPORATION
Date: November 12, 1999
By: /s/ Steven T. Francesco
-----------------------------------------
Steven T. Francesco
Chief Executive Officer and
Chairman of the Board of Directors
By: /s/ Lynn C. Chapman
-----------------------------------------
Lynn C. Chapman
President and Chief Operating Officer
By: /s/ Peter J. Kendrick
-----------------------------------------
Peter J. Kendrick
Vice President Finance and
Administration and Chief Financial
Officer (Principal Financial Officer)
21
(a) Exhibit Index:
-------------
The exhibits listed below have been filed as part of this report.
3.1 Amended and restated certificate of incorporation
(incorporated by reference to Exhibit 3.1 to Netrix's
registration statement on Form S-1 filed on September 18,
1992, as amended (File No. 33-50464) (the "1992 S-1").
3.2 Amendment to Certificate of Incorporation dated August 26,
1999 (incorporated by reference to Exhibit 4.8 to Netrix's
registration statement on Form S-3, filed on June 16, 1999,
as amended (File No. 333-81109) (the "1999 S-3")).
3.3 Amended and restated by-laws of Netrix (incorporated into
this registration statement by reference to Exhibit 3.2 of
the 1992 S-1).
4.1 Specimen certificate of common stock of the registrant
(incorporated by reference to Exhibit 4.2 to the 1992 S-1).
4.2 Certificate of designations for the form of Series A 8%
convertible preferred stock (incorporated by reference to
Exhibit 4.4 to the 1999 S-3).
4.3 Supplemental certificate of designations for the form of
Series A 8% convertible preferred stock (incorporated by
reference to Exhibit 4.2 to Netrix's quarterly report on
Form 10-Q filed on August 16, 1999, Commission File No.
0-50464).
4.4 Form of Warrant issued to Renwick Securities, Inc.
(incorporated by reference to Exhibit 10.3 to Netrix's
quarterly report on Form 10-Q filed on August 16, 1999,
Commission File No. 0-50464).
4.5 Form of Warrant issued to Coast Business Credit
(incorporated by reference to Exhibit 10.2 to Netrix's
quarterly report on Form 10-Q filed on August 16, 1999,
Commission File No. 0-50464).
4.6 Form of Warrant issued to Kaufman Bros., L.P.
10.1 Loan and Security Agreement dated November 18, 1997 with
Coast Business Credit, a division of Southern Pacific Bank
(incorporated by reference to Exhibit 10.8 to Netrix's
annual report on Form 10-K filed on March 31, 1998,
Commission File No. 0-50464).
10.2 Amendment to Loan an Security Agreement dated April 19, 1999
with Coast Business Credit, a division of Southern Pacific
Bank (incorporated by reference to Exhibit 10.3 to Netrix's
quarterly report on Form 10-Q filed on August 16, 1999,
Commission File No. 0-50464).
10.3 Agreement and Plan of Merger dated September 30, 1999
between Netrix Corporation and OpenROUTE Networks, Inc.
(incorporated by reference to Exhibit 2.1 to Netrix's
current report on Form 8-K filed on October 14, 1999,
Commission File No. 0-50464).
10.4 Amendment to Agreement and Plan of Merger between Netrix
Corporation and OpenROUTE Networks, Inc. dated November 9,
1999.
10.5* Employment Agreement with Steven Francesco dated March 3,
1999.
10.6* Employment Agreement with Peter Kendrick dated August 3,
1999.
10.7* Form of Retention Agreement with Executive Officers.
10.8 Manufacturing Agreement dated September 1999 with SMTC
Centre S.E., Inc.
10.9* Long Term Incentive Plan, as amended.
10.10* Amended and Restated Incentive Stock Option Plan, as amended
(incorporated by reference to Exhibit 10.1 of the Annual
Report of Form 10-K for the fiscal year ended December 31,
1995 (the "1995 10-K").
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10.11* 1992 Employee Stock Purchase Plan (incorporated by reference
to Exhibit 10.2 of the 1995 10-K).
10.12* 1992 Directors Stock Option Plan (incorporated by reference
to Exhibit 10.3 of the 1995 10-K).
10.13* 1996 Stock Option Plan (incorporated by reference to Exhibit
10.4 of the 1995 10-K).
10.14 Office Sublease, dated September 30, 1999 between Netrix and
Scoreboard, Inc.
--------------------------------
* This exhibit is a compensatory plan or arrangement in which
executive officers or directors of the Registrant participate.
+ Portions of this exhibit have been omitted subject to a pending
confidential treatment request.
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