10-Q 1 e10-q.txt CYBEX COMPUTER PRODUCTS CORPORATION 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------- FORM 10-Q (MARK ONE) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED: JUNE 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO ------ ------ COMMISSION FILE NUMBER 0-26496 CYBEX COMPUTER PRODUCTS CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) ALABAMA 63-0801728 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 4991 CORPORATE DRIVE HUNTSVILLE, ALABAMA 35805 (Address of principal executive offices) (256) 430-4000 (Registrant's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] AS OF JUNE 30, 2000 19,440,987 SHARES OF THE REGISTRANT'S COMMON STOCK $.001 PAR VALUE, WERE OUTSTANDING. 2 CYBEX COMPUTER PRODUCTS CORPORATION FORM 10-Q JUNE 30, 2000 TABLE OF CONTENTS

3 ITEM 1. FINANCIAL STATEMENTS CYBEX COMPUTER PRODUCTS CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

See notes to condensed consolidated financial statements. 3 4 CYBEX COMPUTER PRODUCTS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

See notes to condensed consolidated financial statements 4 5 CYBEX COMPUTER PRODUCTS CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

See notes to condensed consolidated financial statements 5 6 CYBEX COMPUTER PRODUCTS CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements of Cybex Computer Products Corporation (the Company) have been prepared by management in accordance with generally accepted accounting principles for interim financial information and in conjunction with the rules and regulations of the Securities and Exchange Commission. In the opinion of management, all adjustments necessary for a fair presentation of the interim condensed consolidated financial statements have been included, and all adjustments are of a normal and recurring nature. The condensed consolidated financial statements as of and for the interim period ended June 30, 2000 should be read in conjunction with the Company's consolidated financial statements as of and for the year ended March 31, 2000, included in the Company's Form 10-K filed June 22, 2000. Operating results for the three months ended June 30, 2000 are not necessarily indicative of the results that may be expected for the year ended March 31, 2001. The March 31, 2000 balance sheet data presented herein was derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles. 2. STOCK OPTIONS Options to purchase 415,500 shares of common stock were issued on varying dates throughout the first quarter of Fiscal 2001 to employees under the 1998 Employee Stock Incentive Plan at the market price as of the effective date. Also, options to purchase 97,733 shares of common stock were exercised during the quarter first quarter of Fiscal 2001. 3. COMPREHENSIVE INCOME The Company records unrealized gains or losses on the Company's foreign currency translation adjustments and unrealized holding gains or losses on the Company's available for sale investments as accumulated other comprehensive income which is included in shareholders' equity. During the first quarter of Fiscal 2001 and Fiscal 2000, total comprehensive income amounted to $6,960,963 and $4,227,299, respectively. 4. EARNINGS PER SHARE A summary of the calculation of basic and diluted earnings per share ("EPS") for the quarters ended July 2, 1999 and June 30, 2000, is as follows: 6 7

5. 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 included in the Company's Annual Report to the extent such policies affect the reported segment information. The operational distributions of the Company's revenues and gross margin for the three months ended July 2, 1999 and June 30, 2000 is as follows:

The operational distribution of the Company's identifiable assets as of March 31, 2000 and June 31, 2000 is as follows: 7 8

6. APPROVED 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") 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, Aegean Sea Inc. 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 received final approval of the merger by the shareholders of the respective companies on June 30, 2000. The newly formed company subsequently changed its name to Avocent Corporation. The merger was effective as of July 1, 2000. The merger has been accounted for as a purchase in accordance with APB 16 with the purchase price allocated to the assets and liabilities of the Company based upon their face values at the date of the transaction. The excess of the purchase price over the fair value of the assets and liabilities has been allocated to the identifiable intangible assets and goodwill. Additionally, $94.0 million of the purchase price is expected to be expensed as in process research and development. A preliminary purchase price allocation is as follows: Tangible assets $110,775,673 Identifiable intangible assets 90,107,903 Goodwill 529,430,650 In-process R&D 94,000,000 Liabilities (28,843,613) ------------ Total purchase price $795,470,613 ============

8 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE INFORMATION IN THIS ITEM 2 - "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" CONTAINED IN THE COMPANY'S FORM 10-K FOR THE YEAR ENDED MARCH 31, 2000, AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 22, 2000. The following discussion of the results of operations and financial condition of the Company should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto included in the Company's form 10-K for the year ended March 31, 2000, as filed with the Securities and Exchange Commission on June 22, 2000. MERGER 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") 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, Aegean Sea Inc. 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 received final approval of the merger by the shareholders of the respective companies on June 30, 2000. The newly formed company subsequently changed its name to Avocent Corporation. The merger was effective as of July 1, 2000. The merger has been accounted for as a purchase in accordance with APB 16 with the purchase price allocated to the assets and liabilities of the Company based upon their face values at the date of the transaction. The excess of the purchase price over the fair value of the assets and liabilities has been allocated to the identifiable intangible assets and goodwill. Additionally, $94.0 million of the purchase price is expected to be expensed as in process research and development. A preliminary purchase price allocation is as follows; $110.8 million of tangible assets, $90.1 million of identifiable intangible assets, $529.4 million of goodwill, $94.0 million of in-process R&D and $28.8 million of assumed liabilities. The amortization periods are 3 to 7 years for intangibles and 5 years for goodwill. 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 9 10 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. Additionally, in May of 2000, the Company announced the DS1800, a digital switching solution which will allow system administrators secure access to an unlimited number of servers using the existing networking infrastructure. The DS1800 is expected to be complete and available for shipping during October 2000. 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, 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 merger 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- 10 11 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, 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% for the quarter ended June 30, 2000 and, 32%, and 35% of the Company's total sales in, Fiscal 2000, and Fiscal 1999, respectively. STRATEGIC ACQUISITION 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 work force, 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 work force 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 11 12 returns on beginning net working capital, assembled work force, customer base, patents, other assets and developed technologies, along with a deduction for cash flow attributable to the assembled work force, other assets, customer base, patents and 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 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. RESULTS OF OPERATIONS The following table presents selected financial information derived from the Company's statements of income expressed as a percentage of net sales for the quarters ended indicated:

Three Months Ended June 30, 2000 Compared to the Three Months Ended July 2, 1999 Net sales increased 52.6% to $37.1 million in the three months ended June 30, 2000 from $24.3 million in the three months ended July 2, 1999. Additionally, sales for the reportable segment Cybex -- U.S. increased 59.3% from $17.1 million in the first quarter of Fiscal 2000 to $27.2 million in Fiscal 2001, while sales for the reportable segment Cybex -- International increased 41.1% from $7.8 million in the first quarter of Fiscal 2000 to $11.1 million in Fiscal 2001. Over 3.3 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 typically include large orders that follow a long sales cycle and quarter to quarter revenues for display products are expected to fluctuate. The increased sales also resulted from increased sales volume of the Company's KVM Switch Products and Extension Products. Sales of KVM Switch Products increased 35.9% to $29.8 million in the three months ended June 30, 2000 from $21.9 million in the three months ended July 2, 1999. Additionally, sales of KVM Extension Products increased 63.4% to $3.5 million in the three months ended June 30, 2000 from $2.1 million in the three months ended July 2, 1999. The LongView and Key-View II products accounted for most of the growth in KVM Extension Product sales. The Company's international sales volume (sales to locations outside the U.S) continued to increase in the three months ended June 30, 2000. International sales increased 36.4% to $11.6 million in the first quarter of Fiscal 2001 from $8.5 million in first quarter of Fiscal 2000. Sales in the European Community accounted for approximately $8.0 million, or 69.1% of international sales, and grew 20.2% from Fiscal 2000 to Fiscal 2001. 12 13 Gross profit is affected by many factors including: product mix, discounts, price competition, new product introductions and start-up costs, increasing material and labor costs and the levels of outsourcing of manufacturing and assembly services. Gross profit increased 55.7% to $20.4 million in three months ended June 30, 2000 from $13.1 million in the three months ended July 2, 1999. Gross profit for the reportable segment Cybex -- U.S. increased 60.4% from $9.3 million in the three months ended July 2, 1999 to $15.0 million in the three months ended June 30, 2000, while the gross profit for Cybex -- International increased 44.1% from $3.8 million in the first quarter of Fiscal 1999 to $5.5 million in the first quarter of Fiscal 2000. Gross profit as a percentage of net sales increased from 53.9% to 55.0%. The increase in gross margin as a percentage of sales is the result of cost reductions due to volume efficiencies and increased outsourcing, and design changes. The increase was offset somewhat by the diluting effect of display product sales, which have much lower margins than the other product lines. Display product margin was 21.2% versus all other product's gross margin of 58.4%. Selling, general and administrative (SG&A) expenses increased 53.5% to $8.5 million (22.8% of net sales) in the three months ended June 30, 2000, from $5.5 million (22.6% of net sales) in the three months ended July 2, 1999. The increase in SG&A expenses reflects the increased level of expenditures in administration, sales, customer support, advertising, and marketing activities required to support the Company's expanded sales base domestically and abroad, as well as additional SG&A costs from PixelVision. Management anticipates that the dollar amount of selling, general and administrative expense will continue to increase. Research and development (R&D) expense grew 23.9% to $2.1 million or 5.6% of net sales in the three months ended June 30, 2000, from $1.7 million or 6.6% of net sales in the three months ended July 2, 1999. The increase in R&D expense can be attributed to the continued focus on new product and technology development as well as product integration and product cost reduction efforts through improved product design. Management anticipates that the dollar amount of research and development expenses will increase and as a percentage of net sales will increase slightly. As a result of the factors discussed above, operating income increased 65.6% to $9.8 million (26.5% of net sales) in the three months ended June 30, 2000, from $5.9 million (24.4% of net sales) in the three months ended July 2, 1999. Other income decreased drastically 87% to $61,000 (0.1% of net sales) in the three months ended June 30, 2000, compared to $452,000 (1.9% of net sales) in the three months ended July 2, 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. The primary reason for the decline was $171,000 in realized losses in equity investments during the first quarter of fiscal 2001 versus $154,000 realized gain in fiscal 2000. This loss in equities reflects the overall volatility of the stock market. Other expense also includes foreign currency loss of almost $100,000 during the quarter as compared to a foreign currency loss of only $32,000 in the prior year's quarter. This fluctuation is attributed to the weakening of the Euro against the dollar during the period. As a result of implementing new Treasury policies, cash held in foreign currencies decreased during the quarter thereby reducing translation exposure. Net income increased 57.5% to $6.7 million (18.0% of net sales) in the three months ended June 30, 2000, from $4.2 million (17.5% of net sales) in the three months ended July 2, 1999, as a result of the factors discussed above. LIQUIDITY AND CAPITAL RESOURCES The Company financed its operations primarily through cash flow from operations and cash reserves as needed. As of June 30, 2000, and for the three months then ended, the Company and its subsidiaries had an available line of credit of $7.5 million with no outstanding borrowings. The Company had no amounts outstanding under the lines of credit at June 30, 2000. The Company's working capital position improved from $62.2 million as of March 31, 2000 to $69.9 million as of June 30, 2000 (adjusted to include $8.0 million and $8.6 million of long term-investments, respectively). This 13 14 improvement in the Company's working capital position was due primarily to increased earnings during the quarter ended June 30, 2000. Cash provided from operating activities increased from approximately $3.6 million for the three months ended July 2, 1999 to $5.1 million for the three months ended July 2, 1999. The increase was attributed primarily to an increase in net income and an increase in income taxes payable. These increases were offset by increases in accounts receivable and inventories. The increase in net income is directly related to the increase in sales, while the increase in income taxes payable relates to the increase in income. The increase in accounts receivable can be attributed to timing of sales and timing of collections. Over $2.1 million in outstanding receivables were collected in the 3 days after quarter end. The increase in inventory levels is attributed to the overall anticipated demand for new and existing products as well as inventory for products under development including the DS1800. The DS1800 is not expected to ship until the beginning of the third quarter of fiscal 2001. 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 $769,000 in the first three months of Fiscal 2001. These capital expenditures related to purchases of office equipment, computer hardware and software, engineering test equipment and manufacturing test equipment for the Company and its subsidiaries. The Company believes that its current financial position and existing cash and investments along with earnings and amounts available under its lines of credit will be sufficient to meet its cash requirements over the next twelve months. 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 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 that its existing accounting policies are in accordance with the guidance provided in the SAB. 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. Additionally, the Company believes that, when the 14 15 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 Avocent. 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. FORWARD LOOKING STATEMENTS Any statement contained in this Quarterly Report on Form 10-Q 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. Such statements are subject to certain risks and uncertainties which could cause actual results to differ materially from those projected. Readers are cautioned not to place undue reliance on these forward looking statements which speak only as of the date hereof. Readers are also urged to carefully review and consider the various disclosures made by the Company which attempt to advise interested parties of the factors which affect the Company's business, including the disclosures made in other periodic reports on Forms 10-K, 10-Q and 8K filed with the Securities and Exchange Commission. ITEM 3. 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 June 30, 2000. The Company generally holds investments until maturity and carries the securities at amortized cost, which approximates fair market value. 15 16 PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The Company held a Special Meeting of Shareholders on June 30, 2000. At the Special Meeting, the shareholders voted to ratify our merger with Apex Inc. and the Agreement and Plan of Reorganization dated March 8, 2000, by the following votes:

Item 6. Exhibits (a) The following exhibits are being filed with this report:

(b) Reports on Form 8-K On July 10, 2000, Avocent Corporation filed a Current Report on Form 8-K with the Securities and Exchange Commission relating to our merger with Apex Inc., which was effected on July 1, 2000. Apex and the Company are now wholly-owned subsidiaries of Avocent. 16 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CYBEX COMPUTER PRODUCTS CORPORATION /s/ Douglas E. Pritchett ----------------------------------------------- Douglas E. Pritchett Senior Vice President - Finance and Chief Financial Officer and Treasurer Date: August 14, 2000 17 18 INDEX OF EXHIBITS

CYBEX COMPUTER PRODUCTS CORP 10-Q