-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EfRi1uRPsylgUoAkcvajI2l720/dGwn5dzuUQ3d1nHeV2YVXwMFj5/ncPuItSuIC y2C+B5IlyhlilKIvofewKg== 0000929624-97-000846.txt : 19970703 0000929624-97-000846.hdr.sgml : 19970703 ACCESSION NUMBER: 0000929624-97-000846 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19970702 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYQUEST TECHNOLOGY INC CENTRAL INDEX KEY: 0000880865 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER STORAGE DEVICES [3572] IRS NUMBER: 942793941 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-19674 FILM NUMBER: 97635751 BUSINESS ADDRESS: STREET 1: 47071 BAYSIDE PKWY CITY: FREMONT STATE: CA ZIP: 94538-6517 BUSINESS PHONE: 5102264000 MAIL ADDRESS: STREET 1: 47071 BAYSIDE PKWY STREET 2: 47071 BAYSIDE PKWY CITY: FREMONT STATE: CA ZIP: 94538 10-K/A 1 AMENDMENT NO. 3 TO FORM 10-K/A - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM 10-K/A AMENDMENT NO. 3 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 1996 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER: 0-19674 SYQUEST TECHNOLOGY, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 94-2793941 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 47071 BAYSIDE PARKWAY, FREMONT, 94538 CALIFORNIA (ZIP CODE) (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (510) 226-4000 (REGISTRANTS TELEPHONE NUMBER, INCLUDING AREA CODE) --------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, PAR VALUE $.001 PER SHARE (TITLE OF CLASS) Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.[_] The aggregate market value of the voting stock held by nonaffiliates of the registrant, based upon the closing price of Common Stock on November 30, 1996, as reported by Nasdaq, was approximately $78,663,000. Shares of Common Stock held by each officer and director and by each person who owns 5% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. The number of outstanding shares of the registrants' Common Stock on November 30, 1996, was 15,830,753. DOCUMENTS INCORPORATED BY REFERENCE: NONE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA For the years ended September 30, 1996, 1995, and 1994 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Ernst & Young LLP, Independent Auditors.......................... 1 Consolidated Balance Sheets--September 30, 1996, and 1995.................. 2 Consolidated Statements of Operations--Years Ended September 30, 1996, 1995, and 1994............................................................ 3 Consolidated Statements of Stockholders' Equity--Years Ended September 30, 1996, 1995, and 1994...................................................... 4 Consolidated Statements of Cash Flows--Years Ended September 30, 1996, 1995, and 1994............................................................ 5 Notes to Consolidated Financial Statements................................. 7
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors and Stockholders SyQuest Technology, Inc. We have audited the accompanying consolidated balance sheets of SyQuest Technology, Inc. and subsidiaries as of September 30, 1996 and 1995, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended September 30, 1996. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. Since the date of completion of our audit of the accompanying consolidated financial statements and initial issuance of our report thereon dated December 11, 1996, the Company, as discussed in Note 15, paragraph 11, has experienced operating losses and a reduction in revenues that has adversely affect the Company's reported results of operations for the first two fiscal quarters of 1997. Note 15, paragraph 11, describes management's plans to address these issues. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of SyQuest Technology, Inc. and subsidiaries at September 30, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended September 30, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. Ernst & Young LLP San Jose, California December 11, 1996, except for Note 15, paragraph 11 as to which the date is June 27, 1997 1 SYQUEST TECHNOLOGY, INC. CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, ------------------- 1996 1995 --------- -------- (IN THOUSANDS, EXCEPT SHARE DATA) ASSETS Current assets: Cash and cash equivalents............................... $ 3,470 $ 29,248 Short-term investments.................................. 200 400 Accounts receivable..................................... 30,341 55,653 Inventories............................................. 10,538 34,213 Prepaid expenses and deposits........................... 2,471 2,066 Deferred income taxes................................... -- 13,254 --------- -------- Total current assets...................................... 47,020 134,834 Property, equipment and leasehold improvements: Equipment............................................... 49,340 47,291 Furniture and fixtures.................................. 2,710 2,667 Property and leasehold improvements..................... 9,896 7,832 --------- -------- 61,946 57,790 Accumulated depreciation and amortization............... 34,765 31,070 --------- -------- 27,180 26,720 Other assets.............................................. 981 3,130 --------- -------- $ 75,181 $164,684 ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable........................................ $ 23,917 $ 41,213 Bank borrowings......................................... 19,268 -- Accrued compensation and benefits....................... 3,811 5,206 Provision for losses on purchase commitments............ -- 10,510 Accrued expenses and other liabilities.................. 14,860 15,210 Income taxes payable.................................... 1,966 355 Current portion, long-term debt......................... 20,549 -- --------- -------- Total current liabilities................................. 84,371 72,494 Deferred rent............................................. 192 276 Long-term debt............................................ 20,971 -- Deferred income taxes..................................... -- 8,726 Commitments and contingencies............................. -- -- Stockholders' equity (deficit): Preferred stock, $.001 par value: Authorized shares--4,000,000; issued and outstanding shares--19,193 in 1996 and none in 1995.............. 18 -- Liquidation preference--$19,208 Common stock, $.001 par value: Authorized shares--60,000,000; issued and outstanding shares--12,312,769 in 1996 and 11,323,974 in 1995.... 14 13 Additional paid-in capital.............................. 102,580 79,489 Treasury common stock at cost--1,225,000 shares in 1996 and 1995............................................... (12,855) (12,855) Retained earnings (deficit)............................. (120,110) 16,541 --------- -------- Total stockholders' equity (deficit)...................... (30,353) 83,188 --------- -------- $ 75,181 $164,684 ========= ========
See accompanying notes. 2 SYQUEST TECHNOLOGY, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED SEPTEMBER 30, ----------------------------------------- 1996 1995 1994 ------------- ------------ ------------ (IN THOUSANDS, EXCEPT PER SHARE DATA) Net revenues......................... $ 200,407 $299,544 $221,001 Cost of revenues..................... 248,693 248,497 160,342 --------- -------- -------- Gross profit(loss)................... (48,286) 51,047 60,659 Operating expenses: Selling, general, and administrative (includes provision for losses on accounts receivable of $5,839 in 1996, $2,008 in 1995, and $3,151 in 1994)............... 51,743 44,264 37,566 Research and development........... 25,920 23,892 17,967 Restructuring charges.............. 4,727 -- -- --------- -------- -------- Total operating expenses............. 82,390 68,156 55,533 --------- -------- -------- Income (loss) from operations........ (130,676) (17,109) 5,126 Other income and (expense)........... (1,938) 468 337 Interest income.................... 192 1,134 1,193 Interest (expense)................... (1,229) -- -- --------- -------- -------- Income (loss) before income taxes and cumulative effect of accounting change.............................. (133,651) (15,507) 6,656 Provision (benefit) for income taxes............................. 3,000 (3,721) 1,597 --------- -------- -------- Income (loss) before cumulative effect of accounting change....... (136,651) (11,786) 5,059 Cumulative effect of change in method of accounting for income taxes............................. -- -- 346 --------- -------- -------- Net income (loss).................. $(136,651) $(11,786) $ 5,405 ========= ======== ======== Income (loss) per share: Primary: Income(loss) before cumulative effect of accounting change....... $ (12.38) $ (1.07) $ .43 Cumulative effect of accounting change............................ -- -- .03 --------- -------- -------- Net income (loss) per share........ $ (12.38) $ (1.07) $ .46 ========= ======== ======== Common and common equivalent shares used in computing per share amounts........................... 11,497 11,063 11,647 ========= ======== ========
See accompanying notes. 3 SYQUEST TECHNOLOGY, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
PREFERRED STOCK COMMON STOCK ------------------- -------------- ADDITIONAL TREASURY RETAINED PAID-IN COMMON EARNINGS SHARES AMOUNT SHARES AMOUNT CAPITAL STOCK (DEFICIT) TOTAL ------- -------- ------ ------ ---------- -------- --------- --------- (IN THOUSANDS) BALANCE AT OCTOBER 1, 1993................... -- -- 11,283 $12 $ 72,221 $ (5,611) $ 22,922 $ 89,544 Stock options exercised. -- -- 88 -- 497 -- -- 497 Shares issued under the Employee Stock Purchase Plan................... -- -- 79 -- 736 -- -- 736 Purchase of treasury stock at cost.......... -- -- (625) -- -- (6,044) -- (6,044) Income tax benefit from stock options exercised.............. -- -- -- -- 642 -- -- 642 Stock option compensation........... -- -- -- -- 65 -- -- 65 Net income.............. -- -- -- -- -- -- 5,405 5,405 ------- -------- ------ --- -------- -------- --------- --------- BALANCE AT SEPTEMBER 30, 1994................... -- -- 10,825 12 74,161 (11,655) 28,327 90,845 Stock options exercised. -- -- 502 1 2,932 -- -- 2,933 Shares issued under the Employee Stock Purchase Plan................... -- -- 97 -- 1,061 -- -- 1,061 Purchase of treasury stock at cost.......... -- -- (100) -- -- (1,200) -- (1,200) Income tax benefit from stock options exercised.............. -- -- -- -- 1,321 -- -- 1,321 Stock option compensation........... -- -- -- -- 14 -- -- 14 Net income (loss)....... -- -- -- -- -- -- (11,786) (11,786) ------- -------- ------ --- -------- -------- --------- --------- BALANCE AT SEPTEMBER 30, 1995................... -- -- 11,324 13 79,489 (12,855) 16,541 83,188 Stock options exercised. -- -- 386 1 1,421 -- -- 1,422 Shares issued under the Employee Stock Purchase Plan................... -- -- 64 -- 350 -- -- 350 Issuance of preferred stock.................. 20 19 -- -- 18,981 -- -- 19,000 Debt to equity conversion............. -- -- 371 -- 2,338 -- -- 2,338 Conversion of preferred stock to common stock.. (1) (1) 168 -- 1 -- -- -- Net income (loss)....... -- -- -- -- -- -- (136,651) (136,651) ------- -------- ------ --- -------- -------- --------- --------- BALANCE AT SEPTEMBER 30, 1996................... 19 $ 18 12,313 $14 $102,580 $(12,855) $(120,110) $ (30,353) ======= ======== ====== === ======== ======== ========= =========
See accompanying notes. 4 SYQUEST TECHNOLOGY, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30, ----------------------------- 1996 1995 1994 --------- -------- -------- (IN THOUSANDS) OPERATING ACTIVITIES Net income (loss).............................. $(136,651) $(11,786) $ 5,405 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization................ 10,578 8,052 7,129 Deferred income taxes...................... 4,528 (4,227) (1,675) Stock option compensation.................. -- 14 65 Deferred rent.............................. (84) 12 34 Loss on disposal of equipment and leasehold improvements.............................. 6,782 99 63 Changes in operating assets and liabilities: Accounts receivable........................ 25,312 (8,934) (14,569) Inventories................................ 23,675 (22,065) (1,487) Prepaid expenses and deposits.............. (405) (359) (991) Accounts payable........................... 13,413 15,161 11,036 Accrued compensation and benefits.......... (1,395) 1,677 (437) Provision for losses on purchase commitments............................... 2,282 10,510 -- Accrued expenses and other liabilities..... (350) 5,455 2,058 Income taxes payable (refundable).......... 1,611 (1,144) 3,462 --------- -------- -------- Net cash provided by (used in) operating activities.................................... (50,704) (7,535) 10,093 INVESTING ACTIVITIES Purchase of property, equipment and leasehold improvements.................................. -- (12,509) (7,743) Purchase of short-term investments............. 200 (3,178) (7,603) Proceeds from sale of short-term investments... (17,820) 4,493 5,895 Investment in Silmag........................... -- (2,100) -- Other.......................................... (5) 1,301 44 --------- -------- -------- Net cash used in investing activities.......... (18,295) (11,993) (9,407) FINANCING ACTIVITIES Purchase of treasury stock..................... -- (1,200) (6,044) Payments of long-term debt..................... (426) -- -- Net borrowings under line of credit agreements. 22,875 -- -- Proceeds from sale of common stock and exercise of stock options and warrants................. 1,772 3,994 1,233 Proceeds from sale of preferred stock.......... 19,000 -- -- --------- -------- -------- Net cash provided by (used in) financing activities.................................... 43,221 2,794 (4,811) --------- -------- -------- Decrease in cash and cash equivalents.......... (25,778) (16,734) (4,125) Cash and cash equivalents at beginning of year. 29,248 45,982 50,107 --------- -------- -------- Cash and cash equivalents at end of year....... $ 3,470 $ 29,248 $ 45,982 ========= ======== ========
See accompanying notes. 5 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Supplemental information on noncash investing and financing activities, in thousands: Conversion of preferred to Common Stock............................ $ 738 Conversion of accounts payable to Common Stock..................... $2,338
A number of suppliers converted approximately $31 million of net accounts payable and purchase commitment liabilities into notes payable. The notes are payable over six to thirty-six months and bear interest at approximately 10%. One supplier converted approximately $7.3 million of net accounts payable and purchase commitment liabilities into a long-term, 6% Convertible Subordinated Debenture. In the third quarter of fiscal 1996, the Company exchanged 4,155 common shares of Silmag S.A. for a reduction of accounts payable in the amount of $2.8 million with one of its suppliers. The Company realized a gain of $0.7 million on the exchange which is classified as other income. In the quarter ended September 30, 1996, the Company entered into a Securities Purchase Agreement with a supplier to exchange 370,000 shares of common stock for $2.3 million of debt. Cash paid for interest expense in fiscal year 1996 was approximately $0.9 million. 6 SYQUEST TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1996 1. SIGNIFICANT ACCOUNTING POLICIES BASIS OF CONSOLIDATION The consolidated financial statements include the accounts of SyQuest Technology, Inc. (the "Company" or "SyQuest") and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. BASIS OF PRESENTATION The Company's consolidated financial statements have been presented on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Over the last two years the Company has experienced aggregate consolidated losses of $148,437,000 including a net loss of $136,651,000 for the year ended September 30, 1996. Working capital (deficit) at September 30, 1996 was $(37,426,000) as compared to $62,340,000 at September 30, 1995. Management's financial plans for fiscal 1997 anticipate raising additional equity capital in order to stimulate business and take advantage of market opportunities. As discussed in Note 15, during the first quarter of fiscal 1997, the Company raised approximately $38 million of additional equity from investors. Management is currently pursuing other investment opportunities and expects to raise additional financing during the second quarter of fiscal 1997. There can be no assurance, however, that such financing would be available when needed, if at all, or on favorable terms. If results of operations for fiscal 1997 do not meet management's expectations, or additional capital is not available, management has the ability and intent to reduce certain expenditures so as not to require additional capital resources. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Certain prior year amounts have been restated to conform to the 1996 presentation. CASH EQUIVALENTS The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Certain of the Company's balances of cash and cash equivalents are subject to usage restrictions. See Note 4. SHORT-TERM INVESTMENTS The Company considers investments with an original maturity of more than three months but less than twelve months to be short-term investments. Short- term investments consist primarily of certificates of deposit, bankers acceptances, commercial paper, and US Government agency debt securities. The Company classified its entire investment portfolio at September 30, 1996 and 1995 as available-for-sale. Available for sale securities are stated at fair value with unrealized gains and losses included in stockholder's equity. The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in interest income. Realized gains and losses are included in other income (expense). The cost of securities is based on the specific identification method. Short term investments at September 30, 1996 and 1995 are comprised of certificates of deposit. INVENTORIES Inventories are stated at the lower of cost (first-in, first-out method) or market. 7 SYQUEST TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) SEPTEMBER 30, 1996 PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS Property, equipment and leasehold improvements are stated on the basis of cost. Equipment is depreciated over the estimated useful lives (three to five years) of the assets using the straight-line method. Property and leasehold improvements are amortized by the straight-line method over the shorter of the life of the related asset or the term of the lease. In 1995, the Financial Accounting Standards Board released the Statement of Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of". SFAS 121 requires the recognition of impairment of long-lived assets in the event that the net book value of such assets exceeds the future undiscounted cash flows attributable to such assets. SFAS 121 is effective for fiscal years beginning after December 15, 1995. Adoption of SFAS 121 is not expected to have a material impact on the Company's financial position or results of operations. FOREIGN CURRENCY TRANSLATION AND FOREIGN CURRENCY TRANSACTIONS The functional currency of the Company's foreign subsidiaries is the US dollar. Subsidiary financial statements are remeasured into US dollars for consolidation. Foreign currency transaction gains (losses) of ($573,000), $468,000, and $337,000 are included in other income and expense for 1996, 1995, and 1994, respectively. REVENUE RECOGNITION The Company recognizes revenue upon shipment to customers and provides an estimated allowance for returns based on the historical return history experienced by the Company. WARRANTY The Company generally warrants its products for one to five years. A provision for estimated future warranty costs is recorded at the time of shipment. INCOME (LOSS) PER SHARE At September 30, 1996, the Company had 19,193 shares of convertible preferred stock issued and outstanding with an assured incremental yield embedded in the conversion terms. Included in the computation of earnings per share is a $5.7 million charge for the embedded yield for the discount from the average fair market value of the common stock for the five trading days prior to September 30, 1996 times the number of common shares reserved for conversion. Income per share for the year ended September 30, 1994 is based on the weighted average number of shares of common stock outstanding and dilutive common equivalent shares from stock options (using the treasury stock method). Loss per share for years ending September 30, 1996 and 1995 is based on the weighted average number of shares of common stock outstanding. All other common equivalant shares would be antidilutive. DERIVATIVE FINANCIAL INSTRUMENTS During fiscal 1995, the Company adopted Statement of Financial Accounting Standards No. 119, "Disclosure about Financial Instruments and Fair Value of Financial Instruments" (FAS 119). 8 SYQUEST TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) SEPTEMBER 30, 1996 FAIR VALUES OF FINANCIAL INSTRUMENTS For certain of the Company's financial instruments, including cash and equivalents, accounts receivable, notes payable, and accrued liabilities, the carrying amounts approximate fair value due to their short maturities. The Company further believes that the carrying amounts of its long-term obligations approximate fair value due to the stability of interest rates since the Company entered into the agreements. OFF BALANCE SHEET RISK The Company may enter into foreign currency forward exchange contracts to manage exposure related to certain foreign currency commitments and certain foreign currency denominated balance sheet positions. The Company does not enter into derivative financial instruments for trading purposes. At September 30, 1996, the Company had no forward exchange contracts. At September 30, 1995, the Company had forward exchange contracts totaling $12,300,000 for the purchase of Singapore dollars, $2,313,000 of forward exchange contracts for the purchase of Malaysian Ringgits and $830,000 of forward exchange contracts for the purchase of Japanese Yen. All forward exchange contracts entered into by the Company had maturities of 60 days or less. While the contract or notional amounts of the Company's forward exchange contracts provide one measure of the volume of these transactions, they do not represent the amount of the Company's exposure to credit risk. The amounts potentially subject to credit risk (arising from the possible inability of counterparties to meet the terms of their contracts) are generally limited to the amounts, if any, by which the counterparties obligations exceed the obligations of the Company. The Company controls credit risk through credit approvals, limits and monitoring procedures. Credit rating criteria for off- balance sheet transactions are similar to those for investments. EMPLOYEE STOCK PLANS The Company accounts for its stock option plans and the Employee Stock Purchase Plan in accordance with provisions of the Accounting Principles Board's Opinion No. 25 (APB 25), "Accounting for Stock Issued to Employees". In 1995, the Financial Accounting Standards Board released Statement of Financial Accounting Standard No. 123 (SFAS 123), "Accounting for Stock Based Compensation". SFAS 123 provides an alternative to APB 25 and is effective for fiscal years beginning after December 15, 1995. The Company will adopt FAS 123 in fiscal 1997, however, the Company will continue to account for its employee stock purchase plans in accordance with the provisions of APB 25. Accordingly, SFAS 123 is not expected to have any material impact on the Company's financial position or results of operations. 2. BUSINESS SEGMENT AND CONCENTRATION OF CREDIT RISK The Company operates in one business segment, the development, production and marketing of removable cartridge Winchester disk drives and associated cartridges. The Company has a manufacturing facility in Penang, Malaysia which produces the majority of the Company's drives and cartridges. The Company sells primarily to distributors in the personal computer market. The Company performs ongoing credit evaluations of its customers' financial condition and generally requires no collateral. One customer accounted for approximately 10% of revenues in 1996 and another customer accounted for approximately 10% of revenues in 1995. Export sales by domestic operations accounted for approximately 10%, 1%, and 3% of net revenues in 1996, 1995, and 1994, respectively, and are made primarily to Europe and Far East customers. 9 SYQUEST TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) SEPTEMBER 30, 1996 The following tables summarize the Company's operations in different geographic areas:
ADJUSTMENTS NORTH AND AMERICA EUROPE FAR EAST ELIMINATIONS CONSOLIDATED --------- ------- -------- ------------ ------------ (IN THOUSANDS) 1996 Sales to unaffiliated customers.............. $ 131,122 $57,235 $ 12,050 $ -- $ 200,407 Transfers between geographic locations... $ 27,060 $21,718 $228,288 $(277,066) $ -- Income (loss) from operations............. $(107,274) $ 452 $(20,187) $ (3,667) $(130,676) Identifiable assets..... $ 33,837 $ 2,536 $ 49,626 $ (10,818) $ 75,181 1995 Sales to unaffiliated customers.............. $ 186,276 $ -- $113,268 $ -- $ 299,544 Transfers between geographic locations... $ 8,590 $ -- $256,106 $(264,696) $ -- Income (loss) from operations............. $ (20,973) $ -- $ 5,618 $ (1,754) $ (17,109) Identifiable assets..... $ 97,008 $ -- $ 73,483 $ (5,807) $ 164,684 1994 Sales to unaffiliated customers.............. $ 144,123 $ -- $ 76,878 $ -- $ 221,001 Transfers between geographic locations... $ 31,142 $ -- $166,037 $(197,179) $ -- Income (loss) from operations............. $ 793 $ -- $ 4,395 $ (62) $ 5,126 Identifiable assets..... $ 106,411 $ -- $ 37,228 $ (4,138) $ 139,501
Sales and transfers between geographic areas generally provide a profit after coverage of all manufacturing costs. Income from operations is total net revenues less operating expenses. The identifiable assets by geographic area are those assets used in the Company's operations in each area. 3. SUPPLEMENTARY BALANCE SHEET INFORMATION
SEPTEMBER 30, ---------------- 1996 1995 ------- ------- (IN THOUSANDS) Accounts receivable: Accounts receivable......................................... $36,035 $58,488 Less allowance for doubtful accounts........................ (5,694) (2,835) ------- ------- $30,341 $55,653 ======= ======= Inventories: Raw materials............................................... $ 5,005 $22,258 Work-in-process............................................. 4,481 8,564 Finished goods.............................................. 1,052 3,391 ------- ------- $10,538 $34,213 ======= ======= Accrued expenses and other liabilities: Accrued warranty............................................ $ 6,757 $ 5,676 Co-op advertising/Market development funds.................. 2,999 5,314 Other....................................................... 5,104 4,220 ------- ------- $14,860 $15,210 ======= =======
10 SYQUEST TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) SEPTEMBER 30, 1996 4. BORROWINGS At September 30, 1996, the Company had a line of credit agreement with a financial institution, expiring January 31, 1997. Borrowings under the agreement bear interest at the highest "LIBOR" (London Interbank Offered Rate) rate during the month plus 4.825% (10.25% at September 30, 1996) and are subject to the higher of a minimum interest rate of 8% per annum or $10,000 of interest per month, regardless of borrowings. The total borrowings are limited to the lesser of $30 million or 75 percent of the Company's eligible accounts receivable and a compensating balance, included in cash and cash equivalents, of $282,000 is required on the loan. The Agreement places limitations on additional borrowings and payment of cash dividends. As of September 30, 1996, approximately $14.7 million of borrowings were outstanding and approximately $5.3 million was available for borrowing under the agreement. In March 1996, the Company entered into a loan agreement with a bank in Penang, Malaysia. The line of credit, which is denominated in Malaysian Ringgits, provides for a term loan equivalent to approximately $4.2 million and an overdraft facility of approximately $.8 million. The term loan is repayable in 120 monthly installments and bears interest at the rate of 1.0% over the bank's base lending rate (9.15% at September 30, 1996). Amounts drawn on the overdraft line are payable on demand. The line of credit is secured by factory buildings owned by SyQuest Technology (M) SDN BHD. The term loan is also covered by a corporate guarantee from SyQuest Technology, Inc. A compensating balance, included in short-term investments, of approximately $0.2 million is required on the loan. At September 30, 1996, there were approximately $3.6 million of borrowings outstanding under this term loan, and $0.5 million outstanding against the overdraft facility, bearing an interest rate of 9.15%. On May 29, 1996, the Company entered into a loan agreement based on inventories with the same bank in Penang, Malaysia and is due on demand. The agreement, which is denominated in Malaysian Ringgits, provides for borrowing equivalent to approximately $ 4.0 million and is due on demand. This loan is also secured by factory buildings owned by SyQuest Technology, (M) SDN BHD, and is covered by a corporate guarantee from SyQuest Technology, Inc. As of September 30, 1996 there were approximately $4.0 million of borrowings outstanding under this agreement at an interest rate of 8.275%. During fiscal 1996, the Company converted accounts payable and purchase commitments with certain suppliers to notes payable. The aggregate amount due on those notes as of September 30, 1996, was approximately $30.7 million. The notes are payable over six to thirty-six months and bear interest of 10%. On July 15, 1996, the Company issued a 6% Convertible Subordinated Debenture to a supplier in the amount of $7.7 million repayable in thirty-six (36) equal monthly installments. The debenture agreement allows the holder to convert up to $2,775,000 of the principal amount of the debenture into no more than 400,000 shares of the Company's Common Stock at the conversion price of $6.9375 per share. As of September 30, 1996, none of the principal of the debenture had been converted to Common Stock. 11 SYQUEST TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) SEPTEMBER 30, 1996 Lines of credit, term loan and notes payable obligations consist of the following:
SEPTEMBER 30, SEPTEMBER 30, 1996 1995 ------------- ------------- (IN THOUSANDS) BANK BORROWINGS Line of Credit, interest payable at the rate of highest LIBOR rate plus 4.825% (10.25% at September 30, 1996)............................. $14,729 $-- Line of Credit, principal and interest due on demand, interest rate 8.275%, secured by land and buildings................................... 4,010 -- Overdraft rider to term loan..................... 529 -- ------- ---- Total bank borrowings.......................... 19,268 -- LONG-TERM DEBT Term Loan, principal payments deferred until July 1997, interest rate 9.15% at September 30, 1996; secured by land and buildings................... 3,607 -- Subordinated Debenture, $2,775,000 of principal can be converted to Common Stock................ 7,252 -- Notes Payable to suppliers, principal and interest payable over six to thirty-six months, interest rate 10%............................... 30,661 -- ------- ---- Total long-term debt........................... 41,520 -- ------- ---- Total Debt......................................... 60,788 -- Less amounts due within one year................... 39,817 -- ------- ---- Due after one year................................. $20,971 $-- ------- ----
Future minimum payments on lines of credit, term loan and notes payable are as follows (in thousands): 1997............................................................... $39,817 1998............................................................... 15,260 1999............................................................... 3,187 2000............................................................... 361 2001............................................................... 361 Due after 2001..................................................... 1,802 ------- Total minimum payments............................................. $60,788 =======
12 SYQUEST TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) SEPTEMBER 30, 1996 5. INCOME TAXES The income tax provisions for fiscal 1996, 1995, and 1994 consist of the following:
1996 1995 1994 ------- ------- ------ (IN THOUSANDS) FEDERAL: Current.......................................... $(1,528) $ (421) $1,455 Deferred......................................... 3,197 (2,578) 79 ------- ------- ------ 1,669 (2,999) 1,534 STATE: Current.......................................... -- 181 324 Deferred......................................... 1,331 (928) (279) ------- ------- ------ 1,331 (747) 45 FOREIGN: Current.......................................... -- 25 18 ------- ------- ------ PROVISION (BENEFIT) FOR INCOME TAXES............... $ 3,000 $(3,721) $1,597 ======= ======= ======
Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured by applying enacted tax rates and laws to the taxable years in which such differences are expected to reverse. The significant components of the Company's deferred tax assets and liabilities were as follows:
SEPTEMBER 30, SEPTEMBER 30, 1996 1995 ------------- ------------- (IN THOUSANDS) DEFERRED TAX ASSETS Credit carryforwards.............................. $ 1,894 $ 1,773 Receivable reserves............................... 2,979 879 Warranty reserves................................. 1,575 1,152 Inventory valuation reserve....................... 7,142 7,668 Accrued expenses.................................. 2,496 1,561 Depreciation of property, plant and equipment..... 560 -- Domestic and foreign tax net operating losses..... 38,997 728 Other............................................. -- 221 -------- ------- Total deferred tax assets........................... 55,643 13,982 Valuation allowance................................. (50,061) (728) -------- ------- Net deferred tax assets............................. 5,582 13,254 DEFERRED TAX LIABILITIES Unremitted income of foreign subsidiaries......... (5,582) (8,417) Depreciation of property, plant and equipment..... -- (309) -------- ------- Total deferred tax liabilities...................... (5,582) (8,726) -------- ------- Net deferred tax assets............................. $ -- $ 4,528 ======== =======
Realization of deferred tax assets is dependent on future earnings, if any, the timing and amount of which are uncertain. Accordingly, a valuation allowance, in an amount equal to the net deferred tax asset as of 13 SYQUEST TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) SEPTEMBER 30, 1996 September 30, 1996 has been established to reflect these uncertainties. The September 30, 1995 valuation allowance was provided for deferred tax assets related to foreign net operating loss carryforwards. Approximately $702,000 of the deferred tax assets subject to the valuation allowance at September 30, 1996 relates to the tax benefit of stock option deductions. These benefits when realized, will be credited directly to stockholders' equity and will not reduce the provision for income taxes. The valuation allowance increased by $49,333,000 in fiscal 1996 and by $428,000 in fiscal 1995. The reconciliation of income taxes provided at the federal statutory rate to the income tax provision follows:
1996 1995 1994 -------- ------- ------ (IN THOUSANDS) Income taxes (benefit) computed at the federal statutory rate.................................. $(46,610) $(5,272) $2,263 State income taxes (benefit) net of federal income taxes effect............................. -- (511) 30 Foreign losses for which no current tax benefit is recognizable................................. 1,366 -- -- Taxes provided on earnings of foreign subsidiaries previously considered to be permanently invested in non-US operations....... -- 1,768 -- Benefit from net earnings of foreign subsidiaries considered to be permanently invested in non-US operations...................................... -- -- (652) Utilization of tax credits....................... -- (566) (227) Valuation allowance for deferred tax assets...... 48,244 427 300 Other............................................ -- 433 (117) -------- ------- ------ $ 3,000 $(3,721) $1,597 ======== ======= ======
Income taxes paid (refunded) were ($3,139,000), $1,600,000, and ($670,000), in fiscal 1996, 1995, and 1994, respectively. The Company's manufacturing operations in Singapore operated under a tax holiday that expired at the end of fiscal 1996. The tax holiday had no impact on the net loss in fiscal 1996 and 1995. The net impact of the tax holiday in fiscal 1994 was to increase net income by $518,130 ($0.04 per share). At September 30, 1996, the Company no longer had any manufacturing operations in Singapore. The Company has approximately $4,256,000 in foreign net operating loss carryforwards. These carryforwards will expire in fiscal 1999 through fiscal 2001. At September 30, 1996, the Company had federal net operating loss carryforwards of approximately $99,845,000. These carryforwards will expire in 2010 and 2011 if not utilized. The Company had state net operating loss carryforwards of approximately $30,000,000 that will expire in 2001 if not utilized. In addition, the Company had research and development tax credit carryforwards for federal and state tax purposes of approximately $1,212,000 and $400,000, respectively. The federal tax credit carryforwards will expire beginning in fiscal 2007 if not utilized. The Company anticipates that in fiscal 1997, it may experience a "change of ownership" for tax purposes that would result in an annual limitation on the utilization of domestic net operating loss and tax credit carryforwards in future periods. The limitation amount is determined at the point in time when the "ownership change" occurs. 6. RESTRUCTURING CHARGES In the quarter ended March 31, 1996, the Company developed and began implementation of a plan to relocate the manufacturing capabilities in Singapore to Penang, Malaysia. The relocation was completed in the 14 SYQUEST TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) SEPTEMBER 30, 1996 third quarter of fiscal 1996. The Company recorded a $3.6 million charge for direct costs related to exiting manufacturing facilities in Singapore. The charge consisted of $1.6 million for the write-off of leasehold improvements, $0.6 million for site closure and related costs and $1.4 million for staff severance and retrenchment. As of September 30, 1996, substantially all of these costs had been incurred, and no additional accrual was recorded. In the quarter ended June 30, 1996 the Company recorded a $1.9 million charge for restructuring costs associated with the consolidation and closure of several of its administrative support locations. Actual charge in the quarter ended September 30, 1996, were approximately $0.5 million associated with the write-off of fixed assets, $0.5 million of severance compensation, and $0.1 million for remaining lease obligations. As of September 30, 1996, the consolidation of one location was substantially complete, $0.8 million of the charge was reversed due to the Company's decision to continue operations at one of the locations, and $0.6 million remains accrued to cover remaining exit costs. 7. REDEEMABLE CONVERTIBLE PREFERRED STOCK In the quarter ended June 30, 1996 the Company issued 20,000 shares of 7% Cumulative Convertible Preferred Stock for approximately $19 million net of issuance costs. The Preferred Stock is convertible into Common Stock at the lesser of $11 per share or 77% of the average market price of the Common Stock on the five trading days prior to the conversion, which conversion price is subject to downward adjustment under certain circumstances. Rights relating to the Common Stock issuable upon conversion and certain shares were negotiated pursuant to Registration No. 333-7369. If the Common Stock is trading below $5 per share when the Preferred Stock converts, the Company may redeem the Preferred Stock at 130% of the original purchase price, except that the redemption price is reduced to 110% of the original purchase price to the extent that the original purchase price of the Preferred Stock being redeemed (plus one half the amount previously converted by the holders) exceeds $10 million. The Company must redeem all Preferred Shares which remain outstanding on May 31, 1999, at 100% of original purchase price in cash or, at the Company's option, in Common Stock. Should the Company's Common Stock no longer be listed on the Nasdaq National Market, Small Cap or Electronic Bulletin Board, the New York Stock Exchange or the American Stock Exchange, then the repurchase price is 130% of the original purchase price. Under certain circumstances, additional shares may be issued with any terms and without stockholder approval. The preferred stockholders are entitled to receive cash dividends at the rate of 7% of the stated value per annum. Dividends accrue from the date of issuance through and including the date that the shares are converted or redeemed. Dividends may be paid in cash or, at the Company's option, in Common Stock based on the average closing market price on the five trading days preceding the date of conversion. Holders of preferred shares have no voting rights. In the event of voluntary or involuntary liquidation, the holders of the preferred shares are entitled to receive in cash, before any amount is paid to holders of common stock, an amount equal to the stated value of preferred share, plus any accrued and unpaid dividends. As of September 30, 1996, 807 shares of Preferred Stock had been converted into 168,311 shares of Common Stock in accordance with the preferred stock agreement. As of September 30, 1996, warrants to purchase 100,000 shares of the Company's Common Stock at an exercise price of $10.88 per share had been issued as partial compensation for value received in the placement of the Company's 7% Cumulative Convertible Preferred Stock. Those warrants are exercisable at the option of the holders on or before July 30, 1999. 15 SYQUEST TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) SEPTEMBER 30, 1996 8. TREASURY STOCK In 1993, the Board of Directors authorized the Company to repurchase up to one million shares of the Company's Common Stock. In April 1994, the Board of Directors authorized the Company to repurchase up to an additional 500,000 shares of the Company's Common Stock. There were no treasury stock transactions during fiscal 1996. The Company acquired 100,000 and 625,000 shares of its Common Stock for approximately $1.2 million and $6.0 million through open market transactions during fiscal 1995 and 1994, respectively. The Company has acquired a total of 1,225,000 shares of its Common Stock as of September 30, 1996. These shares are held as treasury stock at September 30, 1996. 9. STOCK OPTION PLANS AND COMMON STOCK RESERVED In 1991, the Company adopted the SyQuest Technology, Inc. 1991 Stock Option Plan (the "Plan") covering 3,403,524 shares of Common Stock for issuance under the Plan and assumed stock options currently outstanding under predecessor stock option plans. The Plan provides for the issuance of incentive stock options and non statutory stock options to officers, employees (including directors who are also employees), consultants, independent contractors and advisors to or of the Company or any parent, subsidiary or affiliate of the Company. Options granted under the Plan are granted at fair value on the date of grant and become exercisable within the times or upon the events determined by the Stock Option Committee as set forth in the grant and expire within ten years from the date of the grant. In 1995, the Company adopted an amendment to the Plan to increase the authorized number of shares for the plan to 4,428,524. On September 26, 1996, the shareholders approved an amendment to the Plan to increase the number of shares issuable under the Plan to 6,000,000. Other minor changes were made to the Plan to comply with changes in Rule 16B3 under the Securities and Exchange Act of 1934. These changes did not affect the terms of any existing options. In 1992, the Company adopted the 1992 Nonemployee Director Stock Option Plan (the "Director Plan") and reserved 150,000 shares of Common Stock for issuance. The Director Plan was amended in 1994 to increase the size of the annual option grants. The Board of Directors administers the Director Plan. In 1995, the Company adopted an amendment to the Nonemployee stock option plan to increase the authorized number of shares for the plan to 250,000. On September 26, 1996, the shareholders approved an amendment to the Director Plan to increase the authorized number of shares to 500,000. Options are granted at fair value on the grant date and options may only be granted to Directors who are not employees of the Company or its subsidiaries (Outside Directors). All option grants are automatic and nondiscretionary. After each annual meeting of stockholders at which directors are elected, reelected, or continuing as directors, each Outside Director shall be automatically granted an option or options. These options are to purchase such number of shares of Common Stock as necessary so that during each of the four immediately following twelve- month periods of July 1 through June 30, such Outside Directors will have stock options (including Company stock options granted under plans other than the Director Plan) which become exercisable with respect to a minimum of 10,000 shares during each such period. Prior to 1994 the minimum was 2,500 shares during each such period. On September 26, 1996, the stockholders approved a one-time grant of 30,000 options for each new Outside Director which were not counted in determining annual grants in the future. Other minor changes were made to the Director Plan to comply with changes in Rule 16 of the Securities and Exchange Commission Act of 1934. As of September 30, 1996, options to purchase 160,000 shares of Common Stock were outstanding under the Director plan. 16 SYQUEST TECHNOLOGY, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) SEPTEMBER 30, 1996 The following table summarizes stock option activity under the Plan and the Director Plan:
OPTION PRICE -------------------------------------------- SHARES PER SHARE (RANGE) AGGREGATE -------- ---------------------- ----------- LOW HIGH ---------- ----------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Outstanding at September 30, 1993......................... 1,999 $ .30 $ 28.25 $ 17,433 Granted..................... 750 9.00 11.63 7,189 Exercised................... (88) .30 18.00 (497) Canceled.................... (360) 1.25 28.25 (5,948) -------- ---------- ----------- ---------- Outstanding at September 30, 1994......................... 2,301 .30 27.25 18,177 -------- ---------- ----------- ---------- Granted..................... 833 11.50 16.75 11,865 Exercised................... (502) .30 12.50 (2,933) Canceled.................... (431) 7.50 27.25 (6,176) -------- ---------- ----------- ---------- Outstanding at September 30, 1995......................... 2,201 .30 24.25 20,933 -------- ---------- ----------- ---------- Granted..................... 2,247 4.94 11.38 13,877 Exercised................... (386) .30 12.50 (1,421) Canceled.................... (1,306) .30 24.25 (12,923) -------- ---------- ----------- ---------- Outstanding at September 30, 1996......................... 2,756 $ .30 $ 24.25 $ 20,466 ======== ========== =========== ==========
At September 30, 1996, options to purchase 627,538 shares were exercisable, and 1,813,926 shares were available for grant. The following table summarizes shares of Common Stock reserved for future issuance by the Company under the Company's stock option and purchase plans as of September 30, 1996: 1991 stock option plan........................................... 4,070,232 Director stock option plan....................................... 500,000 Shares reserved for conversion of preferred stock............... 4,020,318 Shares reserved for conversion of warrants...................... 100,000 Employee stock purchase plan..................................... 203,133 --------- 8,893,683 =========
10. EMPLOYEE STOCK PURCHASE PLAN In 1992, the Company adopted the 1992 Employee Stock Purchase Plan (the "Purchase Plan"), and 500,000 shares of Common Stock were reserved for issuance under the Purchase Plan. The Purchase Plan is intended to qualify under Section 423 of the Internal Revenue Code of 1986, as amended. The Purchase Plan is implemented by a single offering for each six- month period commencing on approximately February 1 and August 1 of each year. The Purchase Plan is administered by the Board of Directors or a committee appointed by the Board of Directors. The Purchase Plan permits eligible employees to purchase common stock through payroll deductions, which may not exceed 15% of an employee's compensation, at a price equal to 85% of the lower of the fair market value of the common stock as of the first day or as of the last day of each offering period. As of September 30, 1996, 296,867 shares of common stock had been issued under the Purchase Plan. 17 11. BONUS, PROFIT SHARING AND 401(K) SAVINGS AND RETIREMENT PLANS The Company has bonus and profit sharing plans that provide additional compensation to substantially all employees. The profit sharing compensation is determined on an annual basis based principally on a percentage of income after taxes, before profit sharing, and the Company meeting certain objectives for the year. Bonuses for officers and key management personnel are determined annually at the discretion of the Board of Directors. Such determination considers the extent to which individuals and the Company meet objectives for the year. The Company did not incur bonus or profit sharing expenses in 1996 or 1995. The Company recorded bonus and profit sharing expenses of $455,000 in 1994. The Company adopted a 401(k) Savings and Retirement Plan (the "Savings Plan") to provide for voluntary salary deferral contributions on a pretax basis in accordance with Section 401(k) of the Internal Revenue Code of 1986, as amended. The Company has the option of matching a certain percent of each participant's contribution to the Savings Plan. The Company's maximum contribution per participant was limited to $1,000 in 1996 and 1995 and $500 in 1994. The Company made matching contributions of $254,000, $242,000 and $135,000 in 1996, 1995, and 1994, respectively. 12. COMMITMENTS The Company leases its United States facilities under noncancelable operating lease agreements. These leases terminate through 2001, and certain leases include five-year renewal options as well as provisions for adjustments to lease payments based on the fair market value of similar properties. The Company leases its Singapore facility under noncancelable lease agreements expiring in 1997. The Company leases its facilities in Amsterdam, Netherlands under a noncancelable lease agreement expiring in 2000. The Company is in the process of assigning that lease, and expects the assignment to be completed no later than the second quarter of fiscal 1997. Notwithstanding the anticipated assignment, the future lease payments for the Amsterdam facility have been included in the commitments schedule below. Total rent expense amounted to $2,507,000, $3,250,000, and $3,001,000 for 1996, 1995, and 1994, respectively. Future minimum rental commitments under non-cancelable operating leases are as follows (in thousands): 1997 $2,445 1998 2,230 1999 1,425 2000 197 2001 13 ------ Total minimum lease payments $6,310 ======
18 13. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Three Months Ended ------------------------------------------------- (in thousands, except per share data) Dec. 31, March 31, June 30, Sept. 30, 1995 1996 1996 1996 ---------- ---------- ---------- ---------- Net revenues $ 78,667 $ 47,445 $ 29,459 $ 44,836 Gross profit (loss) (9,262) (25,391) (23,699) 10,066 Income (loss) from operations (30,886) (50,702) (41,604) (7,484) Net income (loss) (33,801) (51,105) (41,317) (10,428) Net income (loss) per share $ (2.98) $ (4.49) $ (3.61) $ (1.29) Dec. 31, March 31, June 30, Sept. 30, 1994 1995 1995 1995 -------- -------- -------- -------- Net revenues $ 65,892 $ 76,490 $ 68,787 $ 88,375 Gross profit (loss) 15,927 21,460 18,427 (4,767) Income (loss) from operations 2,088 4,695 1,355 (25,247) Net Income (loss) 1,923 3,686 1,711 (19,106) Net income (loss) per share $ 0.16 $ 0.31 $ 0.15 $ (1.70)
14. LITIGATION The Company has been named as a defendant in four putative class action lawsuits. Two of the actions, Ravens, et al. v. Iftikar, et al. --------------------------------- (filed April 2, 1996) and Bellezza, et al. v. Iftikar, et al. (filed May ----------------------------------- 24, been brought in the United States District Court for the Northern District of California and have been assigned to the Honorable Vaughn Walker (collectively, the "Federal Lawsuit"). Certain current and former officers and directors also have been named as defendants in the Federal Lawsuit. Plaintiffs have petitioned the Court to consolidate the foregoing complaints into one consolidated action. That request, as well as other procedural matters which arose during a July 18, 1996, case management conference, is under consideration. The plaintiffs in the Federal Lawsuit purport to represent a class of all persons who purchased the Company's Common Stock between October 21, 1994 and February 1, 1996. The Federal Lawsuit alleges that the defendants violated the federal securities laws through material misrepresentations and omissions. The third suit is a purported class action entitled Gary S. Kaufman v. SyQuest Technology Inc., ------------------------------------------- et al. was filed on March 25, 1996, in the Superior Court of the State of ------ California for the County of Alameda (the "Kaufman Lawsuit"). Certain current and former executive officers and directors of the Company are also named as defendants in the Kaufman Lawsuit. The plaintiffs in the Kaufman Lawsuit purport to represent a class of all persons who purchased the Company's Common Stock between May 2, 1995, and February 2, 1996. The Kaufman Lawsuit alleges that defendants violated various California laws through material misrepresentations and omissions. Unspecified damages are sought. The fourth purported class action entitled Ravens, et al. v. ----------------- Iftikar, et al., was filed on October 11, 1996 in the Superior Court of the --------------- State of California for the County of Alameda (the "Ravens Lawsuit"). The Ravens Lawsuit alleges that the Company and certain of its former officers and directors violated various California laws through material representations and omissions between October 21, 1994 and February 2, 1996, and is purportedly brought on behalf of persons who purchased stock during that period. Unspecified damages are sought. The Ravens Lawsuit has been consolidated with the Kaufman Lawsuit. Plaintiffs are preparing a consolidated complaint. The Company intends to defend the cases vigorously. 19 The Company has certain insurance coverage with respect to the above claims, however, the amount of any ultimate claims on these actions and related insurance coverage is not presently determinable. On May 14, 1996, the Company was served with a shareholder's derivative action filed in Alameda County, California, Superior Court entitled John Nitti, et al. v. Syed Iftikar, et al. On July 22, 1996, ------------------------------------------ plaintiffs filed an amended complaint. The action seeks to recover unspecified damages and punitive damages on behalf of the Company from current and former officers and directors of the Company for alleged breach of fiduciary duty, unjust enrichment and waste of corporate assets. The Company is a nominal defendant in the action. The complaint alleges that the officers and directors issued false and misleading information and sold shares of the Company's stock at artificially inflated prices. The allegations are essentially the same as those in the putative class actions. The Company intends to defend this case vigorously. The Company has filed suit against Nomai, S.A. (Nomai) and Maxell in France for copyright and patent infringement, and though it did not obtain the temporary injunction sought against Nomai prohibiting the sale and distribution of Nomai's 200 megabyte cartridges, the underlying suit continues. The Company has also initiated an arbitration proceeding against Nomai seeking payment of outstanding royalties of approximately $1 million. The arbitration process began in May 1995, in San Jose, California. A third party has notified the Company that it believes the Company infringes on six U.S. patents. It is the Company's belief that the claims are without merit or that the infringement claims related to component parts purchased from vendors. The Company also believes that in the event the third party prevails on its claims, the Company will be indemnified by its vendor for any liability arising from the alleged infringements and that this matter will not have a material adverse effect upon its financial condition or results of operations. From time to time, the Company is involved in litigation that it considers to be in the normal course of its business. Other than set forth above, the Company is not engaged in any legal proceedings as of the date hereof which the Company expects individually or in the aggregate to have a material adverse effect on the Company's financial condition or results of operations. 15. SUBSEQUENT EVENTS Between October 1, 1996 and October 31, 1996, the Company exchanged approximately $9.2 million of notes payable held by creditors for 1,504,000 shares of Common Stock and associated registration rights. On October 8, 1996, the Company issued 5,500 shares of its Convertible Preferred Stock, Series 1, $.001 par value per share at a price of $1,000 per share, to certain accredited investors. Net proceeds to the Company were approximately $5,225,000. The Convertible Preferred Stock is convertible into Common Stock at the option of the holders at any time after December 15, 1996. 20 The Convertible Preferred Stock is convertible into a number of Common Stock equal to $1,000 plus $50 for each year between October 25, 1996, and the conversion date, divided by a conversion price which is the lesser of $6.50 per share or 85% of the average closing market price of the Common Stock on the five trading days preceding the date of conversion. The Convertible Preferred Stock cannot be converted if the converting holder and its respective affiliates would beneficially own more than 4.9% of the Company's Common Stock at the time of conversion. Any Convertible Preferred Stock outstanding on October 31, 1998 will automatically convert to Common Stock on that date. In the event of liquidation, the holders of the Convertible Preferred Stock receive their Stated Value before the holders of Common Stock receive any cash or assets on liquidation. If the Company consolidates, merges or reclassifies its outstanding Common Stock, the holders of the Convertible Preferred Stock are entitled to receive the greater of their share of any consideration on an as-converted basis, or $1,250 per share of the Convertible Preferred Stock. The Convertible Preferred Stock is nonvoting, except as required by law. The holders of the Convertible Preferred Stock are not entitled to dividends. The Company also has certain redemption rights. The Company has filed a registration statement covering resale of shares of Common Stock issuable in connection with such conversions, and will make its best efforts to have the registration statement declared effective with respect to certain holders of the Convertible Preferred Stock no later than January 9, 1997, or with respect to other holders, no later than other subsequent dates. If the registration statement is not effective by such dates, or if sales cannot be made pursuant to the registration statement at any time after such dates, the conversion percentage shall be reduced 3% per month (prorated on a daily basis) and the fixed conversion price shall be reduced by $0.195 per month (prorated on a daily basis) for each month of delayed effectiveness or inability to sell. In accordance with the preferred stock agreement, the proceeds were placed in an escrow account. Terms of the escrow agreement require that the funds be used only for specific purposes and require that only certain of the Company's officers may request withdrawals and must certify that usage is in accordance with the escrow agreement. On October 8, 1996, the Company issued 24,500 shares of its 5% Cumulative Convertible Preferred Stock, Series 2, $.001 par value per share at a price of $1,000 per share to certain accredited investors. Net proceeds to the Company were approximately $23,275,000. The Convertible Preferred Stock is convertible into Common Stock at the option of the holders, any time after December 15, 1996. The Series 2 Preferred Stock is convertible to Common Stock at a conversion price which is the lesser of $6.50 per share or 85% of the average market price of the Common Stock on the five trading days prior to conversion. The Convertible Preferred Stock cannot be converted if the converting holder and its respective affiliates would beneficially own more than 4.9% of the Company's Common Stock at the time of conversion. In the event of liquidation, the holders of the Convertible Preferred Stock receive their original purchase price plus any accrued but unpaid dividends, before the holders of Common Stock receive any cash or assets on liquidation. If the Company consolidates, merges or reclassifies its outstanding Common Stock, the holders of the Convertible Preferred Stock are entitled to receive their share of consideration on an as-converted basis. The Convertible Preferred Stock is nonvoting, except as required by law. Dividends accrue on the Series 2 Preferred stock at an annual rate of 5%. Such dividends are payable quarterly in cash or stock, at the Company's option. The Company also has certain redemption rights. The Company has filed a registration statement covering shares of Common Stock issuable in connection with the conversion of, or payable as dividends upon, the Convertible Preferred Stock and will make its best efforts to have the registration statement declared effective with respect to certain holders of the 5% Cumulative Convertible Preferred Stock no later than January 9, 1997, or with respect to other holders, no later than other subsequent dates. If the registration statement is not effective by such dates, or if sales cannot be made pursuant to the registration statement at any time after such dates, the conversion percentage and the fixed conversion rate shall be reduced at the rate of three percentage points per month (prorated on a daily basis) of delayed effectiveness or inability to sell. In accordance with the preferred stock agreement, the proceeds were placed in an escrow account. Terms of the escrow agreement require that the funds be used only for specific purposes and require that only certain of the Company's officers may request withdrawals and must certify that usage is in accordance with the escrow agreement. 21 On November 13, 1996, the Company issued 1,500,000 shares of common stock, par value $.001 per share, at a price of $5.6875 to a company (the "Purchaser"). Net proceeds to the Company were $8,531,300. At the same time, the Company also granted the Purchaser a warrant to purchase additional shares of common stock at the same price per share. The number of Warrant Shares available for purchase will not be less than 375,000 or more than 1,875,000. The Warrant will expire November 13, 2001. As disclosed in Forms 10-Q filed with the SEC for the first and second fiscal quarters of 1997, the Company has released its results from continuing operations and its financial condition through March 31, 1997. Such Forms 10-Q address the Company's operating losses, decrease in revenues, subsequent financing and management's plans to continue to reduce costs, increase revenues and obtain additional financing. 22 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as a part of this Report: (1) Financial Statements. The following Consolidated -------------------- Financial Statements of SyQuest Technology, Inc. and subsidiaries are included in Item 8 of this Annual Report on Form 10-K:
Page ---- Report of Ernst & Young LLP, Independent Auditors 1 Consolidated Balance Sheets - September 30 1996 and 1995 2 Consolidated Statements of Operations - Years Ended September 30, 1996, 1995, and 1994 3 Consolidated Statements of Stockholders' Equity (Deficit) -- Years Ended September 30, 1996,1995, and 1994 4 Consolidated Statements of Cash Flows -- Years Ended September 30, 1996, 1995 and 1994 5 Notes to Consolidated Financial Statements 7
(2) Financial Statement Schedule. The following ---------------------------- consolidated financial statement schedule of the Company and subsidiaries are filed as part of this Report and should be read in conjunction with the Consolidated Financial Statements of SyQuest Technology, Inc. and subsidiaries.
Schedule Page -------- ---- VIII - Valuation and Qualifying Accounts 62
Schedules not listed above have been omitted because they are not applicable or are not required or the information required to be set forth therein is included in the Consolidated Financial Statements or Notes thereto. 23 (3) - -------------------------------------------------------------------------------- EXHIBITS Exhibit Number Description of Document - -------------------------------------------------------------------------------- 3.1 Restated Certificate of Incorporation of the Company. Incorporated by reference to Exhibit 3.1 of the Company's Annual Report on Form 10-K for the fiscal period ended September 30, 1995. 3.2 Amendment to Restated Certificate of Incorporation of the Company. Incorporated by reference to Exhibit 3.2 of the Company's Form S-3 Registration Statement filed December 2, 1996 (File No. 333-17119), as amended and to be amended. 3.3 By-Laws of the Company. Incorporated by reference to the Company's Registration Statement on Form S-1 (File No. 33-43656) filed on November 9, 1991. 4.1 Specimen stock certificate, $.001 par value. Incorporated by reference to Amendment No. 2 to the Company's Registration Statement on Form S-1 (File No. 33-43656) filed on December 10, 1991. 4.2 Corrected Certificate of Designations, Preferences and Rights of 7% Cumulative Convertible Preferred Stock, Series 1. Incorporated by reference to Exhibit 3.1 of the Company's Current Report on Form 8-K dated June 14, 1996. 4.3 Securities Purchase Agreement, dated as of May 31, 1996, by and among the Company and holders of 7% Cumulative Convertible Preferred Stock, Series 1. Incorporated by reference to Exhibit 10.1 of the Company's Current Report on Form 8-K dated June 14, 1996. 4.4 Registration Rights Agreement dated as of May 31, 1996, by and among the Company and holders of 7% Cumulative Convertible Preferred Stock, Series 1. Incorporated by reference to Exhibit 10.2 of the Company's Current Report on Form 8-K dated June 14, 1996. 4.5 6% Convertible Subordinated Debenture dated July 15, 1996. Incorporated by reference to Exhibit 10.3 of the Company's Form S-3 Registration Statement No. 333-7369 ("Registration 333-7369"). 4.6 Registration Agreement dated July 15, 1996, among the Company and WISRS (Malaysia) SDN.BMP. Incorporated by reference to Exhibit 10.4 of Registration 333-7369. 4.7 Certificate of Designations, Preferences and Rights of Convertible Preferred Stock, Series 1, as amended and agreed to be amended. Incorporated by Reference to Exhibit 3.1 to the Company's Current Report on Form 8-K/A dated October 31, 1996. 4.8 Certificate of Designations, Preferences and Rights of 5% Cumulative Preferred Stock, Series 2. Incorporated by Reference to Exhibit 3.2 to the Company's Current Report on Form 8-K/A dated October 31, 1996. 4.9 Securities Purchase Agreement dated as of October 8, 1996, among the Company and the buyers of the Convertible Preferred Stock, Series 1 including the following exhibits: Form of Warrant, Form of Registration Rights Agreement, Form of Escrow Agreement and certain Schedules to the representations. Incorporated by Reference to Exhibit 10.1 to the Company's Current Report on Form 8-K/A dated October 31, 1996. 24 4.10 Securities Purchase Agreement dated as of October 8, 1996, among the Company and certain buyers of the Series 2 Preferred Stock, including the following exhibits: Form of Escrow Agreement, Form of Warrant, Form of Registration Rights Agreement and certain Schedules to the representations. Incorporated by Reference to Exhibit 10.2 to the Company's Current Report on Form 8-K/A dated October 31, 1996. 4.11 Securities Purchase Agreement dated as of October 8, 1996, among the Company and certain buyers of the Series 2 Preferred Stock, including the following exhibits: Form of Escrow Agreement, Form of Warrant, Form of Registration Rights Agreement and certain Schedules to the representations. Incorporated by Reference to Exhibit 10.3 to the Company's Current Report on Form 8-K/A dated October 31, 1996. 4.12 Securities Purchase Agreement dated as of October 8, 1996, among the Company and certain buyers of the Series 2 Preferred Stock, including the following exhibits: Form of Escrow Agreement, Form of Warrant, Form of Registration Rights Agreement and certain Schedules to the representations. Incorporated by Reference to Exhibit 10.4 to the Company's Current Report on Form 8-K/A dated October 31, 1996. 4.13 Securities Purchase Agreement dated as of October 8, 1996, among the Company and certain buyers of the Series 2 Preferred Stock, including the following exhibits: Form of Escrow Agreement, Form of Warrant, Form of Registration Rights Agreement and certain Schedules to the representations. Incorporated by Reference to Exhibit 10.5 to the Company's Current Report on Form 8-K/A dated October 31, 1996. 4.14 Securities Purchase Agreement dated as of September 27, 1996, between the Company and Atmel Corporation, including the exhibit Form of Registration Rights Agreement. Incorporated by Reference to Exhibit 10.6 to the Company's Current Report on Form 8-K/A dated October 31, 1996. 4.15 Securities Purchase Agreement dated as of October 18, 1996, between the Company and Petronic International, Inc., including the exhibit Form of Registration Rights Agreement. Incorporated by Reference to Exhibit 10.7 to the Company's Current Report on Form 8-K/A dated October 31, 1996. 4.16 Securities Purchase Agreement dated as of October 24, 1996, between the Company and SAE Magnetics (HK) Ltd., including the exhibit Form of Registration Rights Agreement. Incorporated by Reference to Exhibit 10.8 to the Company's Current Report on Form 8-K/A dated October 31, 1996. 4.17 Securities Purchase Agreement dated as of October 25, 1996, between the Company and Freight Solutions International, including the exhibit Form of Registration Rights Agreement. Incorporated by Reference to Exhibit 10.9 to the Company's Current Report on Form 8-K/A dated October 31, 1996. 4.18 Subscription Agreement dated November 12, 1996, between SyQuest Technology, Inc. and Fletcher International Limited, including the Annex Warrant Certificate issued November 13, 1996.** 10.1 Form of Indemnification Agreement between the Company and its directors*. Incorporated by reference to the Company's Registration Statement on Form S-1 (File No. 33-43656) filed on November 9, 1991. 10.2 Form of Indemnification Agreement between the Company and its executive officers*. Incorporated by reference to Amendment No. 2 to the Company's Registration Statement on Form S-1 (File No. 33- 43656) filed on December 10, 1991. 25 10.3 Industrial Space Lease dated May 15, 1990, between SyQuest Technology and Renco Investment Company covering property located at 47100 Bayside Parkway in Fremont, California, with other documents related thereto. Incorporated by reference to the Company's Registration Statement on Form S-1 (File No. 33-43656) filed on November 9, 1991. 10.4 Industrial Space Lease dated July 30, 1991, between SyQuest Technology and Renco Investment Company covering property located at Building #47, Bayside Parkway in Fremont, California with other documents related thereto. Incorporated by reference to the Company's Registration Statement on Form S-1 (File No. 33-43656) filed with on November 9, 1991. 10.5 Tenancy of Flatted Factory Unit dated July 18, 1990, between SyQuest Technology (c) and Jurong Town Corporation covering property located at 30 Kallang Place, Singapore. Incorporated by reference to the Company's Registration Statement on Form S-1 (File No. 33-43656) filed on November 9, 1991. 10.6 Tenancy of Flatted Factory Unit dated June 26, 1991, between SyQuest Technology International and Jurong Town Corporation covering property located at 19 Kallang Avenue, Singapore. Incorporated by reference to the Company's Registration Statement on Form S-1 (File No. 33-43656) filed on November 9, 1991. 10.7 Revolving Credit Agreement dated January 1, 1991, among SyQuest Technology, First Interstate Bank of California and Silicon Valley Bank, together with First Amendment related thereto. Incorporated by reference to the Company's Registration Statement on Form S-1 (File No. 33-43656) filed on November 9, 1991. 10.8 Product License Agreement dated April 1, 1990, between SyQuest Technology and PrairieTek Corporation. Incorporated by reference to the Company's Registration Statement on Form S-1 (File No. 33- 43656) filed on November 9, 1991. 10.9 SyQuest Technology, Inc. 1991 Stock Option Plan, as amended*. Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995. 10.10 Form of Stock Option Grant for SyQuest Technology, Inc 1991 Stock Option Plan*. Incorporated by reference to the Company's Registration Statement on Form S-8 (File No. 33-46460) filed on March 18, 1992. 10.11 Policy Regarding Options and Cash Bonuses to be Awarded to Employees of Iota Memories Corporation*. Incorporated by reference to the Company's Registration Statement on Form S-1 (File No. 33-43656) filed on November 9, 1991. 10.12 1992 Non-Employee Director Stock Option Plan, as amended*. Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995. 10.13 1992 Employee Stock Purchase Plan, as amended. Incorporated by reference to the Company's Registration Statement on Form S-8 (File No. 33-48273) filed on June 9, 1992. 10.14 Credit Agreement dated January 17, 1992, among the Company and Silicon Valley Bank and First National Bank of Boston. Incorporated by reference to the Company's Registration Statement on Form S-1 (File No. 33-47361) filed on April 21, 1992. 10.15 Bonus Arrangements for Executive Officers*. Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal period ended September 30, 1995. 26 10.16 Amendment No. 2 to Credit Agreement made as of June 10, 1993, among the Company, Silicon Valley Bank and First National Bank of Boston. Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1993. 10.17 Line of Credit Agreement dated February 28, 1995, with Silicon Valley Bank, and Amendment No. 1 thereto. Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995. 10.18 Line of Credit Agreement with Bank of America. Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1995. 10.19 Amendment No. 2 to Silicon Valley Bank Credit Agreement and Limited Waiver dated November 21, 1995. Incorporated by reference to the Company's Current Report on Form 8-K dated November 21, 1995. 10.20 Amendment No. 3 to Silicon Valley Bank Credit Agreement and Limited Waiver dated December 27, 1995. Incorporated by reference to the Company's Annual Report on Form 10-K for the fiscal period ended September 30, 1995. 11.1 Computation of Earnings Per Share.** 21.1 Subsidiaries of the Company. Incorporated by reference to the Company's Registration Statement on Form S-1 (File No. 33-43656) filed on November 9, 1991. 22.1 Published Report Regarding Special Stockholders Meeting on September 26, 1996. Incorporated by reference to the Company's Current Report on Form 8-K/A dated October 31, 1996. 23.1 Consent of Ernst & Young LLP. 27 Financial Data Schedule.** * A management contract or compensatory plan or arrangement required to be filed as an Exhibit pursuant to Item 14(c) of this Report. ** Previously Filed (b) Reports on Form 8-K: A current report on Form 8-K, dated December 2, 1996, was filed by the Company reporting under Item 5 the Filing of a Registration Statement on Form S-3. A current report on Form 8-K, dated November 25, 1996, was filed by the Company reporting under Item 5 the Company's discontinuation of plans to acquire a controlling interest in Nomai. A current report on Form 8-K, dated November 11, 1996, was filed by the Company reporting under Item 5 the continuation of the Company's Nasdaq National Market listing and the execution of a Letter of Intent to acquire a controlling interest in Nomai, and under Item 9 the sale by the Company of equity securities pursuant to Regulation S. A current report on Form 8-K, dated October 31, 1996, and an amendment thereto were filed by the Company reporting under Item 5 the results of the Company's Special Meeting of Stockholders held September 26, 1996, the Company's filing with Nasdaq of a pro forma balance sheet evidencing the Company's compliance with the listing requirements of the Nasdaq National Market, and the Company's exchange of debt for equity with certain vendors, sale of Convertible Preferred Stock, Series 1 and sale of 5% Cumulative Convertible Preferred Stock, Series 2 and related warrants. 27 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. SYQUEST TECHNOLOGY, INC. By: /s/ Henry C. Montgomery ________________________________ Henry C. Montgomery Executive Vice President, Finance and Chief Financial Officer Dated: July 2, 1997 EX-23.1 2 CONSENT OF ERNST & YOUNG EXHIBIT 23.1 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K/A) of SyQuest Technology, Inc. of our report dated December 11, 1996, except for Note 15, paragraph 11, as to which the date is June 27, 1997, included in the 1996 Annual Report to Shareholders of SyQuest Technology, Inc. We also consent to the incorporation by reference in the Registration Statements (Form S-8 Nos. 33-46460, 33-482273, 33-99224, 33-99372) pertaining to the 1991 Stock Option Plan, the 1992 Non-Employee Director Stock Option Plan and the 1992 Employee Stock Purchase Plan and in the Registration Statement (Form S-3 No. 333-7369) of SyQuest Technology, Inc. of our report dated December 11, 1996, except for Note 15, paragraph 11, as to which the date is June 27, 1997, with respect to the consolidated financial statements and schedule of SyQuest Technology, Inc. included in this Annual Report (Form 10-K/A) for the year ended September 30, 1996. Ernst & Young LLP ----------------- Ernst & Young LLP San Jose, California June 27, 1997 -----END PRIVACY-ENHANCED MESSAGE-----