<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
AND EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM ____TO ____ .
COMMISSION FILE NUMBER: 0-10370
IPL SYSTEMS, INC.
(Exact name of Registrant as specified in its charter)
MASSACHUSETTS 04-2511897
(State or jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
124 ACTON STREET, MAYNARD, MASSACHUSETTS 01754 (Address
of principal executive offices and Zip Code)
(508) 461-1000
(Registrant's Telephone Number, including area code)
Indicate by a check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 12 months (or for such shorter periods that the
Registrant was required to file such reports), and (2) has been subject to
filing requirements for the past 90 days. Yes X No __
As of February 28, 1998 there were 23,819,399 shares of the Registrant's common
stock, $0.01 par value, issued and outstanding.
================================================================================
<PAGE> 2
IPL SYSTEMS, INC.
FORM 10-Q INDEX
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE NO.
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheet at January 31, 1998 (unaudited)
and October 31, 1997 3
Consolidated Statement of Operations (unaudited) for the
three-month period ended January 31, 1998 and 1997 4
Consolidated Statement of Cash Flows (unaudited) for the
three-month period ended January 31, 1998 and 1997 5
Notes to Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K 12
Signatures
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
IPL SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
1998 1997
(UNAUDITED)
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 23,000 $ 41,000
Accounts receivable, net 10,466,000 10,846,000
Inventories 6,903,000 7,458,000
Other current assets 313,000 353,000
------------ ------------
Total current assets 17,705,000 18,698,000
Goodwill, net 7,247,000 7,665,000
Equipment and improvements, net 3,388,000 3,599,000
Other assets 54,000 27,000
------------ ------------
$ 28,394,000 $ 29,989,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,143,000 $ 7,660,000
Accrued expenses 4,533,000 4,202,000
Deferred revenue 2,093,000 1,554,000
Current portion of notes payable 113,000 113,000
------------ ------------
Total current liabilities 13,882,000 13,529,000
------------ ------------
Bank line of credit 5,000,000 6,500,000
Notes payable, less current portion -- 28,000
Shareholder loan 5,196,000 5,196,000
------------ ------------
Total long-term liabilities 10,196,000 11,724,000
------------ ------------
Shareholders' equity:
Common stock 238,000 238,000
Additional paid in capital 10,107,000 10,107,000
Accumulated deficit (6,029,000) (5,609,000)
------------ ------------
Total shareholders' equity 4,316,000 4,736,000
------------ ------------
$ 28,394,000 $ 29,989,000
============ ============
</TABLE>
See notes to unaudited consolidated financial statements.
-3-
<PAGE> 4
IPL SYSTEMS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JANUARY 31,
1998 1997
------------ ------------
<S> <C> <C>
Sales $ 21,760,000 $ 25,497,000
Cost of sales 14,975,000 19,505,000
------------ ------------
Gross profit 6,785,000 5,992,000
Operating expenses:
Selling, general and administrative 6,401,000 5,210,000
Rent expense to shareholder 83,000 83,000
Research and development 441,000 464,000
------------ ------------
Total operating expenses 6,925,000 5,757,000
------------ ------------
(Loss) income from operations (140,000) 235,000
Interest expense 149,000 234,000
Interest expense to shareholder 117,000 111,000
------------ ------------
Loss before income tax provision (406,000) (110,000)
Income tax provision 14,000 --
------------ ------------
Net loss $ (420,000) $ (110,000)
============ ============
Loss per share:
Basic $ (0.02) $ (0.01)
============ ============
Diluted $ (0.02) $ (0.01)
============ ============
Shares used in computing loss per share:
Basic 23,819,399 18,078,381
============ ============
Diluted 23,819,399 18,078,381
============ ============
</TABLE>
See notes to unaudited consolidated financial statements.
-4-
<PAGE> 5
IPL SYSTEMS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JANUARY 31,
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (420,000) $ (110,000)
Adjustments to reconcile net loss to cash provided by (used in) operating
activities:
Depreciation and amortization 370,000 166,000
Amortization of goodwill 418,000 --
Changes in assets and liabilities:
Accounts receivable 380,000 310,000
Inventories 555,000 (953,000)
Other assets 13,000 (95,000)
Accounts payable (517,000) (1,809,000)
Accrued expenses 331,000 176,000
Deferred revenue 539,000 90,000
----------- -----------
Net cash provided by (used in) operating activities 1,669,000 (2,225,000)
----------- -----------
Cash flows from investing activities:
Payments for purchases of property and equipment (159,000) (121,000)
----------- -----------
Net cash used in investing activities (159,000) (121,000)
----------- -----------
Cash flows from financing activities:
(Payments) proceeds under bank line of credit agreement (net) (1,500,000) 1,947,000
Payments on notes payable (28,000) (28,000)
----------- -----------
Net cash (used in) provided by financing activities (1,528,000) 1,919,000
----------- -----------
Net change in cash (18,000) (427,000)
Cash at beginning of period 41,000 765,000
----------- -----------
Cash at end of period $ 23,000 $ 338,000
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest $ 263,000 $ 212,000
=========== ===========
Cash paid for income taxes $ 13,000 $ -
=========== ===========
</TABLE>
See notes to unaudited consolidated financial statements.
-5-
<PAGE> 6
IPL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 1 - BASIS OF PRESENTATION
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates.
The accompanying consolidated unaudited financial statements of IPL Systems,
Inc. ("IPL" or the "Company") have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission regarding interim
financial reporting. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements and should be read in conjunction with the Consolidated
Financial Statements and notes thereto included in the Company's annual report
on Form 10-K for the year ended October 31, 1997. In the opinion of management,
the accompanying consolidated unaudited financial statements contain all
adjustments, consisting of only normal recurring items, necessary for a fair
presentation of the Company's financial position as of January 31, 1998 and its
results of operations for the three month periods ended January 31, 1998 and
1997. The interim financial information contained herein is not necessarily
indicative of the results to be expected for any other interim period or the
full fiscal year ending October 31, 1998.
NOTE 2 - BUSINESS COMBINATION
On June 3, 1997 (the "Closing Date"), IPL completed a business combination with
ANDATACO, whereby ANDATACO was merged with a wholly-owned subsidiary of IPL (the
"Merger"). Under the terms of the merger agreement, the shareholders of ANDATACO
were issued a total of 18,078,381 shares of IPL Class A Common Stock in exchange
for all outstanding shares of capital stock of ANDATACO. Although as a legal
matter the Merger resulted in ANDATACO becoming a wholly-owned subsidiary of
IPL, for financial reporting purposes the Merger was treated as a
recapitalization of ANDATACO and an acquisition of IPL by ANDATACO (reverse
acquisition). The financial reporting requirements of the Securities and
Exchange Commission require that the financial statements reported by IPL
subsequent to the Merger be those of ANDATACO, which include the results of
operations of IPL from the Closing Date.
The acquisition of IPL by ANDATACO was accounted for using the purchase method.
Accordingly, the purchase price was allocated to the estimated fair market value
of identifiable tangible and intangible assets acquired and liabilities assumed.
Based upon an independent valuation, the Company allocated $2,400,000 to
acquired in-process research and development for which there is no future
alternative use and $400,000 to existing proprietary technology for which
technological feasibility had been established. As required by generally
accepted accounting principles, the amount allocated to in-process research and
development was recorded as a one-time charge to operations and the amount
allocated to existing technology was amortized over its estimated useful life.
The excess of the purchase price over the identifiable net assets acquired of
$8,362,000 was recorded as goodwill and is being amortized on a straight-line
basis over its estimated useful life of five years.
-6-
<PAGE> 7
IPL SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
NOTE 3 - NET LOSS PER SHARE
The Company has adopted Statement of Financial Accounting Standard (FAS) No.128,
"Earnings Per Share." Basic earnings per share ("EPS") is calculated by dividing
the income available to common shareholders by the weighted average number of
common shares outstanding for the period, without consideration for common stock
equivalents. Diluted EPS is computed by dividing the income available to common
shareholders by the weighted average number of common shares outstanding for the
period in addition to the weighted average number of common stock equivalents
outstanding for the period. Net income remains the same for the calculations of
basic EPS and diluted EPS. The denominator for the diluted EPS calculation
differs from that of basic EPS by the number of common stock equivalents
outstanding for each period. The Company has restated EPS for prior periods
concurrent with the adoption of FAS 128. The number of shares of IPL common
stock outstanding immediately before the Merger have been treated as having been
issued at the Merger date. Shares issuable upon exercise of outstanding stock
options have been excluded from the computation as their effect would be
antidilutive.
NOTE 4 - INVENTORIES
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
1998 1997
(Unaudited)
---------- ----------
<S> <C> <C>
Inventories are comprised of the following:
Purchased components $5,696,000 $5,541,000
Work in progress 149,000 125,000
Finished goods 1,058,000 1,792,000
---------- ----------
$6,903,000 $7,458,000
========== ==========
</TABLE>
-7-
<PAGE> 8
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the unaudited
consolidated financial statements included elsewhere within this quarterly
report. Fluctuations in annual and quarterly results may occur as a result of
factors affecting demand for the Company's products such as the timing of the
Company's and competitors' new product introductions and upgrades. Due to such
fluctuations, historical results and percentage relationships are not
necessarily indicative of the operating results for any future period.
The discussion contained in this report may contain forward-looking statements
based on the current expectations of the Company's management. Such statements
are subject to certain risks and uncertainties that could cause actual results
to differ materially from those projected. Factors that could cause or
contribute to such differences include but are not limited to, fluctuations in
the Company's operating results, continued new product introductions by the
Company, market acceptance of the Company's new product introductions, new
product introductions by competitors, technological changes in the computer
storage industry and other factors referred to herein including but not limited
to, the factors discussed below and in the Company's Form 10-K. Readers are
cautioned not to place undue reliance on these forward-looking statements which
speak only as of the date hereof. The Company undertakes no obligation to
publicly release the result of any revisions to these forward-looking statements
which may be made to reflect events or circumstances occurring after the date
hereof or to reflect the occurrence of unanticipated events.
OVERVIEW
IPL designs, manufactures, and distributes storage solutions based on its
Application-Specific Architecture ("ASA") for Windows NT and UNIX environments.
The Company develops products to meet the individual performance and
availability profiles of storage-intensive applications in its target markets.
The Company's open-architecture solutions include Redundant Array of Independent
Disks ("RAID") and RAID-ready disk arrays; tape backup and restore products; and
web storage management and other storage management utilities, data sharing,
remote mirroring and disaster recovery software. These products support multiple
server platforms, including Sun Microsystems, Hewlett-Packard, Silicon Graphics,
Inc. and various NT systems. The Company distributes internally developed
products, as well as products from other manufacturers through direct, indirect
and original equipment manufacturer ("OEM") sales and service channels
throughout the world. The Company backs its products with maintenance, technical
support and customized consulting services programs.
The Company strives to meet its customers' storage and information management
needs by providing the market with comprehensive, performance-oriented and
flexible storage solutions. Recognizing that applications have unique data
patterns, the Company developed a design process (ASA) that matches its storage
solution systems to these individual patterns. These applications include
digital video, seismic processing, data warehousing, online transaction
processing (OLTP) and general technology development. ASA-based products
announced in 1997 include GigaRAID/HA and GigaRAID/SX. These products are
additions to the GigaRAID High Availability Series (the "GigaRAID Series") of
advanced disk arrays, RAID-ready disk arrays, disk and tape library systems, and
data management software consisting of distributed network backup recovery and
restore solutions.
The GigaRAID Series is a family of RAID and RAID-ready disk and tape storage
systems that are combined with ANDATACO's proprietary, award-winning modular
packaging architecture, Enterprise Storage Packaging ("ESP"), to create complete
storage solutions. The GigaRAID/HA provides high performance and availability
for database/OLTP applications characterized by small block/random data
processing. Other GigaRAID Series products, including the GigaRAID/SX, offer
high performance and availability for certain data warehouse, seismic processing
and video applications characterized by large block, sequential processing.
-8-
<PAGE> 9
The GigaRAID Series includes GigaRAID/SA, which is a rackmount or deskside-tower
single controller Ultra SCSI RAID system, GigaRAID/HA, which is a rackmount
single or dual controller Ultra SCSI RAID system, and GigaRAID/SX, which is a
high performance RAID array available in a rackmount or desk-side tower
single-active controller Ultra SCSI RAID system. The GigaRAID Series product
line also includes GigaRAID 3000, which is a desktop disk/tape based non-RAID
storage system and GigaRAID 8000, which is a rackmount or deskside tower
disk/tape based non-RAID storage system. The Company also markets automatic tape
libraries and DLT tape technology.
Historically, the reseller business or the sale of third party non-GigaRAID
products accounted for the majority of the Company's revenues, representing 100%
of revenues in fiscal 1995 and declining to 37.2% and 34.6% in fiscal 1996 and
1997, respectively. Although the Company plans to continue to sell third party
products, management's strategy is to focus increased resources on the design,
development, manufacturing and marketing of internally developed and GigaRAID
products. For the three months ended January 31, 1998 and 1997, revenue from
sale of internally developed and GigaRAID products represented 57.5% and 42.5%
of total revenue, respectively.
RESULTS OF OPERATIONS
The following table sets forth items in the Company's statement of operations as
a percentage of net sales for the periods presented. The data has been derived
from the unaudited condensed consolidated financial statements.
<TABLE>
<CAPTION>
Three Months Ended
January 31,
----------------------
1998 1997
----- -----
<S> <C> <C>
Sales 100.0% 100.0%
Cost of sales 68.8 76.5
----- -----
Gross profit 31.2 23.5
Operating expenses:
Selling, general and administrative 29.4 20.5
Rent expense to shareholder 0.4 0.3
Research and development 2.0 1.8
----- -----
Total operating expenses 31.8 22.6
----- -----
(Loss) income from operations (0.6) 0.9
Interest expense 1.2 1.3
----- -----
Loss before income tax provision (1.8) (0.4)
Provision for income taxes 0.1 --
----- -----
Net loss (1.9)% (0.4)%
===== =====
</TABLE>
-9-
<PAGE> 10
Sales. Sales for the three months ended January 31, 1998 were $21,760,000, a
decrease of 14.7% from sales of $25,497,000 for the same period in the prior
year. The decrease was primarily attributable to a decrease in sales of
non-GigaRAID mass storage products including RAID Lite, RAPID-Tape, JBOD Disk
and JBOT Tape. Non-GigaRAID mass storage integrated product sales were
$1,976,000 in the first quarter of fiscal 1998 compared to $6,036,000 in the
first quarter of fiscal 1997. In addition third-party product sales decreased by
$2,314,000, which were $6,321,000 in the first quarter of fiscal 1998 compared
to $8,635,000 in the first quarter of fiscal 1997. Although the Company
experienced an increase in sales of internally designed and distribution
GigaRAID products of $1,694,000 over the same period in 1997, such increase was
more than offset by the decrease in the sales of non-GigaRAID mass storage and
third-party products. The decrease in non-GigaRAID mass storage and third-party
product sales is in line with the Company's strategy to focus increased
resources on internally designed products including the GigaRAID product family
capable of producing higher margins. This is consistent with the Company's
transition towards "owned solutions" - strategic technologies designed in-house
to create technical, time-to-market and gross margin advantages. By combining
engineered technology with selected products manufactured by its distribution
and development partners, the Company provides a strong, sophisticated product
line targeted to fast-growing segments of the open systems storage market.
Gross Profit. Notwithstanding the decline in sales, gross profit in the first
quarter of fiscal year 1998 was $6,785,000, representing approximately 31.2% of
revenues compared to $5,992,000 in the first quarter of fiscal 1997,
representing approximately 23.5% of sales. The increase in gross profit
percentage was due primarily to the shift in product mix from quarter to
quarter. The Company's GigaRAID product family sales accounted for 57.5% of
revenues for the first quarter of fiscal 1998 as compared to 42.5% of revenues
in the first quarter of fiscal 1997. The Company's GigaRAID product family has a
higher average gross margin as compared to non-GigaRAID mass storage and third
party products. In addition, there was a reduction in costs of components used
to manufacture products in the first quarter of fiscal 1998 compared to the
first quarter of fiscal 1997.
Selling, General and Administrative. Selling, general and administrative
("SG&A") expenses consist primarily of the salaries, commissions and benefits of
sales, marketing and customer support personnel and administrative and corporate
services personnel, as well as consulting, advertising, promotion, and certain
merger related expenses (i.e. goodwill amortization). Selling, general and
administrative expenses were $6,401,000 and $5,210,000 for the quarters ended
January 31, 1998 and 1997, respectively. The increase in the current period's
selling, general and administrative expenses over such expenses incurred in the
comparable period of the prior fiscal year primarily represents the addition of
sales executive and management personnel intended to increase sales of the
Company's products in all channels. In addition, the increase in SG&A was due to
$418,000 of goodwill amortization resulting from the Merger and an increase in
depreciation expense of approximately $200,000 related to the addition of fixed
assets from the Merger.
Research and Development. Research and development expenses consist primarily of
salaries, employee benefits, overhead and outside contractors. Such expenses
were $441,000 and $464,000 for the quarters ended January 31, 1998 and 1997,
respectively. The level of research and development expenses is in line with the
Company's strategy to continue to focus increased resources on design and
development of in-house products and differentiating technologies for which it
believes there is a need in the market. However, there can be no assurance that
product development programs invested in by the Company will be successful or
that products resulting from such programs will achieve market acceptance.
Interest Expense. The decrease in interest expense of $85,000, or 36.3% in the
first quarter of fiscal 1998 over the comparable period in fiscal 1997 is
primarily due to the reduction in the outstanding portion of the Company's bank
line of credit.
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<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES
During the first quarter of fiscal 1998, the Company generated $1,669,000 of
cash from operating activities, primarily from decreasing working capital.
Included in this net change was a decrease of $555,000 in inventories, and a
reduction in trade accounts receivable of $380,000, partially offset by a
reduction in accounts payable of $517,000. Offsetting cash generated from
operations was the reduction in the outstanding portion of the Company's bank
line of credit of $1,500,000 and payments for purchases of computer equipment of
$159,000.
The Company currently maintains a credit facility which permits borrowings of
the lesser of $10,000,000 or a percentage of eligible accounts receivable and
inventory ($9,116,000 available at January 31, 1998). As of January 31, 1998,
the Company had $5,000,000 outstanding under this credit line. The credit
facility expires on February 15, 1999; consequently borrowings under this line
have been classified as long-term.
The shareholder loan to the president and principal shareholder is unsecured,
due in June 2004, with interest payable monthly at 9 percent per annum. This
loan is subordinate to the bank line of credit.
The Company is currently satisfying all working capital and capital expenditure
requirements through internally generated cash flows from operations and
borrowings available on its credit facility. Management believes that its
financial position and available borrowings on its credit facility will be
sufficient to meet the operating requirements of its business for a period of at
least twelve months.
INCOME TAXES
Prior to the consummation of the Merger, ANDATACO elected to be taxed under
Subchapter S of the Internal Revenue Code of 1986, as amended, and consequently
all federal income taxes and most state taxes were paid directly by its
shareholders.
Concurrent with the Merger, ANDATACO changed its taxpayer status from a
Subchapter S Corporation to a Subchapter C Corporation. Effective with that
change, the Company transferred the amount of its accumulated deficit at that
date to additional paid in capital. Therefore, the Company's accumulated deficit
at January 31, 1998 includes losses solely incurred by the Company since the
Merger.
Because of the change in taxpayer status to a Subchapter C Corporation, the
Company is subject to federal and state income taxes. The tax provision is
calculated giving effect to the change of ANDATACO from a Subchapter S
Corporation to a Subchapter C Corporation, and the resultant adjustments for
federal and state income taxes, as if ANDATACO had been taxed as a C Corporation
rather than an S Corporation since inception. The Company has recorded deferred
tax assets and liabilities due to its change in taxpayer status to a Subchapter
C Corporation. The Company has recorded a valuation allowance in full for
deferred tax assets which, more likely than not, will not be realized based on
recent operating results.
The income tax provision recorded for the three-month period ended January 31,
1998 represents minimum state taxes for the period. No income tax provision or
benefit was recorded for the three-month period ended January 31, 1998 due to
net loss incurred during this period, which loss has not resulted in the
recording of an income tax benefit due to a full valuation allowance also being
recorded.
No pro forma calculation of income tax is presented because as a Subchapter C
Corporation the Company would not have been liable for income taxes due to
losses sustained, which losses have not resulted in the recording of an income
tax benefit due to a full valuation allowance also being recorded.
-11-
<PAGE> 12
PART II - OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
11.1 Computation of Loss per Common Share
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IPL SYSTEMS, INC.
Date: March 17, 1998 By:/s/ Harris Ravine
-------------------------------
Harris Ravine
Chief Executive Officer
(on behalf of registrant and as
its principal executive officer)
Date: March 17, 1998 By:/s/ Richard A. Hudzik
-------------------------------
Richard A. Hudzik
Vice President of Finance and
Chief Financial Officer
(on behalf of registrant and as
its principal financial officer)
-12-
<PAGE> 1
Exhibit 11.1
IPL SYSTEMS, INC.
COMPUTATION OF LOSS PER COMMON SHARE
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JANUARY 31,
1998 1997
<S> <C> <C>
Basic EPS Computation
Net loss $ (420) $ (110)
-------- --------
Weighted average shares outstanding 23,819 18,078
-------- --------
Shares used in computing basic
loss per share 23,819 18,078
-------- --------
Basic loss per share $ (0.02) $ (0.01)
======== ========
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JANUARY 31,
1998 1997
<S> <C> <C>
Diluted EPS Computation
Net loss $ (420) $ (110)
-------- --------
Weighted average shares outstanding 23,819 18,078
Common stock equivalents from the issuance of
options and warrants using the treasury stock
method -- --
-------- --------
Shares used in computing diluted
loss per share 23,819 18,078
-------- --------
Diluted loss per share $ (0.02) $ (0.01)
======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> JAN-31-1998
<CASH> 23,000
<SECURITIES> 0
<RECEIVABLES> 10,466,000
<ALLOWANCES> 0
<INVENTORY> 6,903,000
<CURRENT-ASSETS> 17,705,000
<PP&E> 3,388,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 28,394,000
<CURRENT-LIABILITIES> 13,882,000
<BONDS> 0
0
0
<COMMON> 238,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 4,316,000
<SALES> 21,760,000
<TOTAL-REVENUES> 21,760,000
<CGS> 14,975,000
<TOTAL-COSTS> 6,925,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 266,000
<INCOME-PRETAX> (406,000)
<INCOME-TAX> 14,000
<INCOME-CONTINUING> (420,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (420,000)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
