<PAGE> 1
The SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
MARK ONE:
[ ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarter ended March 31, 1997
OR
[ X ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from December 31, 1996 to March 31, 1997.
Commission file number 0-12850
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Delaware 13-3152648
------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
200 N. Westlake Blvd., Suite 202, Westlake Village, CA 91362
------------------------------------------------------------
(Address of principal executive offices)
Issuer's telephone number, including area code (805) 381-2700
--------------
Edudata Corporation
March 2, 1996
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed from last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
State the number of shares of registrant's common stock outstanding as of
May 15, 1997: 5,055,537, after the close of the Company's Secondary Offering
of Common Stock on May 14, 1997.
Transitional Small Business Disclosure Format Yes [ ] No [X]
1
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DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
FORM 10-QSB REPORT
March 31, 1997
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
----
<S> <C>
Item 1 Interim Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheet-March 31, 1997 3
Condensed Consolidated Statements of Operations 4
Three Month Period Ended March 31, 1997 and Thirteen Week Period Ended
June 1, 1996
Condensed Consolidated Statements of Cash Flows 5
Three Month Period Ended March 31, 1997 and Thirteen Week Period Ended
June 1, 1996
Notes to Interim Condensed Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis or Plan of Operation 9
PART II - OTHER INFORMATION
Item 5 Other Information 18
Item 6 Exhibits and Reports on Form 8-K 18
(a) Exhibits 18
(b) Reports on Form 8-K 18
Signatures 19
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1 - INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
March 31, 1997
--------------
<S> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 643,256
Accounts receivable, less allowance for bad debts and sales 1,826,589
returns of $20,975 at March 31, 1997
Inventories 1,382,905
Deferred income taxes 90,000
Prepaid expenses and other 175,747
-----------
Total current assets 4,118,497
Property and equipment, net 378,233
Debt issuance costs, net 210,202
Other assets 341,233
===========
Total assets $ 5,048,165
===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current portion of capital lease obligations $ 18,468
Accounts payable 1,321,268
Income taxes payable 159,346
Other accrued expenses 490,050
Customer deposits 28,596
-----------
Total current liabilities 2,017,728
Notes payable 1,398,475
Notes payable to related parties 272,966
Capital lease obligations 61,452
Other long term liabilities 12,769
-----------
Total liabilities 3,763,390
-----------
Commitments and contingencies -
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01 per shares; 1,000,000 shares -
authorized; none issued and outstanding
Common stock, par value $.01 per share; 20,000,000 shares 29,855
authorized: 2,985,537 shares issued and outstanding
Paid in capital 2,695,832
Accumulated deficit (1,440,912)
-----------
Total shareholders' equity 1,284,775
===========
Total liabilities and shareholders' equity $ 5,048,165
===========
</TABLE>
The accompanying notes are an integral part of these interim consolidated
financial statements.
3
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DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND THE
THIRTEEN WEEKS ENDED JUNE 1, 1996
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Thirteen Weeks Ended
March 31, 1997 June 1, 1996
-------------- ------------
<S> <C> <C>
Net sales $3,928,282 $ 3,258,631
Cost of sales 2,477,644 1,767,582
---------- -----------
Gross profit 1,450,638 1,491,049
Selling, general and administrative expenses 1,200,720 1,436,336
Research and development expenses 35,761 87,625
---------- -----------
Operating income (loss) 214,157 (32,912)
Amortization of debt issuance costs 48,061 -
Interest expense 89,692 7,078
---------- -----------
Income (loss) before income taxes 76,404 (39,990)
Provision for taxes on income 29,254 -
---------- -----------
Net income (loss) $ 47,150 $ (39,990)
========== ===========
Net income (loss) per common share $ .01 $ (0.01)
========== ===========
Number of shares used in computing per share
amounts 3,451,357 2,672,519
========== ===========
</TABLE>
The accompanying notes are an integral part of these interim consolidated
financial statements.
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DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1997 AND THE
THIRTEEN WEEK PERIOD ENDED JUNE 1, 1996
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Thirteen Weeks Ended
March 31, 1997 June 1, 1996
-------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ...................................................... $ 47,150 $ (39,990)
Adjustments to reconcile net income (loss) to net
cash used by operating activities:
Depreciation and amortization ........................................ 110,385 13,744
Allowances for returns and doubtful accounts ......................... (86,428) 696
Other ................................................................ (795) 5,497
Changes in operating assets and liabilities:
Accounts receivable .................................................. (581,717) (434,369)
Inventories .......................................................... 130,965 (330,393)
Prepaid expenses and other current assets............................. 32,805 65,627
Other assets ......................................................... (298,963) 252
Accounts payable ..................................................... 231,936 (308,092)
Accrued liabilities................................................... 27,594
Income taxes payable.................................................. (9,224) 214,791
Customer deposits..................................................... (5,011) (217,726)
----------- -----------
Net cash used by operating activities .................................. (401,303) (1,029,963)
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment.................................... (12,949) (75,982)
----------- -----------
Net cash used in investing activities ............................ (12,949) (75,982)
----------- -----------
Cash flows from financing activities:
Decrease in book overdraft............................................ ---- (49,906)
Decrease in other long term liabilities .............................. (1,328) (79,218)
Net proceeds from issuance of common stock ........................... ---- 1,088,561
Proceeds from borrowings from related parties ........................ ---- 25,000
----------- -----------
Net cash provided by financing activities ....................... (1,328) 984,437
----------- -----------
Net decrease in cash and cash equivalents .............................. (415,580) (121,508)
Cash and cash equivalents, beginning of period ......................... 1,058,836 666,611
----------- -----------
Cash and cash equivalents, end of period ............................... $ 643,256 $ 545,103
=========== ===========
Supplemental cash flow information:
Common stock issuance costs not paid
for at period end.................................................... $ ---- $ 34,058
===========
Interest paid........................................................... $ 15,792 $ ----
===========
Income taxes paid....................................................... $ 38,104 $ ----
===========
</TABLE>
The accompanying notes are an integral part of these interim consolidated
financial statements.
5
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DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC AND SUBSIDIARIES.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31,1997
(unaudited)
1. General
The accompanying unaudited interim condensed consolidated financial
statements include the accounts of Dental/Medical Diagnostic Systems, Inc.
and Subsidiaries (the "Company"). They have been prepared in accordance with
generally accepted accounting principles for interim financial information
and with instructions to Form 10-QSB and Item 10 of Regulation S-B.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair representation
have been included. Operating results for the three month period ended March
31, 1997 are not necessarily indicative of the results that may be expected
for the year ending December 31, 1997. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-KSB for the period ended December 31,
1996.
2. Summary of Significant Accounting Policies
Basis of Presentation
As of January 13, 1997 the Company effected a reverse stock split of 1 for
2.197317574 shares of its issued and outstanding Common Stock. In addition,
on March 24, 1997 the Company effected a reverse stock split of 1 for
1.33333333 shares of its issued and outstanding Common Stock. All share and
per share amounts have been retroactively restated to reflect these reverse
splits.
On February 5, 1997 the Company changed its fiscal year-end from a fiscal
year ending on the nearest Saturday to February 28th to a December 31 year
end. The accompanying condensed consolidated financial statements reflect the
operating results of the Company for the three month period from January 1,
1997 to March 31, 1997 and the thirteen week period ended June 1, 1996.
Concentration of Credit Risk and Major Customers
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of trade accounts
receivable.
For the three month period ended March 31, 1997 and the thirteen week period
ended June 1, 1996, five of the Company's customers accounted for 25% and 9%
of sales, respectively. At March 31, 1997 five of the Company's customers
accounted for approximately 55% of trade accounts receivable.
6
<PAGE> 7
The Company performs ongoing credit evaluations of its customers' financial
condition and generally does not require collateral. Estimated credit losses
and returns, have been provided for in the financial statements.
Use of Estimates
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 at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. The significant estimates made in the preparation of
the consolidated financial statements relate to the assessment of the
carrying value of accounts receivable, inventories and warranty provisions.
Actual results could differ from those estimates.
Earnings (Loss) Per Share
Earnings (loss) per share is computed based on the weighted average number of
common shares outstanding during the periods presented and common stock
equivalents unless antidilutive.
Recently Issued Accounting Standard
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No.
128"). SFAS No. 128 requires dual presentation of newly defined basic and
diluted earnings per share on the face of the income statement for all
entities with complex capital structures. This method is considered more
compatible with International Accounting Standards. SFAS No. 128 is effective
for all fiscal years ending after December 15, 1997. The Company has not yet
determined the impact of SFAS No. 128.
3. Related Party Transactions
In October 1996, the Company entered into an agreement with Boston Marketing
Co., Ltd. ("Boston Marketing") pursuant to which the Company obtained
worldwide marketing rights in the dental market for the Telicam System, an
intraoral camera system (each unit of Telicam Systems is hereinafter referred
to as a "Teli Unit") as well as the right to use the "TeliCam" trademark. At
the time the Company entered into this agreement, Hiroki Umezaki was an
officer, director and principal shareholder of the Company and was a
substantial shareholder and the President of Boston Marketing. At March 31,
1997 the Company owed Boston Marketing approximately $217,500 in connection
with Teli Units purchased by the Company. For the three month period ended
March 31, 1997, the Company purchased 1010 Teli Units at an aggregate cost of
$757,500 and for the thirteen week period ended June 1, 1996, the Company
purchased 500 Teli Units at an aggregate cost of $375,000 from Boston
Marketing. In addition, the Company has an agreement with Boston Marketing
pursuant to which Boston Marketing is to receive a 15% commission on all
sales made by the Company in the Peoples Republic of China and a 12%
commission on sales made by the Company in Japan. This agreement resulted in
Boston Marketing earning $14,998 in commissions for the three-month period
ended March 31, 1997.
From December 1995 through February 1996, Robert H. Gurevitch, Chairman of
the Board and Chief Executive Office of the Company, and Boston Marketing, an
affiliate of Mr. Umezaki, loaned the Company an aggregate of $377,015. The
Promissory notes evidencing such loans bear interest at 6% per annum and were
originally payable within six months. On February 26, 1996, the Company
repaid $50,000 to each of Mr. Gurevitch and Boston Marketing. Interest of
$15,792 was paid on January 31, 1997 on the remaining principal balance of
these notes. In November 1996, Mr. Gurevitch and Boston Marketing each agreed
to extend the term of their respective notes until the earlier to occur of:
(i) twenty-four months following the closing of the Bridge Financing; (ii) at
such time as the company received proceeds from the sale of the Common Stock
in connection with a public offering (see Note 5) ; or (iii) the repayment of
the Bridge Notes in full. In addition, on April 11, 1996, Boston Marketing
loaned the Company an additional $25,000 under similar terms ("April Loan").
The April Loan was repaid in full on August 26, 1996. The Company will apply
approximately $275,000 of the proceeds of its offering (see Note 5) to repay
the notes and accrued interest owed to Mr. Gurevitch and Boston Marketing.
7
<PAGE> 8
4. Inventories
Inventories consisted of the following:
<TABLE>
<CAPTION>
MARCH 31, 1997
--------------
<S> <C>
Raw materials $ 797,376
Work in process 191,607
Finished goods 393,922
----------
Total $1,382,905
==========
</TABLE>
5. Capital Transactions
On May 30, 1996, the Company completed the sale of a total of 422,219 shares of
its common stock to six foreign investors. Each share was sold at a price of
$2.58 per share and, consequently, the Company raised approximately $1,055,000
from the sales, net of related expenses of approximately $34,000
On November 27, 1996, the Company raised $1,314,766, net of issuance costs of
$285,234, through a private placement of 32 Units to certain accredited
investors. Each Unit consists of a secured promissory note in the principal
amount of $50,000 ("Bridge Note") and a warrant to purchase 18,750 shares of
Common Stock ("Bridge Warrant") at a purchase price of $2.67 per share. The
Notes bear interest at a rate of 10% per annum and the principal and all accrued
interest are payable upon the earliest to occur of: (a) May 27, 1998; (b)
certain change in control events effecting the Company; ( c ) a public offering
of the Company's securities; or (d) the sale by the Company's Chief Executive
Officer of all or substantially all of his holding of the Common Stock. Upon the
happening of certain events the holders of the Notes will have the right to
convert the outstanding balances of their Notes into shares of the Common Stock
at a rate of $2.67 per share. The Warrants are first exercisable on November 27,
1997 and expire on November 27, 2002. As a result of the warrants, these notes
have been discounted by $259,104, which amount is being amortized over the term
of the notes.
On May 14, 1997, the Company closed a secondary offering of 2,070,000 shares of
common stock and 2,070,000 redeemable common stock purchase warrants. This
resulted in gross proceeds of $10,350,000 prior to expenses associated with the
offering. Approximately $1,700,000 of the net proceeds were used to repay the
Bridge Notes plus accrued interest. The Bridge Notes consisted of secured
convertible promissory notes in the aggregate principal amount of $1,600,000
bearing interest at 10% per annum and were payable on consummation of the
offering. The remaining proceeds net of associated expenses will be used for
product development, acquisition and joint venture financing, repayment of loans
from related parties and working capital and general corporate purposes.
6. Income Taxes
The Company has accrued federal and state income taxes at the effective tax rate
of approximately 38 percent or $29,254 for the first quarter. As the Company was
in a loss position for the thirteen week period ended June 1, 1996 no tax
provision was made.
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Item 2. -Management's Discussion and Analysis or Plan of Operation
Introduction
This discussion summarizes the significant factors affecting the consolidated
operating results, financial condition and liquidity/cash flows of the Company
for the three month period ended March 31, 1997 and for the thirteen week period
ended June 1, 1996. Except for the historical information contained herein, the
matters discussed in this Management's Discussion and Analysis are forward
looking statements that involve risks and uncertainties and are based upon
judgments concerning various factors that are beyond the Company's control.
Actual results could differ materially from those projected in the forward
looking statements as a result of, among other factors, the factors set forth
under the caption "Risk Issues and Uncertainties" below.
On March 1, 1996, the Company purchased all of the outstanding membership
interests of Dental/Medical Diagnostic Systems, LLC ("DMD") and all of the
outstanding capital stock of Bavarian Dental Instruments, Inc. ("BDI").
Immediately subsequent to the transaction, the former members of DMD and
stockholders of BDI owned approximately 66.6% of the Company's outstanding
common stock and management control of the Company was transferred to the former
management of DMD and BDI. Accordingly, for accounting purposes the acquisition
was treated as a recapitalization of DMD and BDI with DMD and BDI combined as
the acquirer (reverse acquisition). As a result, the combined historical
financial statements of DMD and BDI became the financial statements of the
Company.
DMD was formed in October 1995 and has been primarily involved in designing,
developing, manufacturing, and marketing intra-oral camera systems referred to
as "TeliCam Systems". The first shipments to customers of the TeliCam System
commenced in early February 1996. BDI was formed in November 1995 and has been
primarily involved in the marketing and distribution of dental burs imported
from Russia. The first sales of burs commenced in March 1996. On July 9, 1996,
the Company determined to focus future strategic development primarily upon high
value added dental/medical products and technology and, accordingly, decided to
discontinue the dental bur product line, comprised of low-margin, low-technology
products. The Company thereafter commenced an orderly liquidation of its
inventory of dental burs, and expects the liquidation to be completed in 1997
without significant adverse effect on operations.
On January 13, 1997 the Company changed its name from Edudata Corporation to
Dental/Medical Diagnostics Systems, Inc. On February 5, 1997, the Company
changed its fiscal year end from a fiscal year ending on the nearest Saturday to
February 28th to a December 31 fiscal year end. On January 13, 1997 the Company
effected a one-for-2.197317576 reverse stock split and on March 24, the
Company's stockholders approved an additional one-for-1.33333333 reverse stock
split. All information in this Report has been adjusted to reflect both stock
splits.
On May 14, 1997, the Company closed an underwritten offering (the "Offering") of
2,070,000 shares of Common Stock, and 2,070,000 Redeemable Common Stock Purchase
Warrants, raising gross proceeds of $10,350,000 prior to expenses associated
with the Offering. Of these proceeds, $1,700,000 was applied to repay the Bridge
Notes issued by the Company in November 1996 and $275,000 will be applied to
repay loans from related parties.
Results of Operations
For the three month period ended March 31, 1997 and thirteen week period ended
June 1, 1996, net sales totaled $3,928,282 and $3,258,631, respectively. This
resulted in an operating profit of $214,157 and an operating loss of $32,912,
respectively. Included in the results of the thirteen week period ended June 1,
1996 are sales of approximately $116,000 and an operating loss of approximately
$169,000 related to the Company's discontinued dental bur line.
Net sales for the three month period ended March 31, 1997 were $3,928,282
compared to $3,258,631 for the thirteen week period ended June 1 1996, or an
increase of approximately 21%. This increase was due
9
<PAGE> 10
to increased international sales volume. The sales in the thirteen week period
ended June 1, 1996 were significantly assisted by an approximate $1,255,000 back
order position from inception to the commencement of sales in the quarter. Back
orders on hand as of January 1, 1997 amounted to $65,448 in the aggregate. Sales
are comprised primarily of sales of TeliCam Systems and related products.
Cost of sales for the three month period ended March 31, 1997 were $2,477,644 or
63% of sales. For the thirteen week period ended June 1, 1996 cost of sales were
$1,767,582 or 54% of sales. Cost of sales increased as a percentage of sales
primarily due to the increased international sales that require higher
discounts; however, although no assurance can be given, higher costs of
international sales should be partially offset by anticipated reduced warranty
and service cost and reduced selling costs on international sales. The Company's
ability to achieve reduced selling costs and warranty expense on international
sales is subject to a number of risks, including the Company's dependence on
third party suppliers for non-defective components and the Company's dependence
on foreign distribution. See "Continuing Statements and Risk Factors -
Dependence on Third Party Suppliers and - Reliance on International Sales and
Distributors and General Risks of International Operators." Also contributing to
the increase in cost of sales was a TeliCam I sales promotion, at a reduced
selling price, intended to reduce the inventory of the TeliCam I in preparation
for the introduction of TeliCam II.
Selling general and administrative expenses totaled $1,200,720 for the three
month period ending March 31, 1997, and $1,436,336 for the thirteen week period
ended June 1, 1997. The reduction in expense is primarily due to reduced sales
commissions as a result of the increase in international sales volume where, in
most areas other than Japan and China, commissions are not paid. Also
contributing to the reduction were decreased advertising, show expenses and
salaries as a result of discontinuing the dental bur line.
Research and development expenses totaled $35,761 for the three months ended
March 31, 1997 and $87,625 for the thirteen week period ended June 1, 1996. The
decrease is the result of phasing out expenditures on TeliCam I with the
introduction of TeliCam II. However, the Company currently anticipates that
research and development expenses will increase for the development of new
products if the Company is able to successfully identify and negotiate
development arrangements with owners of promising technologies. See "Continuing
Statements and Risk Factors - Importance of New Product Development to Growth.",
and "Continuing Statements and Risk Factors - Expansion through Undetermined
Acquisitions and Joint-Ventures.". Increased expenditures on research and
development, resulting from application of the proceeds of the Offering to
further research and development projects and joint ventures and possible
acquisitions, are expected to result in increased expenses and may result in
correspondingly reduced earnings in future periods.
Amortization of debt issuance cost totaled $48,061 for the three month period
ended March 31, 1997, and is the result of the cost of the sale of the Bridge
Notes, issued in November 1996, being amortized over the term of the Notes;
therefore, these costs were not incurred in the comparable period. These costs
will continue into future periods until the debt is paid. The Company has repaid
such debt out of the proceeds of the Offering and, accordingly, will take a
charge of approximately $190,000 for the write-off of unamortized debt issuance
costs in the second quarter of fiscal 1997.
Interest expense totaled $89,692 for the three-month period ended March 31, 1997
and $7,078 for the thirteen week period ended June 1, 1996, and consisted of
interest paid on capital lease obligations and interest accrued on the Bridge
Notes and notes payable to related parties. The increase is primarily due to the
Bridge Notes, which were repaid in May 1997 with proceeds of the Offering.
Net income for the three month period ended March 31, 1997 totaled $47,150 or
$.01 per share as compared to a net loss of $39,990 or $.01 per share for the
thirteen week period ended June 1, 1996.
Capital Resources and Liquidity
For the three month period ended March 31, 1997, the Company used net cash of
$401,303 in operations. Accounts receivable increased by $581,717 to $1,826,589
at March 31, 1997 primarily due to the level of international sales during the
period. Accounts payable and accrued liabilities totaling $1,970,664 at March
31, 1997, increased slightly from $1,720,358 at the prior year-end period.
Inventory levels decreased $130,965 due to the promotion of the Teli-Cam I.
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<PAGE> 11
Capital expenditures totaled $12,949 for the three month period ended March 31,
1997. Cash on hand at the end of the period was $643,256..
Based on its current operating plan, the Company anticipates that the proceeds
of the Offering, together with existing resources and cash generated from
operations, if any, will be sufficient to satisfy the Company's contemplated
working capital requirements for at least the next twelve months. There can be
no assurance that the Company's working capital requirements during this period
will not exceed its available resources or that these funds will be sufficient
to meet the Company's longer-term cash requirements for operations.
On February 13, 1997, the Company received a Commitment Letter from Comerica
Bank ("Comerica") confirming Comerica's intent to extend up to a $2,000,000 line
of credit to the Company, to be secured by a first priority security interest in
the Company's assets and by an assignment of the Company's rights under the
Boston Marketing Distribution Agreement. The credit facility will bear interest
monthly at the rate of the Comerica Bank Prime plus one-quarter of one percent
(0.25%), as it may change from time to time, through June 1, 1998. All
borrowings under the facility will be subject to a formula based, generally, on
accounts receivable and inventory. The Company intends to use the proceeds of
this credit facility for working capital and general corporate purposes.
Although the Company is in the final stages of documentation of a definitive
credit agreement, certain issues remain the subject of negotiation. The
commitment of Comerica is contingent upon the parties' execution and delivery of
a definitive credit agreement, the provision to Comerica of a first-priority
lien on the Company's assets and upon the absence of any material adverse change
in the Company's business or financial condition. There can be no assurance that
the Company will be successful in obtaining the credit facility, and the failure
of the Company to do so could have a material adverse effect on the Company's
business operating results and financial condition.
Fluctuations in Quarterly Results
The Company's business is subject to certain quarterly influences. Net sales and
operating profit are generally higher in the fourth quarter due to the
purchasing patterns of dentists in the United States and are generally lower in
the first quarter due primarily to the effect upon demand of increased purchases
in the prior quarter. It is also expected that the Company's business will
experience lower sales in the summer months as a consequence of holiday
vacations and a lesser number of trade shows.
The use by the Company of a portion of the proceeds of the Offering to repay the
Bridge Notes will cause the Company to incur a charge in the second quarter of
1997 of approximately $378,000.
Quarterly results may be adversely affected in the future by a variety of other
factors, including the timing of acquisitions and their related costs, as well
as the release of new products and promotions taking place within the quarter.
The Company plans to increase expenses to fund greater levels of research and
development and to fund investments in joint ventures and acquisitions. To the
extent that such expenses precede or are not subsequently followed by increased
revenues, the Company's business, operating results and financial condition will
be adversely affected.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS No. 128").
SFAS No. 128 requires dual presentation of newly defined basic and diluted
earnings per share on the face of the income statement for all entities with
complex capital structures. This method is considered more compatible with
International Accounting Standards. SFAS 128 is effective for all fiscal years
ending after December 15, 1997. The Company has not yet determined the impact of
SFAS No. 128.
11
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CAUTIONARY STATEMENTS AND RISK FACTORS
Several of the matters discussed in this document contain forward
looking statements that involve risks and uncertainties. Factors associated
with the forward looking statements which could cause actual results to differ
materially from those projected or forecast in the statements that appear
below. In addition to other information contained in this document, readers
should carefully consider the following cautionary statements and risks
factors:
Limited Operating History; History of Losses and Accumulated Deficit.
While the Company has been in existence since 1981, its operations between 1988
and its acquisition of DMD and BDI in March 1996, were limited to the
exploration of acquisition opportunities. Dental\Medical Diagnostic Systems,
the division of the Company which designs and markets the Company's TeliCam
System, and BDI, a subsidiary of the Company, have only been in operation since
October 1995. For the period from inception (October 23, 1995) to March 2,
1996, the Company incurred a net loss of $1,625,213, and for the ten month
period ended December 31, 1996, the Company had net income of $137,151. For the
three months ended on March 31, 1997 the Company had net income of $47,150. At
March 31, 1997, the Company's accumulated deficit was $1,440,912. The ability of
the Company to sustain profitability will depend, in part, upon the successful
marketing of existing products and the successful and timely introduction of new
products. There can be no assurance that the Company will be able to generate
and sustain net sales or profitability in the future.
Dependence Upon a Single Product. The TeliCam I, and its enhanced
version, the TeliCam II, are currently the Company's primary product and,
together with related products such as the InTELInet system, will account for a
substantial portion of the Company's revenue for the foreseeable future. There
can be no assurance that the TeliCam System will be more effective than
competing products or technologies, or will be successfully marketed. The
Company is still in the early stages of marketing the TeliCam System and related
products, and, consequently, the degree to which the market will accept this
product is still uncertain. If the TeliCam System and related products cannot
be marketed successfully on a sustained basis, it is likely that the Company's
business operations would be substantially and adversely impacted.
Importance of New Product Development to Growth. The Company's ability
to develop and introduce new products successfully on a timely basis will be a
significant factor in the Company's ability to grow and remain competitive. New
product development often requires long-term forecasting of market trends, the
development and implementation of new designs, compliance with extensive
governmental regulatory requirements and a substantial capital commitment. The
medical and dental device industry is characterized by rapid technological
change. As technological changes occur in the marketplace, the Company may have
to modify its products in order to keep pace with these changes and
developments. The introduction of products embodying new technologies, or the
emergence of new industry standards, may render existing products, or products
under development, obsolete or unmarketable. Any failure by the Company to
anticipate or respond in a cost-effective and timely manner to government
requirements, market trends or customer requirements, or any significant delays
in product development or introduction, could have a material adverse effect on
the Company's business, operating results and financial condition.
12
<PAGE> 13
Possible Need for Additional Capital. Although the Company believes
that the net proceeds of the Offering, together with existing resources and cash
generated from operations, if any, will be sufficient to satisfy the Company's
working capital requirements for the next twelve months, there can be no
assurance that this will be the case or that these funds will be sufficient to
meet the Company's longer-term cash requirements for expansion. To the extent
that the funds generated by the Offering, if any, together with existing
resources, are insufficient to fund the Company's planned activities and, to the
extent the Company is unsuccessful in concluding negotiations of an acceptable
line of credit, the Company will need to raise additional funds through bank
borrowings, public or private financings, or otherwise. If additional funds are
raised through the issuance of equity securities, additional dilution to
stockholders may occur. No assurance can be given that additional financing
will be available when needed or that, if available, it will be on terms
favorable to the Company or its stockholders. If needed funds are not available,
the Company may be required to curtail its operations, which could have a
material adverse effect on the Company's business, operating results and
financial condition.
Expansion through Undetermined Acquisitions and Joint Ventures. The
Company intends to expand its product lines and domestic and international
markets, in part, through acquisitions. The Company's ability to expand
successfully through acquisitions will depend upon the availability of suitable
acquisition candidates at prices acceptable to the Company, the Company's
ability to consummate such transactions and the availability of financing on
terms acceptable to the Company. There can be no assurance that the Company
will be successful in completing acquisitions. Such transactions involve
numerous risks, including possible adverse short-term effects on the Company's
operating results or the market price of the Common Stock. As of the date of
this Report, the Company is not engaged in negotiations to acquire any
business, and has not yet identified any such business. These acquisitions and
joint ventures may not be subject to approval or review by the Company's
stockholders. The Company does not expect that it will obtain an appraisal
by any independent appraisers with respect to any such acquisition. Certain
of the Company's future acquisitions may also give rise to an obligation by
the Company to make contingent payments or to satisfy certain repurchase
obligations, which payments could have an adverse financial effect
on the Company. In addition, integrating acquired businesses may result in a
loss of customers or product lines of the acquired businesses and also requires
significant management attention and may place significant demands on the
Company's operations, information systems and financial resources. The failure
effectively to integrate acquired businesses with the Company's operations
could adversely affect the Company. In addition, the Company competes for
acquisition opportunities with companies which have significantly greater
financial and management resources than those of the Company. There can be no
assurance that suitable acquisition opportunities will be identified, that any
such transactions can be consummated, or that, if acquired, such new businesses
can be integrated successfully and profitably into the Company's operations.
Moreover, there can be no assurance that the Company's historic rate of growth
will continue, that the Company will continue to successfully expand, or that
growth or expansion will result in profitability.
The Company also intends to expand its product lines and domestic and
international markets through joint ventures. The Company's ability to expand
successfully through joint ventures will depend upon the availability of
suitable joint venture candidates whose terms are acceptable to the Company, the
Company's ability to consummate such transactions and the availability of
financing on terms acceptable to the Company. There can be no assurance that
the Company will be successful in completing joint ventures. Such transactions
involve numerous risks, including possible adverse short-term effects on the
Company's operating results or the market price of the Common Stock. The
Company is currently engaged in discussions relating to product development
joint ventures. The failure effectively to integrate joint ventures with the
Company's operations could adversely affect the Company. In addition, the
Company competes for expansion opportunities with companies which have
significantly greater financial and management resources than those of the
Company. There can be no assurance that suitable investment opportunities will
be identified, that any such transactions can be consummated, or that such new
businesses can be integrated successfully and profitably into the Company's
operations. Moreover, there can be no assurance that the Company's historic
rate of growth will continue, that the Company will continue to successfully
expand, or that growth or expansion will result in profitability.
Dependence on Third-Party Suppliers. With the exception of the
TeliCam System's CCD processor unit, the Company believes that there are
multiple sources from which it may purchase the components of the TeliCam
System. The Company anticipates that it will obtain certain of the components
of the TeliCam System from a single source or a limited number of sources of
supply. Although the Company believes it will be able to negotiate
satisfactory supply
13
<PAGE> 14
arrangements and relationships, the failure to do so may have a material
adverse effect on the Company. Furthermore, there can be no assurance that
suppliers will dedicate sufficient production capacity to satisfy the Company's
requirements within scheduled delivery times or at all. Failure or delay by
the Company's suppliers in fulfilling its anticipated needs may adversely
affect the Company's ability to market the TeliCam System. Pursuant to the
Boston Marketing Distribution Agreement, the Company has the exclusive right to
market Teli Units to the dental market. Boston Marketing is a licensed
distributor of the Teli Units under a separate agreement with their
manufacturer. The agreement between Boston Marketing and the Teli Units
manufacturer obligates Boston Marketing to meet minimum purchase obligations.
If Boston Marketing fails to meet these obligations, Boston Marketing will be
terminated as a licensed distributor. In the event of such termination, the
Company, as a sublicensee subdistributor of Boston Marketing, may lose its
right to purchase the Teli Units. Moreover, in the event the Company is unable
to meet its minimum annual purchase obligations under the Boston Marketing
Distribution Agreement, and, as a consequence, such agreement terminates, the
Company may be required to find an alternative source for the primary component
of its TeliCam System. The Company believes that, in the event the Company
loses its right to sell the Teli Units, replacement components could be
developed by and obtained from third parties, but that this may take more than
six months. The potential delay associated with locating an alternative source
of supply would have a significant adverse effect on the Company's operating
results and financial condition. In addition, there is no guarantee that an
intraoral dental camera system utilizing the replacement components will be
accepted by the dental marketplace.
Fluctuations in Quarterly Results. The Company's business is subject
to certain quarterly influences. Management's prior experience in the industry
would indicate that net sales and operating profits are generally higher in the
fourth quarter due to the purchasing patterns of dentists and are generally
lower in the first quarter due primarily to increased purchases in the prior
quarter and during the summer months due to a reduced volume of trade shows and
increased unavailability of dentists due to summer vacations. The Company plans
to increase expenses to fund greater levels of research and development and to
fund investments in joint ventures and acquisitions. To the extent that such
expenses precede or are not subsequently followed by increased revenues, the
Company's business, quarterly operating results and financial condition will be
adversely affected. Quarterly results may also be adversely affected by a
variety of other factors, including the timing of acquisitions and their related
costs, as well as the release of new products and promotions taking place within
the quarter. Other factors that may influence the Company's quarterly operating
results include the timing of introduction or enhancement of products by the
Company's or its competitors, market acceptance of the TeliCam II, the InTELInet
System and other new products, development and promotional expenses relating to
the introduction of new products or enhancements of existing products, reviews
in the industry press concerning the products of the Company or its competitors,
changes or anticipated changes in pricing by the Company or its competitors, mix
of distribution channels through which products are sold, mix of products sold,
product returns, the timing of orders from major distributors, order
cancellations, delays in shipment and general economic conditions. Due to all
of the foregoing factors, it is also likely that in some future periods the
Company's operating results may be below the expectations of analysts and
investors. In such event, the price of the Company's Common Stock would likely
be materially adversely affected.
Extensive Government Regulation. The Company's products and its
manufacturing practices are subject to regulation by the United States Food and
Drug Administration ("FDA") pursuant to the Federal Food, Drug and Cosmetic Act
("FDC Act"), and by other state and foreign regulatory agencies. Under the FDC
Act, medical and dental devices, including those under development by the
Company must receive FDA clearance or approval before they may be sold, or be
exempted from the need to obtain such clearance or approval. FDA regulations
also require the Company to adhere to certain "Good Manufacturing Practices"
("GMP") regulations, which include validation testing, quality control and
documentation procedures. The Company's compliance with applicable regulatory
requirements is subject to periodic inspections by the FDA.
14
<PAGE> 15
The process of obtaining required regulatory clearances or approvals
can be time-consuming and expensive, and compliance with the FDA's GMP
regulations and other regulatory requirements can be burdensome. Moreover, there
can be no assurance that the required regulatory clearances will be obtained,
and those obtained may include significant limitations on the uses of the
product in question. In addition, changes in existing regulations or the
adoption of new regulations could make regulatory compliance by the Company more
difficult in the future. Although the Company believes that its products and
procedures are currently in material compliance with all relevant FDA
requirements, the failure to obtain the required regulatory clearances or to
comply with applicable regulations could result in fines, delays or suspensions
of clearances, seizures or recalls of products, operating restrictions and
criminal prosecutions, and would have a material adverse effect on the Company.
Competition. The manufacture and distribution of medical and dental
devices is intensely competitive. The Company competes with numerous other
companies, including several major manufacturers and distributors. With
respect to the intraoral camera market, the Company has at least five major
competitors. Most of the Company's competitors have greater financial and
other resources than the Company. Consequently, such entities may begin to
develop, manufacture, market and distribute systems which are substantially
similar or superior to the Company's products.
Rapid Expansion of the Company's Business. From inception (October
23, 1995) through December 31, 1996, the Company has experienced rapid and
substantial growth in revenues and geographic scope of operations. Any future
growth may place a significant strain on management and on the Company's
financial resources and information processing systems. The failure to recruit
additional staff and key personnel, to have sufficient financial resources, to
maintain or upgrade these financial reporting systems, or to respond
effectively to difficulties encountered during expansion could have a material
adverse effect on the Company's business, operating results and financial
condition.
Reliance on International Sales and Distributors and General Risks of
International Operations. For the three-month period ended March 31, 1997,
international sales have accounted for approximately 25% of the Company's net
sales, and the Company expects that international sales may increase as a
percentage of sales in the future. Consequently, the Company is subject to the
risks of conducting business internationally, including unexpected changes in,
or impositions of, legislative or regulatory requirements; fluctuations in the
U.S. dollar which could materially adversely affect U.S. dollar revenues;
tariffs and other barriers and restrictions; potentially adverse taxes; and the
burdens of complying with a variety of international laws and communications
standards. The Company's international sales involve potentially longer payment
cycles and the Company may experience greater difficulty collecting accounts
receivable. The Company currently depends on third party distributors for
substantially all of its international sales. At March 31, 1997, five of the
Company's international distributors accounted for 55% of the Company's accounts
receivable, and five of these distributors accounted for approximately
$1,011,000, or 25%, of the Company's total sales for the three-month period
ended March 31, 1997. Certain of the Company's third party distributors may also
act as resellers for competitors of the Company and could devote greater effort
and resources to marketing competitive products. The loss of, or other
significant reduction in sales to, certain of these third party distributors
could have a material adverse effect on the Company's business and results of
operations. The Company is also subject to general geopolitical risks, such as
political and economic instability and changes in diplomatic and trade
relationships, in connection with its international operations. There can be no
assurance that these risks of conducting business internationally will not have
a material adverse effect on the Company's business. Further, any failure by
the Company to predict or plan for changes in the international arena could have
a material adverse effect on the Company's business, operating results and
financial condition.
15
<PAGE> 16
Dependence on Key Personnel. The Company's future performance will
depend significantly upon its Chairman of the Board and Chief Executive
Officer, Robert H. Gurevitch, and upon certain other key employees of the
Company. The loss of service of one or more of these persons could have a
material adverse effect on the Company's business and operations. The Company
has entered into Employment Agreements with Robert H. Gurevitch and Dewey
Perrigo, the Company's Vice President of Sales, pursuant to which they each
have agreed to render services to the Company until October 1, 1999. The
Company has applied for "key person" life insurance on Mr. Gurevitch in the
amount of $2,000,000, of which the Company would be the sole beneficiary, but
there can be no assurance that such insurance can be obtained or that, if such
insurance is obtained, the proceeds of such insurance will be sufficient to
offset the loss to the Company in the event of his death. The Company does not
maintain any insurance on the lives of its other senior management. In
addition, the Company's success will be dependent upon its ability to recruit
and retain qualified personnel. Any failure by the Company to retain and
attract key personnel could have a material adverse effect on the Company's
business, operating results, and financial condition.
Limited Proprietary Protection. The Company's success and ability to
compete is dependent in part upon its proprietary technology. The Company's
proprietary technology is not protected by any patents. Consequently, the
Company relies primarily on trademark, trade secret and copyright laws to
protect its technology. Also, the Company is currently implementing a policy
that most senior and technical employees and third-party developers sign
nondisclosure agreements. However, there can be no assurance that such
precautions will provide meaningful protection from competition or that
competitors will not be able to develop similar or superior technology
independently. Also, the Company has no license agreements with the end users
of its products, so it may be possible for unauthorized third parties to copy
the Company's products or to reverse engineer or otherwise obtain and use
information that the Company regards as proprietary. If litigation is necessary
in the future, to enforce the Company's intellectual property rights, to protect
the Company's trade secrets or to determine the validity and scope of the
proprietary rights of others, such litigation could result in substantial costs
and diversion of resources and could have a material adverse effect on the
Company's business, operating results and financial condition. Ultimately, the
Company may be unable, for financial or other reasons, to enforce its rights
under intellectual property laws. In addition, the laws of certain countries in
which the Company's products are or may be distributed may not protect the
Company's products and intellectual property rights to the same extent as the
laws of the United States.
The Company believes that its products do not infringe upon any valid
existing proprietary rights of third parties. Although the Company has
received no communication from third parties alleging the infringement of
proprietary rights of such parties, there can be no assurance that third
parties will not assert infringement claims in the future. Any such third
party claims, whether or not meritorious, could result in costly litigation or
require the Company to enter into royalty or licensing agreements. There can
be no assurance that the Company would prevail in any such litigation or that
any such licenses would be available on acceptable terms, if at all. If the
Company were found to have infringed upon the proprietary rights of third
parties, it could be required to pay damages, cease sales of the infringing
products and redesign or discontinue such products, any of which alternatives,
individually or collectively could have a material adverse effect on the
Company's business, operating results and financial condition.
Conflict of Interests. Robert Gurevitch, Chairman of the Company, has
loaned money to the Company ("Loan Obligations") and has guaranteed the
performance by the Company under its leases for its Irvine and Westlake,
California premises as well as the performance by the Company of its obligations
under its credit card processing agreement with Checkfree Corporation. The
Company believes that all of these transactions were on terms no less favorable
than were available from unaffiliated third parties. The Company intends to
attempt to relieve Mr. Gurevitch from his obligations under each of these
guarantees and it is possible that, in order to achieve the release of Mr.
Gurevitch from these guarantees, the Company will be required to post collateral
or provide other concessions to the recipients of the guarantees. The Company
has, in the past, entered into transactions with affiliates and there can be no
assurance that the Company will not enter into transactions with affiliated
parties in the future.
Anti-Takeover Provisions. The Company has an authorized class of
1,000,000 shares of preferred stock which may be issued by the Board of
Directors on such terms and with such rights, preferences and designations as
the Board of Directors may determine. Issuance of such preferred stock,
depending upon the rights, preferences and designations thereof, may have the
effect of delaying, deterring or preventing a change in control of the Company.
In addition, certain "anti-takeover" provisions of the Delaware Law, among
other things, restrict the ability of stockholders to effect a merger or
business combination or obtain control of the Company, and may be considered
disadvantageous by a stockholder.
16
<PAGE> 17
Product Liability. Although the Company has not experienced any
product liability claims to date, the sale and support of products by the
Company may entail the risk of such claims, and there can be no assurance that
the Company will not be subject to such claims in the future. A successful
product liability claim or claim arising as a result of use of the Company's
products brought against the Company, or negative publicity attendant to any
such claim, could have a material adverse effect upon the Company's business,
operating results and financial condition. The Company maintains product
liability insurance with coverage limits of $1,000,000 per occurrence and
$1,000,000 per year. While the Company believes that it maintains adequate
insurance coverage, there can be no assurance that the amount of insurance will
be adequate to satisfy claims made against the Company in the future, or that
the Company will be able to obtain insurance in the future at satisfactory
rates or in adequate amounts.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults in Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security-Holders.
On March 24, 1997, the Company held its Annual Meeting of Stockholders at
which the following proposals were submitted to a vote of the stockholders:
1. The election of Robert H. Gurevitch, Marvin H. Kleinberg and Jack D.
Preston as directors of the Company, each to hold office for one year and
until their respective successors are elected:
2. The approval of an Amended and Restated Certificate of Incorporation to
effect a one-for-1.33333333 reverse stock split of the Company's then
issued and outstanding Common Stock; and
3. The approval of the Company's 1997 Stock Incentive Plan.
Each of the proposals were approved by a vote of the Company's stockholders
as follows:
1. The election of the directors as nominated by the Company:
Robert H. Gurevitch
FOR: 2,276,236 AGAINST: 61,700 WITHELD: 0
---------- ------- -----
ABSTENTIONS: 0 BROKER NON-VOTES: 0
------------- ----------
17
<PAGE> 18
Marvin H. Kleinberg
FOR: 2,276,236 AGAINST: 61,700 WITHELD: 0
---------- ------- -----
ABSTENTIONS: 0 BROKER NON-VOTES: 0
------------- ----------
Jack D. Preston
FOR: 2,276,236 AGAINST: 61,700 WITHELD: 0
---------- ------- -----
ABSTENTIONS: 0 BROKER NON-VOTES: 0
------------- ----------
2. The approval of a one-for -1.33333333 reverse split of the Company's Common
Stock:
FOR: 2,051,074 AGAINST: 286,552 WITHELD: 0
---------- ------- -----
ABSTENTIONS: 0 BROKER NON-VOTES: 0
------------- ----------
3. The approval of the Company's 1997 Stock Incentive Plan:
FOR: 2,233,515 AGAINST: 104,420 WITHELD: 0
---------- ------- -----
ABSTENTIONS: 0 BROKER NON-VOTES: 0
------------- ----------
Item 5. OTHER INFORMATION
None.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11.1 Statement Regarding Computation of Net Income
(Loss) Per Share
Exhibit 27.1 Financial Data Schedule
(b) Reports on Form 8-K
During the fiscal quarter ended March 31, 1997, the Company filed one
report on Form 8-K on February 13, 1997 whereby the Company reported
that, on February 5, 1997 the Board of Directors (i) elected Ronald
E. Wittman as a director of the Company, and (ii) approved a change
in the Company's fiscal year to December 31.
18
<PAGE> 19
Signatures
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on behalf by the undersigned, thereto duly authorized.
Dental/Medical Diagnostic Systems, Inc.
Dated May 20,1997 By: /s/ Ronald E. Wittman
---------------------------------------------
Ronald E. Wittman
Chief Financial Officer
19
<PAGE> 1
EXHIBIT 11.1
Dental/Medical Diagnostic Systems, Inc. and Subsidiaries
For the Three Months Ended March 31, 1997 and Thirteen Weeks Ended June 1, 1996
STATEMENT REGARDING COMPUTATION OF NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
NET INCOME PER SHARE WAS Three Months Ended Thirteen Weeks Ended
CALCULATED AS FOLLOWS: March 31, 1997 June 1, 1996
-------------- ------------
<S> <C> <C>
Primary:
Net Income (loss) $ 47,150 $ (39,990)
Weighted average common shares outstanding 2,985,537 2,672,519
Incremental shares under stock options computed
under the treasury stock method using the
average market price of the issuer's commons
stock during the period 460,342 --
Weighted average common and common equivalent
shares outstanding 3,445,879 2,672,519
Net income (loss) per share $ .01 $ (.01)
Fully diluted:
Net income (loss) $ 47,150 $ (39,990)
Weighted average common shares outstanding 2,985,537 2,672,519
Incremental shares under stock options computed
under the treasury stock method using the
market price of the issuer's common stock at
the end of the period of higher than the
average market price 465,820 --
Weighted average common and common equivalent
shares outstanding 3,451,357 2,672,519
Net Income (loss) per share $ .01 $ (.01)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLAR
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 643,256
<SECURITIES> 0
<RECEIVABLES> 1,826,589
<ALLOWANCES> 20,975
<INVENTORY> 1,382,905
<CURRENT-ASSETS> 4,118,497
<PP&E> 473,276
<DEPRECIATION> 95,043
<TOTAL-ASSETS> 5,048,165
<CURRENT-LIABILITIES> 2,017,728
<BONDS> 0
0
0
<COMMON> 29,855
<OTHER-SE> 1,254,920
<TOTAL-LIABILITY-AND-EQUITY> 5,048,165
<SALES> 3,928,282
<TOTAL-REVENUES> 3,928,282
<CGS> 2,477,644
<TOTAL-COSTS> 1,236,481
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 137,753
<INCOME-PRETAX> 76,404
<INCOME-TAX> 29,254
<INCOME-CONTINUING> 76,404
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 47,150
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
