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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to _______
Commission File Number 0-21450
EQUINOX SYSTEMS INC.
(Exact name of Company as specified in its charter)
FLORIDA 59-2268442
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
ONE EQUINOX WAY
SUNRISE, FLORIDA 33351-6709
(Address of principal executive offices) (Zip Code)
Company's telephone number, including area code: (954) 746-9000.
Indicate by check mark whether the Company (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 Company
was required to file such report(s)), and (2) has been subject to such filling
requirements for the past 90 days. Yes X No
Number of shares of the Common Stock of Equinox Systems Inc. issued
and outstanding as of October 17, 1996: 3,853,108.
The Exhibit is on page 15.
Page 1 of 15
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EQUINOX SYSTEMS INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
THREE MONTHS ENDED SEPTEMBER 30, 1996
PAGE
----
PART I - FINANCIAL INFORMATION
Condensed Consolidated Balance Sheets
September 30, 1996 and December 31, 1995...............................3
Condensed Consolidated Statements of Income
Three and nine months ended September 30, 1996 and 1995................4
Condensed Consolidated Statements of Cash Flows
Nine months ended September 30, 1996 and 1995..........................5
Notes to Condensed Consolidated Financial Statements.......................7
Management's Discussion and Analysis of Financial
Condition and Results of Operations....................................8
PART II - OTHER INFORMATION
Item 5. Other Events......................................................11
Item 6. Exhibits and Reports on Form 8-K..................................13
Signature Page............................................................14
2
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<TABLE>
<CAPTION>
EQUINOX SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------------- -------------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................................... $ 13,690 $ 13,607
Marketable securities............................................... 1,050 507
Accounts receivable................................................. 3,225 3,597
Inventories......................................................... 4,365 4,139
Deferred income taxes............................................... 1,103 1,166
Prepaid expenses and other assets................................... 451 404
------------------- -------------------
Total current assets............................................... 23,884 23,420
------------------- -------------------
PROPERTY AND EQUIPMENT, at cost 5,129 4,824
Less-accumulated depreciation....................................... (1,666) (1,220)
3,463 3,604
------------------- -------------------
$ 27,347 $ 27,024
=================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................................... $ 1,580 $ 2,721
Accrued expenses.................................................... 1,793 2,069
Deferred service contract revenue................................... 194 227
Accrued income taxes................................................ 665 554
------------------- -------------------
Total current liabilities.......................................... 4,232 5,571
------------------- -------------------
DEFERRED INCOME TAXES.................................................. 106 168
------------------- -------------------
SHAREHOLDERS' EQUITY:
Common stock........................................................ 39 39
Additional paid-in capital.......................................... 13,415 13,777
Retained earnings................................................... 9,555 7,469
------------------- -------------------
Total shareholders' equity......................................... 23,009 21,285
------------------- -------------------
$ 27,347 $ 27,024
=================== ===================
</TABLE>
The accompanying notes are an integral part of these statements.
3
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<TABLE>
<CAPTION>
EQUINOX SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands, except per share amounts)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------------- ----------------------------------
1996 1995 1996 1995
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
NET SALES........................................ $ 6,554 $ 5,355 $ 18,732 $ 14,036
COST OF SALES.................................... 3,370 2,858 9,646 7,367
------------- ------------- ------------- --------------
Gross profit.................................. 3,184 2,497 9,086 6,669
------------- ------------- ------------- --------------
OPERATING EXPENSES:
Research and development...................... 674 524 1,945 1,537
Selling, general and administrative........... 1,453 1,514 4,143 4,152
------------- ------------- ------------- --------------
Total operating expenses..................... 2,127 2,038 6,088 5,689
------------- ------------- ------------- --------------
Income from operations....................... 1,057 459 2,998 980
OTHER INCOME..................................... 124 188 367 500
------------- ------------- ------------- --------------
Income before income taxes................... 1,181 647 3,365 1,480
PROVISION FOR INCOME TAXES...................... 449 259 1,279 579
------------- ------------- ------------- --------------
Net income................................... $ 732 $ 388 $ 2,086 $ 901
============= ============= ============= ==============
Earnings per common and common
equivalent share ............................. $ 0.18 $ 0.09 $ 0.51 $ 0.21
============= ============= ============= ==============
Weighted average common and common
equivalent shares outstanding................ 4,097 4,267 4,080 4,232
============= ============= ============= ==============
</TABLE>
The accompanying notes are an integral part of these statements.
4
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<TABLE>
<CAPTION>
EQUINOX SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------
1996 1995
------------------- -------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................. $ 2,086 $ 901
------------------- -------------------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Depreciation.......................................................... 446 287
Provision for doubtful accounts and anticipated sales returns......... 208 391
Provision for warranty costs.......................................... 146 126
Provision for deferred taxes.......................................... 1 309
Amortization of deferred service contract revenue..................... (584) (546)
Imputed compensation on stock options................................. 16 33
(INCREASE) DECREASE IN:
Accounts receivable................................................... 164 10
Inventories........................................................... (226) (587)
Prepaid expenses and other assets..................................... (47) (282)
INCREASE (DECREASE) IN:
Accounts payable...................................................... (1,141) (1,149)
Accrued expenses...................................................... (422) (276)
Deferred service contract revenue..................................... 551 543
Accrued income taxes.................................................. 200 87
------------------- -------------------
Total adjustments..................................................... (688) (1,054)
------------------- -------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES....................... 1,398 (153)
------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities.................................... (1,050) (1,500)
Maturities of marketable securities................................... 507 3,013
Purchases of capital assets........................................... (305) (1,026)
------------------- -------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES....................... $ (848) $ 487
------------------- -------------------
</TABLE>
(Continued)
5
<PAGE>
<TABLE>
<CAPTION>
EQUINOX SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Continued)
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------
1996 1995
------------------- -------------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Stock options exercised............................................... $ 166 $ 294
Repurchase of common stock............................................ (633) (560)
------------------- -------------------
NET CASH USED IN FINANCING ACTIVITIES..................................... (467) (266)
------------------- -------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS................................. 83 68
------------------- -------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD.................................................................... 13,607 12,744
------------------- -------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................................ $ 13,690 $ 12,812
=================== ===================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid..................................................... $ 1,077 $ 189
=================== ===================
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
During 1996 and 1995, the Company realized income tax benefits of
approximately $89,000 and $88,000 in connection with the exercise of stock
options by certain current and former employees.
The accompanying notes are an integral part of these statements.
6
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EQUINOX SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1996
(UNAUDITED)
(1) BASIS OF PRESENTATION
The condensed consolidated balance sheet as of December 31, 1995, which has
been derived from audited statements, and the unaudited interim condensed
consolidated financial statements included herein, have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to those rules and regulations, although
the Company believes that the disclosures made are adequate to make the
information presented not misleading. It is suggested that these financial
statements be read in conjunction with the financial statements and the notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1995.
In the opinion of the Company, its financial statements contain all material
adjustments (consisting of only normal recurring accruals) necessary to present
fairly the Company's financial position and results of operations. Results of
operations for the quarter ended September 30, 1996 are not necessarily
indicative of the results to be expected for the year ended December 31, 1996.
The accounting policies followed for quarterly financial reporting purposes
are the same as those disclosed in the Company's audited financial statements
for the year ended December 31, 1995, included in the Form 10-K.
(2) INCOME PER SHARE
Income per share is computed using the treasury stock method and is based on
the combined weighted average number of common shares and common share
equivalents outstanding which include, where appropriate, the assumed exercise
or conversion of options.
(3) INVENTORIES
Inventories consist of the following as of September 30, 1996 and December
31, 1995 (in thousands):
1996 1995
--------------- ---------------
Raw materials.......................... $ 1,405 $ 1,258
Work-in-progress....................... 331 503
Finished goods......................... 2,629 2,378
--------------- ---------------
$ 4,365 $ 4,139
=============== ===============
(4) COMMON STOCK - STOCK REPURCHASE PROGRAM
In November 1994, the Board of Directors authorized the Company to repurchase
up to 500,000 shares of the Company's issued and outstanding common stock.
Repurchases may be made from time to time, subject to prevailing conditions, in
open market or privately negotiated transactions. During 1995, the Company
repurchased 254,100 shares of its common stock in the open market for an
aggregate purchase price of approximately $1,918,000. During the first quarter
of 1996, the Company repurchased an additional 82,500 shares of its common stock
for approximately $633,000. Accordingly, to date, the Company has repurchased a
total of 336,600 shares at a purchase price of approximately $2,551,000.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
NET SALES. Net sales for the quarter increased 22% to $6.6 million in 1996 from
$5.4 million in 1995. Sales of Serial I/O Products increased 30% to $3.9 million
in 1996 from $3.0 million in 1995, primarily due to increased sales volumes to
distributors.
Serial I/O Product sales have also benefitted from the Company's OEM
agreement with the Hewlett-Packard Company (HP) under which the Company supplies
its SuperSerial products for use in the new HP9000 D-Class servers (launched by
HP during January 1996). Although this agreement does not provide for any future
purchase commitments, based on orders to date as well as preliminary forecasts
received from HP, management believes that sales to HP will continue to
represent at least 10% of 1996 total net sales. Additionally, the Company
continues to pursue several other potential OEM customers. Although the Company
believes there are future growth opportunities relating to existing and
potential OEMs, sales to OEM customers (including HP) are difficult to predict
as they fluctuate along with the demand for the OEM's final product, over which
the Company has little or no control.
Sales of Data Switching Systems and Terminal Servers, collectively, increased
12% to $2.7 million in 1996 from $2.4 million in 1995. This increase is
primarily attributable to higher direct sales of Data Switching Systems
(including one customer that was accountable for $0.8 million during the
quarter) partially offset by a 33% decline in sales of Terminal Servers to
distributors. Management believes that the market for Data Switching Systems
will decline over time. Additionally, management believes that sales of its
current Terminal Server product line may continue to decline until such time as
an enhanced version is developed and introduced.
COST OF SALES. Cost of sales for the quarter increased 18% to $3.4 million in
1996 from $2.9 million in 1995, primarily due to higher net sales. As a
percentage of net sales, cost of sales decreased to 51% from 53% in 1995
primarily as a result of changes in product and channel mix. (Manufacturing
costs for the Company's Data Switching systems, as a percentage of selling
price, are lower than the Company's Serial I/O Products).
The Company's gross margin is dependent in part on product and channel mix which
historically fluctuates from period to period. Increased sales to OEM's may
negatively impact the Company's future gross margin, as OEM sales are typically
priced lower due to volume expectations as well as limited sales/support
requirements. Additionally, as more of the Company's customer base transitions
from its older Serial I/O Products (Megaport/Megaplex) to its newer Serial I/O
offering (SST), margins could also be negatively impacted due to somewhat higher
product cost of the SST line combined with its aggressive pricing.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses increased
29% to $0.7 million in 1996 from $0.5 million in 1995, primarily due to
increased personnel. As a percentage of net sales, research and development
expenses were 10% in 1996 and 1995. Research and development costs are charged
to expense as incurred.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative (SG&A) expenses were $1.5 million in 1996 and 1995. As a
percentage of net sales, SG&A expenses decreased to 22% in 1996 from 28% in 1995
primarily due to the increase in OEM sales, which require limited sales or
marketing support.
INCOME FROM OPERATIONS. Income from operations for the quarter increased to $1.1
million in 1996 from $0.5 million in 1995, primarily as the result of the
Company's increased sales and gross profit partially offset by increased
research and development expenses. As a percentage of net sales, income from
operations increased to 16% in 1996 from 9% in 1995.
8
<PAGE>
OTHER INCOME. Other income, which includes interest income, decreased $64,000
primarily due to lower interest rates on invested cash balances. As a percentage
of net sales, other income decreased to 2% in 1996 from 4% in 1995 primarily as
a result of the Company's increased sales.
PROVISION FOR INCOME TAXES. The provision for income taxes for the quarter
increased to $0.4 million in 1996 from $0.3 million in 1995, an increase of $0.1
million, primarily as a result of the Company's increased income from
operations. The effective rate for the combined Federal and state tax provision
was 38% in 1996 and 40% in 1995.
NET INCOME. Net income for the quarter increased to $0.7 million in 1996
compared to $0.4 million in 1995, an increase of $0.3 million, primarily as the
result of the Company's increased sales and gross profit partially offset by
higher research and development expenses. As a percentage of net sales, net
income increased to 11% in 1996 from 7% in 1995.
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
NET SALES. Net sales for the nine months increased 33% to $18.7 million from
$14.0 million in 1995. Sales of Serial I/O Products increased 47% to $11.8
million from $8.0 million in 1995, due to greater sales volume to both of the
Company's sales channels. OEM and distribution contributed equally to the
year-to-date Serial I/O sales growth. Although the Company has reported
increased Serial I/O sales compared to the prior year, sales of these products
have remained at approximately the same level in each of the three quarters
during 1996.
Sales of Data Switching Systems and Terminal Servers, collectively increased 15%
to $6.9 million in 1996 from $6.0 million in 1995. This increase is primarily
attributable to higher direct sales of Data Switching Systems (particularly to
one customer which accounted for 47% of year-to-date Data Switching Systems
revenues) partially offset by a 13% decline in sales of Terminal Servers to
distributors. Management does not expect Data Switching Systems sales to that
customer to continue at comparable levels.
COST OF SALES. Cost of sales for the nine months increased 31% to $9.6 million
from $7.4 million in 1995, primarily due to higher net sales. As a percentage of
net sales, cost of sales decreased to 51% from 52% in 1995 primarily due to
volume efficiencies as well as product and channel mix.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses for the
nine months increased 27% to $1.9 million from $1.5 million in 1995, primarily
due to additional personnel required as a result of expanded development
efforts. As a percentage of net sales, research and development expenses
decreased to 10% in 1996 from 11% in 1995 primarily due to the increase in net
sales. Research and development costs are charged to expense as incurred.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses for the nine
months were approximately $4.1 million in 1996 and 1995. Although the Company
has not incurred any incremental SG&A costs in connection with the increased
sales for the first nine months of 1996, management expects SG&A costs to
increase as the Company grows. As a percentage of net sales, SG&A expenses
decreased to 22% in 1996 from 30% in 1995 due to the increase in net sales.
INCOME FROM OPERATIONS. Income from operations for the nine months increased to
$3.0 million from $1.0 million in 1995, an increase of $2.0 million primarily
due to increased sales and gross profit partially offset by increased research
and development expenses. As a percentage of net sales, income from operations
increased to 16% in 1996 from 7% in 1995.
OTHER INCOME. Other income, which includes interest income, decreased to $0.4
million from $0.5 million in 1995, a decrease of $0.1 million or 27%, primarily
due to lower interest rates on invested cash balances.
PROVISION FOR INCOME TAXES. The Company's provision for income taxes for the
nine months increased to $1.3 million from $0.6 million, an increase of $0.7
million primarily as a result of the Company's increased income from operations.
The effective rate for the combined Federal and state tax provision was 38% in
1996 and 39% in 1995.
NET INCOME. Net income for the nine months increased to $2.1 million in 1996
from $0.9 million in 1995, an increase of $1.2 million or 132%. As a percentage
of net sales, net income increased to 11% in 1996 from 6% in 1995, primarily as
a result of increased sales and gross profit partially offset by higher research
and development expenses.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital was $19.7 million at September 30, 1996, compared
with $17.8 million at December 31, 1995. Cash and cash equivalents were $13.7
million at September 30, 1996, compared with $13.6 million at December 31, 1995.
Net cash provided by operating activities was $1.4 million during the nine
months ended September 30, 1996. This was primarily due to net income offset by
reductions in accounts payable and accrued expenses. Net cash used in investing
activities was $0.8 million during the period, primarily due to net purchases of
marketable securities and purchases of capital assets. Net cash used in
financing activities was $0.5 million primarily due to repurchases of common
stock (see below for further discussion). As of September 30, 1996, the Company
had no material commitments for capital expenditures.
In November 1994, the Board of Directors authorized the Company to repurchase up
to 500,000 shares of the Company's issued and outstanding common stock.
Repurchases may be made from time to time, subject to prevailing conditions, in
open market or privately negotiated transactions. To date, the Company has
repurchased a total of 336,600 shares at a purchase price of approximately
$2,551,000.
Management believes that cash on hand together with funds generated from
operations will be adequate to meet the Company's working capital and capital
expenditure needs for at least the next 12 months.
POTENTIAL FLUCTUATIONS IN FINANCIAL RESULTS
Most of the Company's customers order products for immediate delivery and,
therefore, a substantial amount of the Company's net sales in each quarter
result from orders booked that quarter. Accordingly, the Company's quarterly net
sales and operating results may vary significantly as a result of, among other
things, the volume and timing of orders received during a quarter, variations in
sales mix, increased competition, announcements or introductions of new products
by the Company or its competitors, changes in costs of components, delays in
production schedules and changes in economic or other conditions affecting
customers or end users of the Company's products. Accordingly, the Company's
historical financial performance is not necessarily a meaningful indicator of
future results and, in general, management expects that the Company's financial
results may vary from period to period, which may result in significant
fluctuations in the stock price of the Company.
10
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PART II - OTHER INFORMATION
ITEM 5. OTHER EVENTS
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company is providing the following cautionary
statements identifying important factors that could cause the Company's actual
results to differ materially from those projected in any forward-looking
statements made by, or on behalf of, the Company.
The Company wishes to caution readers that the following important factors,
among others, in some cases have affected, and in the future could affect, the
Company's actual results and could cause the Company's actual consolidated
results throughout 1996 and beyond to differ materially from those expressed in
any forward-looking statements made by, or on behalf of, the Company.
GENERAL BUSINESS AND ECONOMIC CONDITIONS
General business and economic conditions have an impact on the Company's
financial results. The Company's customer base, which is largely distributors,
may be impacted by weak economic conditions and, as a result, may reduce
inventory levels of products purchased from the Company. Although the Company
does not consider its business to be highly seasonal, the historical quarterly
trends reflected over the last two years may, in fact, be adversely affected by
general economic conditions both domestically and abroad and may or may not
continue.
COMPETITION
The markets for the Company's products are intensely competitive. The Company's
products compete both with other technologies as well as similar products
manufactured by other companies, some of which have more extensive research and
development, manufacturing, marketing and product support capabilities as well
as greater financial, technological and other resources than the Company. The
Company believes that its ability to compete depends on a number of factors,
including product quality and reliability, performance, price, product delivery,
service and support and name recognition. There can be no assurance that the
Company will be able to continue to compete successfully with respect to these
factors.
PRODUCT SHORTAGES
The competitiveness of the industry requires that the Company fulfill many of
its orders within a very short time period (typically within one week after
receipt of order). Should the Company be unable to fulfill orders on a timely
basis due to inaccurate forecasting by the Company or shortages at its
suppliers, orders could be canceled and placed with a competitor.
Additionally, certain important components used in the Company's products
presently are available from one or a limited number of sources. Also, most of
the Company's product lines currently are manufactured for the Company by one
contractor for each product line. The inability to obtain sufficient quantities
of sole or limited source components as required, or to develop alternative
sources of supply for components or alternative sources to manufacture its
finished products, could result in delays or reductions in product shipments
which could have a material adverse effect on the Company's business.
EXPOSURE TO NATURAL DISASTERS
The Company's headquarters facility, as well as certain of its turn-key
manufacturers are located in areas prone to natural disasters, specifically
hurricanes. In August 1992, Hurricane Andrew caused extensive damage to the
Company's former headquarters facility and the majority of the Company's assets.
While the Company recovered quickly from this disaster, it believes that its
operating results and financial condition could be adversely affected should
another natural disaster strike its current facility, any of its turn-key
manufacturers, or any of its major customers.
11
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TECHNOLOGICAL CHANGES
The market for the Company's products is characterized by continued and rapid
technological advances in both hardware and software development requiring
ongoing expenditures for research and development and the timely introduction of
new products. To remain competitive, the Company must respond effectively to
technological changes by continuing to enhance and improve its existing products
and by successfully developing and introducing new products. There can be no
assurance that the Company will be able to respond effectively to technological
changes or new product announcements or introductions by others.
PROPRIETARY RIGHTS
The Company relies primarily upon the technical expertise and creative skills of
its personnel, rather than patents and copyrights, to develop and maintain its
competitive position. However, there can be no assurance that competitors will
not develop products or technology that are equivalent or superior to those of
the Company or that the safeguards on which the Company relies will be adequate
to protect its interests. In addition, it is common in the computer industry for
companies to seek to assert claims for infringement of their patents or
proprietary rights. Although no such claims are pending against the Company,
there can be no assurance that these claims will not be made or that, if made,
any license that might be needed by the Company will be available on
commercially reasonable terms.
DISTRIBUTION AND OEM RISKS
The Company is dependent upon the continued viability and financial stability of
its distributors and OEM customers. The loss or ineffectiveness of certain of
the Company's distributors and/or OEM customers could have a material adverse
effect on the Company's operating results.
International distributor sales are denominated and transacted in U.S. dollars
and are subject to risks common to export activities, including governmental
regulation, trade barriers and fluctuating currency exchange rates (which
affects the competitiveness of U.S. products sold abroad). In addition, the
Company's international sales must be licensed by the Office of Export
Administration of the U.S. Department of Commerce. To date, the Company has not
experienced any difficulty in conducting export sales, including obtaining
necessary export licenses. There can be no assurance, however, that these or
other factors affecting international sales will not adversely affect the
Company's future operating results.
PRODUCT RETURNS, PRICE PROTECTION AND WARRANTIES
As is typical in the computer industry, the Company's distributors may be
entitled to return inventory to the Company for stock rotation purposes and
receive credit against other purchases on terms relating to price and volume
negotiated with Company. In addition, if the Company reduces its prices, the
Company credits its distributors for the difference between the purchase price
of products remaining in their inventory and the Company's reduced price for
such products. The Company's 3-5 year limited warranty permits customers to
return any product for repair or replacement if the product does not perform as
warranted. There can be no assurance that product returns, price protection and
warranty claims will not have a material adverse effect on the Company's future
operating results. The Company seeks to continually introduce new and enhanced
products which could result in higher product returns and warranty claims due to
the risks inherent in the introduction of such products.
DEPENDENCE ON KEY PERSONNEL
William A. Dambrackas, the Company's Chairman and Chief Executive Officer,
Robert F. Gintz, the Company's Vice President, Development, Mark Kacer, the
Company's Vice President, Finance and Administration, and Tom Garrett, the
Company's Vice President of Sales, have been primarily responsible for the
development and expansion of the Company's business, and the loss of the
services of one or more of these individuals could adversely affect the Company.
In addition, the Company believes that its future success will be dependent in
part on its continued ability to recruit, motivate and retain qualified
personnel. There can be no assurance that the Company will be successful in this
regard.
12
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 11.0 - Computation of Income Per Share
(b) During the quarter ended September 30, 1996, the Company did not
file any reports on Form 8-K.
13
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SIGNATURE
Pursuant to the requirements 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.
EQUINOX SYSTEMS INC.
/S/ MARK KACER
---------------------------------------
MARK KACER, Chief Financial Officer
(Principal Financial Officer)
DATE: OCTOBER 17, 1996
14
Exhibit 11.0
<TABLE>
<CAPTION>
EQUINOX SYSTEMS INC. AND SUBSIDIARIES
COMPUTATION OF INCOME PER SHARE
(In thousands, except per share amounts)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------------- -----------------------------------
1996 1995 1996 1995
------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Net income as reported..........................$ 732 $ 388 $ 2,086 $ 901
============= =============== ============== ==============
Weighted average common and common equivalent
shares outstanding -- primary:
Common stock.................................... 3,850 4,143 3,842 4,115
Options......................................... 233 124 204 117
------------- --------------- -------------- --------------
Total common and common share equivalents....... 4,083 4,267 4,046 4,232
============= =============== ============== ==============
Net income per share -- primary.................$ 0.18 $ 0.09 $ 0.52 $ 0.21
============= =============== ============== ==============
Weighted average common and common equivalent
shares outstanding -- assuming full dilution:
Common stock.................................... 3,850 4,143 3,842 4,115
Options......................................... 247 124 238 117
------------- --------------- -------------- --------------
Total common and common share equivalents....... 4,097 4,267 4,080 4,232
============= =============== ============== ==============
Net income per share -- assuming full dilution..$ 0.18 $ 0.09 $ 0.51 $ 0.21
============= =============== ============== ==============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JUN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 13,690
<SECURITIES> 1,050
<RECEIVABLES> 4,921
<ALLOWANCES> 1,696
<INVENTORY> 4,365
<CURRENT-ASSETS> 23,884
<PP&E> 5,129
<DEPRECIATION> 1,666
<TOTAL-ASSETS> 27,347
<CURRENT-LIABILITIES> 4,232
<BONDS> 0
0
0
<COMMON> 39
<OTHER-SE> 22,970
<TOTAL-LIABILITY-AND-EQUITY> 23,009
<SALES> 18,732
<TOTAL-REVENUES> 18,732
<CGS> 9,646
<TOTAL-COSTS> 9,646
<OTHER-EXPENSES> 6,088
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,365
<INCOME-TAX> 1,279
<INCOME-CONTINUING> 2,086
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,086
<EPS-PRIMARY> 0.52
<EPS-DILUTED> 0.51
</TABLE>
