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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 JUNE 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 filing
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
July 19, 1996: 3,847,047.
The Exhibit is on page 15.
Page 1 of 15
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<PAGE>
EQUINOX SYSTEMS INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q
THREE MONTHS ENDED JUNE 30, 1996
PAGE
----
PART I - FINANCIAL INFORMATION
Condensed Consolidated Balance Sheets
June 30, 1996 and December 31, 1995....................................3
Condensed Consolidated Statements of Income
Three and six months ended June 30, 1996 and 1995......................4
Condensed Consolidated Statements of Cash Flows
Six months ended June 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 4. Submission of Matters to a Vote of Security Holders..............11
Item 5. Other Information.................................................11
Item 6. Exhibits and Reports on Form 8-K..................................13
Signature Page............................................................14
2
<PAGE>
<TABLE>
<CAPTION>
EQUINOX SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
JUNE 30, DECEMBER 31,
1996 1995
----------- ----------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................. 13,430 13,607
Marketable securities................................. -- 507
Accounts receivable................................... 2,853 3,597
Inventories........................................... 5,135 4,139
Deferred income taxes................................. 1,134 1,166
Prepaid expenses and other assets..................... 464 404
----------- ----------
Total current assets................................. 23,016 23,420
----------- ----------
PROPERTY AND EQUIPMENT, at cost 5,034 4,824
Less-accumulated depreciation and amortization........ (1,512) (1,220)
3,522 3,604
----------- ----------
26,538 27,024
=========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable...................................... 1,630 2,721
Accrued expenses...................................... 1,683 2,069
Deferred service contract revenue..................... 127 227
Accrued income taxes.................................. 724 554
----------- ----------
Total current liabilities............................ 4,164 5,571
----------- ----------
DEFERRED INCOME TAXES.................................... 136 168
----------- ----------
SHAREHOLDERS' EQUITY:
Common stock.......................................... 38 39
Additional paid-in capital............................ 13,377 13,777
Retained earnings..................................... 8,823 7,469
----------- ----------
Total shareholders' equity........................... 22,238 21,285
----------- ----------
26,538 27,024
=========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE>
<TABLE>
<CAPTION>
EQUINOX SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands, except per share amounts)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
--------------------------------- ---------------------------------
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
NET SALES............................ $ 6,092 $ 4,016 $ 12,178 $ 8,681
COST OF SALES........................ 3,160 2,186 6,276 4,509
------------- ------------- ------------- -------------
Gross profit...................... 2,932 1,830 5,902 4,172
------------- ------------- ------------- -------------
OPERATING EXPENSES:
Research and development.......... 627 519 1,271 1,013
Selling, general and
administrative.................... 1,339 1,290 2,690 2,638
------------- ------------- ------------- -------------
Total operating expenses......... 1,966 1,809 3,961 3,651
------------- ------------- ------------- -------------
Income from operations........... 966 21 1,941 521
OTHER INCOME......................... 129 166 243 312
------------- ------------- ------------- -------------
Income before income taxes....... 1,095 187 2,184 833
PROVISION FOR INCOME TAXES.......... 415 75 830 320
------------- ------------- ------------- -------------
Net income....................... $ 680 $ 112 $ 1,354 $ 513
============= ============= ============= =============
INCOME PER SHARE -- PRIMARY:
Net income....................... $ 0.17 $ 0.03 $ 0.34 $ 0.12
============= ============= ============= =============
Weighted average common and
common equivalent shares
outstanding...................... 4,067 4,236 $ 4,028 4,224
============= ============= ============= =============
INCOME PER SHARE -- ASSUMING
FULL DILUTION:
Net income....................... $ 0.17 $ 0.03 $ 0.34 $ 0.12
============= ============= ============= =============
Weighted average common and
common equivalent shares
outstanding...................... 4,067 4,254 $ 4,041 4,233
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE>
<TABLE>
<CAPTION>
EQUINOX SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
SIX MONTHS ENDED JUNE 30,
---------------------------------
1996 1995
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................. $ 1,354 $ 513
------------- -------------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Depreciation.......................................................... 292 180
Provision for doubtful accounts and anticipated
sales returns......................................................... (124) (67)
Provision for warranty costs.......................................... 91 74
Provision for deferred taxes.......................................... - 308
Amortization of deferred service contract
revenue............................................................... (291) (346)
Imputed compensation on stock options................................. 16 -
(INCREASE) DECREASE IN:
Accounts receivable................................................... 868 789
Inventories........................................................... (996) (982)
Prepaid expenses and other assets..................................... (60) (225)
INCREASE (DECREASE) IN:
Accounts payable...................................................... (1,091) (1,571)
Accrued expenses...................................................... (477) (893)
Deferred service contract revenue..................................... 191 284
Accrued income taxes.................................................. 234 (32)
------------ -------------
Total adjustments..................................................... (1,347) (2,481)
------------- -------------
NET CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES................................................................ 7 (1,968)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities.................................... - (1,000)
Maturities of marketable securities................................... 507 1,267
Purchases of capital assets........................................... (210) (312)
------------- -------------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES........................................................... $ 297 $ (45)
------------- -------------
</TABLE>
(Continued)
5
<PAGE>
<TABLE>
<CAPTION>
EQUINOX SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Continued)
SIX MONTHS ENDED JUNE 30,
--------------------------------
1996 1995
------------ -------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Stock options exercised........................................... $ 152 $ 211
Repurchase of common stock........................................ (633) (142)
------------ -------------
NET CASH (USED IN) PROVIDED BY FINANCING
ACTIVITIES................................................................ (481) 69
------------ -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS................................. (177) (1,944)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD.................................................................... 13,607 12,744
------------ -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD................................ $ 13,430 $ 10,800
============ =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid................................................. $ 612 $ 51
============ =============
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
During 1996 and 1995,the Company realized income tax benefits of
approximately $66,000 and $55,000 in connection with the exercise of
stock options by certain current and former employees.
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE>
EQUINOX SYSTEMS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 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 June 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
of options.
(3) INVENTORIES
Inventories consist of the following as of June 30, 1996 and December
31, 1995 (in thousands):
1996 1995
--------------- ---------------
Raw materials.......................... $ 1,388 $ 1,258
Work-in-progress....................... 522 503
Finished goods......................... 3,225 2,378
--------------- ---------------
$ 5,135 $ 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 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 JUNE 30, 1996 AND 1995
NET SALES. Net sales for the quarter increased to $6.1 million in 1996
from $4.0 million in 1995, an increase of $2.1 million, or 52%. Sales of Serial
I/O products increased to $4.0 million in 1996 from $2.3 million in 1995, an
increase of $1.7 million, or 74%, primarily due to greater sales volumes to
distributors which increased 62%. Additionally, sales to OEM customers,
principally the Hewlett-Packard Company (HP), increased 94%.
In 1995, the Company entered into an OEM agreement with HP and began
supplying its SuperSerial products for use in HP's 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 to $2.1 million in 1996 from $1.7 million in 1995, an increase of $0.4
million, or 24%. This increase is attributable to higher direct sales of Data
Switching Systems as well as increased sales of Terminal Servers through the
Company's distributors. Management believes that the market for Data Switching
Systems will decline over time. Additionally, competitive pressures, primarily
related to pricing, may inhibit the Company's ability to sustain its recent
growth in the Terminal Server market.
COST OF SALES. Cost of sales for the quarter increased to $3.2 million
in 1996 from $2.2 million in 1995, an increase of $1.0 million, or 45% primarily
due to higher net sales. As a percentage of net sales, cost of sales decreased
to 52% from 54% in 1995 primarily as a result of greater absorbed overhead due
to higher production volume.
The Company's gross margin is dependent, in part, on production volume
as well as 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 transition from the older Serial I/O products
(Megaport/Megaplex) to the newer Serial I/O products (SST), future margins may
be negatively impacted due to the aggressive pricing of the SST line.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses
increased to $0.6 million in 1996 from $0.5 million in 1995, an increase of $0.1
million, or 21%, primarily due to increased personnel. As a percentage of net
sales, research and development expenses decreased to 10% in 1996 from 13% in
1995 due to the increase in net sales. Research and development costs are
charged to expense as incurred.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative (SG&A) expenses were $1.3 million in 1996 and 1995. As a
percentage of net sales, SG&A expenses decreased to 22% in 1996 from 32% in 1995
due to the increase in net sales.
INCOME FROM OPERATIONS. Income from operations for the quarter increased
to $1.0 million in 1996 from $21,000 in 1995, an increase of $1.0 million,
primarily as the result of the Company's increased sales and gross profit
partially offset by increased operating expenses. As a percentage of net sales,
income from operations increased to 16% in 1996 from 1% in 1995.
OTHER INCOME. Other income, which primarily includes interest income,
decreased $37,000 due to lower 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.
8
<PAGE>
PROVISION FOR INCOME TAXES. The provision for income taxes for the
quarter increased to $0.4 million in 1996 from $0.1 million in 1995, an increase
of $0.3 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 $0.1 million in 1995, an increase of $0.6 million, primarily as the
result of the Company's increased sales and gross profit partially offset by
higher operating expenses. As a percentage of net sales, net income increased to
11% in 1996 from 3% in 1995.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1996 AND 1995
NET SALES. Net sales for the six months increased to $12.2 million in
1996 from $8.7 million in 1995, an increase of $3.5 million, or 40%. Sales of
Serial I/O Products increased to $8.0 million from $5.1 in 1995, an increase of
$2.9 or 57%, primarily due to greater sales volume to distributors which
increased 33%. Additionally, sales to OEM customers (principally HP) increased
114%.
Sales of Data Switching Systems and Terminal Servers, collectively
increased to $4.2 million in 1996 from $3.6 million in 1995, an increase of
$0.6 million or 17%. This increase is attributable to higher direct sales of
Data Switching Systems and increased volume of Terminal Servers through the
Company's distributors. Management believes that the market for Data Switching
Systems will decline over time. Additionally, competitive pressures, primarily
related to pricing, may inhibit the Company's ability to sustain its growth in
the Terminal Server market.
COST OF SALES. Cost of sales for the six months increased to $6.3
million from $4.5 million in 1995, an increase of $1.8 million or 39% primarily
due to higher net sales. As a percentage of net sales, cost of sales was 52% in
1996 and 1995.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses for
the six months increased to $1.3 million from $1.0 million in 1995, an increase
of $0.3 million or 25% primarily due to increased personnel. As a percentage of
net sales, research and development expenses decreased to 10% in 1996 from 12%
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 six
months increased to $2.7 million from $2.6 million, an increase of $0.1 million
or 2%. 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 six months
increased to $1.9 million from $0.5 million in 1995, an increase of $1.4 million
primarily due to increased sales and gross profit partially offset by increased
operating expenses. As a percentage of net sales, income from operations
increased to 16% in 1996 from 6% in 1995.
OTHER INCOME. Other income, which includes interest income, decreased to
$0.2 million from $0.3 million in 1995, a decrease of $0.1 million or 22%,
primarily due to lower invested cash balances in the first half of 1996.
PROVISION FOR INCOME TAXES. The Company's provision for income taxes for
the six months increased to $0.8 million from $0.3 million, an increase of $0.5
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 1995.
NET INCOME. Net income for the six months increased to $1.4 million in
1996 from $0.5 million in 1995, an increase of $0.9 million or 164%. 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 operating expenses.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital was $18.9 million at June 30, 1996,
compared with $17.8 million at December 31, 1995. Cash and cash equivalents were
$13.4 million at June 30, 1996, compared with $13.6 million at December 31,
1995. Net cash provided by operating activities was $7,000 during the six months
ended June 30, 1996. This was primarily due to net income offset by an increase
in inventory and reductions in accounts receivable, accounts payable and accrued
expenses. To avoid losing sales opportunities, the Company has increased safety
stock levels to address the increasing popularity of the Company's new
SuperSerial products combined with the continued (although declining) demand for
the Company's older products (Megaport, Megaplex, etc.). Net cash provided by
investing activities was $0.3 million during the period, primarily due to
maturities of marketable securities partially offset by 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 June 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. 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 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.
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
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
(a) On June 20, 1996, the Company held its Annual Meeting of the
Shareholders.
(b) Not required.
(c) At the Annual Meeting, shareholders voted for the election of
directors and the approval of an amendment to the Company's 1993
Stock Option Plan (the "Plan"). The amendment was to increase the
number of shares of the Company's common stock reserved for
issuance under the Plan from 650,000 to 800,000. The shareholders
elected all nominated directors in an uncontested election and
also approved the amendment to the Plan by the following votes:
<TABLE>
<CAPTION>
DIRECTORS
---------
FOR WITHHELD ABSTENTIONS BROKER NON-VOTES
--- -------- ----------- ----------------
<S> <C> <C> <C> <C>
William A. Dambrackas 3,504,805 117,600 - -
Mark Kacer 3,503,523 118,882 - -
Charles A. Reid 3,504,905 117,500 - -
Robert F. Williamson, Jr. 3,504,805 117,600 - -
AMENDMENT TO 1993 STOCK OPTION PLAN
-----------------------------------
FOR WITHHELD ABSTENTIONS BROKER NON-VOTES
--- -------- ----------- ----------------
2,486,670 935,135 14,066 186,534
(d) Not applicable
</TABLE>
ITEM 5. OTHER INFORMATION
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.
11
<PAGE>
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.
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.
12
<PAGE>
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, and Mark
Kacer, the Company's Vice President, Finance and Administration, 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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 11.0 - Computation of Income Per Share
(b) During the quarter ended June 30, 1996, the Company did not
file any reports on Form 8-K.
13
<PAGE>
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: JULY 23, 1996
-------------
14
Exhibit 11.0
<TABLE>
<CAPTION>
EQUINOX SYSTEMS INC. AND SUBSIDIARIES
COMPUTATION OF INCOME PER SHARE
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------- -------------------------------
1996 1995 1996 1995
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Net income as reported................................. $ 680,000 $ 112,000 $ 1,354,000 $ 513,000
============ ============ ============= ============
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES
OUTSTANDING -- PRIMARY:
Common stock........................................... 3,841,181 4,131,010 3,838,508 4,110,215
Options................................................ 226,245 105,331 189,377 113,795
------------ ------------ ------------- ------------
Total common and common share 4,067,426 4,236,341 4,027,885 4,224,010
equivalents........................................... ============ ============ ============= ============
Net income per share -- primary........................ $ 0.17 $ 0.03 $ 0.34 $ 0.12
============ ============ ============= ============
WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING -- ASSUMING FULL DILUTION:
Common stock........................................... 3,841,181 4,131,010 3,838,508 4,110,215
Options................................................ 226,245 123,085 202,161 122,672
------------ ------------ ------------- ------------
Total common and common share 4,067,426 4,254,095 4,040,669 4,232,887
equivalents............................................ ============ ============ ============= ============
Net income per share -- assuming $ 0.17 $ 0.03 $ 0.34 $ 0.12
full dilution.......................................... ============ ============ ============= ============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 13,430
<SECURITIES> 0
<RECEIVABLES> 4,342
<ALLOWANCES> 1,489
<INVENTORY> 5,135
<CURRENT-ASSETS> 23,016
<PP&E> 5,034
<DEPRECIATION> 1,512
<TOTAL-ASSETS> 26,538
<CURRENT-LIABILITIES> 4,164
<BONDS> 0
0
0
<COMMON> 38
<OTHER-SE> 22,200
<TOTAL-LIABILITY-AND-EQUITY> 26,538
<SALES> 12,178
<TOTAL-REVENUES> 12,178
<CGS> 6,276
<TOTAL-COSTS> 6,276
<OTHER-EXPENSES> 3,961
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,184
<INCOME-TAX> 830
<INCOME-CONTINUING> 1,354
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,354
<EPS-PRIMARY> 0.34
<EPS-DILUTED> 0.34
</TABLE>
