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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, 1997
[ ] 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 August 8, 1997: 3,245,417.
Page 1 of 15
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<PAGE>
EQUINOX SYSTEMS INC.
INDEX TO FORM 10-Q
PAGE
----
PART I - FINANCIAL INFORMATION
Condensed Consolidated Balance Sheets
June 30, 1997 and December 31, 1996...................................3
Condensed Consolidated Statements of Income
Three and six months ended June 30, 1997 and 1996.....................4
Condensed Consolidated Statements of Cash Flows
Six months ended June 30, 1997 and 1996...............................5
Notes to Condensed Consolidated Financial Statements......................6
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. Factors that May Affect Future Results..........................12
Item 6. Exhibits and Reports on Form 8-K................................14
Signature Page...........................................................15
2
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<TABLE>
<CAPTION>
EQUINOX SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(In thousands)
JUNE 30, DECEMBER 31,
1997 1996
--------------- ---------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents........................................... $ 9,977 $ 12,998
Marketable securities............................................... 1,750 1,350
Accounts receivable................................................. 3,640 3,480
Inventories......................................................... 4,287 4,073
Deferred income taxes............................................... 1,064 1,068
Prepaid expenses and other assets................................... 682 423
--------------- ---------------
Total current assets............................................... 21,400 23,392
--------------- ---------------
PROPERTY AND EQUIPMENT, at cost 5,410 5,212
Less-accumulated depreciation....................................... (2,137) (1,825)
3,273 3,387
--------------- ---------------
$ 24,673 $ 26,779
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................................... $ 2,653 $ 2,294
Accrued expenses.................................................... 1,452 1,588
Deferred service contract revenue................................... 117 192
Accrued income taxes................................................ 479 383
--------------- ---------------
Total current liabilities.......................................... 4,701 4,457
--------------- ---------------
DEFERRED INCOME TAXES.................................................. 28 31
--------------- ---------------
SHAREHOLDERS' EQUITY:
Common stock........................................................ 32 37
Additional paid-in capital.......................................... 8,151 12,030
Retained earnings................................................... 11,761 10,224
--------------- ---------------
Total shareholders' equity......................................... 19,944 22,291
--------------- ---------------
$ 24,673 $ 26,779
=============== ===============
The accompanying notes are an integral part of these condensed consolidated balance sheets.
</TABLE>
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,
--------------------------------- ------------------------------
1997 1996 1997 1996
-------------- -------------- ------------- ------------
<S> <C> <C> <C> <C>
NET SALES.............................................. $ 6,590 $ 6,092 $ 12,954 $ 12,178
COST OF SALES.......................................... 3,269 3,160 6,510 6,276
-------------- -------------- ------------- ------------
Gross profit........................................ 3,321 2,932 6,444 5,902
-------------- -------------- ------------- ------------
OPERATING EXPENSES:
Research and development............................ 708 627 1,462 1,271
Selling, general and administrative................. 1,506 1,339 2,854 2,690
-------------- -------------- ------------- ------------
Total operating expenses.......................... 2,214 1,966 4,316 3,961
-------------- -------------- ------------- ------------
Income from operations............................ 1,107 966 2,128 1,941
OTHER INCOME, NET...................................... 128 129 256 243
-------------- -------------- ------------- ------------
Income before income taxes........................ 1,235 1,095 2,384 2,184
PROVISION FOR INCOME TAXES............................ 432 415 846 830
-------------- -------------- ------------- ------------
Net income........................................ $ 803 $ 680 $ 1,538 $ 1,354
============== ============== ============= ============
NET INCOME PER SHARE................................... $ 0.23 $ 0.17 $ 0.41 $ 0.34
============== ============== ============= ============
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING............................................ 3,538 4,067 3,718 4,041
============== ============== ============= ============
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
4
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<TABLE>
<CAPTION>
EQUINOX SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
SIX MONTHS ENDED JUNE 30,
---------------------------------
1997 1996
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................. $ 1,538 $ 1,354
------------- -------------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Depreciation......................................................... 312 292
Provision for doubtful accounts and anticipated sales returns........ 419 243
Provision for warranty costs......................................... 68 91
Recognition of deferred service contract revenue..................... (314) (291)
Imputed compensation on stock options................................ -- 16
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable.................................................. (579) 469
Inventories.......................................................... (214) (996)
Prepaid expenses and other current assets............................ (259) (60)
Accounts payable..................................................... 359 (1,091)
Accrued expenses..................................................... (204) (445)
Income taxes......................................................... 99 234
Deferred service contract revenue.................................... 239 191
------------- -------------
Total adjustments.................................................... (74) (1,347)
------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES................................. 1,464 7
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities................................... (2,000) --
Maturities of marketable securities.................................. 1,600 507
Purchases of property and equipment.................................. (198) (210)
------------- -------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES...................... (598) 297
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Stock options exercised.............................................. 9 152
Repurchases and retirement of common stock........................... (3,896) (633)
------------- -------------
NET CASH USED IN FINANCING ACTIVITIES..................................... (3,887) (481)
------------- -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS................................. (3,021) (177)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............................ 12,998 13,607
------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................................. $ 9,977 $ 13,430
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid.................................................... $ 747 $ 612
============= =============
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
5
<PAGE>
EQUINOX SYSTEMS INC
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(UNAUDITED)
(1) BASIS OF PRESENTATION
The condensed consolidated balance sheet as of December 31, 1996, which has been
derived from the annual audited financial 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. 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,
1996.
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 three and six months ended June 30, 1997 are not necessarily
indicative of the results to be expected for the year ending December 31, 1997.
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, 1996, included in the Company's Form 10-K.
(2) NET INCOME PER SHARE
Net income per share is based on the weighted average number of common shares
and common share equivalents outstanding which include, where appropriate, the
assumed exercise or conversion of options. In computing net income per share,
the Company currently utilizes the modified treasury stock method and in prior
years, used the treasury stock method (See Note 5). The computations of the
weighted average number of shares outstanding for the three and six months ended
June 30, 1997 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------- -----------------------------
1997 1996 1997 1996
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Common Stock.................................. 3,244 3,841 3,467 3,839
Common Stock equivalents - options............ 294 226 251 202
------------ ------------ ------------ -----------
Weighted average common and common
equivalent shares outstanding................. 3,538 4,067 3,718 4,041
============ ============ ============ ===========
</TABLE>
6
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EQUINOX SYSTEMS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 1997
(UNAUDITED)
(3) INVENTORIES
Inventories consist of the following (in thousands):
JUNE 30, DECEMBER 31,
1997 1996
------------- -------------
Raw materials $ 1,013 $ 1,022
Work-in-progress... 377 318
Finished goods..... 2,897 2,733
------------- -------------
$ 4,287 $ 4,073
============= =============
(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. During
1995 and 1996, the Company repurchased 500,000 shares of its common stock in the
open market for an aggregate purchase price of approximately $3,940,000. In
March 1997, the Board of Directors authorized the Company to repurchase up to an
additional 1,000,000 shares of the Company's issued and outstanding common
stock. Repurchases may be made from time to time, subject to prevailing
conditions, in the open market or in privately negotiated transactions. The
Company repurchased a total of 447,600 shares at a purchase price of
approximately $3,896,000 during the three months ending June 30, 1997 under its
most recent buyback plan.
(5) NEWLY ISSUED ACCOUNTING STANDARD
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128
"Earnings Per Share," which is required to be adopted as of December 31, 1997.
Upon adoption all prior earnings per share amounts are required to be
retroactively restated. Under the new requirement for calculating primary
earnings per share, the dilutive effect of stock options will be excluded. The
impact of SFAS No. 128 is expected to result in an increase of $0.01 per share
per quarter for the basic earnings per share as compared to the primary earnings
per share amounts included herein. Diluted earnngs per share would be the same
as fully diluted amounts presented herein.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WHICH REFLECT THE CURRENT VIEWS
OF THE COMPANY WITH RESPECT TO FUTURE EVENTS THAT COULD HAVE AN EFFECT ON ITS
FUTURE FINANCIAL PERFORMANCE. THESE STATEMENTS MAY INCLUDE SUCH WORDS AS
"EXPECTS," "BELIEVES," "ESTIMATES," AND SIMILAR EXPRESSIONS. THESE
FORWARD-LOOKING STATEMENTS ARE SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES,
INCLUDING THOSE REFERRED TO UNDER "FACTORS THAT MAY AFFECT FUTURE RESULTS" AND
ELSEWHERE HEREIN, THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
HISTORICAL RESULTS OR THOSE CURRENTLY ANTICIPATED. READERS ARE CAUTIONED NOT TO
PLACE UNDUE RELIANCE ON THESE FORWARD-LOOKING STATEMENTS.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED JUNE 30, 1997 AND 1996
NET SALES. Net sales for the quarter increased 8% to $6.6 million in 1997 from
$6.1 million in 1996. Sales of Serial I/O Products increased 21% to $5.1 million
in 1997 from $4.2 million in 1996, primarily due to a 45% increase in sales to
OEM customers and a 13% increase in sales to distributors. Sales to
Hewlett-Packard Company (HP) increased 76% over the prior year. Although the
Company believes there are future growth opportunities related to existing and
potential OEMs, sales to OEM customers are difficult to predict as they
fluctuate along with the demand for the OEM's final product, over which Equinox
has no control.
Sales of Data Switching Systems and Terminal Servers, collectively, decreased
21% to $1.5 million in 1997 from $1.9 million in 1996. This decrease is
primarily attributable to fewer sales of Terminal Server products to
distributors and fewer direct sales of Data Switching Systems to end-users. One
customer represented 36% of Data Switching revenue during the quarter.
Management does not expect sales to that customer to continue at comparable
levels and believes that the market for Data Switching Systems will decline over
time. Management also believes that sales of its current Terminal Server
products 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 3% to $3.3 million in
1997 from $3.2 million in 1996, primarily due to higher sales volume. As a
percentage of net sales, cost of sales decreased to 50% in 1997 from 52% in
1996. This was primarily the result of greater absorbed overhead due to higher
production volume.
The Company's gross margin is dependent on product and channel mix, which
historically fluctuates from period to period, as well as overhead levels.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses increased
$0.1 million to $0.7 million in 1997 from $0.6 million in 1996 primarily due to
increased personnel required as a result of expanded development efforts. As a
percentage of net sales, research and development expenses increased to 11% in
1997 from 10% in 1996. Research and development costs are charged to expense as
incurred.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative (SG&A) expenses increased 12% to $1.5 million from $1.3 million
in 1996 primarily due to increased sales personnel and related costs. As a
percentage of net sales, SG&A expenses increased to 23% in 1997 from 22% in
1996.
INCOME FROM OPERATIONS. Income from operations for the three months increased
15% to $1.1 million from $1.0 million in 1996, primarily due to increased sales
and gross profit partially offset by increased operating expenses.
OTHER INCOME, NET. Other income, which primarily consists of interest income,
was unchanged as a result of comparable average invested cash balances.
8
<PAGE>
PROVISION FOR INCOME TAXES. The provision for income taxes for the quarter was
$0.4 million in 1997 and 1996. The Company's effective rate decreased to 35% in
1997 from 38% in 1996 based on a review of expected tax rates for the current
year.
NET INCOME. Net income for the three months increased 18% to $0.8 million in
1997 from $0.7 million in 1996 primarily as a result of increased sales and
gross profit partially offset by higher operating costs. As a percentage of net
sales, net income increased to 12% in 1997 from 11% in 1996.
COMPARISON OF SIX MONTHS ENDED JUNE 30, 1997 AND 1996
NET SALES. Net sales for the six months increased to $13.0 million in 1997
from $12.2 million in 1996, an increase of $0.8 million, or 6%. Sales of Serial
I/O Products increased to $9.7 million from $8.4 million in 1996, an increase of
$1.3 million or 15%, primarily due to greater sales volume to distributors which
increased 18%, as well as greater sales volume to OEM customers (principally
HP).
Sales of Data Switching Systems and Terminal Servers, collectively
decreased to $3.3 million in 1997 from $3.8 million in 1996, a decrease of $0.5
million or 13%. This decrease is attributable to fewer direct sales of Data
Switching Systems and reduced sales of Terminal Servers to the Company's
distributors.
COST OF SALES. Cost of sales for the six months increased to $6.5 million
from $6.3 million in 1996, an increase of 4% primarily due to higher net sales.
As a percentage of net sales, cost of sales decreased to 50% in 1997 from 52% in
1996. This was primarily the result of greater absorbed overhead due to higher
production volume.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses for
the six months increased to $1.5 million from $1.3 million in 1996, an increase
of 15% primarily due to increased personnel. As a percentage of net sales,
research and development expenses increased to 11% in 1997 from 10% in 1996
primarily due to increased personnel partially offset by higher net sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses for the six
months increased to $2.9 million from $2.7 million, an increase of 6%, primarily
due to increased sales personnel and higher selling costs. As a percentage of
net sales, SG&A expenses were 22% in 1997 and 1996.
INCOME FROM OPERATIONS. Income from operations for the six months
increased to $2.1 million from $1.9 million in 1996, an increase of $0.2 million
primarily due to increased sales and gross profit partially offset by increased
operating expenses. As a percentage of net sales, income from operations was 16%
in 1997 and 1996.
OTHER INCOME, NET. Other income, which primarily consists of interest
income, approximated $0.25 million for both 1997 and 1996.
PROVISION FOR INCOME TAXES. The Company's provision for income taxes for
the six months was $0.8 million in 1997 and 1996. The effective rate decreased
to 35% in 1997 and 38% in 1996 based on a review of expected tax rates for the
current year.
NET INCOME. Net income for the six months increased to $1.5 million in
1997 from $1.4 million in 1996, an increase of 14%. As a percentage of net
sales, net income increased to 12% in 1996 from 11% in 1996, 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 $16.7 million at June 30, 1997, compared with
$18.9 million at December 31, 1996. Cash and cash equivalents and marketable
securities were $11.8 million at June 30, 1997, compared with $14.3 million at
December 31, 1996. The decrease is primarily due to repurchases of common stock
partially offset by cash generated from operations.
During the first half of 1997 the Company generated $1.5 million from operating
activities principally as a result of improvements in working capital.
Net cash used in financing activities was $3.9 million due to repurchases of
common stock. 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. During 1995 and 1996, the Company repurchased 500,000 shares of its
common stock in the open market for an aggregate purchase price of approximately
$3,940,000. In March 1997, the Board of Directors authorized the Company to
repurchase up to an additional 1,000,000 shares of the Company's issued and
outstanding common stock. The Company repurchased a total of 447,600 shares at a
purchase price of approximately $3,896,000 during the three months ending June
30, 1997 under this buyback plan.
As of June 30, 1997, the Company had no material commitments for capital
expenditures. Management believes that cash and cash equivalents and marketable
securities 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 SECURITY HOLDERS
(a) On June 19, 1997, 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 800,000 to 1,050,000. 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
WITHHOLD
NAME FOR AUTHORITY ABSTENTIONS BROKER NON-VOTES
---- --- --------- ----------- ----------------
<S> <C> <C> <C> <C>
William A. Dambrackas 2,783,197 183,500 -- --
Mark Kacer 2,783,197 183,500 -- --
Charles A. Reid 2,783,197 183,500 -- --
Robert F. Williamson, Jr. 2,783,197 183,500 -- --
AMENDMENT TO 1993 STOCK OPTION PLAN
FOR AGAINST ABSTENTIONS BROKER NON-VOTES
--- --------- ----------- ----------------
1,252,694 556,786 21,970 1,135,247
</TABLE>
(d) Not applicable
11
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ITEM 5. FACTORS THAT MAY AFFECT FUTURE RESULTS
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 1997 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
required 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 in the past may 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 and technological resources. 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 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, the Company 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.
12
<PAGE>
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 and 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, Thomas E. Garrett, the
Company's Vice President of Sales and Robert S. Sowell, the Company's Vice
President, Technical Operations, 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.
13
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27--Financial Data Schedule.
(b) During the three months ended June 30, 1997, the Company did
not file any reports on Form 8-K.
14
<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: AUGUST 8, 1997
15
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 9,977
<SECURITIES> 1,750
<RECEIVABLES> 4,583
<ALLOWANCES> 943
<INVENTORY> 4,287
<CURRENT-ASSETS> 21,400
<PP&E> 5,410
<DEPRECIATION> 2,137
<TOTAL-ASSETS> 24,673
<CURRENT-LIABILITIES> 4,701
<BONDS> 0
0
0
<COMMON> 32
<OTHER-SE> 19,912
<TOTAL-LIABILITY-AND-EQUITY> 24,673
<SALES> 12,954
<TOTAL-REVENUES> 12,954
<CGS> 6,510
<TOTAL-COSTS> 6,510
<OTHER-EXPENSES> 4,316
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,384
<INCOME-TAX> 846
<INCOME-CONTINUING> 1,538
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,538
<EPS-PRIMARY> 0.41
<EPS-DILUTED> 0.41
</TABLE>
