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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, 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 October 28, 1997: 3,285,920.
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<PAGE>
EQUINOX SYSTEMS INC.
INDEX TO FORM 10-Q
PAGE
----
PART I - FINANCIAL INFORMATION
Condensed Consolidated Balance Sheets
September 30, 1997 and December 31, 1996...................................3
Condensed Consolidated Statements of Income
Three and nine months ended September 30, 1997 and 1996....................4
Condensed Consolidated Statements of Cash Flows
Nine months ended September 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 5. Factors that May Affect Future Results...............................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
(UNAUDITED)
(In thousands)
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------------- -------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................... $ 11,230 $ 12,998
Marketable securities............................................... 1,550 1,350
Accounts receivable................................................. 4,563 3,480
Inventories......................................................... 3,825 4,073
Deferred income taxes............................................... 1,064 1,068
Prepaid expenses and other assets................................... 665 423
------------------- -------------------
Total current assets............................................... 22,897 23,392
------------------- -------------------
PROPERTY AND EQUIPMENT, at cost 5,446 5,212
Less-accumulated depreciation....................................... (2,267) (1,825)
------------------- -------------------
3,179 3,387
------------------- -------------------
$ 26,076 $ 26,779
=================== ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................................... $ 2,239 $ 2,294
Accrued expenses.................................................... 1,909 1,588
Deferred service contract revenue................................... 162 192
Accrued income taxes................................................ 575 383
------------------- -------------------
Total current liabilities.......................................... 4,885 4,457
------------------- -------------------
DEFERRED INCOME TAXES.................................................. 28 31
------------------- -------------------
SHAREHOLDERS' EQUITY:
Common stock........................................................ 33 37
Additional paid-in capital.......................................... 8,275 12,030
Retained earnings................................................... 12,855 10,224
------------------- -------------------
Total shareholders' equity......................................... 21,163 22,291
------------------- -------------------
$ 26,076 $ 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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------------- -----------------------------------
1997 1996 1997 1996
-------------- ----------------- -------------- ----------------
<S> <C> <C> <C> <C>
NET SALES.............................................. $ 7,262 $ 6,554 $ 20,216 $ 18,732
COST OF SALES.......................................... 3,529 3,370 10,039 9,646
-------------- ----------------- -------------- ----------------
Gross profit........................................ 3,733 3,184 10,177 9,086
-------------- ----------------- -------------- ----------------
OPERATING EXPENSES:
Research and development............................ 700 674 2,162 1,945
Selling, general and administrative................. 1,480 1,453 4,334 4,143
-------------- ----------------- -------------- ----------------
Total operating expenses.......................... 2,180 2,127 6,496 6,088
-------------- ----------------- -------------- ----------------
Income from operations............................ 1,553 1,057 3,681 2,998
OTHER INCOME, NET...................................... 128 124 384 367
-------------- ----------------- -------------- ----------------
Income before income taxes........................ 1,681 1,181 4,065 3,365
PROVISION FOR INCOME TAXES............................ 588 449 1,434 1,279
-------------- ----------------- -------------- ----------------
Net income........................................ $ 1,093 $ 732 $ 2,631 $ 2,086
============== ================= ============== ================
NET INCOME PER SHARE................................... $ 0.30 $ 0.18 $ 0.71 $ 0.51
============== ================= ============== ================
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING............................................ 3,684 4,097 3,707 4,080
============== ================= ============== ================
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
EQUINOX SYSTEMS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands)
NINE MONTHS ENDED SEPTEMBER 30,
---------------------------------------------
1997 1996
------------------- -------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................................................. $ 2,631 $ 2,086
------------------- -------------------
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES:
Depreciation......................................................... 442 446
Provision for doubtful accounts and anticipated sales returns........ 837 468
Provision for warranty costs......................................... 84 146
Recognition of deferred service contract revenue.................... (549) (584)
Imputed compensation on stock options................................ --- 16
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts receivable.................................................. (1,920) 164
Inventories.......................................................... 248 (486)
Prepaid expenses and other current assets............................ (242) (47)
Accounts payable..................................................... (55) (1,141)
Accrued expenses..................................................... 237 (422)
Income taxes......................................................... 241 201
Deferred service contract revenue.................................... 519 551
------------------- -------------------
Total adjustments.................................................... (158) (688)
------------------- -------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES................................. 2,473 1,398
------------------- -------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities................................... (2,200) (1,050)
Maturities of marketable securities.................................. 2,000 507
Purchases of property and equipment.................................. (234) (305)
------------------- -------------------
NET CASH USED IN INVESTING ACTIVITIES..................................... (434) (848)
------------------- -------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Stock options exercised.............................................. 89 166
Repurchases and retirement of common stock........................... (3,896) (633)
------------------- -------------------
NET CASH USED IN FINANCING ACTIVITIES..................................... (3,807) (467)
------------------- -------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS...................... (1,768) 83
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD............................ 12,998 13,607
------------------- -------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................................. $ 11,230 $ 13,690
=================== ===================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Income taxes paid.................................................... $ 1,205 $ 1,077
=================== ===================
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
SEPTEMBER 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 nine months ended September 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 the
prior year periods, used the treasury stock method (See Note 5). The
computations of the weighted average number of shares outstanding for the three
and nine months ended September 30, 1997 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------------- -----------------------------------
1997 1996 1997 1996
---------------- ------------- -------------- ---------------
<S> <C> <C> <C> <C>
Common Stock.......................................... 3,258 3,850 3,397 3,842
Common Stock equivalents - options.................... 426 247 310 238
---------------- ------------- -------------- ---------------
Weighted average common and common
equivalent shares outstanding......................... 3,684 4,097 3,707 4,080
================ ============= ============== ===============
</TABLE>
6
<PAGE>
EQUINOX SYSTEMS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
September 30, 1997
(UNAUDITED)
(3) INVENTORIES
Inventories consist of the following (in thousands):
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------------- -----------------
Raw materials........................ $ 944 $ 1,022
Work-in-progress..................... 485 318
Finished goods....................... 2,396 2,733
------------------- -----------------
$ 3,825 $ 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. To date,
the Company has purchased a total of 447,600 additional shares at a purchase
price of approximately $3,896,000 during 1997 under its most recent buy back
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. The impact of SFAS No. 128 is expected to result in an
increase to basic earnings of $0.04 per share for the three months ended and
$0.05 per share for the nine months ended September 30, 1997 as compared to the
primary earnings per share amounts included herein. Diluted earnings per share
would result in an increase of $0.02 per share for the three months ended and
nine months ended September 30, 1997 compared to 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 SEPTEMBER 30, 1997 AND 1996
NET SALES. Net sales for the quarter increased 11% to $7.3 million in 1997 from
$6.6 million in 1996. Sales of Serial I/O Products increased 37% to $5.6 million
in 1997 from $4.1 million in 1996, primarily due to a 58% increase in sales to
OEM customers (including the Hewlett Packard Company) and a 24% increase in
sales to distributors. Although the Company believes there are future growth
opportunities related to existing and potential OEMs, sales to these customers
are difficult to predict as they fluctuate along with the demand for the OEMs'
final product, over which Equinox has no control.
Sales of Data Switching Systems and Terminal Servers, collectively, decreased
32% to $1.7 million in 1997 from $2.5 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.
Management believes that the market for Data Switching Systems and its current
Terminal Server will continue to decline over time.
COST OF SALES. Cost of sales for the quarter increased 5% to $3.5 million in
1997 from $3.4 million in 1996, primarily due to higher sales volume. As a
percentage of net sales, cost of sales decreased to 49% in 1997 from 51% in
1996. This was primarily the result of greater absorption of overhead due to
higher production volume as well as increased efficiencies.
The Company's gross margin is dependent on overhead levels as well as product
and channel mix, which historically fluctuates from period to period.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses were $0.7
million in 1997 and 1996. As a percentage of net sales, research and development
expenses were 10% in 1997 and 1996. 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 1997 and 1996. Although the
Company has not incurred incremental SG&A costs in connection with increased
sales, management expects SG&A costs to increase in future periods as the
Company continues to grow. As a percentage of net sales, SG&A expenses decreased
to 20% in 1997 from 22% in 1996 due to increased net sales.
INCOME FROM OPERATIONS. Income from operations for the three months increased
47% to $1.6 million from $1.1 million in 1996, primarily due to increased sales
and gross profit.
OTHER INCOME, NET. Other income, which primarily consists of interest income,
approximated $0.1 million for both 1997 and 1996.
PROVISION FOR INCOME TAXES. The provision for income taxes for the quarter was
$0.6 million in 1997 and $0.4 million in 1996. The Company's effective rate
decreased to 35% in 1997 from 38% in 1996.
NET INCOME. Net income for the three months increased 49% to $1.1 million in
1997 from $0.7 million in 1996 primarily as a result of increased sales and
gross profit. As a percentage of net sales, net income increased to 15% in 1997
from 11% in 1996.
8
<PAGE>
COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
NET SALES. Net sales for the nine months increased to $20.2 million in 1997 from
$18.7 million in 1996, an increase of $1.5 million, or 8%. Sales of Serial I/O
Products increased to $15.3 million from $12.5 million in 1996, an increase of
$2.8 million or 22%, primarily due to greater sales volume to distributors which
increased 20%, as well as greater sales volume to OEM customers (principally
HP).
Sales of Data Switching Systems and Terminal Servers, collectively, decreased to
$4.9 million in 1997 from $6.2 million in 1996, a decrease of $1.3 million or
21%. 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 nine months increased to $10.0 million from
$9.6 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 51% in
1996. This was primarily the result of greater absorption of overhead due to
higher production volume as well as increased efficiencies.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses for the
nine months increased to $2.2 million from $1.9 million in 1996, an increase of
11% primarily due to increased personnel and related expenses. 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 nine months
increased to $4.3 million from $4.1 million, an increase of 5%, primarily due to
increased sales personnel and related expenses. As a percentage of net sales,
SG&A expenses decreased to 21% in 1997 from 22% in 1996 primarily due to higher
net sales.
INCOME FROM OPERATIONS. Income from operations for the nine months increased to
$3.7 million from $3.0 million in 1996, an increase of $0.7 million primarily
due to increased sales and gross profit. As a percentage of net sales, income
from operations increased to 18% in 1997 from 16% in 1996.
OTHER INCOME, NET. Other income, which primarily consists of interest income,
approximated $0.4 million for both 1997 and 1996.
PROVISION FOR INCOME TAXES. The Company's provision for income taxes for the
nine months was $1.4 million in 1997 and $1.3 million in 1996. The effective
rate decreased to 35% in 1997 from 38% in 1996.
NET INCOME. Net income for the nine months increased to $2.6 million in 1997
from $2.1 million in 1996, an increase of 26%. As a percentage of net sales, net
income increased to 13% in 1997 from 11% in 1996, primarily as a result of
increased sales and gross profit.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital was $18.0 million at September 30, 1997, compared
with $18.9 million at December 31, 1996. Cash and cash equivalents combined with
marketable securities were $12.8 million at September 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.
Net cash provided by operating activities during the first nine months of 1997
was $2.5 million compared to $1.4 million for the nine months ended September
30, 1996. This was primarily due to increased net income.
Net cash used in financing activities during the first nine months of 1997 was
$3.8 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. To date, the
Company has repurchased a total of 447,600 additional shares at a purchase price
of approximately $3,896,000 under this buyback plan.
As of September 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 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.
11
<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.
12
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) During the three months ended September 30, 1997, 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: October 28, 1997
14
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 11,230
<SECURITIES> 1,550
<RECEIVABLES> 6,389
<ALLOWANCES> 1,826
<INVENTORY> 3,825
<CURRENT-ASSETS> 22,897
<PP&E> 5,446
<DEPRECIATION> (2,267)
<TOTAL-ASSETS> 26,076
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0
0
<COMMON> 33
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</TABLE>
