SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Three Months ended September 30, 1998 Commission file No. 0-21450
EQUINOX SYSTEMS INC.
(Exact name of registrant as specified in its charter)
State of incorporation: Florida I.R.S. Employer Identification No. 59-2268442
Address of principal executive offices: One Equinox Way-Sunrise, Florida 33351
Telephone: (954) 746-9000
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act: Common Stock
(par value $.01 per share)
Indicate by check mark whether the registrant (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 registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [x]
The number of shares of Common Stock outstanding as of November 10, 1998 was
5,310,379.
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Index to Items
PART I - FINANCIAL INFORMATION PAGE
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Item 1. Financial Statements
Condensed Consolidated Balance Sheets - September 30, 1998 and December 31, 1997 3
Condensed Consolidated Statements of Income -
Three and Nine months ended September 30, 1998 and 1997 4
Condensed Consolidated Statements of Cash Flows -
Nine months ended September 30, 1998 and 1997. 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8
Part II - Other Information
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 13
Signature Page 14
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2
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<TABLE>
<CAPTION>
EQUINOX SYSTEMS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
SEPTEMBER 30, DECEMBER 31,
1998 1997
----------------- -------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 13,781 $ 14,209
Marketable securities 4,700 1,500
Accounts receivable 4,282 3,881
Inventories 5,710 3,295
Deferred income taxes 1,132 1,132
Prepaid expenses and other current assets 856 441
----------------- ------------------
Total current assets 30,461 24,458
----------------- ------------------
PROPERTY AND EQUIPMENT, at cost 6,033 5,513
Less - accumulated depreciation and amortization (2,713) (2,388)
----------------- ------------------
3,320 3,125
================= ==================
$ 33,781 $ 27,583
================= ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 3,610 $ 3,058
Accrued expenses 2,607 2,590
----------------- ------------------
Total current liabilities 6,217 5,648
----------------- ------------------
SHAREHOLDERS' EQUITY:
Common stock 52 49
Additional paid-in capital 10,677 8,264
Retained earnings 16,835 13,622
----------------- ------------------
Total shareholders' equity 27,564 21,935
================= ==================
$ 33,781 $ 27,583
================= ==================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
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<TABLE>
<CAPTION>
EQUINOX SYSTEMS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
------------------------------- -------------------------------
1998 1997 1998 1997
-------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
NET SALES $ 8,068 $ 7,262 $ 22,670 $ 20,216
COST OF SALES 3,954 3,529 10,858 10,039
-------------- ------------- ------------- --------------
Gross margin 4,114 3,733 11,812 10,177
-------------- ------------- ------------- --------------
OPERATING EXPENSES:
Research and development 761 700 2,314 2,162
Selling, general and administrative 1,729 1,480 5,213 4,334
-------------- ------------- ------------- --------------
Total operating expenses 2,490 2,180 7,527 6,496
-------------- ------------- ------------- --------------
Income from operations 1,624 1,553 4,285 3,681
OTHER INCOME, NET 156 128 508 384
-------------- ------------- ------------- --------------
Income before income taxes 1,780 1,681 4,793 4,065
PROVISION FOR INCOME TAXES 588 588 1,580 1,434
============== ============= ============= ==============
Net income $ 1,192 $ 1,093 $ 3,213 $ 2,631
============== ============= ============= ==============
EARNINGS PER SHARE:
Basic $ 0.23 $ 0.22 $ 0.63 $ 0.51
============== ============= ============= ==============
Diluted $ 0.22 $ 0.21 $ 0.58 $ 0.49
============== ============= ============= ==============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
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<TABLE>
<CAPTION>
EQUINOX SYSTEMS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,213 $ 2,631
--------------- ---------------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 325 442
Provision for doubtful accounts and anticipated sales returns 785 847
Provision for warranty costs 117 84
Recognition of deferred service contract revenue (427) (549)
Changes in operating assets and liabilities:
Accounts receivable (1,186) (1,930)
Inventories (2,415) 248
Prepaid expenses and other current assets (415) (242)
Accounts payable 552 (55)
Accrued expenses 1,510 997
--------------- ----------------
Total adjustments (1,154) (158)
--------------- ----------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,059 2,473
--------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net purchases of marketable securities (3,200) (200)
Purchases of property and equipment (520) (234)
--------------- ----------------
NET CASH USED IN INVESTING ACTIVITIES (3,720) (434)
--------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Stock options exercised 1,233 89
Repurchases of common stock -- (3,896)
--------------- ---------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 1,233 (3,807)
--------------- ---------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (428) (1,768)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 14,209 12,998
=============== ===============
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 13,781 $ 11,230
=============== ===============
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS:
Income taxes paid $ 666 $ 1,205
=============== ===============
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
During 1998 and 1997, the Company realized income tax benefits of $1,183 and
$49, respectively, in connection with the exercise of stock options by certain
current and former employees and directors. Such amounts represent deductible
compensation expense not required to be recognized for financial statement
purposes.
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
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EQUINOX SYSTEMS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(Unaudited)
(1) BASIS OF PRESENTATION
The condensed consolidated balance sheet as of December 31, 1997, 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,
1997.
In the opinion of the Company, the accompanying condensed consolidated financial
statements contain all material adjustments, consisting of only normal recurring
accruals, necessary to present fairly the Company's financial position, results
of operations and cash flows. Results of operations for the three and nine
months ended September 30, 1998 are not necessarily indicative of the results to
be expected for the year ending December 31, 1998.
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, 1997, included in the Company's Form 10-K.
On May 1, 1998 the Board of Directors declared a three-for-two stock split (the
"split") effected in the form of a 50% stock dividend on the Company's common
stock. On June 10, 1998 the Company's shareholders received one additional share
of common stock for each two shares held. Earnings per share and weighted
average shares outstanding for the three months and nine months ended September
30, 1997, and common stock and additional paid-in capital as of December 31,
1997 have been restated to retroactively reflect the split.
(2) EARNINGS PER SHARE
Basic earnings per share are calculated by dividing net income by the weighted
average number of common shares outstanding during the period. On a diluted
basis, shares outstanding are adjusted to assume the exercise of options under
the treasury stock method. Amounts for 1997 were restated relating to the
adoption of Statement of Financial Accounting Standards No. 128, "Earnings Per
Share." Shares used in the computations for the three months and nine months
ended September 30, 1998 and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------- -------------------------------
1998 1997 1998 1997
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Weighted average shares used in basic
computation 5,224 4,869 5,137 5,158
Common stock equivalents - options 257 337 394 255
-------- ------- -------- -------
Weighted average shares used in diluted
computation 5,481 5,206 5,531 5,413
======== ======= ======== =======
</TABLE>
6
<PAGE>
EQUINOX SYSTEMS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
(3) INVENTORIES
Inventories consist of parts and assembly components to be used in the
production of finished goods and are stated at the lower of cost or market.
Cost, which includes raw materials, manufacturing labor and overhead, is
determined on a first-in, first-out basis. Inventories consist of the following
as of September 30, 1998 and December 31, 1997 (in thousands):
1998 1997
------------ ------------
Raw materials $ 1,965 $ 630
Work-in-process 693 461
Finished goods 3,052 2,204
------------ ------------
$ 5,710 $ 3,295
============ ============
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion 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" in
Item 5, below, 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.
NET SALES
Net sales for the three and nine month periods ended September 30, 1998 were
higher than net sales for the corresponding periods ended September 30, 1997 by
approximately $0.8 million and $2.5 million or 11% and 12%, respectively.
Bus-attached product sales increased 25% and 24% to $7.0 million and $19.0
million, respectively, for the three and nine month periods ended September 30,
1998. This growth was due to higher net sales to both distributors and original
equipment manufacturers ("OEMs"). Distributor sales of Bus-attached products
increased 18% and 22% respectively, for the three and nine month periods ended
September 30, 1998, while OEM sales increased by 36% and 28%. The Company's
largest customer, the Hewlett-Packard Company, an OEM customer, represented 22%
and 19% of the Company's net sales for the three and nine month periods ended
September 30, 1998. Other significant OEM customers include IBM and NCR, both of
which have selected Equinox products as part of their solution for a major U.S.
Postal Service project. Combined revenue from IBM and NCR related to the U.S.
Postal Service project represented 13% and 9% of the Company's net sales for the
three and nine month periods ended September 30, 1998. While this quarter
represented the highest revenue contribution to date related to the U.S. Postal
Service project, the Company believes that the increasing sales trend related to
this project will temporarily slow down during the fourth quarter due to
implementation obstacles caused by typical holiday postal traffic.
The Company also expects to enter into an agreement with a major private-label
OEM customer in the near future. If this agreement is successfully executed, the
Company would expect to begin supplying its Serial I/O products to the OEM in
early 1999.
Although the Company believes there are future growth opportunities related to
existing and potential OEMs, sales to these customers are difficult to predict
as the Company has limited visibility to the OEM's inventory levels and customer
demand for the OEM's final product.
LAN-attached product sales decreased 34% and 24% to $1.1 million and $3.7
million, respectively for the three and nine month periods ended September 30,
1998. This decrease is primarily attributable to a significant decline in direct
sales of Data Switching Systems. Sales of Terminal Servers to distributors also
declined. Management believes that sales of Data Switching System products and
Terminal Servers will continue to decline over time.
GROSS MARGIN
Gross margin for the three and nine month periods ended September 30, 1998 was
51% and 52%, respectively, as compared to 51% and 50%, respectively, for the
comparable periods in 1997. The improvement in the gross margin for the nine
months ended September 30, 1998 versus the prior year was primarily the result
of higher production volume as well as reduced manufacturing overhead.
The Company's gross margin is dependent in part on product mix, channel mix, and
overhead expense all of which fluctuate from period to period. For example, an
increase in future sales to OEM customers may negatively impact the Company's
gross margin, as OEM sales are typically priced lower than distribution sales.
However, the reduced sales/support requirements of OEM customers typically
result in favorable contributions to operating margins thereby resulting in
similar operating margins between distribution sales and OEM sales.
8
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Specifically, the Company believes that its future gross margin may be
unfavorably impacted should the Company successfully execute an agreement with a
major private-label OEM customer, and as a result, OEM sales increase as a
percentage of total net sales.
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses for the three and nine month periods ended
September 30, 1998 were $0.8 million and $2.3 million, respectively, as compared
to $0.7 million and $2.2 million for the comparable periods in 1997. The
increases were due to additional personnel required as a result of expanded
development efforts. As a percentage of net sales, research and development
expenses were 9% and 10%, for the three and nine month periods ended September
30, 1998 respectively, as compared to 10% and 11% for the comparable periods in
1997. The Company does not capitalize any of its software development costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the three and nine month
periods ended September 30, 1998 were $1.7 million and $5.2 million,
respectively, as compared to $1.5 million and $4.3 million for the comparable
periods in 1997. The increases were due to increased sales personnel and
increased marketing efforts. As a percentage of net sales, selling general and
administrative expenses were 21% and 23% for the three and nine month periods
ended September 30, 1998, respectively, as compared to 20% and 21% for the
comparable periods in 1997.
OTHER INCOME, NET
Other income, net, which includes interest income, for the three and nine month
periods ended September 30, 1998, was $0.2 million and $0.5 million,
respectively, as compared to $0.1 million and $0.4 million for the comparable
periods in 1997. As a percentage of net sales, other income was 2% for all
periods presented.
PROVISION FOR INCOME TAXES
Provision for income taxes for the three and nine month periods ended September
30, 1998, was $0.6 million and $1.6 million, respectively, as compared to $0.6
million and $1.4 million for the comparable periods in 1997. The Company's
effective tax rate decreased to 33% in 1998 as compared to 35% for the
comparable periods in 1997 based on expected tax rates for the current year.
NET INCOME
As a result of the factors discussed above the Company recorded net income for
the three and nine month periods ended September 30, 1998 of $1.2 million and
$3.2 million, respectively, as compared to $1.1 million and $2.6 million for the
comparable periods in 1997. As a percentage of net sales, net income was 15% and
14% for the three and nine month periods ended September 30, 1998 respectively,
as compared to 15% and 13% for the comparable periods in 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital was $24.2 million at September 30, 1998, compared
with $18.8 million at December 31, 1997. Cash and cash equivalents and
marketable securities were $18.5 million at September 30, 1998, compared with
$15.7 million at December 31, 1997.
Net cash provided by operating activities was $2.1 million for the nine months
ended September 30, 1998, compared to $2.5 million provided by operating
activities for the nine months ended September 30, 1997. During the first nine
months of 1998 the Company's increase in net income was offset by increases in
inventories and accounts receivable. Inventories increased partly due to the
Company's anticipation of higher net sales during the period and increased
production to address its anticipated requirements.
Net cash used in investing activities for the nine months ended September 30,
1998 was $3.7 million compared to $0.4 million for the nine months ended
September 30, 1997 and represented purchases of marketable securities and
property and equipment.
9
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Net cash provided by financing activities was $1.2 million for the nine months
ended September 30, 1998 and was due to funds received in connection with
employee stock option exercises. Net cash used in financing activities during
1997 was $3.8 million and was used for repurchases of the Company's common
stock.
As of September 30, 1998, the Company had no material commitments for capital
expenditures. Management believes that cash and cash equivalents and marketable
securities 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.
YEAR 2000 COMPLIANCE
Until recently, many computer programs were written using two digits rather than
four digits to define the applicable year in the twentieth century. Such
software may recognize a date using "00" as the year 1900 rather than the year
2000. The Company has established a comprehensive Year 2000 compliance program
designed to (1) identify computer systems (hardware and software) that may fail
at the turn of the century, (2) upgrade or replace non-compliant systems, and
(3) evaluate the Year 2000 readiness of our critical suppliers and service
providers. The progress of the Company's Year 2000 program is as follows:
The Company is in the process of implementing a new enterprise-wide management
information system. As of this date it has completed installation of its
hardware and software and is in the process of completing data conversion.
Stages of implementation that remain open include final employee training, final
review of the system and customization of documents.
In addition to computers and related systems, the operation of office and
facilities equipment, such as telephone switches, security systems, elevators,
and other common devices may be affected by the Year 2000 problem. The Company
is currently assessing the potential effect of, and costs of remedying, the Year
2000 problem on its office and facilities equipment.
The Company is soliciting input from its key suppliers and service providers
including subcontractors, financial service firms, communications providers and
others regarding their Year 2000 status. The Company will determine which, if
any, pose a threat to the uninterrupted operation of Equinox' business in the
event that they experience system errors or failures. The worst case scenario
related to the failure of key vendors and/or suppliers to have corrected their
own Year 2000 issues would be to cause disruption of the Company's operations
and have a material adverse effect on the Company's financial condition. The
impact of such disruption cannot be estimated at this time. In the event that
any key suppliers are unlikely to resolve their Year 2000 issues, the Company's
contingency plans include seeking an alternative source of supply.
To date, the Company has capitalized approximately $275,000 in connection with
the implementation of its new management information system. The Company
anticipates capitalizing an additional $100,000 on this implementation which is
expected to be completed in the first half of 1999. All Company expenditures
related to the Year 2000 issue will be made from cash and cash equivalents.
Costs related to the Year 2000 issue that do not involve the replacement of
systems are charged to expense. Such other costs are not expected to be
material.
The Company believes it has no material exposure to contingencies related to the
Year 2000 issue for the products it has sold and also believes that all current
versions of its product lines are Year 2000 compliant.
While the Company believes it has an effective program in place to resolve the
Year 2000 issue in a timely manner, there can be no assurance that the failure
of the Company or of the third parties with whom the Company transacts business
to adequately address their respective Year 2000 issues will not have a material
adverse effect on the Company's business, financial condition, cash flows and
results of operations.
10
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PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
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 consolidated results
throughout 1998 and beyond to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, the Company.
GENERAL BUSINESS AND ECONOMIC CONDITIONS
General business and economic conditions have an impact on the Company's
financial results. The Company's customer base, which is largely distributors,
may be impacted by weak economic conditions and, as a result, may reduce
inventory levels of products purchased from the Company. Although the Company
does not consider its business to be highly seasonal, the historical quarterly
trends reflected over the last three 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 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 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 per product line. The inability to obtain sufficient quantities of
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 turnkey
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 that 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 turnkey
manufacturers, or any of its major customers.
11
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TECHNOLOGICAL CHANGES
The market for the Company's products is characterized by continued and rapid
technological advances in both hardware and software development requiring
ongoing expenditures for research and development and the timely introduction of
new products. To remain competitive, the Company must respond effectively to
technological changes by continuing to enhance and improve its existing products
and by successfully developing and introducing new products. There can be no
assurance that the Company will be able to respond effectively to technological
changes or new product announcements or introductions by others.
PROPRIETARY RIGHTS
The Company relies primarily upon the technical expertise and creative skills of
its personnel, rather than patents and copyrights, to develop and maintain its
competitive position. However, there can be no assurance that competitors will
not develop products or technology that are equivalent or superior to those of
the Company or that the safeguards on which the Company relies will be adequate
to protect its interests. In addition, it is common in the computer industry for
companies to seek to assert claims for infringement of their patents or
proprietary rights. Although no such claims are pending against the Company,
there can be no assurance that these claims will not be made or that, if made,
any license that might be needed by the Company will be available on
commercially reasonable terms.
DISTRIBUTION AND OEM RISKS
The Company is dependent upon the continued viability and financial stability of
its distributors and OEM customers. (Two distributors and an OEM customer
collectively accounted for 45% of the Company's net sales during the first nine
months of 1998. In all of these cases, the customers resold substantially all of
the Company's products to numerous unrelated third parties.) The loss or
ineffectiveness of these customers or other certain 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 the 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
risks inherent in the introduction of such products.
DEPENDENCE ON KEY PERSONNEL
William A. Dambrackas, the Company's Founder, 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, 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
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MARKET RISK
Management believes the Company's exposure to the impact of interest rate
changes, foreign currency fluctuations and changes in the market value of its
investments is minimal, as the Company does not use any derivative financial
instruments. The Company is also debt-free, transacts all business in U.S.
dollars and utilizes short-term investments which consist of investment grade
corporate obligations, U.S. Treasury obligations and tax-exempt borrowings.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule (EDGAR filing only)
(b) During the three months ended September 30, 1998 the Company did not file
any reports on Form 8-K.
13
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EQUINOX SYSTEMS INC.
/s/ MARK KACER
-------------------------------------------------
MARK KACER, Chief Financial Officer
(Principal Financial Officer)
DATE: November 10, 1998
14
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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-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 13,781
<SECURITIES> 4,700
<RECEIVABLES> 4,932
<ALLOWANCES> 650
<INVENTORY> 5,710
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0
0
<COMMON> 52
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<SALES> 22,670
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<CGS> 10,858
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<EPS-PRIMARY> 0.63
<EPS-DILUTED> 0.58
</TABLE>
