<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: DECEMBER 27, 1997 Commission file No. 0-15338
SEATTLE FILMWORKS, INC.
-----------------------
(Exact name of registrant as specified in its charter.)
<TABLE>
<S> <C>
WASHINGTON 91-0964899
---------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1260 16TH AVENUE WEST, SEATTLE, WA 98119
---------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (206) 281-1390
--------------
</TABLE>
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 the
filing requirements for the past 90 days.
Yes X No
--- ---
As of January 30, 1998, there were issued and outstanding 16,551,082 shares
of common stock, par value $.01 per share.
No exhibits
Page 1 of 12
<PAGE>
SEATTLE FILMWORKS, INC.
INDEX
-----
<TABLE>
<CAPTION>
Page No.
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<S> <C>
PART I -- FINANCIAL INFORMATION
Item 1 - Financial Statements 3-7
Consolidated Balance Sheets as of December 27, 1997
and September 27, 1997 3-4
Consolidated Statements of Income for the first quarter
ended December 27, 1997 and December 28, 1996 5
Consolidated Statements of Cash Flows for the first quarter ended
December 27, 1997 and December 28, 1996 6
Notes to Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-11
PART II -- OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 11
SIGNATURES 12
</TABLE>
Page 2 of 12
<PAGE>
PART I -- FINANCIAL INFORMATION
-------------------------------
ITEM 1 - FINANCIAL STATEMENTS
SEATTLE FILMWORKS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
(UNAUDITED) (NOTE)
December 27, September 27,
ASSETS 1997 1997
===============================================================================================
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 8,623 $10,252
Securities available-for-sale 6,691 5,062
Accounts receivable, net of allowance for doubtful accounts 1,893 3,680
Inventories 9,755 8,998
Capitalized promotional expenditures 171 211
Prepaid expenses and other 496 743
Deferred income taxes 313 313
------- -------
TOTAL CURRENT ASSETS 27,942 29,259
FURNITURE, FIXTURES, AND EQUIPMENT,
at cost, less accumulated depreciation 8,282 7,564
CAPITALIZED CUSTOMER ACQUISITION EXPENDITURES 15,121 13,882
DEPOSITS AND OTHER ASSETS 167 285
NON-COMPETE AGREEMENT,
net of accumulated amortization 282 376
------- -------
TOTAL ASSETS $51,794 $51,366
======= =======
</TABLE>
Note: The September 27, 1997 consolidated balance sheet has been derived from
audited consolidated financial statements.
See notes to consolidated financial statements.
Page 3 of 12
<PAGE>
SEATTLE FILMWORKS, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(in thousands, except per share and share data)
<TABLE>
<CAPTION>
(UNAUDITED) (NOTE)
December 27, September 27,
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1997
========================================================================================
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 7,005 $ 3,588
Accrued expenses 817 1,402
Accrued compensation 1,701 1,931
Income taxes payable 763 2,450
------- -------
TOTAL CURRENT LIABILITIES 10,286 9,371
DEFERRED INCOME TAXES 4,394 4,394
------- -------
TOTAL LIABILITIES 14,680 13,765
SHAREHOLDERS' EQUITY
Preferred Stock, $.01 par value,
authorized 2,000,000 shares, none issued
Common Stock, $.01 par value, authorized 101,250,000
shares, issued and outstanding 16,541,960 165 164
Additional paid-in capital 413 2,459
Retained earnings 36,536 34,978
------- -------
TOTAL SHAREHOLDERS' EQUITY 37,114 37,601
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $51,794 $51,366
======= =======
</TABLE>
Note: The September 27, 1997 consolidated balance sheet has been derived from
audited consolidated financial statements.
See notes to consolidated financial statements.
Page 4 of 12
<PAGE>
SEATTLE FILMWORKS, INC.
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except per share and share data)
<TABLE>
<CAPTION>
First Quarter Ended
----------------------------
December 27, December 28,
1997 1996
========================================================================
<S> <C> <C>
Net revenues $22,471 $21,236
Cost of goods and services 12,972 12,982
------- -------
GROSS PROFIT 9,499 8,254
Operating expenses:
Customer acquisition costs 4,164 3,482
Other selling expenses 1,979 1,760
Research and development 143 173
General and administrative 1,056 907
------- -------
Total operating expenses 7,342 6,322
------- -------
INCOME FROM OPERATIONS 2,157 1,932
Other income:
Interest income 214 146
Nonoperating income, net 2
------- -------
Total other income 214 148
------- -------
INCOME BEFORE INCOME TAXES 2,371 2,080
Provision for income taxes (813) (723)
------- -------
NET INCOME $ 1,558 $ 1,357
======= =======
BASIC AND DILUTED EARNINGS PER SHARE $.09 $.08
==== ====
WEIGHTED AVERAGE SHARES AND
EQUIVALENTS OUTSTANDING 17,640,000 17,825,000
========== ==========
</TABLE>
See notes to consolidated financial statements.
Page 5 of 12
<PAGE>
SEATTLE FILMWORKS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
First Quarter Ended
----------------------------
December 27, December 28,
1997 1996
==============================================================================================
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,558 $ 1,357
Charges to income not affecting cash:
Depreciation and amortization 919 697
Amortization of capitalized customer
acquisition expenditures 3,828 3,214
Deferred income taxes 607
Net change in receivables, inventories, payables and other 2,187 (1,466)
Capitalized promotional expenditures, net 40 92
Additions to capitalized customer acquisition expenditures (5,067) (4,555)
------- -------
NET CASH FROM (USED IN) OPERATING ACTIVITIES 3,465 (54)
INVESTING ACTIVITIES:
Purchase of furniture, fixtures, and equipment (1,420) (509)
Purchases of securities available-for-sale (2,354) (3,283)
Sales of securities available-for-sale 725
------- -------
NET CASH USED IN INVESTING ACTIVITIES (3,049) (3,792)
FINANCING ACTIVITIES:
Proceeds from issuance of Common Stock 592 191
Payment on purchase of Common Stock (2,637)
------- -------
NET CASH FROM (USED IN) FINANCING ACTIVITIES (2,045) 191
DECREASE IN CASH AND CASH EQUIVALENTS (1,629) (3,655)
Cash and cash equivalents at beginning of period 10,252 6,135
------- -------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 8,623 $ 2,480
======= =======
</TABLE>
See notes to consolidated financial statements.
Page 6 of 12
<PAGE>
SEATTLE FILMWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE A -- BASIS OF PRESENTATION
Seattle FilmWorks, Inc. (the "Company") is a leading direct-to-consumer
marketer and provider of high-quality amateur photofinishing services and
products. The Company offers an array of complementary services and products,
primarily on a mail-order basis, under the brand name Seattle FilmWorks(R). To a
lesser extent, the Company provides services, products and photofinishing
supplies on a wholesale basis to a variety of commercial customers.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring adjustments) considered necessary for fair presentation of
interim results have been included. The Company follows a policy of recording
its interim periods and year-end on a 5 week, 4 week and 4 week basis for
comparability of results and to be consistent with its internal weekly
reporting. Operating results for the first quarter ended December 27, 1997 are
not necessarily indicative of the results that may be expected for the fiscal
year ending September 26, 1998. For further information, refer to the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and consolidated financial statements and footnotes thereto included
in the Company's Annual Report on Form 10-K for the year ended September 27,
1997.
NOTE B -- STOCK SPLIT
On March 17, 1997 the Company effected a three-for-two stock split by
declaring a stock dividend of one share for every two shares outstanding. All
share data, per share data and related accounts in the accompanying consolidated
financial statements have been retroactively adjusted for this stock split.
NOTE C -- EARNINGS PER SHARE
In 1997 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share. Statement No. 128
replaced the previously reported primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options. Diluted
earnings per share is similar to the previously reported fully diluted earnings
per share. All earnings per share amounts for all periods have been presented,
and where necessary, restated to conform to the Statement No. 128 requirements.
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
First Quarter Ended
-------------------------------------
December 27, 1997 December 28, 1996
================================================================================================================
<S> <C> <C>
Numerator for basic and diluted earnings per share:
Net income $ 1,558,000 $ 1,357,000
=========== ===========
Denominator:
Denominator for basic earnings per share - weighted-average shares 16,541,000 16,253,000
Effect of dilutive securities:
Stock options 1,099,000 1,572,000
----------- -----------
Denominator for diluted earnings per share 17,640,000 17,825,000
=========== ===========
BASIC EARNINGS PER SHARE $ .09 $ .08
=========== ===========
DILUTED EARNINGS PER SHARE $ .09 $ .08
=========== ===========
</TABLE>
Page 7 of 12
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward-Looking Information
- ---------------------------
Statements in this report concerning future results, growth in sales,
achievements, trends, new product or service development or introduction plans
or any other statement which may be construed as a prediction of future
performance or events are forward-looking statements, the occurrence of which
are subject to a number of known and unknown risks and uncertainties which might
cause actual results, achievements or occurrences to differ materially from
those expressed or implied by such statements. These risks and uncertainties
include the Company's ability to create and implement effective customer
acquisition techniques; timely development, delivery and market acceptance of
products and services which differentiate the Company from other photofinishers;
technological changes; product development or production difficulties or delays
due to technical difficulties, supply constraints or other factors; changing
economic conditions; the impact of competitive products and pricing; and other
risks including those described in the Company's Annual Report on Form 10-K and
those described from time to time in the Company's other filings with the
Securities and Exchange Commission, press releases and other communications.
General
- -------
Seattle FilmWorks, Inc. (the "Company") is a leading direct-to-consumer
marketer and provider of high-quality amateur photofinishing services and
products. The Company offers an array of complementary services and products
primarily on a mail-order basis under the brand name Seattle FilmWorks(R). The
Company has experienced an increase in net revenues in each year since 1990.
Management believes this growth is attributable principally to its direct-
marketing programs, including the customer acquisition technique of offering two
rolls of film for $2.00 or less (the "Introductory Offer"). The Introductory
Offer has been nationally advertised in package inserts, newspaper supplements
and magazines and through various other direct-response media.
Beginning in fiscal 1995, the Company shifted the focus of, and
substantially expanded, its customer acquisition programs. Management believes
that these steps are the primary reasons for the growth of net revenues and net
income during fiscal 1997, 1996 and the first three months of fiscal 1998. In
addition, management believes its core photofinishing business has benefited
from the introduction of new products, such as the January 1994 introduction of
Pictures On Disk(TM) and PhotoWorks(R).
Customer acquisition costs are comprised of the costs of generating a lead
and the amortization of direct costs associated with the Company's promotional
offers sent to prospective and existing customers. The costs of generating a
lead include all direct-response media, advertising and other costs associated
with developing target customer lists. These costs per lead have declined during
each of the last three fiscal years. The direct costs of customer acquisition
include film, postage and printed material costs associated with mailings to
prospective and existing customers.
The direct costs of customer acquisition are capitalized as an asset on the
Company's balance sheet as "capitalized customer acquisition expenditures."
Capitalized customer acquisition expenditures relating to prospective customers
are amortized over three years, and capitalized customer acquisition
expenditures relating to certain marketing activities to groups of existing
customers are amortized over six months. These amortization rates are based on
estimates of the timing of future roll processing volumes per customer. The
proportion of capitalized customer acquisition expenditures to be amortized over
three years relative to those to be amortized over six months will vary from
period to period based on the timing and mix of promotional activities. Rates
of amortization are compared from time to time with the actual timing of roll
processing volumes in order to assess whether the amortization rates
appropriately match the direct costs of customer acquisition with the related
revenues. If the Company were to experience a material change in the timing of
roll processing volumes, it could be required to accelerate the rate of
amortization of capitalized customer acquisition expenditures, which could have
a material adverse effect on the Company's business, financial condition and
operating results.
Page 8 of 12
<PAGE>
Customer acquisition costs as a percentage of net revenues have increased
to 18.5% in the first quarter of fiscal 1998 as compared to 16.4% in the first
quarter of fiscal 1997. Management believes this increase in customer
acquisition costs as a percentage of net revenues was due primarily to expansion
of the Company's customer acquisition programs. Future periods may reflect
increased customer acquisition costs due to timing of the amortization of
capitalized expenditures or the development and initiation of additional
marketing programs. For tax purposes, customer acquisition expenditures are
expensed as incurred, thereby reducing current federal income tax liabilities
and increasing deferred federal income tax liabilities.
Net income as a percentage of net revenues increased to 6.9% for the first
three months of fiscal 1998 as compared to 6.4% for the same period of fiscal
1997 primarily due to the relationship between changes in costs of goods sold,
customer acquisition costs and other selling expenses which in turn are
primarily driven by changes in sales mix and the Company's customer acquisition
strategy. Operating results will fluctuate in the future due to changes in the
mix of sales, intensity and effectiveness of promotional activities, price
increases by suppliers, introductions of new products, research and development
requirements, actions by competitors, foreign currency exchange rates,
conditions in the direct-to-consumer market and the photofinishing industry in
general, national and global economic conditions and other factors.
Demand for the Company's photo-related services and products is highly
seasonal, with the highest volume of photofinishing activity occurring during
the summer months. However, seasonality of demand may be offset by the
introduction of new services and products, changes in the level of effectiveness
of customer acquisition programs and other factors. This seasonality, when
combined with the general growth of the Company's photofinishing business, has
produced greater photofinishing net revenues during the last half of the
Company's fiscal year (April through September), with a peak occurring in the
fourth fiscal quarter. Net income is affected by the seasonality of the
Company's net revenues due to the fixed nature of a portion of the Company's
operating expenses, seasonal variation in sales mix and the Company's practice
of relatively higher expenditures on marketing programs prior to the summer
months.
RESULTS OF OPERATIONS
The following table presents information from the Company's consolidated
statements of income, expressed as a percentage of net revenues for the periods
indicated.
<TABLE>
<CAPTION>
First Quarter Ended
---------------------------
December 27, December 28,
1997 1996
=============================================================
<S> <C> <C>
Net revenues 100.0% 100.0%
Cost of goods and services 57.7 61.1
----- -----
GROSS PROFIT 42.3 38.9
Operating expenses:
Customer acquisition costs 18.5 16.4
Other selling expenses 8.8 8.3
Research and development .7 .8
General and administrative 4.7 4.3
----- -----
Total operating expenses 32.7 29.8
----- -----
INCOME FROM OPERATIONS 9.6 9.1
Total other income .9 .7
----- -----
INCOME BEFORE INCOME TAXES 10.5 9.8
Provision for income taxes 3.6 3.4
----- -----
NET INCOME 6.9% 6.4%
===== =====
</TABLE>
Page 9 of 12
<PAGE>
Net revenues for the first quarter of fiscal 1998 increased 5.8% to
$22,471,000 as compared to net revenues of $21,236,000 in the first quarter of
fiscal 1997. The growth in net revenues was affected by a lower-than-expected
rate of photofinishing growth and a decline in net revenues from ancillary
businesses, primarily wholesale film sales. Management attributes the reduced
photofinishing growth to increased competition and a continuing impact of
extended delivery times experienced by customers during the summer months.
Wholesale film sales declined primarily because of weaker demand and price
competition.
Cost of goods and services consist of labor, postage and supplies related
to the Company's services and products. Gross profit in the first quarter of
fiscal 1998 increased to 42.3% of net revenues compared to 38.9% in the first
quarter of fiscal 1997. The increase in fiscal 1998 was due primarily to lower
material costs and a product mix containing a higher percentage of the Company's
Seattle FilmWorks(R) branded products which carry a higher gross profit margin
than the Company's other services and products. Fluctuations in gross profit
will occur in future periods due to the seasonal nature of revenues, mix of
product sales, intensity of promotional activities and other factors.
Total operating expenses in the first quarter of fiscal 1998 increased to
32.7% of net revenues compared to 29.8% in the first quarter of fiscal 1997.
This increase was due primarily to an increase in customer acquisition and other
selling activities, which affect revenues in current and future periods. The
Company's principal technique for acquiring new customers is its Introductory
Offer of two rolls of 35 mm film for $2.00 or less. The Company capitalized
$5,067,000 of customer acquisition expenditures in the first quarter of fiscal
1998 compared to $4,555,000 for the first quarter of fiscal 1997. Capitalized
customer acquisition expenditures as of December 27, 1997, increased to
$15,121,000 compared to $13,882,000 as of September 27, 1997. Management
believes this increased investment in customer acquisition combined with new
service and product introductions are the primary reasons for the increase in
photofinishing-related revenues. Each year the Company prepares detailed plans
for its various marketing activities, including the mix between customer
acquisition expenditures and other selling expenses. However, the Company
occasionally changes both the mix and total marketing expenditures between
periods to take advantage of marketing opportunities as they become available.
Future periods may reflect increased customer acquisition costs due to the
timing of the amortization of capitalized expenditures or the development and
initiation of additional marketing programs.
Other selling expenses include marketing costs associated with building
brand awareness, testing of new marketing strategies and marketing to existing
customers, as well as certain costs associated with acquiring new customers.
Other selling expenses in the first quarter of fiscal 1998 increased to 8.8% of
net revenues compared to 8.3% of net revenues for the first quarter of fiscal
1997. This increase was primarily due to increased marketing activities
associated with expanded promotional activities to new and existing customers
compared to the fiscal 1997 period.
Research and development expenses decreased to $143,000 in the first
quarter of fiscal 1998 as compared to $173,000 for the first quarter of fiscal
1997. The decrease resulted primarily from lower contract service costs and
reduced equipment costs during the first quarter of fiscal 1998. Research and
development expenses consist primarily of costs incurred in researching new
computerized digital imaging concepts, developing computer software products and
creating equipment necessary to provide customers with new computer-related
photographic services and products.
General and administrative expenses increased to $1,056,000 for the first
quarter of fiscal 1998 as compared to $907,000 for the first quarter of fiscal
1997. This increase was primarily due to increased costs related to the
Company's management information systems and other equipment related costs.
General and administrative expenses consist of costs related to computer
operations, human resource functions, finance, accounting, investor relations
and general corporate activities.
Total other income for the first quarter of fiscal 1998 increased to
$214,000 as compared to $148,000 for the first quarter of fiscal 1997. The
increase resulted from higher interest income due to greater levels of cash
generated by operations.
The federal income tax rate for the first three months of fiscal 1998 as
compared to the first three months of fiscal 1997 decreased to 34.3% from 34.8%.
The decrease in the effective tax rate for fiscal 1998 as compared to fiscal
1997 was due primarily to an increase in tax exempt interest income.
Page 10 of 12
<PAGE>
Net income in the first quarter of fiscal 1998 was $1,558,000, or diluted
earnings per share of $.09, compared to $1,357,000 or diluted earnings per share
of $.08 for the first quarter of fiscal 1997. The increase in net income was
primarily attributable to the increase in net revenues and gross profit
partially offset by the increase in operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
As of January 30, 1998, the Company's principal sources of liquidity
included cash and short-term investments of $15,191,000 and an unused revolving
line of credit of $6,000,000. The ratio of current assets to current liabilities
for the Company was 2.7 to 1 at the end of the first quarter of fiscal 1998,
down from the current ratio of 3.1 to 1 at September 27, 1997 primarily due to
an increase in accounts payable and a decrease in accounts receivable. During
the first quarter of fiscal 1998 accounts receivable was reduced by $1,787,000
primarily due to payments received from wholesale orders shipped in the fourth
quarter of fiscal 1997. Accounts payable increased $3,417,000 primarily due to
the timing of payments related to inventory purchases. Federal income taxes
payable were also lower primarily due to payments made during the first quarter
of fiscal 1998.
On January 22, 1997, the Company announced that it may repurchase shares of
its Common Stock, either through open market purchases at prevailing market
prices, through block purchases or in privately negotiated transactions.
Repurchases may be commenced or discontinued by the Company at any time.
Although the number of shares to be repurchased is uncertain, any repurchased
shares will serve to offset the dilutive effect of shares of Common Stock issued
under the Company's stock option and stock purchase plans. During the first
quarter of fiscal 1998 the Company repurchased 267,300 shares of its common
stock for a total of $2,637,000.
Although the Company does not currently have any fixed material commitments
with regard to capital expenditures, it currently expects to spend approximately
$5,000,000 during the remainder of fiscal 1998, principally for photofinishing
equipment, data storage equipment and for leasehold improvements.
The Company has preliminarily addressed Year 2000 issues relating to
existing software and hardware. The Company believes costs associated with these
issues will not have a material effect on future operating results or future
financial condition.
The Company currently anticipates that existing funds together with
anticipated cash flow from operations and the Company's available line of credit
of $6,000,000 will be sufficient to finance its operations and planned capital
expenditures and to service its indebtedness for the foreseeable future.
However, if the Company does not generate sufficient cash from operations to
satisfy its ongoing expenses, the Company will be required to seek external
sources of financing or to refinance its obligations. Possible sources of
financing include the sale of equity securities or additional bank borrowings.
There can be no assurance that the Company will be able to obtain adequate
financing in the future.
PART II -- OTHER INFORMATION
----------------------------
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS.
Information required by Exhibit 11 concerning calculation of earnings
per share is set forth in Note C of Item 1 in Part I above.
(B) REPORTS ON FORM 8-K.
None
Page 11 of 12
<PAGE>
SIGNATURES
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.
SEATTLE FILMWORKS, INC.
DATED: February 9, 1998 /s/ Gary R. Christophersen
------------------------------------
Gary R. Christophersen
President/Chief Executive Officer
(Principal Executive Officer)
/s/ Case H. Kuehn
------------------------------------
Case H. Kuehn
Vice President-Finance/Treasurer
(Principal Financial and
Chief Accounting Officer)
Page 12 of 12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEATTLE
FILMWORKS, INC. FIRST QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-26-1998
<PERIOD-START> SEP-28-1997
<PERIOD-END> DEC-27-1997
<CASH> 15,314
<SECURITIES> 0
<RECEIVABLES> 1,893<F1>
<ALLOWANCES> 0
<INVENTORY> 9,755
<CURRENT-ASSETS> 27,942
<PP&E> 8,282<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 51,794
<CURRENT-LIABILITIES> 10,286
<BONDS> 0
0
0
<COMMON> 165
<OTHER-SE> 36,949
<TOTAL-LIABILITY-AND-EQUITY> 51,794
<SALES> 0
<TOTAL-REVENUES> 22,471
<CGS> 12,972
<TOTAL-COSTS> 7,342
<OTHER-EXPENSES> (214)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,371
<INCOME-TAX> 813
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,558
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
<FN>
<F1>ASSET VALUES REPRESENT NET AMOUNTS.
</FN>
</TABLE>
