<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
- --- OF 1934
For the quarterly period ended March 29, 1998
OR
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
- --- OF 1934
For the transition period from ______________ to ______________
Commission file number: 0-21305
Electronic Designs, Inc.
(Exact name of Registrant as specified in its charter)
DELAWARE 04-3298416
----------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One Research Drive, Westborough, Massachusetts 01581
(Address of Principal Executive Offices) (Zip Code)
(508) 366-5151
(Registrant's Telephone Number, Including Area Code)
Indicate by check whether 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
past l2 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 No
--- ---
The number of shares of Registrant's Common Stock outstanding as of May 7, 1998
was 7,047,380
Page 1 of 15, including exhibits
<PAGE> 2
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
ELECTRONIC DESIGNS, INC.
UNAUDITED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 29, September 30,
1998 1997
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents .................................. $ 3,547,000 $ 4,212,000
Accounts receivable, net ................................... 4,750,000 7,393,000
Inventories ................................................ 6,012,000 6,903,000
Assets of discontinued operations .......................... - 1,522,000
Deferred income taxes ...................................... 950,000 1,400,000
Prepaid expenses and other current assets .................. 413,000 185,000
------------ ------------
Total current assets ................................. 15,672,000 21,615,000
Property and equipment, net ................................... 2,102,000 2,117,000
Deferred income taxes ......................................... 250,000 -
Other assets .................................................. 447,000 10,000
Intangible assets, net ........................................ 1,162,000 1,395,000
------------ ------------
$ 19,633,000 $ 25,137,000
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of long-term debt .......................... $ 1,075,000 $ 1,059,000
Accounts payable ........................................... 2,862,000 5,723,000
Accrued expenses and other liabilities ..................... 2,087,000 2,334,000
Provision for loss on disposal of discontinued operations .. 169,000 776,000
------------ ------------
Total current liabilities ............................ 6,193,000 9,892,000
Deferred income taxes ......................................... - 200,000
Long-term debt, net of current portion ........................ 1,793,000 2,208,000
------------ ------------
Total liabilities .................................... 7,986,000 12,300,000
Shareholders' equity:
Common stock; $0.01 par value; 20,000,000 shares authorized:
7,148,295 shares issued at March 29, 1998 and
September 30, 1997 ........................................ 72,000 72,000
Additional paid in capital ................................. 26,965,000 26,968,000
Accumulated deficit ........................................ (15,004,000) (14,084,000)
Treasury stock; 108,016 and 34,994 shares at March 29, 1998
and September 30, 1997, respectively, at cost ............. (386,000) (119,000)
------------ ------------
Total shareholders' equity ........................... 11,647,000 12,837,000
------------ ------------
$ 19,633,000 $ 25,137,000
============ ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements
2
<PAGE> 3
ELECTRONIC DESIGNS, INC.
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------- -------------------------
March 29, March 30, March 29, March 30,
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Revenues ....................................................... $ 7,900,000 $9,716,000 $17,310,000 $20,589,000
Cost of revenues ............................................... 6,350,000 5,759,000 12,957,000 12,249,000
----------- ---------- ----------- -----------
Gross profit ................................................. 1,550,000 3,957,000 4,353,000 8,340,000
----------- ---------- ----------- -----------
Operating expenses:
Research and development ..................................... 650,000 484,000 1,288,000 978,000
Selling, general and administrative .......................... 1,922,000 1,921,000 3,692,000 3,914,000
Amortization of intangible assets ............................ 116,000 116,000 233,000 233,000
----------- ---------- ----------- -----------
2,688,000 2,521,000 5,213,000 5,125,000
Income (loss) from operations .................................. (1,138,000) 1,436,000 (860,000) 3,215,000
----------- ---------- ----------- -----------
Other income (expense)
Interest income .............................................. 35,000 60,000 79,000 109,000
Interest expense ............................................. (71,000) (74,000) (139,000 (159,000)
----------- ---------- ----------- -----------
(36,000) (14,000) (60,000) (50,000)
----------- ---------- ----------- -----------
Income (loss) before income taxes and discontinued operations .. (1,174,000) 1,422,000 (920,000) 3,165,000
Provision (benefit) for income taxes ........................... (100,000) 144,000 - 317,000
----------- ---------- ----------- -----------
Income (loss) from continuing operations ....................... (1,074,000) 1,278,000 (920,000) 2,848,000
Loss from discontinued operations .............................. - (211,000) - (510,000)
----------- ---------- ----------- -----------
Net income (loss) .............................................. $(1,074,000) $1,067,000 $ (920,000) $ 2,338,000
=========== ========== =========== ===========
Basic earnings (loss) per share:
Income (loss) from continuing operations ....................... $ (0.15) $ 0.18 $ (0.13) $ 0.42
=========== ========== =========== ===========
Net income (loss) .............................................. $ (0.15) $ 0.15 $ (0.13) $ 0.34
=========== ========== =========== ===========
Diluted earnings (loss) per share:
Income (loss) from continuing operations ..................... $ (0.15) $ 0.17 $ (0.13) $ 0.37
=========== ========== =========== ===========
Net income (loss) ............................................ $ (0.15) $ 0.14 $ (0.13) $ 0.30
=========== ========== =========== ===========
Basic weighted average common shares ........................... 7,050,000 7,090,000 7,070,000 6,852,000
=========== ========== =========== ===========
Diluted weighted average common shares and equivalents ......... 7,050,000 7,447,000 7,070,000 7,674,000
=========== ========== =========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
3
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ELECTRONIC DESIGNS, INC.
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------------
MARCH 29, MARCH 30,
1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash flows from operating activities:
Net income (loss) ................................................... $ (920,000) $ 2,338,000
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization .................................... 689,000 883,000
Changes in assets and liabilities:
Decrease in accounts receivable ................................ 2,643,000 463,000
Decrease in inventories ........................................ 891,000 746,000
Decrease in prepaid expenses ................................... 22,000 46,000
Increase in other assets ....................................... (62,000) -
Decrease in accounts payable ................................... (2,861,000) (1,422,000)
Decrease in accrued expenses and other liabilities ............. (442,000) (641,000)
----------- -----------
Net cash flows provided by (used in) operating activities .... (40,000) 2,413,000
----------- -----------
Cash flows from investing activities:
Capital equipment expenditures ...................................... (441,000) (336,000)
Cash proceeds from the sale of discontinued operations .............. 500,000 -
----------- -----------
Net cash flows provided by (used in) investing activities ..... 59,000 (336,000)
----------- -----------
Cash flows from financing activities:
Sale of common stock, net ........................................... 25,000 4,000
Repurchase of common stock .......................................... (310,000) -
Proceeds from issuance of long-term debt ............................ 150,000 750,000
Principal repayments on long-term debt .............................. (549,000) (654,000)
----------- -----------
Net cash flows provided by (used in) financing activities .... (684,000) 100,000
----------- -----------
Net increase (decrease) in cash and cash equivalents .................. (665,000) 2,177,000
Cash and cash equivalents at beginning of period ...................... 4,212,000 3,290,000
----------- -----------
Cash and cash equivalents at end of period ............................ $ 3,547,000 $ 5,467,000
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
4
<PAGE> 5
ELECTRONIC DESIGNS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements reflect the
financial position, results of operations and cash flows of Electronic Designs,
Inc. (the "Company") and its wholly-owned subsidiaries.
In the opinion of management, the financial statements contain all of
the necessary adjustments (all being of a normal and recurring nature) to fairly
present the financial position, results of operations and cash flows of the
Company for the interim periods presented. These statements do not include all
of the information and footnotes required by generally accepted accounting
principles, although the Company believes that the disclosures made are adequate
to make the information presented not misleading. These financial statements
should be read in conjunction with the Company's audited consolidated financial
statements for the two fiscal years in the period ended September 30, 1997,
included in the Company's 1997 Annual Report on Form 10-KSB.
The operating results for the interim periods presented are not
necessarily indicative of the results to be expected for the full year. The
three and six month periods ended March 30, 1997 have been restated to reflect
the Crystallume Diamond Products Division as a discontinued operation.
2. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
March 29, September 30,
1998 1997
<S> <C> <C>
Raw materials $3,131,000 $3,756,000
Work-in-process 946,000 1,534,000
Finished goods 1,935,000 1,613,000
---------- ----------
$6,012,000 $6,903,000
========== ==========
</TABLE>
3. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings Per Share" which changed the method of calculating earnings
per share. SFAS No. 128 requires the presentation of "basic" earnings per share
and "diluted" earnings per share. Basic earnings per share is computed by
dividing the net income available to common shareholders by the weighted average
shares of outstanding common stock. For purposes of calculating diluted earnings
per share, the denominator includes both the weighted average shares of common
stock outstanding and dilutive common stock equivalents. The Company adopted
SFAS No. 128 in the first quarter of fiscal 1998. All prior period earnings per
share amounts have been restated to comply with SFAS No. 128.
Dilutive common stock equivalents include outstanding stock options,
warrants and convertible preferred stock. The effect of stock options and
warrants was 158,000 and 31,000, respectively, in the second quarter of fiscal
1998 and 224,000 and 92,000, respectively, for the six months ended March 29,
1998. The effect of the common stock equivalents for both periods in fiscal 1998
are not reflected in the diluted loss per share calculation as their inclusion
would be antidilutive. The dilutive effect of stock options and warrants was
304,000 and 53,000 shares, respectively, for the three months ended March 30,
1997 and 452,000 and 140,000 shares, respectively, for the six months ended
March 30, 1997. In addition, the dilutive effect of 1,826 shares of convertible
preferred stock was 230,000 shares for the six months ended March 30, 1997.
5
<PAGE> 6
Options to purchase 556,504 shares of common stock at prices ranging
from $3.63 to $5.13 and warrants to purchase 1,313,000 shares of common stock at
prices ranging from $3.88 to $7.90 were outstanding during the six month period
ended March 29, 1998 and were not included in the computation of dilutive
options and warrants as the exercise prices exceeded the average market price of
the common shares during the period. Such options, which expire on various dates
through November 2002, and 313,000 of the warrants, which expire on various
dates through December 1999, were outstanding at March 29, 1998.
4. SHAREHOLDERS' EQUITY
On May 12, 1997, the Board of Directors authorized the repurchase of up
to 350,000 shares of the Company's common stock. During the first six months of
fiscal 1998, the Company repurchased 85,404 shares for total consideration of
$310,000. At March 29, 1998, 207,946 shares remained authorized to be
repurchased by the Company under this plan.
5. BORROWINGS
LINE-OF-CREDIT
On March 23, 1998, the Company entered into Amendment No.2 to its Loan
and Security Agreement with a bank. The amendment extended the term of the
Revolving Credit Facility to January 21, 1999 and established the maximum
borrowing limit under the Revolving Credit Facility at $3,000,000. All other
major provisions of the Loan and Security Agreement remained substantially the
same.
EQUIPMENT LEASE LINE
During the second quarter of fiscal 1998, the Company obtained a
commitment for an Equipment Lease Line with a third party to lease up to
$1,000,000 of equipment through January 31, 1999. Any leases under the Equipment
Lease Line will be payable in sixty equal monthly installments, including
interest at the five year treasury bond rate plus 2% on the date of funding. The
Company will have a bargain purchase option at the end of the lease term and
will account for any equipment acquired under the Equipment Lease Line as a
capital lease, thus recording the value of the underlying equipment and a
related obligation on its balance sheet. The equipment to be financed will
secure the leases. No obligations were outstanding under the Equipment Lease
Line as of March 29, 1998.
6. SUBSEQUENT EVENT
On May 3, 1998, the Company, Bowmar Instrument Corporation ("Bowmar")
and Bravo Acquisition Subsidiary ("Acquisition Subsidiary"), a wholly owned
subsidiary of Bowmar, entered into an Agreement and Plan of Merger (the "Merger
Agreement") pursuant to which Acquisition Subsidiary will merge with and into
the Company (the "Merger"), with the Company being the surviving corporation.
Pursuant to the Merger Agreement, at the effective time of the Merger, each
outstanding share of common stock of the Company will be converted into the
right to receive 1.375 shares of common stock of Bowmar.
6
<PAGE> 7
ITEM 2:
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Form 10-Q contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The Company's actual results could differ materially from
those set forth in the forward-looking statements. Certain factors that might
cause such a difference are discussed in the section entitled "Certain Factors
Affecting Future Operating Results" beginning on page 10 of this Form 10-Q.
Electronic Designs, Inc. (the "Company") designs, manufactures and sells to
specialty niche markets high density memory components used in commercial and
military systems and flat panel display units suitable for avionics and other
specialty applications using active matrix liquid crystal displays.
RESULTS OF OPERATIONS
Revenues:
Revenues decreased 19% to $7,900,000 in the second quarter of fiscal 1998
from $9,716,000 in the same period in fiscal 1997. For the six month period,
revenues decreased 16% to $17,310,000 in the first half of fiscal 1998 from
$20,589,000 in the same period in fiscal 1997. These decreases in revenues were
due substantially to declining average selling prices for the Company's memory
products reflecting declines in market prices of semiconductor memory
components. Partially offsetting the decreases in memory product sales were
increases in display product sales.
The Company has historically derived less than 10% of its revenues from
Asian customers, particularly in South Korea. Recent economic conditions and
uncertainty in that region have caused delays in the receipt of expected orders,
have had a negative effect on revenue and operating results during the first
half of fiscal 1998 and may negatively affect future revenues and operating
results in the near term.
In 1996 and 1997, the semiconductor industry experienced significant over
capacity, reduced demand and price erosion in semiconductor memories. The
effects of these developments on the Company's results to date have been
declines in the average selling prices and the value of orders received for its
memory products and reductions in cost and increased availability of most memory
devices which the Company purchases for incorporation in its products. The
increased availability of memory devices has caused an increase in competition
and shorter lead times for the Company's customers. The Company may be unable to
increase its volumes for its existing and new products at a rate sufficient to
offset declines in selling prices and, therefore, to maintain current revenue
levels.
As a result of the increased availability of commercial memory products,
there can be no assurance that new competitors will not enter the Company's
markets or that existing competitors, particularly those who manufacture their
own semiconductor devices, will not reduce selling prices of products to a level
at which the Company cannot compete.
The Company derives a substantial portion of its revenues and earnings from
sales to defense contractors and subcontractors of memory products manufactured
as compliant to military specifications. Trends in the defense industry include
reductions in spending from year to year and the movement toward the purchase of
commercial off-the-shelf ("COTS") products rather than those manufactured as
compliant to specified military standards. Despite the slow rate of adoption of
the COTS program, these changes have had a negative effect on the Company's
results due to lower average selling prices of these products. There can be no
assurance that the continued reduction in spending and slow rate of adoption of
the COTS program will not accelerate in the future and have a further adverse
effect on the Company's results.
7
<PAGE> 8
Gross profit:
Gross profit for the second quarter of fiscal 1998 was $1,550,000 compared
to $3,957,000 for the same period of fiscal 1997. Gross profit for the first six
months of fiscal 1998 was $4,353,000 compared to $8,340,000 in the same period
of fiscal 1997. The Company recorded a charge in the second quarter of fiscal
1998 of $860,000 related to lower of cost or market provisions on certain
inventory items that had been purchased in anticipation of the receipt of orders
for the related product from a customer in South Korea. Gross profit as a
percentage of revenues ("gross margin") decreased to 20% and 25% (or 30% for
both periods excluding the effect of the lower of cost or market provisions) for
the three and six month periods of fiscal 1998, respectively, from 41% for both
periods in the prior year. Gross margin decreased as a result of the effect of
the lower of cost or market provisions and higher fixed manufacturing overhead
costs in fiscal 1998 as a percentage of revenues. In addition, the Company
realized higher margins in the Company's military memory products in fiscal 1997
as a result of lower costs of purchased materials, which had not yet fully
resulted in lower selling prices for these products. The first six months of
fiscal 1997 also benefited from higher gross margins in the Company's display
products. Due to competitive forces, the Company believes that current gross
margins, excluding the effect of lower of cost or market provisions, are more
indicative than prior year gross margins of what can be expected in the future
and are relatively consistent with the gross margins experienced in the fourth
quarter of fiscal 1997 and the first quarter of 1998.
The Company believes that, in the near term, it will continue to be able to
offset future declines in selling prices with decreases in costs of raw
materials. However, in the event of prolonged or sudden declines in selling
prices, there can be no assurance that the Company will continue to be able to
maintain its gross margins by offsetting future declines in selling prices with
decreases in its product costs.
The Company purchases its semiconductor components from a small number of
large suppliers, including U.S. subsidiaries of foreign suppliers who are
regularly the target of threatened or pending trade disputes and sanctions
which, if realized, could affect the ability of the Company to obtain critical
raw materials. On April 17, 1998, the U.S. Department of Commerce issued
antidumping duties on all Taiwan SRAM Die imported into the U.S. The imposition
of this tariff could have an adverse impact on the Company's ability to obtain
SRAM die at competitive rates in the future. The Company has not been materially
adversely affected by this situation in the past and does not anticipate
experiencing any material adverse impact in the future. The Company generally
does not have specific contractual arrangements with its suppliers. While the
Company believes it has good relationships with its vendors, in the event that
product availability becomes more limited in the future, there is no assurance
that these sources of supply will continue under terms that permit the Company
to compete effectively in its targeted markets.
Operating expenses:
Research and development expenses in the second quarter and six month
period of fiscal 1998 increased 34% and 32% to $650,000 and $1,288,000,
respectively, from $484,000 and $978,000 in fiscal 1997 due primarily to
increases in salaries and project costs associated with new product development.
Selling, general and administrative expenses remained substantially the
same in the second quarter of fiscal 1998 as compared to the same period in
fiscal 1997. Decreases in bonuses, commissions and sales incentives were offset
by increases in marketing communication expenses. For the first six months of
fiscal 1998, selling, general and administrative expenses decreased $222,000 or
6% from $3,914,000 in fiscal 1997 due to lower bonuses, commissions and sales
incentives that resulted from lower revenues and operating margins in fiscal
1998.
Other income (expense):
Interest income in the current quarter was $35,000 and $79,000 for the six
months of fiscal 1998 as compared to $60,000 and $109,000 for the same periods
in the prior year due to lower cash and cash equivalent balances in fiscal 1998.
Interest expense decreased $3,000 and $20,000 in the second quarter and first
six months of fiscal 1998, as compared to the same periods in the prior year, to
$71,000 and $139,000, respectively, due to decreases in average outstanding debt
balances.
8
<PAGE> 9
Provision (benefit) for income taxes:
The provision (benefit) for income taxes in the current quarter of fiscal
1998 was a $100,000 benefit and zero for the six months of fiscal 1998 as
compared to $144,000 and $317,000, respectively, or 10% of income before income
taxes, for the same periods in fiscal 1997. A tax benefit related to the pre-tax
loss in 1998 was not recognized as the Company increased its deferred tax
valuation allowance to offset the increase in total deferred tax assets. The
effective tax rate in fiscal 1997 reflected recognition of the income tax
benefits of net operating loss and tax credit carryforwards as they were
utilized.
Loss from discontinued operations:
As a result of the Company's decision in May 1997 to divest its Crystallume
Diamond Products Division, its results were retroactively separated from the
Company's ongoing operations in the consolidated statement of operations. The
Company completed the divestiture in October 1997 in the form of a sale of
assets. In fiscal 1998, there was no gain or loss recorded from discontinued
operations compared to a loss of $211,000 and $510,000 in the second quarter and
first six months of fiscal 1997, respectively.
LIQUIDITY AND CAPITAL RESOURCES
At March 29, 1998, cash and cash equivalents were $3,547,000, representing
a decrease of $665,000 from September 30, 1997.
In the first six months of fiscal 1998, the Company used $40,000 of cash
for operating activities, primarily due to decreases in accounts payable,
accrued expenses and other current liabilities substantially offset by decreases
in accounts receivable. For the same period in fiscal 1997, cash of $2,413,000
was generated from operations primarily due to the Company's net income. The
Company invested $441,000 of cash in capital equipment expenditures during the
first six months of fiscal 1998 and received $500,000 related to the sale of its
Crystallume Diamond Products Division. The Company used $684,000 for financing
activities in the first six months of fiscal 1998 as a result of the regular
repayments of its loans and lease facilities and the repurchase of common stock
under the Company's stock repurchase program.
Under the terms of an amended Loan and Security Agreement ("the Agreement")
with a bank, the Company was allowed to borrow (i) up to $3,500,000 in the form
of a term loan (ii) up to $6,000,000 under a revolving credit facility
(including up to $5,000,000 for letters of credit) (the "Revolver") and (iii) up
to $1,500,000 in the form of an equipment loan. The Agreement was amended on
March 23, 1998 extending the term of the Revolver to January 21, 1999 and
setting the maximum borrowing amount under the Revolver at $3,000,000. At March
29, 1998, $2,260,000 was outstanding under the term loan and $389,000 was
outstanding under the equipment loan. There were no letters of credit or amounts
outstanding under the Revolver at March 29, 1998.
Combined borrowings and letters of credit under the Revolver are limited to
a borrowing base, as amended, calculated on a formula based on total domestic
and foreign accounts receivable less amounts outstanding under the term loan.
Under the terms of the amended Agreement, availability under the Revolver at
March 29, 1998 was limited to $1,257,000.
During the second quarter of fiscal 1998, the Company obtained a commitment
for an Equipment Lease Line with a third party to lease up to $1,000,000 of
equipment through January 31, 1999. Any leases under the Equipment Lease Line
will be payable in sixty equal monthly installments, including interest at the
five year treasury bond rate plus 2% on the date of funding. The Company will
have a bargain purchase option at the end of the lease term and will account for
any equipment acquired under the Equipment Lease Line as a capital lease, thus
recording the value of the underlying equipment and a related obligation on its
balance sheet. The equipment to be financed will secure the leases. No
obligations were outstanding under the Equipment Lease Line as of March 29,
1998.
9
<PAGE> 10
The Company anticipates that the combination of its current cash balance,
accounts receivable balance, Revolver, Equipment Lease Line and its cash flow
from operations will be sufficient to meet the Company's liquidity requirements
for at least the next 12 months.
RECENT DEVELOPMENTS
On May 3, 1998, the Company, Bowmar Instrument Corporation ("Bowmar") and
Bravo Acquisition Subsidiary ("Acquisition Subsidiary"), a wholly owned
subsidiary of Bowmar, entered into an Agreement and Plan of Merger (the "Merger
Agreement") pursuant to which Acquisition Subsidiary will merge with and into
the Company (the "Merger"), with the Company being the surviving corporation.
Pursuant to the Merger Agreement, at the effective time of the Merger each
outstanding share of common stock of the Company will be converted into the
right to receive 1.375 shares of common stock of Bowmar.
CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS
This Form 10-Q contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The Company's actual results could differ materially from
those set forth in the forward-looking statements. Certain factors that might
cause such a difference include the following: economic, regulatory, political
and currency risks associated with international sales which accounted for
approximately 30% of total revenues in fiscal 1997; the cyclicality of product
supply and demand and pricing in the Company's targeted markets, particularly
for its memory products; the Company's ability to develop new products; the
rapidity of technological change and highly competitive nature of the
semiconductor packaging industry; competition from larger companies in the
commercial module market; the rapidity of the display transition from cathode
ray tubes ("CRT") to active matrix liquid crystal displays ("AMLCD"); dependence
on contracts with defense related companies for its memory and display products;
the movement toward the purchase of COTS products rather than those manufactured
as compliant to specified military standards; risks related to the financial
condition and success of the Company's customers, the Company's customers'
products and the general economy; the likelihood that steep declines in sales,
pricing and gross margins of commercial memory products will occur toward the
end of a product's life cycle; absence of firm contractual relationships with
certain key suppliers of significant raw materials for its memory and display
products; the Company's dependence on key personnel and ability to attract and
retain qualified management, manufacturing, quality assurance, engineering,
marketing, sales and support personnel; and trends in outsourcing. In addition,
the Company's recent announcement of the Merger could have an impact on the
Company's ability to market its products to its customers, possibly causing
actual operating results to vary from expected performance. There is no
assurance that the Company will successfully complete the Merger and integrate
its operations with Bowmar, and failure to consummate this Merger could have a
material adverse effect on the Company's continuing operations and cash flow.
10
<PAGE> 11
PART II: OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
The Company's Redeemable Warrants, which were publicly traded on the
Nasdaq Small Cap Market under the symbol EDIXW, expired on March 21, 1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The matters described below were voted upon at the Annual Shareholders
Meeting on February 25, 1998, and the results of the votes for each matter are
listed below:
1. To elect Frank D. Edwards and Thomas J. Toy as directors of the
Company to serve until the 2001 Annual Meeting of Shareholders
and until their respective successors are duly elected and
qualified or until their earlier resignation or removal.
Votes for Withheld
--------- --------
Frank D. Edwards 6,452,500 53,016
Thomas J. Toy 6,452,691 52,825
2. To ratify the appointment of Price Waterhouse LLP to serve as
independent accountants for the Company for the fiscal year
ending September 30, 1998.
FOR AGAINST ABSTAIN NON-VOTES
--- ------- ------- ---------
6,479,391 17,725 8,400 556,263
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
10.1 Amendment No. 2 to the Amended and Restated Loan and Security
Agreement, dated March 23, 1998, by and between Registrant and
Silicon Valley Bank
10.2 First Amendment to the Employment Agreement, dated February 25,
1998, by and between Registrant and Donald F. McGuinness
10.3 Amended and Restated Executive Severance Agreement, dated as of
February 25, 1998, by and between Registrant and Frank D.
Edwards.
11 Statement re: Computation of Per Share Earnings
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
No report on Form 8-K was filed in the three month period ended
March 29, 1998.
11
<PAGE> 12
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.
Electronic Designs, Inc. (Registrant)
-----------------------------------------
Dated: May 12, 1998
-----------------------------------------
Frank D. Edwards, Senior Vice President
and Chief Financial Officer (Principal
Financial and Accounting Officer and Duly
Authorized Officer)
12
<PAGE> 13
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT TITLE
- ------ -------------
10.1 Amendment No. 2 to the Amended and Restated Loan and Security
Agreement dated March 23, 1998, by and between Registrant and
Silicon Valley Bank.
10.2 First Amendment to the Employment Agreement, dated as of February
25, 1998, by and between Registrant and Donald F. McGuinness.
10.3 Amended and Restated Executive Severance Agreement dated as of
February 25, 1998, by and between Registrant and Frank D.
Edwards.
11 Statement re: Computation of Per Share Earnings
27.1 Financial Data Schedule
13
<PAGE> 1
EXHIBIT 10.1
AMENDMENT NO. 2
TO
LOAN AND SECURITY AGREEMENT
This Amendment to Loan and Security Agreement is entered into as of March
23, 1998, by and between Silicon Valley Bank ("Bank"), with its principal place
of business at 3003 Tasman Drive, Santa Clara, CA 95054 and with a loan
production office located at Wellesley Office Park, 40 William Street, Suite
350, Wellesley, MA 02181, doing business under the name "Silicon Valley East",
and Electronic Designs, Inc. ("Borrower").
RECITALS
Borrower and Bank are parties to that certain Loan and Security Agreement
dated as of October 23, 1996, as amended from time to time (the "Agreement").
Borrower and Bank desire to extend the term of the Agreement in accordance with
the terms of this Amendment.
NOW, THEREFORE, the parties agree as follows:
1. The following definitions in Section 1.1 of the Agreement are amended
to read as follows:
"Revolving Facility" means the facility under which Borrower may
request Bank to issue cash advances in a principal amount not to exceed Three
Million Dollars ($3,000,000), as specified in Section 2.1 hereof.
"Revolving Maturity Date" means January 21, 1999.
2. The second sentence of Section 2.1 is amended to read as follows:
For purposes of this Agreement, "Borrowing Base" shall mean an amount equal
to seventy-five percent (75%) of Eligible Accounts minus the Term Amount.
3. The reference in Section 2.1.1 to "Five Million Dollars ($5,000,000)
is amended to read "Two Million Dollars ($2,000,000)".
4. Sections 6.8, 6.9, 6.10 and 6.11 are amended to read as follows:
6.8 QUICK RATIO. Borrower on a consolidated basis shall maintain, as
of the last day of each calendar quarter, a ratio of Quick Assets to Current
Liabilities of not less than 1.00 to 1.00.
6.9 DEBT SERVICE COVERAGE. Beginning June 30, 1998, borrower on a
consolidated basis shall maintain, as of the last day of each calendar quarter,
a Debt Service Ratio of not less than 1.25 to 1.00. "Debt Service Coverage"
means the sum of Borrower's net profits, depreciation, amortization and interest
for the preceding calendar quarter, divided by the interest and principal
payments due on Indebtedness of Borrower for such calendar quarter.
6.10 DEBT-TANGIBLE NET WORTH RATIO. Borrower on a consolidated basis
shall maintain as of the last day of each calendar quarter, a maximum ratio of
Total Liabilities less Subordinated Debt to Tangible Net Worth plus Subordinated
Debt of not more than 1.25 to 1.00.
6.11 TANGIBLE NET WORTH. Borrower on a consolidated basis shall
maintain, as of the last day of each fiscal quarter, a Tangible Net Worth plus
Subordinated Debt of not less than Ten Million Dollars ($10,000,000) plus Fifty
Percent (50%) of Borrower's aggregate net profits (with no deduction for losses)
from each subsequent quarter.
5. Section 6.12 is deleted from the Agreement.
<PAGE> 2
6. Exhibits C and D are amended to read in the form attached hereto.
7. Unless otherwise defined, all capitalized terms in this Amendment
shall be as defined in the Agreement. Except as amended, the Agreement remains
in full force and effect. Borrower represents and warrants that the
Representations and Warranties contained in the Agreement are true and correct
as of the date of this Amendment, and that no Event of Default has occurred and
is continuing. This Amendment may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one instrument. As a condition to the effectiveness of this Amendment, Bank
shall receive a fee of Fifteen Thousand Dollars ($15,000) and an amount equal to
the Bank Expenses incurred in connection with this Amendment.
8. This Amendment to Loan and Security Agreement shall be effective only
when it shall have been executed by Borrower and Bank, provided in no event
shall it become effective until signed by an officer of Bank in California.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the
first date above written.
ELECTRONIC DESIGNS, INC. SILICON VALLEY BANK, doing business as
Silicon Valley East
By By
----------------------------------- ------------------------------------
Title Title
-------------------------------- ---------------------------------
SILICON VALLEY BANK
By
------------------------------------
Title
---------------------------------
<PAGE> 3
EXHIBIT C
BORROWING BASE CERTIFICATE
- --------------------------------------------------------------------------------
Borrower: Electronic Designs, Inc.
Commitment Amount: $3,000,000
- --------------------------------------------------------------------------------
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of ___
(includes foreign Accounts) $___________
2. Additions (please explain on reverse) $___________
3. TOTAL ACCOUNTS RECEIVABLE $___________
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due $___________
5. Balance of 50% over 90 day accounts $___________
6. Concentration Limits $___________
7. Governmental Accounts $___________
8. Contra Accounts $___________
9. Promotion or Demo Accounts $___________
10. Intercompany/Employee Accounts $___________
11 Other (please explain on reverse) $___________
12. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $___________
13. Eligible Accounts (#3 minus #12) $___________
14. LOAN VALUE OF ACCOUNTS (75% of #13) $___________
15. Outstanding Term Amount $___________
16. LOAN VALUE OF ACCOUNTS LESS
TERM AMOUNT (#14 minus #15) $___________
BALANCES
17. Maximum Loan Amount $___________
18. Total Funds Available [Lesser of #16 or #17] $___________
19. Present balance owing on Line of Credit $___________
20. Outstanding under Sublimits ( ) $___________
21. RESERVE POSITION (#16 minus #17, #18 and #19) $___________
The undersigned represents and warrants that the foregoing is true, complete and
correct, and that the information reflected in this Borrowing Base Certificate
complies with the representations and warranties set forth in the Amended and
Restated Loan and Security Agreement between the undersigned and Silicon Valley
Bank.
COMMENTS: BANK USE ONLY
Electronic Designs, Inc. Rec'd by_____________
Auth. Signer
BY_________________________ Date:________________
____________________________ Verified:____________
Authorized Signer Auth. Signer
Date:________________
_____________________
<PAGE> 4
EXHIBIT 10.1
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: ELECTRONIC DESIGNS, INC.
The undersigned authorized officer of Electronic Designs, Inc. hereby
certifies that in accordance with the terms and conditions of the Amended and
Restated Loan and Security Agreement between Borrower and Bank (the
"Agreement"), (i) Borrower is in complete compliance for the period ending March
29, 1998 with all required covenants except as noted below and (ii) all
representations and warranties of Borrower stated in the Agreement are true and
correct in all material respects as of the date hereof. Attached herewith are
the required documents supporting the above certification. The officer further
certifies that these are prepared in accordance with Generally Accepted
Accounting Principles (GAAP) and are consistently applied from one period to the
next except as explained in accompanying letter or footnotes.
Please indicate compliance status by circling Yes/No under "Complies"
column.
<TABLE>
<CAPTION>
Reporting Covenant Required Complies
------------------ -------- --------
<S> <C> <C> <C>
Monthly Financial Statement Monthly within 30 days Yes No
Annual (CPA Audited) FYE within 90 days Yes No
A/R & A/P Agings Monthly within 20 days Yes No
A/R Audit Initial and Semi-Annual Yes No
Form 10K Annually within 5 days Yes No
Form 10Q Quarterly within 5 days Yes No
Financial Covenant Required Actual Complies
------------------ -------- ------ --------
<S> <C> <C> <C> <C>
Maintain on a Quarterly Basis:
Minimum Quick Ratio 1.00:1.00 ____:1.0 Yes No
Minimum TNW + Sub Debt $10,000,000 +
50% profits $______ Yes No
Maximum Debt/Tangible Net Worth 1.25:1:00 _____:1.0 Yes No
Minimum Debt Service Ratio 1..25:1.0 _____:1.0 Yes No
</TABLE>
Comments Regarding Exceptions: See Attached.
Sincerely, BANK USE ONLY
Received by:_____________________
__________________________ AUTHORIZED SIGNER
SIGNATURE(S)
Date:____________________________
__________________________ Verified:________________________
TITLE(S) AUTHORIZED SIGNED
Date:____________________________
__________________________ Compliance Status: Yes No
DATE
<PAGE> 1
EXHIBIT 10.2
FIRST AMENDMENT TO THE EMPLOYMENT AGREEMENT
This First Amendment to the Employment Agreement is made on this 25th day
of February 1998, by and between Electronic Designs, Inc., a Delaware
corporation with its principal place of business in Westborough, Massachusetts
(the "Company"), and Donald F. McGuinness of 82 Baldwin Lane, Boxboro,
Massachusetts (the "Employee").
The Company and Employee are parties to an Employment Agreement, dated
October 10, 1995 (the "Employment Agreement"). The parties wish to amend the
Employment Agreement in accordance with the provisions hereof. The purposes of
this First Amendment are the same as the purposes set forth in the Employment
Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual agreements
hereinafter set forth, it is agreed:
1. The first two sentences of Section 4(e) of the Employment Agreement
shall be and hereby are deleted in their entirety and are replaced by the
following two sentences:
"Upon the termination of Employee's employment hereunder on, or at any
time after, the Initial Termination Date, whether such termination is
at the election of the Company or the Employee, the Company shall
continue to pay and provide to Employee for a period of eighteen (18)
months (the "Extended Payment Period") Employee's Base Salary and
Employee's fringe benefits. During the Extended Payment Period,
Employee shall serve as a consultant to the Company."
2. Except for the foregoing amendment, the Employment Agreement shall
continue in full force and effect as originally executed and the Employment
Agreement as amended hereby is hereby ratified and affirmed.
IN WITNESS WHEREOF, this First Amendment to the Employment Agreement has
been executed by the Company by its duly authorized officer and by the Employee
as of the date first above written.
WITNESS: ELECTRONIC DESIGNS, INC.
By:
- ------------------------ ---------------------------
Name:
Title:
By:
- ------------------------ ---------------------------
Name: Donald F. McGuinness
Title: Chairman and Chief Executive Officer
<PAGE> 1
EXHIBIT 10.3
AMENDED AND RESTATED
EXECUTIVE SEVERANCE AGREEMENT
AMENDED AND RESTATED EXECUTIVE SEVERANCE AGREEMENT (as the same may
hereafter be amended, supplemented for modified, this "Agreement") made as of
the 25th day of February, 1998 by and between Electronic Designs, Inc., a
Delaware corporation with its principal place of business in Westborough,
Massachusetts (the "Company"), and Frank D. Edwards (the "Executive"). This
Agreement amends and restates in its entirety the Executive Severance Agreement
dated as of December 21, 1994 by and between Electronic Designs, Inc., a
Massachusetts corporation, and Executive and all rights thereunder are hereby
waived in favor of the rights granted herein.
1. PURPOSE. The Company considers it important to foster the continuous
employment of key management personnel. The Company recognizes, however, that,
the possibility of a Terminating Event (as defined in Section 2 hereof), or
other circumstances which could lead to changes in executive appointments,
exists and that such possibility and the uncertainty and questions which it may
raise among management personnel to the detriment of the Company. Therefore, the
Company has determined that appropriate steps should be taken to reinforce and
encourage the continued attention and dedication of members of the Company's
management, including the Executive, to their assigned duties without
distraction in the face of potentially disturbing circumstances arising from the
possibility of Terminating Event or such other circumstances. Nothing in this
Agreement shall be construed as creating an express or implied contract of
employment and, except as otherwise agreed in writing between the Executive and
the Company, and subject to the Executive's right to receive severance
compensation under certain circumstances as provided herein, the Executive shall
not have any right to be retained in the employ of the Company.
2. [INTENTIONALLY RESERVED]
3. TERMINATING EVENT. A "Terminating Event" shall mean any of the
following:
(a) termination by the Company of the employment of the Executive with
the Company for any reason other than:
(i) death or permanent disability such as to prevent the Executive's
effective performance of his job responsibilities as in effect at
the date hereof;
(ii) deliberate dishonesty of the Executive with respect to the Company
or any subsidiary or affiliate of the Company;
(iii) conviction of the Executive of a crime involving moral turpitude,
deceit, dishonesty or fraud;
1
<PAGE> 2
(iv) material failure to perform a substantial portion of the Executive's
duties and responsibilities hereunder, which failure continues after
written notice given to the Executive by the Board of Directors;
(v) gross negligence or willful misconduct of the Executive with respect
to the Company or any subsidiary or affiliate thereof; or
(vi) material breach of the Executive's fiduciary duties as an officer
and employee of the Company;
(b) resignation of the Executive from the employee of the Company, while
the Executive is not receiving payments or benefits from the Company by reason
of the Executive's disability, subsequent to the occurrence of any of the
following events:
(i) a significant change in the nature or scope of the Executive's
responsibilities, authorities, powers, functions or duties from the
responsibilities, authorities, powers, functions or duties exercised
by the Executive;
(ii) a decrease in the total annual compensation payable by the Company
to the Executive other than as a result of a decrease in
compensation payable to the Executive and to all other executive
officers of the Company on the basis of the Company's financial
performance;
(iii) a requirement imposed by the Company that the Executive relocate to
an office that is more than 50 miles distant from the office at
which he is employed or the home at which he resides; or
(iv) failure to a successor of the Company to assume its obligations
hereunder, as provided in Section 16.
4. SEVERANCE PAYMENT. In the event that a Terminating Event occurs, the
Company shall pay to the Executive an amount equal to the Severance Payment
Amount (as hereinafter defined), payable in one lump-sum payment on the date of
such termination or resignation. The "Severance Payment Amount" shall mean the
product of (x) the highest annual base salary payable to the Executive during
any calendar year of his employment with the Company (not including bonus),
multiplied by (y) one (1). In addition, the Executive shall be entitled to
continued receipt of all life insurance and health and medical benefits provided
to the Executive as of the date of this Agreement for a period of twelve (12)
months following the date of the Terminating Event, or equivalent value in cash.
The Company shall be required to provide irrevocably for such benefits by
pre-paid purchase of benefits with sound and reputable insurers, or else shall
pay the Executive, in a lump sum, as additional severance pay, an amount in cash
equal to the discounted present value of the cost to the Executive of purchasing
an equivalent benefit for such period, as determined by actuaries and/or other
suitable professional personnel reasonably acceptable to the Executive.
2
<PAGE> 3
5. TERM. This Agreement shall become effective from the date hereof, and
shall terminate upon the earlier of (a) the termination by the Company of the
employment of the Executive for any of the reasons enumerated in Section
3(a)(i)-(vi) of this Agreement, and (b) the resignation of the Executive for any
reason other than the occurrence of any of the events enumerated in Section
3(b)(i)-(iv) of this Agreement.
6. WITHHOLDING. All payments made by the Company under this Agreement
shall be net of any tax or other amounts required to be withheld by the Company
under applicable law.
7. MITIGATION. The Company agrees that, if the Executive's employment by
the Company is terminated during the term of this Agreement, the Executive is
not required to seek other employment or to attempt in any way to reduce any
amounts payable to the Executive by the Company pursuant to Section 4 hereof.
Further, the amount of any payment provided for in this Agreement shall not be
reduced by any compensation earned by the Executive as the result of employment
by another employer, by retirement benefits, by offset against any amount
claimed to be owed by the Executive to the Company or otherwise. Notwithstanding
the foregoing, if the Executive obtains other employment during the period when
the Executive is continuing to receive life insurance and health and medical
benefits under Section 4, the Company shall be relieved of the obligation to
provide such benefits to the extent that they are provided by the Executive's
new employer in the ordinary course; and the Executive agrees to give the
Company prompt written notice if he obtains such other employment during such
period.
8. SETTLEMENT AND ARBITRATION OF DISPUTES. Any controversy or claim
arising out of or relating to this Agreement or the breach thereof shall be
settled exclusively by arbitration in accordance with the laws of the
Commonwealth of Massachusetts by three arbitrators, one of whom shall be
appointed by the Company, one by the Executive and the third by the first two
arbitrators. If the first two arbitrators cannot agree on the appointment of a
third arbitrator, then the third arbitrator shall be appointed by the American
Arbitration in the City of Boston. Such arbitration shall be conducted in the
City of Boston in accordance with the rules of the American Arbitration
Association for commercial arbitration, except with respect to the selection of
arbitrators which shall be as provided in this Section 8. Judgment upon the
award rendered by the arbitrators may be entered in any court having
jurisdiction thereof.
9. ASSIGNMENT: PRIOR AGREEMENTS. Neither the Company nor the Executive
may make any assignment of this Agreement or any interest herein, by operation
of law or otherwise, without the prior written consent of the other party, and
without such consent any attempted transfer shall be null and void and of no
effect. This Agreement shall insure to the benefit of and be binding upon the
Company and the Executive, their respective successors, executors,
administrators, heirs and permitted assigns. In the event of the Executive's
death after a Terminating Event but prior to the completion by the Company of
all payments due him under Section 4 of this Agreement, the Company shall
continue such payments to the Executive's beneficiary designated in writing to
the
3
<PAGE> 4
Company prior to his death (or to his estate, if the Executive fails to make
such designation).
10. ENFORCEABILITY. If any portion or provision of this Agreement shall
to any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such
portion or provision in circumstances other than those as to which it is so
declared illegal or unenforceable, shall not be affected thereby, and each
portion and provision of this Agreement shall be valid and enforceable to the
fullest extent permitted by law.
11. WAIVER. No waiver of any provision hereof shall be effective unless
made in writing and signed by the waiving party. The failure of any party to
require the performance of any term or obligation of this Agreement, or the
waiver by any party of any breach of this Agreement, shall not prevent any
subsequent enforcement of such term of obligation or be deemed a waiver of any
subsequent breach.
12. NOTICES. Any notices, requests, demands and other communications
provided for by this Agreement shall be sufficient if in writing and delivered
in person or sent by registered or certified mail, postage prepaid, to the
Executive at the last address the Executive has filed in writing with the
Company, or to the Company at its main office, attention of the Board of
Directors.
13. EFFECT ON OTHER PLANS. An election by the Executive to resign under
the provisions of this Agreement shall not be deemed a voluntary termination of
employment by the Executive for the purpose of interpreting the provisions of
any of the Company's benefit plans, programs or policies. Nothing in this
Agreement shall be construed to limit the rights of the Executive under the
Company's benefit plans, programs or policies except as otherwise provided in
Section 5 hereof, and except that the Executive shall have no rights to any
severance benefits under any severance pay plan.
14. AMENDMENT. This Agreement may be amended or modified only by a
written instrument signed by the Executive and by a duly authorized
representative of the Company.
15. GOVERNING LAW. This is a Massachusetts contract and shall be
construed under and be governed in all respects by the laws of the Commonwealth
of Massachusetts.
16. OBLIGATIONS OF SUCCESSORS. In addition to any obligations imposed by
law upon any successor to the Company, the Company will use its best efforts to
require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business or
assets of the Company to expressly assume and agree to perform this Agreement in
the same manner and to the same extent that the Company would be required to
perform if no succession had taken place. If such successor shall fail to so
expressly assume and agree to perform this Agreement, the
4
<PAGE> 5
Executive shall be entitled to resign and treat such failure as a Terminating
Event under Section 3(b).
IN WITNESS WHEREOF, this Agreement has been executed as a sealed
instrument by the Company by its duly authorized officer, and by the Executive,
as of the date first above written.
ELECTRONIC DESIGNS, INC.
By:
-------------------------------------
Name: Donald F. McGuinness
Title: President, Chairman and CEO
EXECUTIVE
----------------------------------------
Frank D. Edwards
5
<PAGE> 1
EXHIBIT 11 Statement re: Computation of Per Share Earnings
NET INCOME (LOSS) PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------------- ------------------------
March 29, March 30, March 29, March
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Income (loss) from continuing operations ................... $(1,074,000) $1,278,000 $ (920,000) $2,848,000
----------- ---------- ---------- ----------
Loss from discontinued operations .......................... - (211,000) - (510,000)
----------- ---------- ---------- ----------
Net income (loss) .......................................... $(1,074,000) $1,067,000 $ (920,000) $2,338,000
=========== ========== ========== ==========
Weighted average common shares
outstanding-basic ......................................... 7,050,000 7,090,000 7,070,000 6,852,000
Adjustments thereto (1) (2) ................................ - 357,000 - 822,000
----------- ---------- ---------- ----------
Weighted average common shares and equivalents - diluted ... 7,050,000 7,447,000 7,070,000 7,674,000
=========== ========== ========== ==========
BASIC EPS:
Income (loss) from continuing operations per share ......... $ (0.15) $ 0.18 $ (0.13) $ 0.42
=========== ========== ========== ==========
Net income (loss) per share ................................ $ (0.15) $ 0.15 $ (0.13) $ 0.34
=========== ========== ========== ==========
DILUTED EPS:
Income (loss) from continuing operations per share ......... $ (0.15) $ 0.17 $ (0.13) $ 0.37
=========== ========== ========== ==========
Net income (loss) per share ................................ $ (0.15) $ 0.14 $ (0.13) $ 0.30
=========== ========== ========== ==========
</TABLE>
(1) Adjusts the weighted average number of shares outstanding for (i) dilutive
stock options and warrants using the treasury stock method and (ii) the
conversion of preferred stock using the if-converted method.
(2) The effects of common stock equivalents in fiscal 1998 have not been
presented as they are antidilutive.
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENT OF OPERATIONS FOR THE PERIOD ENDING MARCH 29, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q QUARTERLY REPORT FILED
PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934 FOR THE PERIOD ENDED MARCH 29,
1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> MAR-29-1998
<CASH> 3,547,000
<SECURITIES> 0
<RECEIVABLES> 4,750,000
<ALLOWANCES> 0
<INVENTORY> 6,012,000
<CURRENT-ASSETS> 15,672,000
<PP&E> 2,102,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 19,633,000
<CURRENT-LIABILITIES> 6,193,000
<BONDS> 1,793,000
0
0
<COMMON> 72,000
<OTHER-SE> 11,575,000
<TOTAL-LIABILITY-AND-EQUITY> 19,633,000
<SALES> 7,900,000
<TOTAL-REVENUES> 7,900,000
<CGS> 6,350,000
<TOTAL-COSTS> 6,350,000
<OTHER-EXPENSES> 2,688,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 71,000
<INCOME-PRETAX> (1,174,000)
<INCOME-TAX> (100,000)
<INCOME-CONTINUING> (1,074,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,074,000)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> (0.15)
</TABLE>
