<PAGE>
FORM 10-QSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934. For the Quarterly Period Ended March 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the transition period from ___________ to ______________
Commission file number 1-13408
DIGITAL RECORDERS, INC.
(Name of small business issuer as specified in its charter)
North Carolina 56-1362926
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
4900 Prospectus Drive, Suite 1000
Research Triangle Park, North Carolina 27709-4068
(Address of principal executive offices)
(919) 361-2155
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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| No |_|
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court.
Yes |X| No |_|
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
Common stock: 2,674,075 shares outstanding
as of April 30, 1997
Transitional Small Business Disclosure Format (check one); Yes |_| No X
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Index to Consolidated Financial Statements
Item Page
----
Financial Statements:
Consolidated Balance Sheets........................................ 3
Consolidated Statements of Operations.............................. 4
Consolidated Statements of Cash Flows.............................. 5-6
Notes to Consolidated Financial Statements......................... 7-8
2
<PAGE>
DIGITAL RECORDERS, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, 1997 December 31,
Assets (Unaudited) 1996
------ ------------- -------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 539,569 1,328,944
Investments 1,644,661 1,606,422
Trade accounts receivable 2,393,541 2,090,881
Other receivables 56,909 120,014
Inventories 1,736,816 1,889,906
Prepaids and other current assets 119,409 51,329
------------- -------------
Total current assets 6,490,905 7,087,496
------------- -------------
Property and equipment, net 431,005 458,011
Goodwill, net 1,630,426 1,668,807
Intangible assets, net 466,726 403,900
Other assets 7,099 7,099
------------- -------------
$ 9,026,161 9,625,313
============= =============
Liabilities and Stockholders' Equity
------------------------------------
Current Liabilities:
Accounts payable 473,192 830,883
Accrued expenses 152,190 172,892
Accrued commissions 215,521 199,485
Accrued warranty reserve 172,367 161,971
------------- -------------
Total current liabilities 1,013,270 1,365,231
------------- -------------
Total liabilities 1,013,270 1,365,231
------------- -------------
Stockholders' Equity:
Series AAA Redeemable, Nonvoting Preferred Stock, $.10 par value,
20,000 shares authorized; 354 shares issued and outstanding at
March 31, 1997 and December 31, 1996, respectively 35 35
Common stock, $.10 par value, 10,000,000 shares authorized;
2,674,075 shares issued and outstanding at March 31,
1997 and December 31, 1996, respectively 267,407 267,407
Additional paid-in capital 12,602,708 12,602,708
Translation adjustment (69,648) (9,791)
Accumulated deficit (4,787,611) (4,600,277)
------------- -------------
Total stockholders' equity 8,012,891 8,260,082
------------- -------------
$ 9,026,161 9,625,313
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
DIGITAL RECORDERS, INC.
Consolidated Statements of Operations (Unaudited)
For the three month periods ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
-------------- -------------
<S> <C> <C>
Net sales $ 2,398,210 1,750,568
Cost of sales 1,175,821 763,787
-------------- -------------
Gross profit 1,222,389 986,781
Selling, general and administrative expenses 1,159,620 746,549
Research and development expenses 238,432 87,732
-------------- -------------
Operating income (loss) (175,663) 152,500
Other income (expense):
Interest income 29,558 47,992
Interest expense (3,186) (2,630)
Other income, net 1,782 -
-------------- -------------
Total other income (expense) 28,154 45,362
Income (loss) before income taxes (147,509) 197,862
Income tax expense - 10,000
-------------- -------------
Net income (loss) (147,509) 187,862
Preferred dividend requirements (39,825) (39,825)
-------------- -------------
Net income (loss) applicable to common stockholders $ (187,334) 148,037
============== =============
Net income (loss) per common and common equivalent share $ (0.07) 0.06
============== =============
Weighted average number of common and common
equivalent shares outstanding 2,674,075 2,674,075
============== =============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
DIGITAL RECORDERS, INC.
Consolidated Statements of Cash Flows (Unaudited)
For the three month periods ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (147,509) 187,862
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization of
property and equipment 73,733 24,853
Amortization of goodwill and intangible assets 40,527 42,761
Changes in operating assets and liabilities:
Decrease (increase) in trade accounts receivable (302,660) 76,399
Decrease (increase) in other receivables 49,605 (2,195)
Decrease (increase) in inventories 153,090 (92,939)
Decrease (increase) in prepaids and other current assets (68,080) 28,660
Increase in intangible assets (64,972) -
Increase in other assets - (199)
Decrease in accounts payable (357,691) (5,898)
Increase in accrued expenses 5,730 71,020
------------- --------------
Net cash provided (used) by operating activities (618,227) 330,324
------------- --------------
Cash flows from investing activities:
Purchases of property and equipment (46,727) (17,327)
Purchases of short-term investments (38,239) (44,277)
Sales and maturities of short-term investments - 200,000
------------- --------------
Net cash provided (used) by investing activities (84,966) 138,396
------------- --------------
Cash flows from financing activities:
Principal payments on long-term debt - (709,000)
Proceeds from short-term bank borrowings 873,000 -
Principal payments on short-term bank borrowings (873,000) -
Payment of dividends on preferred stock (26,325) (26,325)
-------------
--------------
Net cash used by financing activities (26,325) (735,325)
------------- --------------
Effect of exchange rate changes (59,857) -
------------- --------------
Net decrease in cash and cash equivalents (789,375) (266,605)
Cash and cash equivalents at beginning of period 1,328,944 1,175,775
------------- --------------
Cash and cash equivalents at end of period $ 539,569 909,170
============= ==============
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 3,186 2,630
============= ==============
Cash paid during the period for income taxes $ - -
============= ==============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
DIGITAL RECORDERS, INC.
Consolidated Statements of Cash Flows, Continued (Unaudited)
For the three month periods ended March 31, 1997 and 1996
Supplemental disclosures of noncash financing activities:
The Company declared $39,825 in dividends on Series AAA Preferred Stock in
each of the three month periods ended March 31, 1997 and 1996. The Company
paid $26,325 in cash dividends in each of the three month periods ended
March 31, 1997 and 1996. The remaining $13,500 of declared dividends for
the three month period ended March 31, 1997 were offset against an other
receivable.
6
<PAGE>
DIGITAL RECORDERS, INC.
Notes to Consolidated Financial Statements (Unaudited)
March 31, 1997 and 1996
(1) Basis of Presentation and Disclosure
The unaudited interim condensed financial statements and related notes
have been prepared pursuant to the rules and regulations of the Securities
and Exchange Commission. Accordingly, certain information and footnote
disclosures normally included in the financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to such rules and regulations. However, in the opinion of
management, the accompanying unaudited financial statements contain all
adjustments (consisting of only normal recurring accruals) considered
necessary to present fairly the results for the interim periods presented.
The accompanying condensed financial statements and related notes
should be read in conjunction with the Company's audited financial
statements included in its Annual Report on Form 10-KSB for the year
ended December 31, 1996. The results of operations for the three months
ended March 31, 1997 are not necessarily indicative of the results to be
expected for the full calendar year.
(2) Per Share Amounts
Net income (loss) per common and common equivalent share is based upon
the weighted average number of common and common equivalent shares
outstanding from convertible preferred stock and the exercise of stock
options and warrants. A treasury stock approach has been used in
determining the incremental shares outstanding. For 1997, the impact of the
common stock equivalent shares was anti-dilutive. For 1996, the common
stock equivalent shares had no impact on the per share amounts. Cash
dividends declared on the preferred stock during the period were deducted
from net income or added to net loss to determine the net income (loss) per
share. Cash dividends declared were $39,825 for each of the three months
ended March 31, 1997 and 1996, respectively.
(3) Translation of Foreign Currency
Foreign currency assets and liabilities are translated using the
exchange rates in effect at the balance sheet date. Results of operations
are translated using the average exchange rate prevailing throughout the
year. The effects of unrealized exchange rate fluctuations on translating
foreign currency assets and liabilities into U. S. dollars are accumulated
as the cumulative translation adjustment in stockholders' equity. Realized
gains and losses on foreign currency transactions, if any, are included in
operations for the year.
7
<PAGE>
DIGITAL RECORDERS, INC.
Notes to Consolidated Financial Statements, Continued (Unaudited)
(4) Acquisition of Transit-Media GmbH
On April 30, 1996, the Company acquired Transit-Media GmbH
("Transit-Media") in a transaction accounted for using the purchase method
of accounting and, accordingly, the assets and liabilities of the acquired
entity were recorded at their fair market value at the date of acquisition.
Transit-Media assembles and markets proprietary on-board, electronic
destination signs for mass-transit systems in Europe and the Far East. The
Company paid $35,000 for all of Transit-Media's stock at closing. The
Company recorded cash ($440), other receivables (valued at $1,736), fixed
assets (valued at $10,523), accounts payable (valued at $3,957), short-term
bank borrowings (valued at $117,177), and certain intangible assets (valued
at $143,435). Upon completing the acquisition, the Company invested
$350,000 in Transit-Media to pay off an existing bank credit line and
provide working capital. The Company's results of operations for the three
months ended March 31, 1997 include the operations of Transit-Media.
The following unaudited pro forma results of operations assume the
transaction described above occurred as of January 1, 1996 after giving
effect to certain adjustments, including the amortization of the excess
cost over the fair value of the net assets acquired.
Three Months Ended
March 31, 1996
--------------
Net sales $ 1,750,568
Net income $ 115,895
Net income per common and common equivalent share $ 0.03
The pro forma information given above does not purport to be
indicative of the results that actually would have been obtained if the
operations were combined during the year presented and is not intended to
be a projection of future results or trends.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
Digital Recorders, Inc. (the "Company") designs, manufactures or contracts
for the manufacture of, and sells information technology products through its
three business groups, consisting of Highway Information Systems ("HIS"),
Transit Communication Systems ("TCS"), and Digital Audio Company ("DAC"), and
its two wholly-owned subsidiaries, Transit-Media GmbH ("Transit-Media") and
TwinVision Corp. of North America, Inc. ("TwinVision"). From the Company's
inception in 1983 through 1986, the Company's activities consisted primarily of
organizational and development activities. Since 1987, when the Company
generated net sales of $348,000, net sales have increased each year, reaching
$9,200,269 in 1996. The Company achieved its second consecutive year of
profitability in 1996 during which it earned a profit after income taxes of
$639,385. The Company attributes its growth primarily to the introduction of new
products, increased market penetration, growing markets for its products, and
strategic acquisitions of companies with complementary technologies.
The Company's products are currently marketed to the travelers information
station/highway advisory radio ("TIS/HAR") market, the mass transit market and
the law enforcement market using proprietary software applications. Customers
include municipalities, regional transportation districts, federal, state, and
local departments of transportation, turnpikes, bus manufacturers, and law
enforcement agencies or organizations. Sales to these customers are
characterized by a lengthy sales cycle which generally extends for a period of
two to twenty-four months. In addition, purchases by these customers are
dependent on federal, state and local funding which may vary from year to
year.
A significant portion of the Company's sales have historically been
attributable to a small number of customers. Revenues from three major customers
accounted for approximately 34%, 35% and 44% of net sales during 1996, 1995 and
1994, respectively. The Company's most significant customer during the past
three years accounted for approximately 13% of the total combined net sales
during those years. During the three months ended March 31, 1997 and 1996, sales
to three customers accounted for approximately 40% and 43% of net sales,
respectively.
The Company typically recognizes revenue upon shipment of products to
customers. Because the Company's operations are characterized by significant
research and development expenses preceding a product introduction, net sales
and their related expenses may not be recorded in the same period, thereby
producing fluctuations in operating results. The Company's dependence on a small
number of relatively large customers or projects may increase the magnitude of
fluctuations in operating results.
On April 30, 1996, the Company acquired all of the outstanding stock of
Transit-Media, a company which assembles and markets proprietary on-board,
electronic destination signs for mass transit systems in Europe and the Far
East. The Company paid $35,000 for all of Transit-Media's stock at closing. The
Company recorded cash ($440), other receivables (valued at $1,736), fixed
assets (valued at $10,523), accounts payable (valued at $3,957), short-term
bank borrowings (valued at $117,177), and certain intangible assets
(valued at $143,435). Upon completing the acquisition, the Company invested
$350,000 in Transit-Media to pay off an existing bank credit line and provide
working capital.
The following discussion provides an analysis of the Company's results of
operations and liquidity and capital resources and should be read in conjunction
with the consolidated financial statements of the Company and notes thereto. The
operating results of the periods presented were not significantly affected by
inflation.
9
<PAGE>
Results of Operations
The following table sets forth, for the periods indicated, the percentage
of revenues represented by certain items included in the Company's Consolidated
Statements of Operations:
Quarter Ended March 31,
---------------------------
1997 1996
-------- ------
Net sales..................................... 100% 100%
Cost of sales................................. 49 44
--- ---
Gross profit.................................. 51 56
--- ---
Operating expenses:
Selling, general and administrative........ 48 43
Research and development................... 10 5
--- ---
Total operating expenses...................... 58 48
--- ---
Operating income (loss) ................ (7) 8
Other income (expense), net................... 1 3
--- ---
Income (loss) before income taxes............. (6) 11
Income tax expense............................ - 1
--- ---
Net income (loss)............................. (6)% 10%
=== ===
Comparison of Three Months Ended March 31, 1997 and 1996.
Net sales for the three months ended March 31, 1997 were $2,398,210, an
increase of $647,642, or 37%, as compared to $1,750,568 for the comparable three
months in 1996. This increase is attributable to increases in sales in the HIS,
TCS and DAC business groups as well as the addition of sales from Transit-Media.
HIS sales increased by $94,774 or 20%, primarily because of shipments for one
large order to a customer. TCS sales increased by $83,212 or 9%, primarily
because of increased sales of the DR500C. DAC sales increased by $226,624 or
64%, primarily because of stronger international sales and increased sales of
the MCAP product. During the three months ended March 31, 1997, Transit-Media
sales were $243,032. Since Transit-Media was acquired April 30, 1996, there were
no sales recorded for the corresponding three months in the prior year.
Gross profit for the three months ended March 31, 1997 was $1,222,389, an
increase of $235,608, or 24%, over gross profit of $986,781 in the three months
ended March 31, 1996. As a percentage of sales, gross profit during the three
months ended March 31, 1997 was 51% of net sales, as compared to 56% during the
corresponding three months in 1996. The decrease in gross profit percentage
was caused primarily by increased international sales which had lower margins
as well as lower than historical margins on one large shipment.
Selling, general and administrative expenses during the three months ended
March 31, 1997 were $1,159,620, an increase of $413,071, or 55%, as compared to
selling, general and administrative expenses of $746,549 during the three months
ended March 31, 1996. This increase is attributable to the expansion of the
Company's sales, marketing and administrative activities during 1997 as well as
expenses related to the Company's two wholly-owned subsidiaries.
These subsidiaries had no expenses during the corresponding period in the
previous year since the subsidiaries were either acquired or formed after March
31, 1996.
Research and development expenses for the three months ended March 31, 1997
were $238,432, an increase of $150,700 or 172% as compared to research and
development expenses of $87,732 during the three months ended March 31, 1996.
The increase is primarily due to the hiring of additional engineers across all
business groups for the purpose of developing new and enhancing existing
products.
10
<PAGE>
Operating income decreased by $328,163 from $152,500 in 1996 to an
operating loss of $175,663 in 1997 primarily due to the factors set forth above.
Total other income (expense) for the three months ended March 31, 1997 was
$28,154, a decrease of $17,208, or 38%, as compared to total other income
(expense) for the three months ended March 31, 1996 of $45,362. This decrease
was due primarily to changes in interest income. Interest income for the three
months ended March 31, 1997 was $29,558, a decrease of $18,434, or 38%, as
compared to interest income for the three months ended March 31, 1996 of
$47,992. This decrease was primarily attributable to the Company having lower
cash balances to invest in 1997.
The Company's financial statements contain, when necessary, a provision for
income tax expense due to alternative minimum tax. For the three month periods
ended March 31, 1997 and 1996, the Company recorded income tax expense of zero
and $10,000, respectively. As a result of the accumulated losses incurred in
past years, the Company had a net operating loss carryforward for federal income
tax purposes of $2,751,134 as of December 31, 1996. This carryforward will be
available to offset federal taxable income, if any, through 2009. Also, as of
December 31, 1996, the Company had a net economic loss carryforward for state
income tax purposes of $820,565, which will be available to offset future state
taxable income, if any, through 1999. Following utilization of the existing
federal and state loss carryforwards, the Company's future operations, if
profitable, will be subject to income tax expense.
Liquidity and Capital Resources
From 1990 through completion of the Company's initial public offering in
November 1994, the Company financed its operations primarily through the private
issuance of debt and equity securities.
In December of 1994, the Company completed its initial public offering of
1,265,000 Units (the "Units"), each Unit consisting of one share of Common Stock
and one warrant to purchase one share of Common Stock, which included an
over-allotment of 165,000 Units. The Company realized gross proceeds of
$7,273,750 and net proceeds of $5,562,225 after deducting offering costs of
$1,711,525.
In 1994 and 1995, holders of certain warrants which had been issued prior
to the public offering exercised their right to purchase 152,311 shares of
restricted Common Stock and the Company received $465,254 as the exercise price
of such warrants.
On May 24, 1996, the Company obtained a $2,000,000 unsecured credit
facility from a financial institution. The agreement provides for short-term
borrowings and import letters of credit, is subject to certain loan covenants,
and bears interest at a rate of LIBOR plus 2.3%, payable quarterly. At March 31,
1997 there were no borrowings outstanding under this credit agreement. At March
31, 1997, there was $1,300,000 committed under import letters of credit for
inventory purchases from an overseas supplier.
As of March 31, 1997, the Company's principal sources of liquidity included
cash and cash equivalents of $539,569, investments of $1,644,661 and accounts
receivable of $2,393,541, providing the Company with net working capital of
$5,477,635. While the Company had no outstanding borrowings at March 31, 1997,
it anticipates that it will continue to utilize its credit facility to fund
inventory purchases and continued growth in 1997.
11
<PAGE>
The Company's operating activities used cash of $618,227 during the three
months ended March 31, 1997 and provided cash of $330,324 during the three
months ended March 31, 1996. For the three months ended March 31, 1997,
increases in accounts receivable of $302,660, decreases in inventory of
$153,090, increases in prepaids and other assets of $68,080 and decreases in
accounts payable of $357,691 were the primary components of changes in working
capital. For the three months ended March 31, 1996, decreases in accounts
receivable of $76,399, increases in inventories of $92,939, decreases in
prepaids and other assets of $28,660 and increases in accrued expenses of
$71,020 were the primary components of changes in working capital. The Company
anticipates that its working capital needs will continue to increase as the
Company implements its expansion plans. Working capital requirements will
increase with growth in the Company's sales, primarily due to the time gap
between the time the Company must pay its suppliers and the time the Company
receives payment from its customers, particularly its governmental customers.
The Company's investing activities used cash of $84,966 during the three
months ended March 31, 1997 and provided cash of $138,396 during the three
months ended March 31, 1996. Investing activities during the three months ended
March 31, 1997 related to capital expenditures of $46,727 and purchases of
short-term investments totaling $38,239. Investing activities during the three
months ended March 31, 1996 related to capital expenditures of $17,327 and
purchases of short-term investments totaling $44,277 which were offset by sales
of short-term investments totaling $200,000.
The Company's financing activities used cash of $26,325 during the three
months ended March 31, 1997 and used cash of $735,325 during the three months
ended March 31, 1996. Financing activities during the three months ended March
31, 1997 related primarily to the payment of dividends on preferred stock
totaling $26,325. Financing activities during the three months ended March 31,
1996 related to principal payments on long-term debt of $709,000 and to the
payment of dividends on preferred stock totaling $26,325.
The Company's cash requirements, other than for normal operating expenses,
will relate to the development of new products and enhancement of existing
products, financing anticipated growth, and the possible acquisition of products
or technologies complementary to the Company's business. The Company believes
that its net working capital, as well as the borrowing capacity available under
the Company's $2,000,000 credit facility, will be sufficient to satisfy its
currently anticipated cash requirements for 1997.
Forward-Looking Statements
The statements contained herein that are not purely historical are
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, including
statements regarding the Company's expectations, hopes, intentions or strategies
regarding the future. Forward-looking statements include expectations of trends
to continue through the remainder of the current and the forthcoming fiscal
year, including the development and introduction of new products.
Forward-looking statements involve a number of risks and uncertainties. Among
other factors that could cause actual results to differ materially are the
following: business conditions and growth in the markets in which the Company
participates and the general economy; competitive factors, such as the entry of
new competitors into any of the markets in which the Company participates; price
pressures and increased competition in those markets; inventory risks due to
shifts in market demand and/or price erosion of purchased components; changes in
product mix; that the Company's working capital and existing credit arrangement
will be adequate to fund its operation; and the risk factors listed from time to
time in the Company's SEC reports, including but not limited to the Company's
reports on Form 10-QSB, 8-K, 10-KSB, Annual Reports to Shareholders, and reports
or other documents filed pursuant to the Securities Act of 1933 or the
Securities Exchange Act of 1934. All forward-looking statements included herein
are based on information available to the Company on the date hereof, and the
Company assumes no obligation to update any such forward-looking statements. It
is important to note that the Company's actual results could differ materially
from those in such forward-looking statements due to the factors cited above. As
a result of these factors, there can be no assurance the Company will not
experience material fluctuations in future operating results on a quarterly or
annual basis, which would materially and adversely affect the Company's
business, financial condition and results of operations.
12
<PAGE>
PART II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
None.
ITEM 2 CHANGES IN SECURITIES
None.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5 OTHER INFORMATION
None.
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
27 Financial Data Schedule
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Form 10-QSB to be signed on its behalf by the
undersigned, thereunto duly authorized.
DIGITAL RECORDERS, INC.
Dated: May 15, 1997 By: /s/ J. PHILLIPS L. JOHNSTON
----------------------------
J. Phillips L. Johnston, Chairman of the Board,
President and Chief Executive Officer
Dated: May 15, 1997 By: /s/ JONATHAN E. KENNEDY
------------------------
Jonathan E. Kennedy, Chief Financial Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 539,569
<SECURITIES> 1,644,661
<RECEIVABLES> 2,393,541
<ALLOWANCES> 0
<INVENTORY> 1,736,816
<CURRENT-ASSETS> 6,490,905
<PP&E> 845,919
<DEPRECIATION> 414,914
<TOTAL-ASSETS> 9,026,161
<CURRENT-LIABILITIES> 1,013,270
<BONDS> 0
35
0
<COMMON> 267,407
<OTHER-SE> 7,745,449
<TOTAL-LIABILITY-AND-EQUITY> 9,026,191
<SALES> 2,398,210
<TOTAL-REVENUES> 2,398,210
<CGS> 1,175,821
<TOTAL-COSTS> 1,175,821
<OTHER-EXPENSES> 1,398,052
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,186
<INCOME-PRETAX> (147,509)
<INCOME-TAX> 0
<INCOME-CONTINUING> (147,509)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (147,509)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
