UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
FORM 10-Q
(Mark one)
[X] Quarterly report pursuant to section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarterly period ended July 31, 1998
[ ] Transition report pursuant to section 13 or 15(d) of the
Securities and Exchange Act of 1934
For the transition period from _______ to ________
Commission file number 0-8419
______
SBE, INC.
_____________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 94-1517641
________________________________ ___________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4550 Norris Canyon Road, San Ramon, California 94583
____________________________________________________
(Address of principal executive offices and zip code)
(925) 355-2000
____________________________________________________
(Registrant's telephone number, including area code)
Indicate by check mark 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 preceding 12 months (or for such shorter period
that 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
August 31, 1998 was 2,679,414.
1
<PAGE>
SBE, INC.
INDEX TO JULY 31, 1998 FORM 10-Q
PART I Financial Information
Item 1 Financial Statements
Condensed Consolidated Balance Sheets as of
July 31, 1998 and October 31, 1997..............................3
Condensed Consolidated Statements of Operations for the
three and nine months ended July 31, 1998 and 1997..............4
Condensed Consolidated Statements of Cash Flows for the
nine months ended July 31, 1998 and 1997........................5
Notes to Condensed Consolidated Financial Statements.............6
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations.....................8
PART II Other Information
Item 5 Other Information......................................13
Item 6 Exhibits and Reports on Form 8-K.......................13
SIGNATURES.........................................................14
EXHIBITS...........................................................15
2
<PAGE>
PART I. Financial Information
Item 1. Financial Statements
<TABLE>
SBE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
July 31, 1998 and October 31, 1997
(In thousands)
<CAPTION>
July 31, October 31,
1998 1997
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,305 $ 5,569
Trade accounts receivable, net 3,862 2,780
Inventories 1,979 851
Deferred income taxes 513 513
Other 556 156
-------- --------
Total current assets 8,215 9,869
Property, plant and equipment, net 1,476 1,083
Capitalized software costs, net 215 276
Other 41 41
-------- --------
Total assets $ 9,947 $ 11,269
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 1,070 $ 1,029
Accrued payroll and employee benefits 262 950
Other accrued expenses 113 399
-------- --------
Total current liabilities 1,445 2,378
Deferred tax liabilities 513 513
Deferred rent 396 412
-------- --------
Total liabilities 2,354 3,303
-------- --------
Stockholders' equity:
Common stock 10,012 9,829
Accumulated deficit (2,419) (1,863)
-------- --------
Total stockholders' equity 7,593 7,966
-------- --------
Total liabilities and stockholders' equity $ 9,947 $ 11,269
======== ========
See accompanying notes
</TABLE>
3
<PAGE>
<TABLE>
SBE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
for the three and nine months ended July 31, 1998 and 1997
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three months ended Nine months ended
July 31, July 31,
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales $ 4,041 $ 7,393 $12,897 $17,462
Cost of sales 1,603 3,682 4,969 9,197
------- ------- ------- -------
Gross profit 2,438 3,711 7,928 8,265
Product research and development 677 832 2,763 1,881
Sales and marketing 884 977 3,431 2,645
General and administrative 735 1,189 2,382 2,486
------- ------- ------- -------
Total operating expenses 2,296 2,998 8,576 7,012
------- ------- ------- -------
Operating income (loss) 142 713 (648) 1,253
Gain on sale of assets -- -- -- 685
Interest and other income, net 12 27 92 16
------- ------- ------- -------
Net income (loss) $ 154 $ 740 $ (556) $ 1,954
======= ======= ======= =======
Basic earnings (loss) per share $ 0.06 $ 0.29 $ (0.21) $ 0.79
======= ======= ======= =======
Diluted earnings (loss) per share $ 0.06 $ 0.27 $ (0.21) $ 0.72
======= ======= ======= =======
Basic - Shares used
in per share computations 2,674 2,515 2,662 2,464
======= ======= ======= =======
Diluted - Shares used
in per share computations 2,705 2,781 2,662 2,702
======= ======= ======= =======
See accompanying notes
</TABLE>
4
<PAGE>
<TABLE>
SBE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended July 31, 1998 and 1997
(In thousands)
(Unaudited)
<CAPTION>
Nine months ended
July 31,
1998 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (556) $ 1,954
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
Depreciation and amortization 735 840
Gain from sale of property and equipment -- (685)
Costs and reserves related to sale of property
and equipment -- (407)
Other -- 2
Changes in assets and liabilities:
Increase in trade accounts receivable (1,082) (138)
(Increase) decrease in inventories (1,128) 1,624
Increase in other assets (400) (189)
Increase in trade accounts payable 41 9
Decrease in other liabilities (990) (171)
------- -------
Net cash (used in) provided by operating
activities (3,380) 2,839
------- -------
Cash flows from investing activities:
Purchases of property and equipment (921) (204)
Disposals of property and equipment -- 1,600
Capitalized software costs (146) --
------- -------
Net cash (used in) provided by investing
activities (1,067) 1,396
------- -------
Cash flows from financing activities:
Repayments of borrowing on line of credit -- (980)
Proceeds from stock plans 183 283
------- -------
Net cash provided by (used in) financing
activities 183 (697)
------- -------
Net (decrease) increase in cash and cash
equivalents (4,264) 3,538
Cash and cash equivalents at beginning of period 5,569 41
------- -------
Cash and cash equivalents at end of period $ 1,305 $ 3,579
======= =======
See accompanying notes
</TABLE>
5
<PAGE>
SBE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Interim Period Reporting:
The condensed consolidated financial statements are unaudited and
include all adjustments consisting of normal recurring adjustments that
are, in the opinion of management, necessary for a fair presentation of
the financial position and results of operations and cash flows for the
interim periods. The results of operations for the quarter ended July
31, 1998 are not necessarily indicative of expected results for the
full 1998 fiscal year.
Certain information and footnote disclosures normally contained in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. These condensed
consolidated financial statements should be read in conjunction with
the financial statements and notes contained in the Company's Annual
Report on Form 10-K for the year ended October 31, 1997.
2. Inventories:
Inventories comprise the following (in thousands):
July 31, October 31,
1998 1997
-------- --------
Finished goods $ 1,979 $ 823
Parts and materials -- 28
-------- --------
$ 1,979 $ 851
======== ========
3. Net Income (Loss) Per Share:
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings
Per Share", which establishes standards for computing and presenting
earnings (loss) per share. Under the new standard, basic earnings per
share is computed based on the weighted average number of common shares
outstanding and excludes any potential dilution; diluted earnings per
share reflects potential dilution from the exercise or conversion of
securities into common stock. The financial statements presented have
been prepared in accordance with SFAS No. 128 and earnings per share
data for all prior periods presented have been restated to conform with
current year presentation. Options to purchase 854,333 shares of
common stock were outstanding as of July 31, 1998 and were excluded
from the loss per share calculation for the nine months ended July 31,
1998 as they have the effect of decreasing loss per share.
6
<PAGE>
4. Bank Facility:
The Company's revolving working capital line of credit agreement
expired on September 1, 1998. The Company is currently in negotiations
to renew the line of credit through March 31, 1999 and anticipates that
the line of credit will be extended at its current terms through March
31, 1999.
The current agreement allows for a $2,000,000 line of credit.
Borrowings under the line of credit bear interest at the bank's prime
rate plus one half percent and are collateralized by accounts
receivable and all other assets. Borrowings are limited to 75 percent
of adjusted accounts receivable balances, and the Company is required
to maintain a minimum tangible net worth of $4.5 million, a quick ratio
of cash, investments, and receivables to current liabilities of not
less than 1.30:1.00, maximum debt to equity ratio of 1.00:1.00, and
minimum profitability levels. The line of credit agreement also
prohibits the payment of cash dividends without consent of the bank.
As of August 31, 1998, there were no borrowings outstanding under the
line of credit.
5. Reincorporation:
On December 15, 1997, the Company reincorporated in the state of
Delaware. In connection with the event, the Company increased the
number of its authorized shares of preferred stock to 2,000,000 shares
and established a par value of $0.001 per share for both its common and
preferred stock.
6. Stock Option Plan and Option Repricing
In June 1998, the Board of Directors adopted the 1998 Non-Officer Stock
Option Plan. A total of 300,000 shares of common stock are reserved
under the plan. Stock options granted under the plan are exercisable
over a maximum term of ten years from the date of grant, vest in
various installments over this period and have exercise prices
reflecting market value at the date of grant.
In July 1998, due to the reduced market price of the Company's common
stock, the Company offered certain employees the opportunity to have
options issued under other stock option plans replaced with new options
with an exercise price of $5.125 per share in exchange for restrictions
of certain rights under these option grants. Options to purchase
206,950 shares were replaced.
7. Recently Issued Accounting Pronouncements:
In March 1997, Statement of Financial Accounting Standards No. 129,
"Disclosure of Information about Capital Structure" was issued and is
effective for the Company's year ending October 31, 1998. In June
1997, Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" and Statement of Financial Accounting Standards
No. 131, "Disclosures About Segments of An Enterprise and Related
Information" were issued and are effective for the year ending October
31, 1999. The Company has not determined the impact of the
implementation of these pronouncements.
7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Except for the historical information contained herein, the following
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from
those discussed here. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed in this
section and those discussed in the Company's Annual Report on Form 10-K
for the year ended October 31, 1997, particularly in the section entitled
"Business--Risk Factors."
For more than 15 years, SBE, Inc. (the "Company") has developed,
marketed, and sold communication controller products that have helped
customers deploy computer communications solutions. Historically, the
Company's controller products have provided connectivity solutions for
large original equipment manufacturers ("OEMs") and system integrators
throughout the world. Leveraging this expertise in communications
technology, the Company expanded its product offerings to include WanXL(TM)
products. WanXL products focus on the client/server market and the
significant increases in communications activity that are driven by
applications such as e-mail, electronic commerce, geographically diverse
corporate networks and general computer communications. The Company is
in the initial stages of building a base of customers for the WanXL
products examples of customers for these products currently include
Sequent Computers, IBM, Motorola, Silicon Graphics, and others.
Additionally, the Company markets a line of remote access router products
under the trade name netXpand(R). These products are targeted at the need
for small businesses to connect their computers to the internet or to
supplier networks and to provide remote computer services for at home or
traveling employees.
The Company continues to support and expand its communication controller
business by developing new products for strategic customer accounts and
by focusing on emerging technologies that can be leveraged into current
and new sales channels. The Company believes that it is well positioned
with a number of key telecommunication systems providers that develop
wireless, data and telephone system infrastructure. The Company expects
to expand upon this position with a number of new product offerings
specifically designed to leverage and expand its telecommunications
system expertise.
The communication controller portion of the Company's business is
characterized by a concentration of sales to a small number of customers
and consequently the timing of significant orders from major customers
and such customers' product cycles cause fluctuations in the Company's
operating results. In particular, sales to Tandem Computers, Motorola
and Silicon Graphics constituted 35, 15 and 12 percent, respectively, of
net sales in fiscal 1997. Sales to Tandem Computers and Motorola
constituted 32 and 21 percent, respectively, of net sales in the first
nine months of fiscal 1998. The Company expects that sales to Tandem
Computers will continue to be significant at least through fiscal 1998.
The loss, delay or cancellation of any significant order by Tandem
Computers or Motorola would have a material adverse impact on the
Company's business, financial condition and results of operations. There
can be no assurance that any large customer of the Company will continue
to place orders with the Company or, if orders are placed that they will
be at current or higher levels.
In past periods, the Company expended a significant portion of its
marketing, sales and engineering resources to market its netXpand
products to end users as well as to OEMs. Starting in the third quarter
of fiscal 1998, the Company discontinued its general marketing and sales
efforts to end users, but is continuing to market the netXpand products
to OEMs.
8
<PAGE>
Results of Operations
The following table sets forth, as a percentage of net sales, certain
consolidated statements of operations data for the three and nine months
ended July 31, 1998 and 1997. These operating results are not
necessarily indicative of Company's operating results for any future
period.
Three Months Ended Nine Months Ended
July 31, July 31,
1998 1997 1998 1997
---- ---- ---- ----
Net sales 100% 100% 100% 100%
Cost of sales 40 50 39 53
---- ---- ---- ----
Gross profit 60 50 61 47
---- ---- ---- ----
Product research and development 17 11 21 11
Sales and marketing 22 13 27 15
General and administrative 18 16 18 14
---- ---- ---- ----
Total operating expenses 57 41 66 40
---- ---- ---- ----
Operating income (loss) 4 10 (5) 7
Gain on sale of assets -- -- -- 4
Interest and other income, net -- -- 1 --
---- ---- ---- ----
Net income (loss) 4% 10% (4)% 11%
==== ==== ==== ====
Net Sales
Net sales for the third quarter of fiscal 1998 were $4.0 million, a 45
percent decrease from the third quarter of fiscal 1997. This decrease
was primarily attributable to a significant decrease in VME communication
controller, netXpand and WanXL product sales. Sales of VME communication
controller products decreased $2.4 million from $5.7 million in the third
quarter of fiscal 1997 to $3.3 million in the third quarter of fiscal
1998. This decline was principally caused by a decline in sales to
Tandem Computers and Motorola. Sales of netXpand and WanXL products
decreased $685,000 from $917,000 in the third quarter of fiscal 1997 to
$232,000 in the third quarter of fiscal 1998. This decline was
principally caused by a decline in sales to one customer. Net sales for
the nine months ended July 31, 1998 were $12.9 million, down from $17.5
million for the same period of 1997, principally due to decreased sales
of netXpand and WanXL products. Sales of all product lines to
individual customers in excess of 10 percent of net sales of the
Company for the nine months included net sales to Tandem Computers and
Motorola, which represented 32 and 21 percent, respectively, of net
sales in the nine months ended July 31, 1998. This compares to net
sales to Tandem Computers, Silicon Graphics and Motorola of 30, 17 and
13 percent, respectively, of net sales in the nine months ended July
31, 1997. Sales to Silicon Graphics were less than 10% of net sales in
the first nine months of fiscal 1998. The Company expects to continue to
experience fluctuation in product sales as large customers' needs change.
International sales constituted 7 percent and 15 percent of net sales in
the nine months ended July 31, 1998 and 1997, respectively. The decrease
in international sales is primarily attributable to decreased sales of
netXpand products.
9
<PAGE>
Gross Profit
Gross profit as a percentage of sales was 60 percent and 50 percent in
the third quarter of fiscal 1998 and the third quarter of fiscal 1997,
respectively. Gross profit as a percentage of sales in the first nine
months of fiscal 1998 was 61 percent, up from 47 percent for the same
period of 1997. The increases from fiscal 1997 to fiscal 1998 were
primarily attributable to a more favorable product mix and lower material
costs in fiscal 1998. The Company's cost plus contract to purchase
manufacturing services has decreased and may continue to decrease the
volatility of the quarterly cost of sales as a percentage of total sales.
Product Research and Development
Product research and development expenses were $677,000 in the third
quarter of fiscal 1998, a decrease of 19 percent from $832,000 in the
third quarter of fiscal 1997. Product research and development costs for
the first nine months of fiscal 1998 increased 47 percent from the same
period of fiscal 1997. The decrease from third quarter 1997 to third
quarter 1998 was due primarily to a decrease in third party consulting
costs. The increase from the first nine months of fiscal 1997 to the
same period in fiscal 1998 was the result of an increase in internal
staff and third party consulting costs related to the development of new
products in the Company's communication controller and WanXL product
lines. The Company expects that product research and development
expenses will continue at current dollar levels as the Company focuses
its resources on expanding its product lines into the telecommunications
market.
Sales and Marketing
Sales and marketing expenses for the third quarter of fiscal 1998 were
$884,000, a decrease of 10 percent from $977,000 in the third quarter of
fiscal 1997. Sales and marketing expenses increased 30 percent in the
first nine months of fiscal 1998 from the same period of fiscal 1997.
The decrease from third quarter 1997 to third quarter 1998 was due
primarily to a decrease in marketing program costs. The increase from the
first nine months of fiscal 1997 to the same period in fiscal 1998 was
the result of an increase in staff and travel costs. The Company expects
sales and marketing expenses to continue at current dollar levels.
General and Administrative
General and administrative expenses for the third quarter of fiscal 1998
were $735,000, a decrease of 38 percent from $1.2 million in the third
quarter of fiscal 1997. General and administrative expenses decreased 4
percent in the first nine months of fiscal 1998 from the same period of
fiscal 1997. The decrease from third quarter 1997 to third quarter 1998
was due primarily to a decrease in bonuses and profit sharing. In future
periods, the Company expects general and administrative expenses to
continue at current dollar levels.
Gain on Sale of Assets
The Company recorded a $685,000 gain on the sale of assets in the first
quarter of fiscal 1997, consisting of cash proceeds of $1.6 million
received from the sale of the Company's manufacturing assets to XeTel
Corporation less $508,000 in net book value of assets transferred and
$407,000 in expenses and reserves associated with the transaction.
10
<PAGE>
Interest and Other Income, Net
Interest income decreased in the three months ended July 31, 1998 from
the same period of fiscal 1997 due to a decrease in cash and cash
equivalent balances during the third quarter of fiscal 1998. Interest
income increased in the nine months ended July 31, 1998 from the same
period of fiscal 1997 due to higher cash and cash equivalent balances
in the nine-month period ended July 31, 1998. There was no interest
expense in the three months ended July 31, 1998 and the same period of
fiscal 1997. Interest expense for the nine months ended July 31, 1998
decreased from the same period of fiscal 1997 due to the repayment of
borrowings.
Income Taxes
The Company did not record any provision for taxes in the third quarter
or any benefit for taxes in the first nine months of fiscal 1998 as the
year to date benefit derived from its net operating losses and unused tax
credits was fully valued against. The Company did not record any
provision for taxes in the third quarter or the first nine months of
fiscal 1997 due to the utilization of net operating loss carryforwards
from fiscal 1996.
Net Income (Loss)
As a result of the factors discussed above, the Company recorded net
income of $154,000 in the third quarter of fiscal 1998 and net income of
$740,000 in the third quarter of fiscal 1997. Net loss for the first
nine months of fiscal 1998 was $556,000, as compared to net income of
$2.0 million for the same period of 1997.
Liquidity and Capital Resources
At July 31, 1998, the Company had cash and cash equivalents of $1.3
million, as compared to $5.6 million at October 31, 1997. In the first
nine months of fiscal 1998, $3.4 million of cash was used in operating
activities, principally as a result of a $1.1 million increase in
accounts receivable, $1.1 million increase in inventories, a $1.0 million
decrease in accrued liabilities and $556,000 in net loss. The increase
in inventory was the result of unexpected changes in forecasted sales.
Working capital at July 31, 1998 was $6.8 million, as compared to $7.5
million at October 31, 1997.
In the first nine months of fiscal 1998 the Company purchased $921,000 of
fixed assets, consisting primarily of computer equipment and software for
the implementation of a new enterprise reporting and planning system.
The Company expects capital expenditures to decrease in the remaining
quarter of fiscal 1998.
The Company received $183,000 in the first nine months of fiscal 1998
from employee stock purchase plan purchases and employee stock option
exercises.
11
<PAGE>
The Company's revolving working capital line of credit agreement
expired on September 1, 1998. The Company is currently in negotiations
to extend the line of credit through March 31, 1999 and fully
anticipates that the line of credit will be extended at its current
terms through March 31, 1999. The current agreement allows for a
$2,000,000 line of credit. Borrowings under the line of credit bear
interest at the bank's prime rate plus one half percent and are
collateralized by accounts receivable and other assets. Borrowings are
limited to 75 percent of adjusted accounts receivable balances, and the
Company is required to maintain a minimum tangible net worth of $4.5
million, a quick ratio of cash, investments, and receivables to current
liabilities of not less than 1.30:1.00, and minimum profitability
levels. The line of credit agreement also prohibits the payment of
cash dividends without consent of the bank. As of August 31, 1998,
there were no borrowings outstanding under the line of credit.
Based on the current operating plan, the Company anticipates that its
current cash balances, credit line and anticipated cash flow from
operations will be sufficient to meet its working capital needs over at
least the next twelve months.
Year 2000 Compliance
Many older computer software programs refer to years in terms of their
final two digits only. Such programs may interpret the year 2000 to mean
the year 1900 instead. If not corrected, those programs could cause
date-related transaction failures.
The Company's current products, to the extent they have the capability
to process date-related information, were designed to be Year 2000
compliant; in other words, the products were designed to manage and
manipulate data involving the transition of dates from 1999 to 2000
without functional or data abnormality and without inaccurate results
relating to such dates. There can be no assurance that systems
operated by third parties that interface with or contain the Company's
products will timely achieve Year 2000 compliance. Any failure of
these third parties' systems to timely achieve Year 2000 compliance
could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company has recently updated its internal management information
systems. The updated systems are designed to be Year 2000 compliant.
12
<PAGE>
Part II. Other Information
Item 5. Other Information
Pursuant to the Company's bylaws, stockholders who wish to bring
matters or propose nominees for director at the Company's 1999 annual
meeting of stockholders must provide specified information to the
Company not earlier than December 24, 1998 and not later than January
23, 1999 (unless such matters are included in the Company's proxy
statement pursuant to Rule 14a-8 under the Securities Exchange Act of
1934, as amended).
Notwithstanding the foregoing, in the event the date of the 1999
annual meeting of stockholders is changed by more than 30 days from the
date contemplated at the time the Company's proxy statement for the
1998 annual meeting of stockholders was sent to stockholders:
1. If public announcement of the new date is made fewer than
70 days prior to the such date, stockholders who wish to bring matters
or propose nominees for director must provide such information to the
Company within 10 days after such public announcement is made; or
2. Otherwise, stockholders who wish to bring matters or
propose nominees for director must provide such information to the
Company no earlier than 90 days prior to such meeting and no later than
60 days prior to such meeting.
Item 6. Exhibits and Reports on Form 8-K
List of Exhibits:
11.1 Statements of Computation of Net Income (Loss) per Share
27.1 Financial Data Schedule
Reports on Form 8-K:
The Registrant did not file any reports on Form 8-K during the
quarter ended July 31, 1998.
13
<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, as of September 11, 1998.
SBE, Inc.
/s/ Timothy J. Repp
-------------------
Timothy J. Repp
Chief Financial Officer, Vice
President of Finance and
Secretary (Principal
Financial and Accounting
Officer)
14
<TABLE>
EXHIBIT 11.1
SBE, INC.
STATEMENTS OF COMPUTATION OF NET INCOME (LOSS) PER SHARE
for the three and nine months ended July 31, 1998 and 1997
(In thousands, except per share amounts)
(Unaudited)
<CAPTION>
Three months ended Nine months ended
July 31, July 31,
1998 1997 1998 1997
----- ----- ----- -----
<S> <C> <C> <C> <C>
BASIC
Weighted average number of
common shares outstanding 2,674 2,515 2,662 2,464
------ ------ ------ ------
Number of shares for computation of
net income (loss) per share 2,674 2,515 2,662 2,464
====== ====== ====== ======
Net income (loss) $ 154 $ 740 $ (556) $1,954
====== ====== ====== ======
Net income (loss) per share $ 0.06 $ 0.29 $(0.21) $ 0.79
====== ====== ====== ======
DILUTED
Weighted average number of
common shares outstanding 2,674 2,515 2,662 2,464
Shares issuable pursuant to options
granted under employee stock
option plan, less assumed
repurchase at the ending fair
market value for the period 31 263 -- 235
Shares issuable pursuant to
warrants granted, less assumed
repurchase at the ending fair
market value for the period -- 3 -- 3
------ ------ ------ ------
Number of shares for computation
of net income (loss) per share 2,705 2,781 2,662 2,702
====== ====== ====== ======
Net income (loss) $ 154 $ 740 $ (556) $1,954
====== ====== ====== ======
Net income (loss) per share $ 0.06 $ 0.27 $(0.21) $ 0.72
====== ====== ====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1998
<PERIOD-START> NOV-01-1997
<PERIOD-END> JUL-31-1998
<CASH> 1305
<SECURITIES> 0
<RECEIVABLES> 3862
<ALLOWANCES> 0
<INVENTORY> 1979
<CURRENT-ASSETS> 8215
<PP&E> 1476
<DEPRECIATION> 0
<TOTAL-ASSETS> 9947
<CURRENT-LIABILITIES> 1445
<BONDS> 0
0
0
<COMMON> 10012
<OTHER-SE> (2419)
<TOTAL-LIABILITY-AND-EQUITY> 9947
<SALES> 12897
<TOTAL-REVENUES> 12897
<CGS> 4969
<TOTAL-COSTS> 4969
<OTHER-EXPENSES> 8576
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (92)
<INCOME-PRETAX> (556)
<INCOME-TAX> 0
<INCOME-CONTINUING> (556)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (556)
<EPS-PRIMARY> (.21)
<EPS-DILUTED> (.21)
</TABLE>
