UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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, 1999
[ ] 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,
1999 was 2,835,905.
1
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SBE, INC.
INDEX TO JULY 31, 1999 FORM 10-Q
PART I FINANCIAL INFORMATION
ITEM 1 Financial Statements
Condensed Consolidated Balance Sheets as of
July 31, 1999 and October 31, 1998..........................................3
Condensed Consolidated Statements of Operations for the
three and nine months ended July 31, 1999 and 1998..........................4
Condensed Consolidated Statements of Cash Flows for the
nine months ended July 31, 1999 and 1998....................................5
Notes to Condensed Consolidated Financial Statements...........................6
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations.................................9
ITEM 3 Quantitative and Qualitative Disclosures about
Market Risk........................................................14
PART II OTHER INFORMATION
ITEM 6 Exhibits and Reports on Form 8-K...................................15
SIGNATURES....................................................................16
EXHIBIT.......................................................................17
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SBE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
JULY 31, 1999 AND OCTOBER 31, 1998
(In thousands)
July 31, October 31,
1999 1998
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,484 $ 3,381
Restricted cash 2,449 --
Trade accounts receivable, net 2,369 3,837
Inventories 1,744 1,754
Deferred income taxes 240 240
Other 255 417
----------- -----------
Total current assets 9,541 9,629
Property, plant and equipment, net 1,259 1,330
Capitalized software costs, net 317 185
Other 39 39
----------- -----------
Total assets $ 11,156 $ 11,183
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 948 $ 1,375
Accrued payroll and employee benefits 220 321
Other accrued expenses 248 323
----------- -----------
Total current liabilities 1,416 2,019
Deferred tax liabilities 240 240
Deferred rent 361 391
----------- -----------
Total liabilities 2,017 2,650
----------- -----------
Stockholders' equity:
Common stock 10,890 10,016
Note receivable from stockholder (744) --
Treasury stock (146) --
Accumulated deficit (861) (1,483)
----------- -----------
Total stockholders' equity 9,139 8,533
----------- -----------
Total liabilities and stockholders' equity $ 11,156 $ 11,183
=========== ===========
See notes to condensed consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
SBE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED JULY 31, 1999 AND 1998
(In thousands, except per share amounts)
(Unaudited)
Three months ended Nine months ended
July 31, July 31,
1999 1998 1999 1998
------- ------- -------- --------
<S> <C> <C> <C> <C>
Net sales $3,533 $4,041 $13,811 $12,897
Cost of sales 1,466 1,603 4,994 4,969
------- ------- -------- --------
Gross profit 2,067 2,438 8,817 7,928
Product research and development 1,122 677 3,345 2,763
Sales and marketing 903 884 2,861 3,431
General and administrative 565 735 2,134 2,382
------- ------- -------- --------
Total operating expenses 2,590 2,296 8,340 8,576
------- ------- -------- --------
Operating (loss) income (523) 142 477 (648)
Interest and other income, net 77 12 176 92
------- ------- -------- --------
(Loss) income before income taxes (446) 154 653 (556)
Provision for income taxes 10 -- (31) --
------- ------- -------- --------
Net (loss) income $ (436) $ 154 $ 622 $ (556)
======= ======= ======== ========
Basic (loss) earnings per share $(0.15) $ 0.06 $ 0.22 $ (0.21)
======= ======= ======== ========
Diluted (loss) earnings per share $(0.15) $ 0.06 $ 0.21 $ (0.21)
======= ======= ======== ========
Basic - Shares used
in per share computations 2,875 2,674 2,855 2,662
======= ======= ======== ========
Diluted - Shares used
in per share computations 2,875 2,705 2,983 2,662
======= ======= ======== ========
See notes to condensed consolidated financial statements.
</TABLE>
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<TABLE>
<CAPTION>
SBE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JULY 31, 1999 AND 1998
(In thousands)
(Unaudited)
Nine months ended
July 31,
------------------
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 622 $ (556)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 551 735
Changes in operating assets and liabilities:
Decrease (increase) in trade accounts receivable 1,468 (1,082)
Decrease (increase) in inventories 10 (1,128)
Decrease (increase) in other assets 162 (400)
(Decrease) increase in trade accounts payable (427) 41
Decrease in other liabilities (206) (990)
-------- --------
Net cash provided by (used in) operating activities 2,180 (3,380)
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (400) (921)
Capitalized software costs (212) (146)
Increase in restricted cash (2,449) --
-------- --------
Net cash used in investing activities (3,061) (1,067)
-------- --------
Cash flows from financing activities:
Purchase of treasury stock (146) --
Proceeds from stock plans 130 183
-------- --------
Net cash provided by financing activities (16) 183
-------- --------
Net decrease in cash and cash equivalents (897) (4,264)
Cash and cash equivalents at beginning of period 3,381 5,569
-------- --------
Cash and cash equivalents at end of period $ 2,484 $ 1,305
======== ========
See notes to condensed consolidated financial statements.
</TABLE>
5
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SBE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. INTERIM PERIOD REPORTING:
These 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 and nine-month period ended July 31, 1999
are not necessarily indicative of expected results for the full 1999 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, 1998.
2. INVENTORIES:
Inventories comprise the following (in thousands):
July 31, October 31,
1999 1998
------------ ------------
Finished goods $ 1,067 $ 1,657
Parts and materials 677 97
------------ ------------
$ 1,744 $ 1,754
============ ============
3. NET EARNINGS (LOSS) PER SHARE:
The Company computes earnings (loss) per share in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings Per Share." Basic earnings
per common share for the nine months ended July 31, 1999 were computed by
dividing net income by the weighted average number of shares of common stock
outstanding. Diluted earnings per common share for the nine months ended July
31, 1999 and for the three months ended July 31, 1998 were computed by dividing
net income by the weighted average number of shares of common stock and common
stock equivalents outstanding. Common stock equivalents relate to outstanding
options to purchase 819,225 shares of the Company's common stock as of July 31,
1999. Common stock equivalents are excluded from the diluted loss per common
share (LPS) calculations for the three months ended July 31, 1999 and for the
nine months ended July 31, 1998, as they have the effect of decreasing LPS.
6
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4. NOTE RECEIVABLE FROM STOCKHOLDER:
On November 6, 1998 the Company made a loan to an officer and stockholder in the
amount of $622,800 under a two-year recourse promissory note bearing an interest
rate of 4.47 percent and collateralized by 145,313 shares of Common Stock of the
Company. The loan was used to pay for the exercise of 139,400 shares of Company
stock options and related taxes. On April 16, 1999 the loan was increased to
$743,800.
5. LETTER OF CREDIT; RESTRICTED CASH:
During the quarter ended April 30, 1999 the Company established a letter of
credit with a bank in connection with an arrangement with a vendor under which
the Company will purchase parts valued at $2.7 million for use in products to be
sold to Compaq Computer. The letter of credit was secured by $2.7 million of
restricted cash and expires on September 30, 1999 with automatic six-month
extensions. Due to subsequent purchases in connection with the arrangement,
restricted cash has been reduced to $2.5 million as of July 31, 1999.
6. REPURCHASE OF COMMON STOCK:
In May 1999, the Board of Directors authorized the Company to repurchase up to
100,000 shares of the Company's issued and outstanding common stock. During the
third fiscal quarter of 1999, the Company repurchased 27,500 shares of its
common stock in the open market for an aggregate purchase price of approximately
$146,000. The Company is still authorized to repurchase an additional 72,000
shares under this plan. Repurchases may be made from time to time, subject to
prevailing conditions, in the open market or in privately negotiated
transactions.
7. CONCENTRATION OF RISK:
In the first nine months of fiscal 1999, most of the Company's sales were
attributable to sales of board-level products and were derived from a limited
number of OEM customers. During this period, sales to Compaq Computer accounted
for 74 percent of the Company's net sales. Also, Compaq Computer accounted for
65 percent of the Company's accounts receivable as of July 31, 1999. The
Company expects that sales from Compaq will continue to constitute a substantial
portion of the Company's net sales in the remainder of fiscal 1999. A
significant reduction in orders from any of the Company's OEM customers,
particularly Compaq and Lockheed Martin, could have a material adverse effect on
the Company's business, operating results and financial condition.
In December 1996, the Company sold all of its manufacturing operations to XeTel
Corporation ("XeTel"), a contract manufacturing company headquartered in Austin,
Texas. At the same time the Company and XeTel entered into an exclusive
manufacturing service agreement under which XeTel is to manufacture all of the
Company's products until at least December 2000. The Company is dependent on
XeTel's ability to manufacture the Company's products according to
7
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specifications and in required volumes on a timely basis. The failure of XeTel
to perform its obligations under the manufacturing service agreement could have
a material adverse effect on the Company's business, operating results and
financial condition.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion contains forward-looking statements 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, 1998, particularly in the section entitled "Item 1--Business--Risk
Factors."
The Company develops and delivers Wide Area Network (WAN) products, focusing on
three different communications markets: open system platforms;
telecommunications, aerospace, and industrial controls; and financial services.
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 of their product cycles causes fluctuations in the Company's
operating results. This concentration, which is expected to continue, also
makes it difficult to project future sales and operating results. The Company's
sales to any single OEM customer are also subject to significant variability
from quarter to quarter. Such fluctuations may have a material adverse effect
on the Company's operating results. A significant reduction in orders from any
of the Company's OEM customers, particularly Compaq and Lockheed Martin, could
have a material adverse effect on the Company's business, operating results and
financial condition.
The Company is pursuing a strategy to expand its sales to telecommunications
equipment manufacturers (TEMs). This market is rapidly expanding and is
demanding new solutions to deal with escalating bandwidth requirements and the
deregulation of telephone services. The Company is investing a majority of its
research and development spending to expand its product offering to this market.
The Company is also attempting to form strategic partnerships with large server
providers that offer equipment to TEMs. The Company believes that its
technology, integration expertise and current position within the
telecommunications market will allow for the expansion of sales in this market
area.
In the quarter ended July 31, 1999, the Company expanded its relationship as
part of Motorola Computer Group's (MCG) Embedded Connections Partner Program.
This program is a development effort designed to create industry leading
telecommunications and data communications product solutions through strategic
partnering. Also during the quarter, ILX, a subsidiary of Thompson Corporation,
selected SBE WanXL controllers to be integrated into its financial information
system servers.
The Company is also expanding its current product line through partnerships with
software providers. The Company recently released a line of products called
PacketEyes, which combines acquired and licensed software with existing hardware
platforms to extend the Company's products into the policy management market.
The policy management market includes application solutions such as bandwidth
management, network traffic reporting, security and quality of service
management. This market area is new and developing and without a clear set of
9
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solutions. The Company believes that its products will offer a compelling
economic solution to a number of application problems in this market area.
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, 1999 and 1998. These operating results are not necessarily indicative
of the Company's operating results for any future period.
THREE MONTHS ENDED NINE MONTHS ENDED
JULY 31, JULY 31,
------------ ------------
1999 1998 1999 1998
----- ----- ----- -----
Net sales 100% 100% 100% 100%
Cost of sales 41 40 36 39
----- ----- ----- -----
Gross profit 59 60 64 61
----- ----- ----- -----
Product research and development 32 17 24 21
Sales and marketing 26 22 21 27
General and administrative 16 18 15 18
----- ----- ----- -----
Total operating expenses 74 57 60 66
----- ----- ----- -----
Operating (loss) income (15) 4 4 (5)
Interest and other income, net 2 -- 1 1
----- ----- ----- -----
(Loss) income before income taxes (13) 4 5 (4)
Provision for income taxes -- -- -- --
----- ----- ----- -----
Net (loss) income (13)% 4% 5% (4)%
===== ===== ===== =====
NET SALES
Net sales for the third quarter of fiscal 1999 were $3.5 million, a 13 percent
decrease from the third quarter of fiscal 1998. This decrease was primarily
attributable to decreased sales of VME communication controller, netXpand(R) and
WanXL products as compared to the third quarter of fiscal 1998. Sales of VME
communication controller products decreased 5 percent and sales of netXpand
products decreased 100 percent from the third quarter of fiscal 1998. The
Company has discontinued commercial sales of netXpand products. Sales of WanXL
products decreased 54 percent from the third quarter of fiscal 1998. Sales for
the nine months ended July 31, 1999 were $13.8 million, up from $12.9 million
for the same period of 1998, principally due to increased sales of communication
controller products partially offset by 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 consisted of sales to Compaq Computer, which
represented 74 percent of net sales in the first nine months of fiscal 1999.
This compares to sales to Compaq Computer (formerly Tandem Computers) and
Motorola, Inc. of 32 and 21 percent, respectively, of net sales in the first
nine months of fiscal 1998. The Company expects to continue to experience
fluctuation in communication controller product sales as large customers' needs
change.
International sales constituted 4 percent and 7 percent of net sales in the
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first nine months of fiscal 1999 and the first nine months of fiscal 1998,
respectively. The decrease in international sales is primarily attributable to
decreased sales of netXpand products.
GROSS PROFIT
Gross profit as a percentage of sales was 59 percent and 60 percent in the third
quarter of fiscal 1999 and the third quarter of fiscal 1998, respectively.
Gross profit as a percentage of sales in the first nine months of fiscal 1999
was 64 percent, up from 61 percent for the same period of 1998. The increases
from fiscal 1998 to fiscal 1999 were primarily attributable to lower material
costs and improved operational efficiencies.
PRODUCT RESEARCH AND DEVELOPMENT
Product research and development expenses were $1.1 million in the third quarter
of fiscal 1999, an increase of 66 percent from $677,000 in the third quarter of
fiscal 1998. Product research and development costs for the first nine months
of fiscal 1999 increased 21 percent from the same period of fiscal 1998.
Recruiting and hiring engineers continues to be one of the Company's greatest
challenges. Competition for qualified technical personnel, particularly in the
San Francisco Bay Area, is intense. While a number of engineers have been hired
during the past year, the Company is actively recruiting to fill several open
positions and has engaged outside engineering consultants to assist in meeting
certain project deadlines. This resulted in an increase in research and
development expenses for the third quarter of 1999. The increases in research
and development spending from fiscal 1998 to fiscal 1999 were a result of higher
spending on new telecommunications product development. The Company expects
that product research and development expenses will remain at current levels.
SALES AND MARKETING
Sales and marketing expenses for the third quarter of fiscal 1999 were $903,000,
up from $884,000 in the third quarter of fiscal 1998. Sales and marketing
expenses decreased 17 percent in the first nine months of fiscal 1999 from the
same period of fiscal 1998. The decrease for the nine months was primarily
due to lower marketing program costs for advertising and tradeshows. The Company
expects sales and marketing expenses, as new products are announced, to increase
from current expenditure levels.
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the third quarter of fiscal 1999 were
$565,000, a decrease of 23 percent from $735,000 in the third quarter of fiscal
1998. General and administrative expenses decreased 10 percent in the first
nine months of fiscal 1999 from the same period of fiscal 1998. The decreased
expenses are a result of lower outside costs and continued expense control
efforts. In future periods, the Company expects that general and administrative
expenses will remain consistent with current dollar levels.
INTEREST AND OTHER INCOME (EXPENSE), NET
Interest income increased in the third quarter and first nine months of fiscal
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1999 from the same periods of fiscal 1998 due to higher cash balances.
INCOME TAXES
The Company recorded a benefit from income taxes of $10,000 in the third quarter
and a provision of $31,000 in the first nine months of fiscal 1999. The Company
did not record any benefit for taxes in the third quarter or the first nine
months of fiscal 1998 as the benefit derived from its net operating losses and
unused tax credits was fully valued against. In the event of future taxable
income, the Company's effective income tax rate in future periods could be lower
than the statutory rate as operating loss and tax credit carryforwards are
recognized.
NET INCOME (LOSS)
As a result of the factors discussed above, the Company recorded a net loss of
$436,000 in the third quarter of fiscal 1999 and net income of $154,000 in the
third quarter of fiscal 1998. Net income for the first nine months of fiscal
1999 was $622,000, as compared to a net loss of $556,000 for the same period of
1998.
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 1999 the Company had cash and cash equivalents of $2.5 million, as
compared to $3.4 million at October 31, 1998. In the first nine months of
fiscal 1999, $2.2 million of cash was provided by operating activities,
primarily as a result of net income of $622,000, a $1.5 million decrease in
accounts receivable, $551,000 in depreciation and amortization, a $10,000
decrease in inventories, and a $162,000 decrease in other assets. These cash
inflows were partially offset by a $2.5 million increase in restricted cash, a
$427,000 decrease in accounts payable and a $206,000 decrease in other
liabilities. Working capital at July 31, 1999 was $8.1 million, as compared to
$7.6 million at October 31, 1998.
In the first nine months of fiscal 1999 the Company purchased $400,000 of fixed
assets, consisting primarily of computer and engineering equipment. Software
costs of $212,000 were also capitalized during the first nine months of 1999.
The Company expects capital expenditures during fiscal 1999 to be less than
fiscal 1998 levels.
The Company purchased $146,000 of treasury stock in the first nine months of
1999.
The Company received $130,000 in the first nine months of fiscal 1999 from
employee stock option exercises and employee stock purchase plan purchases.
Based on the current operating plan, the Company anticipates that its current
cash balances and anticipated cash flow from operations will be sufficient to
meet its working capital needs over at least the next twelve months.
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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 believes it has identified substantially all of the major
information systems used in connection with its internal operations that must be
modified, upgraded or replaced to minimize the possibility of a material
disruption of its business. The Company is in the process of modifying,
upgrading and replacing systems that have been identified as potentially being
adversely affected and expects to complete this process before the end of its
1999 fiscal year. The Company does not expect the cost related to these efforts
to be material to its business, financial condition or operating results.
The Company depends on third party suppliers for the manufacturing of its
products. The Company has been gathering information from, and is communicating
with, these suppliers and, to the extent possible, has resolved issues involving
the Year 2000 problem. However, the Company has limited or no control over the
actions of its suppliers. Therefore, the Company cannot guarantee that its
manufacturing services suppliers will resolve any or all Year 2000 problems with
their systems before the occurrence of a material disruption to their
businesses. Any failure of these suppliers to resolve Year 2000 problems with
their systems in a timely manner could have a material adverse effect on the
Company's business, financial condition or operating results.
The Company is currently developing contingency plans to be implemented as part
of its efforts to identify and correct Year 2000 problems affecting its internal
systems. The Company expects to complete its contingency plans by the end of
its 1999 fiscal year. Depending on the systems affected, these plans could
include (a) accelerated replacement of affected equipment or software; (b)
increased work hours; and (c) other similar approaches. If the Company is
required to implement any of these contingency plans, such plans could have a
material adverse effect on its business, financial condition or operating
results.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's cash and cash equivalents are subject to interest rate risk. The
Company invests primarily on a short-term basis. The Company's financial
instrument holdings at July 31, 1999 were analyzed to determine their
sensitivity to interest rate changes. The fair values of these instruments were
determined by net present values. In our sensitivity analysis, the same change
in interest rate was used for all maturities and all other factors were held
constant. If interest rates increased by 10%, the expected effect on net income
related to the Company's financial instruments would be immaterial.
14
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
List of Exhibits:
11.1 Statements of Computation of Net Income per Share
27.1 Financial Data Schedule
Reports on Form 8-K:
No report on Form 8-K was filed by the Company during the quarter ended
July 31, 1999.
15
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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, on September 10, 1999.
SBE, INC.
----------
Registrant
/s/ Timothy J. Repp
-------------------
Timothy J. Repp
Chief Financial Officer, Vice President
of Finance and Secretary (Principal
Financial and Accounting Officer)
16
EXHIBIT 11.1
<TABLE>
<CAPTION>
SBE, INC.
STATEMENTS OF COMPUTATION OF NET (LOSS) INCOME PER SHARE
FOR THE THREE AND NINE MONTHS ENDED JULY 31, 1999 AND 1998
(In thousands, except per share amounts)
(Unaudited)
Three months ended Nine months ended
July 31, July 31,
----------------- ----------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
BASIC
Weighted average number of
common shares outstanding 2,875 2,674 2,855 2,662
------- ------- ------- -------
Number of shares for computation of
net (loss) income per share 2,875 2,674 2,855 2,662
======= ======= ======= =======
Net (loss) income $ (436) $ 154 $ 622 $ (556)
======= ======= ====== =======
Net (loss) income per share $(0.15) $ 0.06 $ 0.22 $(0.21)
======= ======= ======= =======
DILUTED
Weighted average number of
common shares outstanding 2,875 2,674 2,855 2,662
Shares issuable pursuant to options granted
under stock option plans, less assumed
repurchase at the ending fair market value
for the period (a) 31 128 (a)
------- ------- ------ -------
Number of shares for computation of
net (loss) income per share 2,875 2,705 2,983 2,662
======= ======= ======= =======
Net (loss) income $ (436) $ 154 $ 622 $ (556)
======= ======= ======= =======
Net (loss) income per share $(0.15) $ 0.06 $ 0.21 $(0.21)
======= ======= ======= =======
<FN>
(a) In loss periods, common share equivalents would have an antidilutive effect on loss per share
and therefore have been excluded.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> JUL-31-1999
<CASH> 2484
<SECURITIES> 0
<RECEIVABLES> 2369
<ALLOWANCES> 0
<INVENTORY> 1744
<CURRENT-ASSETS> 9541
<PP&E> 1259
<DEPRECIATION> 0
<TOTAL-ASSETS> 11156
<CURRENT-LIABILITIES> 1416
<BONDS> 0
0
0
<COMMON> 10890
<OTHER-SE> (1751)
<TOTAL-LIABILITY-AND-EQUITY> 11156
<SALES> 13811
<TOTAL-REVENUES> 13811
<CGS> 4994
<TOTAL-COSTS> 4994
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (176)
<INCOME-PRETAX> 653
<INCOME-TAX> 31
<INCOME-CONTINUING> 622
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 622
<EPS-BASIC> 0.22
<EPS-DILUTED> 0.21
</TABLE>
