<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended Commission File Number 0-21138
September 30, 1997
BOCA RESEARCH, INC.
(Exact name of registrant as specified in its charter)
Florida 59-2479377
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
1377 Clint Moore Road
Boca Raton, Florida
(Address of principal 33487
executive offices) (Zip Code)
Registrant's telephone number, including
area code: (561) 997-6227
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No___
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Outstanding as of
Class November 13, 1997
----- -----------------
Common stock, par value 8,725,079
$.01 per share
<PAGE> 2
BOCA RESEARCH, INC.
Form 10-Q For The Quarter Ended September 30, 1997
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1.Financial Statements
Condensed Consolidated Balance Sheets
(unaudited) as of September 30, 1997 and
December 31, 1996............................. 3
Condensed Consolidated Statements of
Income (unaudited) for the three and nine
months ended September 30, 1997 and 1996...... 4
.
Condensed Consolidated Statements of
Cash Flows (unaudited) for the nine
months ended September 30, 1997 and 1996...... 5
Notes to Condensed Consolidated
Financial Statements (unaudited).............. 6
Item 2.Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 12
PART II. OTHER INFORMATION
Items 1-3. Not applicable.................................. 24
Item 4.Submission of Matters to a Vote of
Security Holders.............................. 24
Item 5.Other Information..................................... 24
Item 6.Exhibits and Reports on Forms 8-K..................... 24
Signatures................................................... 25
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PART I. ITEM 1.
BOCA RESEARCH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $10,332 $ 7,826
Trade receivables, net 17,255 27,167
Inventory, net 14,285 18,381
Prepaid expenses and other current assets 1,193 890
Prepaid and deferred income taxes 6,589 3,888
------- -------
Total current assets 49,654 58,152
Property and equipment, net 5,837 7,052
Deferred income taxes, noncurrent 275 275
Other assets 417 587
------- -------
Total assets $56,183 $66,066
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,102 $ 7,314
Accrued expenses and other current liabilities 2,102 3,590
------- -------
Total current liabilities 8,204 10,904
------- -------
Commitments and contingencies
Stockholders' equity:
Common stock, 25,000,000 $.01 par value shares
authorized, 8,725,079 issued and outstanding
at September 30, 1997, 8,678,883 issued and
outstanding at December 31, 1996 87 87
Additional paid-in capital 25,895 25,574
Retained earnings 21,997 29,501
------- -------
Total stockholders' equity 47,979 55,162
------- -------
Total liabilities and stockholders' equity $56,183 $66,066
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
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BOCA RESEARCH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
--------------------- ---------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales .............................. $ 18,549 $ 32,966 $ 53,660 $124,563
Cost of goods sold ..................... 17,138 26,798 51,320 99,169
-------- -------- -------- --------
Gross profit ..................... 1,411 6,168 2,340 25,394
-------- -------- -------- --------
Operating expenses:
Research and development ............ 690 739 2,104 2,222
Selling, general and administrative . 3,431 4,010 12,384 13,636
-------- -------- -------- --------
Total operating expenses ......... 4,121 4,749 14,488 15,858
-------- -------- -------- --------
Income (loss) from operations .......... (2,710) 1,419 (12,148) 9,536
Non-operating income, net .............. 241 177 603 440
-------- -------- -------- --------
Income (loss) before income taxes ...... (2,469) 1,596 (11,545) 9,976
Income tax provision (benefit) ......... (864) 574 (4,041) 3,591
-------- -------- -------- --------
Net income (loss) ...................... ($ 1,605) $ 1,022 ($ 7,504) $ 6,385
======== ======== ======== ========
Net income (loss) per share ............ ($ 0.18) $ 0.12 ($ 0.86) $ 0.71
======== ======== ======== ========
Weighted average shares outstanding .... 8,725 8,792 8,716 8,965
======== ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
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BOCA RESEARCH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
---------------------
1997 1996
-------- --------
<S> <C> <C>
Cash provided by (used in):
Operating activities:
Net income (loss) ......................... ($ 7,504) $ 6,385
Adjustments for non-cash charges .......... 2,202 2,267
Changes in assets and liabilities ......... 8,474 (6,061)
-------- --------
Net cash provided by operating activities 3,172 2,591
-------- --------
Investing activities - Capital expenditures ..... (987) (2,193)
-------- --------
Financing activities - Exercise of options ...... 321 1,181
-------- --------
Net increase in cash and cash equivalents ....... 2,506 1,579
Cash and cash equivalents, beginning of period .. 7,826 477
-------- --------
Cash and cash equivalents, end of period ........ $ 10,332 $ 2,056
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
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BOCA RESEARCH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
BASIS OF PRESENTATION
The condensed consolidated financial statements have been prepared by the
Company in accordance with the rules and regulations of the Securities and
Exchange Commission regarding interim financial reporting and, accordingly, they
do not include all of the information and disclosures required by generally
accepted accounting principles. In the opinion of management, the condensed
consolidated financial statements contain all adjustments (consisting of only
normal recurring accruals) necessary to present fairly the financial position of
the Company as of September 30, 1997, and the results of its operations and its
cash flows for the three and nine month periods ended September 30, 1997 and
1996. These results have been determined on the basis of generally accepted
accounting principles and practices applied consistently with those used in the
preparation of the Company's 1996 audited consolidated financial statements.
The accompanying financial statements should be read in conjunction with
the Company's most recent audited consolidated financial statements and notes
thereto for the year ended December 31, 1996. The results of operations for the
three and nine month periods ended September 30, 1997 are not necessarily
indicative of the results to be expected for the full year.
Certain prior year amounts have been reclassified to conform to the current
presentation.
SUPPLEMENTAL CASH FLOW INFORMATION
Cash payments (net of refunds) for income taxes were ($1,339,171) and
$4,751,683 in the nine month periods ended September 30, 1997 and 1996,
respectively.
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BOCA RESEARCH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CON'T)
(UNAUDITED)
CURRENT ASSETS
Accounts receivable are included in the condensed consolidated balance
sheets net of allowances and consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
Accounts receivable ....................... $ 20,355 $ 31,118
Allowance for sales returns, allowances and
price protection ........................ (1,200) (2,625)
Allowance for doubtful accounts ........... (1,900) (1,326)
-------- --------
$ 17,255 $ 27,167
======== ========
</TABLE>
Included in the accounts receivable balance are: (a) $708,146 from MBf/Boca
Asia Pacific Sdn Bhd, a joint venture in Malaysia in which the Company has a
50% ownership interest; and (b) $506,281 from PowerTelBOCA Pvt., Ltd.
("PowerTel"), a joint venture in India in which the Company has a 20% ownership
interest. Sales to these related parties in the three and nine month periods
ended September 30, 1997 were approximately $708,000 and $2,517,000,
respectively. Sales to these related parties in the three and nine month
periods ended September 30, 1996 were approximately $843,000 and $4,472,000,
respectively. The Company has agreed to payment terms of 90 days for MBf/Boca
Asia Pacific and 180 days for PowerTel. MBf/Boca Asia Pacific has been impacted
by the currency turmoil in Southeast Asia and has recently been experiencing
losses. Those two events have resulted in a delay of payments beyond the agreed
terms.
The Company has a receivable outstanding in the amount of $2,290,000 from
Creatix resulting from the sale of modem chips. Creatix's ability to pay the
remaining receivable will be dependent on improving its operating results which
may be dependent on conditions improving in the modem industry in regards to
more stable pricing, increased unit demand and a faster migration to the 56Kbps
modem speed. It is unlikely that the receivable will be collected in full in
1997 and further operating losses incurred by Creatix would impact its ability
to pay the full balance. The inability of the Company to collect the Creatix or
MBf/Boca Asia Pacific Sdn Bhd receivables would adversely affect the Company's
liquidity and results of operations.
Inventories included in the condensed consolidated balance sheets consist
of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
------------- ------------
<S> <C> <C>
Raw materials .... $ 10,052 $ 13,541
Work in process .. 3,859 5,779
Finished goods ... 1,574 1,461
Inventory reserves (1,200) (2,400)
-------- --------
$ 14,285 $ 18,381
======== ========
</TABLE>
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<PAGE> 8
BOCA RESEARCH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CON'T)
(UNAUDITED)
PROPERTY AND EQUIPMENT
Property and equipment is included in the condensed consolidated balance
sheets net of accumulated depreciation of $10,107,849 at September 30, 1997 and
$8,070,398 at December 31, 1996.
LINE OF CREDIT
The Company has an unsecured revolving line of credit expiring May 31,
1998, which permits borrowings of the lesser of $12,000,000 or 60% of qualified
accounts receivable. Based on this formula, the amount of borrowing permitted
would be approximately $10,000,000 at September 30, 1997. Under the terms of
the loan agreement relating to the line of credit, the Company may elect the
interest rate to be either the bank's prime rate or the London InterBank
Offered Rate (LIBOR) plus 1 1/2%. The loan agreement requires the Company to
maintain certain financial ratios, limits the incurrence of additional debt,
and prohibits payment of dividends without the bank's consent. There were no
borrowings outstanding at September 30, 1997.
COMMITMENTS AND CONTINGENCIES
The Company receives communications from time to time alleging that
certain of the Company's products infringe the patent rights of other third
parties. The Company has recently received communications from IBM Corporation
("IBM") alleging that certain of the Company's products infringe the patent
rights of IBM. The Company is presently investigating this claim and is not yet
in a position to fully evaluate the merits of such claim. The Company cannot
predict the outcome of this claim or any similar claim which may arise in the
future, or the effect of any such claim on the Company's operating results or
financial condition. See "Certain Factors That May Affect Future Performance
- -- Proprietary Rights; Dependence on Software Licenses."
A former shareholder of the Company has filed an action in the United
States District Court for the Southern District of Florida against the Company
and Anthony F. Zalenski, its President and Chief Executive Officer. The former
shareholder claims that he relied on certain statements made directly to him by
Mr. Zalenski and certain other statements in deciding not to sell his shares of
the Company's Common Stock. The former shareholder claims that such statements
were false and misleading and give rise to claims under the Federal securities
law and Florida common law. The former shareholder is seeking damages for his
trading losses, which are alleged to be in excess of $1 million. Based on
information currently available to the Company, the Company does not believe
that this matter will have a material adverse effect on the Company's results of
operations or financial condition.
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<PAGE> 9
BOCA RESEARCH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CON'T)
(UNAUDITED)
On October 4, 1996, the Company entered into a Consulting Agreement with
ARGOQUEST, Inc., a California corporation ("ArgoQuest") pursuant to which
ArgoQuest was retained to serve as a consultant to the Company with respect to
sales to retail accounts, wholesale distributors and original equipment
manufacturers. The Consulting Agreement provides ArgoQuest with the right to be
granted options to purchase shares of Common Stock of the Company, subject to
the Company achieving specified net sales, as defined in the Consulting
Agreement, during certain periods, in addition to receiving monthly consulting
fees, as more fully disclosed in the notes to the Company's consolidated
financial statements included in the Annual Report on Form 10-K for the year
ended December 31, 1996. For the three and nine month periods ended September
30, 1997, the Company recorded $0 and $260,000 of expense, respectively,
representing the monthly consulting fees and expenses due under the Consulting
Agreement. The Company has provided notice to ArgoQuest that monthly consulting
fees will not be made subsequent to March 31, 1997, as provided in the
Consulting Agreement.
The Company has entered into a letter of intent to purchase the fixed and
certain current assets of Creatix, a German based company ("Creatix"). In light
of the deterioration in the operating results of Creatix and the Company's
failure to obtain financing for the acquisition, the Company has determined not
to complete the acquisition.
STOCKHOLDERS' EQUITY
During the nine month period ended September 30, 1997, 22,167 shares were
issued in connection with the exercise of options granted under the Company's
stock option plans. The aggregate proceeds received from these exercises were
$135,152.
In January and July 1997, 12,178 and 11,851 options were exercised by
employees under the 1992 Employee Stock Purchase Plan. Aggregate proceeds
received from these exercises were $186,470.
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<PAGE> 10
BOCA RESEARCH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CON'T)
(UNAUDITED)
STOCK OPTION PLAN
During the nine month period ended September 30, 1997, the Company granted
options to purchase 362,800 shares at exercise prices ranging from $5.25 to $10
to both new and existing employees.
During the nine month period ended September 30, 1997, 341,023 stock
options were canceled.
In April 1997, the Company offered the holders of options to purchase an
aggregate of 715,097 shares of the Company's Common Stock with exercise prices
ranging from $7.125 to $27.50, the opportunity to exchange such options for
options to purchase a fewer number of shares at an exercise price of $6.75 per
share, the market value of the Common Stock on the date of such offer. The newly
issued options vest in three equal annual installments, commencing in April
1998. This offer was made as a result of the decline in the market price of the
Company's Common Stock in order to more effectively retain and motivate the
Company's key employees. As a result of this offer, options to purchase 465,689
shares were canceled in exchange for the issuance of options to purchase 314,416
shares priced at $6.75 per share. The holders of options representing 249,408
shares declined the offer to exchange their options.
NEW ACCOUNTING STANDARD
In February 1997, Statement of Financial Accounting Standards ("SFAS") No.
128, "Earnings Per Share" was issued. SFAS No. 128, which supersedes Accounting
Principles Board ("APB") Opinion No. 15, requires a dual presentation of basic
and diluted earnings per share on the face of the income statement. Basic
earnings per share excludes dilution and is computed by dividing income or loss
attributable to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted earnings per share reflects the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the entity. Diluted
earnings per share is computed similarly to fully diluted earnings per share
under APB Opinion No. 15. SFAS No. 128 is effective for financial statements
issued for periods ending after December 15, 1997, including
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<PAGE> 11
BOCA RESEARCH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CON'T)
(UNAUDITED)
interim periods; earlier application is not permitted. When adopted, all
prior-period earnings per share data are required to be restated. As a result of
the Company's net loss for the three and nine months ended September 30, 1997,
basic and diluted net loss per share, as computed under SFAS No. 128, would not
differ from the net loss per share shown in the accompanying condensed
consolidated statements of income. For the three months ended September 30,
1996, basic and diluted net income per share, as computed under SFAS No. 128,
would be $.12 and $.12, respectively. For the nine months ended September 30,
1996, basic and diluted net income per share, as computed under SFAS No. 128,
would be $.74 and $.71, respectively.
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ITEM 2.
BOCA RESEARCH, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The discussion and analysis below contains trend analysis and other
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 anticipated in these
forward-looking statements as a result of certain factors set forth below and
elsewhere in this Report.
As an aid to reviewing the Company's results of operations for the three
and nine months ended September 30, 1997 and 1996, the following table sets
forth the financial information as a percent of net sales and as a percent of
change when compared to the earlier period:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
------------------- Percent ------------------- Percent
1997 1996 Change 1997 1996 Change
------ ------ ------- ------ ------ -------
<S> <C> <C> <C> <C> <C> <C>
Net sales ............................. 100.0% 100.0% (43.7)% 100.0% 100.0% (56.9)%
Cost of goods sold .................... 92.4 81.3 (36.0) 95.6 79.6 (48.2)
------ ------ ------ ------
Gross profit ...................... 7.6 18.7 (77.1) 4.4 20.4 (90.8)
------ ------ ------ ------
Operating expenses:
Research and development .......... 3.7 2.2 (6.6) 3.9 1.8 (5.3)
Selling, general and administrative 18.5 12.2 (14.4) 23.1 10.9 (9.2)
------ ------ ------ ------
Total operating expenses ...... 22.2 14.4 (13.2) 27.0 12.7 (8.6)
------ ------ ------ ------
Income (loss) from operations ......... (14.6) 4.3 * (22.6) 7.7 *
Non-operating income, net ............. 1.3 0.5 36.2 1.1 0.3 37.0
------ ------ ------ ------
Income (loss) before income taxes ..... (13.3) 4.8 * (21.5) 8.0 *
Income taxes (benefit) ................ (4.6) 1.7 * (7.5) 2.9 *
------ ------ ------ ------
Net income (loss) ..................... (8.7)% 3.1% * (14.0)% 5.1% *
====== ====== ====== ======
</TABLE>
*Not applicable
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<PAGE> 13
RESULTS OF OPERATIONS
Net Sales: The Company's net sales decreased by 43.7% to $18,549,000
in the three months ended September 30, 1997 from $32,966,000 in the three
months ended September 30, 1996. For the nine months ended September 30, 1997,
net sales decreased by 56.9% to $53,660,000 from $124,563,000 for the comparable
period in 1996. The sales decrease for the three and nine month periods ended
September 30, 1997 from the comparable periods in 1996 is shown below by product
category.
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
--------------------- ----------------------
1997 1996 1997 1996
------ ------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Custom Manufacturing $ 4.4 $ -- $ 4.4 $ --
Data Communications . 10.5 27.1 38.9 108.0
Multimedia .......... 0.1 0.3 0.9 0.7
Networking .......... 1.3 1.8 3.0 4.9
Video Graphics ...... 0.5 1.5 1.4 4.8
I/O, IDE & Multiport 1.7 2.1 4.7 5.8
Video Conferencing .. -- 0.1 0.3 0.1
ISDN ................ -- 0.1 0.1 0.3
------ ------ ------ ------
$ 18.5 $ 33.0 $ 53.7 $124.6
====== ====== ====== ======
</TABLE>
The sales decrease was primarily attributable to a decrease in sales of
data communications products, however, the product categories of networking,
video graphics, and I/O, IDE, and multiport also experienced a decline in sales.
The video conferencing product category was introduced in the third quarter of
1996. Sales in this category were below expectations for the three months and
nine months ended September 30, 1997. Sales in this category will not be
significant for the balance of the year. In the third quarter of 1997 the
Company began manufacturing products on a contract basis for other companies,
and these sales are included under the category of custom manufacturing. The
major portion of these sales was Internet access boxes that work in conjunction
with television sets. Custom manufacturing sales are classified as OEM sales.
Custom manufacturing sales accounted for $4.4 million in the three months ended
September 30, 1997 and is a significant portion of the $10 million of OEM sales
for the third quarter of 1997.
Sales were adversely affected by several factors in the three months and
nine months ended September 30, 1997, including the slow technology migration to
56Kbps modems, slower than anticipated sales volume of new products, aggressive
channel pricing due to excess inventories of older generation products, and weak
PC demand experienced by many of the
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<PAGE> 14
Company's OEM customers. In 1996, the Company's three largest OEM customers
accounted for approximately 42.0% of the Company's net sales. Sales to these
three OEM customers during the three months ended September 30, 1997 were not
significant and for the nine months ended September 30, 1997 represented
approximately 5.0% of the Company's net sales. Included in net sales for the
nine months ended September 30, 1997 were components sold to Creatix, in the
amount of $2,996,000. See Commitments and Contingencies in the Notes to the
Condensed Consolidated Financial Statements and the discussion under "Liquidity
and Capital Resources" for further information.
International sales were approximately $2.8 million for the three months
ended September 30, 1997 and $11.3 million for the nine months ended September
30, 1997, compared to $4.5 million for the three months ended September 30, 1996
and $37.0 million for the nine months ended September 30, 1996. The decline is
partially due to the approximately $13.7 million of sales to Hucom for the nine
months ended September 30, 1996 with no sales to Hucom in 1997.
It is anticipated that sales in the fourth quarter ending December 31, 1997
will continue to be soft and will be substantially less than the comparable
period in 1996. This reflects continued weak industry conditions resulting in
lower unit volumes and approximately 26.0% lower average selling prices for the
Company's products when compared to the comparable nine month period in 1996.
Gross Profit. Gross profit decreased to $1,411,000 in the three months
ended September 30, 1997 from $6,168,000 in the three months ended September
30, 1996, and decreased as a percentage of net sales to 7.6% in the three
months ended September 30, 1997 from 18.7% for the three months ended September
30, 1996. For the nine months ended September 30, 1997, gross profit decreased
to $2,340,000 from $25,394,000 for the nine months ended September 30, 1996.
Gross profit as a percentage of net sales decreased to 4.4% for the nine months
ended September 30, 1997 from 20.4% for the nine months ended September 30,
1996. The gross profit percentage for the three months and nine months ended
September 30, 1997 compared to the comparable periods in the prior year was
adversely affected by several factors, including low utilization of the
Company's manufacturing facilities, aggressive pricing to reduce channel
inventories resulting in price protection, low prices on older generation
product and aggressive pricing to the retail channel to obtain shelf space.
Also, gross profit margins are normally lower on custom manufacturing sales
than the Company's traditional sales to OEMs and distributors. The Company
began custom manufacturing sales in the third quarter of 1997 and experienced
expected learning curve cost inefficiencies during the initial production ramp
up period. The average selling price on the Company's products has declined
approximately 26.0% for the nine month period ended September 30, 1997 compared
to the nine month period ended September 30, 1996 which was not offset by a
comparable decrease in costs and resulted in a lower gross profit percentage.
It is anticipated that the gross profit percentage in the fourth quarter will
continue to be adversely affected by the negative factors that occurred in the
first nine months of 1997. It had been anticipated that when significant sales
of 56Kbps modems started that the average selling price would increase and
gross profit margins would improve. However, with
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<PAGE> 15
the announcement of price reductions by Motorola on its 56Kbps modems, the
anticipated increase in average selling price and improvement in gross profit
margins may be less than originally anticipated.
Research and Development Expenses. Research and development expenses
decreased to $690,000 in the three months ended September 30, 1997 from $739,000
in the three months ended September 30, 1996. This represented an increase in
research and development expenses as a percentage of net sales to 3.7% for the
three months ended September 30, 1997 from 2.2% for the three months ended
September 30, 1996. For the nine months ended September 30, 1997 research and
development expenses decreased to $2,104,000 from $2,222,000 for the nine months
ended September 30, 1996. This represents an increase in research and
development expenses as a percentage of net sales to 3.9% for the nine months
ended September 30, 1997 from 1.8% for the nine months ended September 30, 1996.
The increase in research and development expenses as a percentage of net sales
were primarily attributable to the fixed nature of certain research and
development expenses allocated over a lower sales base. It is anticipated that
research and development expenses will increase in absolute dollars in future
quarters as the Company continues to diversify its product line and to meet the
requirements to rectify each increase in modem speeds such as 56Kbps products in
the international markets. Research and development expenses are expected to be
a higher percentage of sales in 1997 than the historical level of approximately
2.0% because of lower sales and higher expenditures.
Selling, General, and Administrative Expenses. Selling, general and
administrative expenses decreased to $3,431,000 in the three months ended
September 30, 1997 from $4,010,000 in the three months ended September 30, 1996.
Selling, general and administrative expenses as a percentage of net sales
increased to 18.5% in the three months ended September 30, 1997 from 12.2% in
the three months ended September 30, 1996. Selling, general and administrative
expense decreased to $12,384,000 in the nine months ended September 30, 1997
from $13,636,000 in the nine months ended September 30, 1996. Selling, general
and administrative expenses as a percentage of net sales increased to 23.1% in
the nine months ended September 30, 1997 from 10.9% in the nine months ended
September 30, 1996. The increase in selling, general and administrative expenses
as a percentage of net sales for the three months and nine months ended
September 30, 1997 compared to the comparable periods in 1996 is primarily the
result of the substantial decline in net sales as well as the fixed nature of
many of the selling, general and administrative expenses. The decline in
the amount of selling, general and administrative expenses in the three
months and nine months ended September 30, 1997 compared to the comparable
periods in 1996 was related to reduced spending on advertising and lower sales
commissions which vary with sales.
LIQUIDITY AND CAPITAL RESOURCES
In the nine months ended September 30, 1997, the Company's working capital
decreased by $5,798,000 from December 31, 1996. The decrease was represented by
increases in cash of $2,506,000 and other current assets of $3,004,000 and a
decrease in current liabilities
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<PAGE> 16
of $2,700,000 offset by decreases in inventories of $4,096,000 and trade
receivables of $9,912,000. The Company's operations provided cash of $3,172,000
for the nine months ended September 30, 1997. The Company's investing activities
consisted of capital expenditures of $987,000 during the nine months ended
September 30, 1997.
The Company may from time to time experience periods of negative cash flow
from operations. The Company intends to borrow under its line of credit to the
extent necessary to finance cash needs. The Company has an unsecured $12,000,000
line of credit with a commercial bank, which expires on May 31, 1998. As of
September 30, 1997, no borrowings were outstanding under this line of credit,
which permits borrowings of the lesser of $12,000,000 or 60% of qualified
accounts receivable. Based on this formula, the amount of borrowing permitted
would be approximately $10,000,000 at September 30, 1997. Under the terms of the
loan agreement relating to the line of credit, the Company may elect the
interest rate to be either the bank's prime rate or the London InterBank Offered
Rate (LIBOR) plus 1 1/2%. The loan agreement requires the Company to maintain
certain financial ratios, limits the incurrence of additional debt, and
prohibits payment of dividends without the bank's consent. As of September 30,
1997 the Company was in compliance with these financial ratios but if operating
losses continue the Company could be required to renegotiate the required
financial ratios.
The Company currently believes that the combination of cash generated from
operations, the Company's existing cash balances, and its line of credit will be
sufficient to meet its liquidity and capital requirements through at least the
next twelve months.
The Company's trade receivables as of September 30, 1997 were $17,255,000
which represents an average days outstanding of approximately 90 days. The
Company has a receivable outstanding in the amount of $2,290,000 from Creatix.
The Company had entered into a letter of intent to purchase Creatix but the
definitive agreement has not been executed and the Company has not received the
necessary bank financing or the commitment for the subsidy from the Government
of Saarland. In light of these factors and the deterioration in the operating
results of Creatix, the Company has determined not to complete the acquisition.
The receivable is the result of the Company selling modem chips to Creatix. The
trustee managing the operations of Creatix has indicated that the receivable
balance will be paid as Creatix collects receivables and reduces inventories.
During the third quarter of 1997, the Company received $100,000 on the account.
Creatix's ability to pay the remaining receivable will be dependent on improving
its operating results which may be dependent on conditions improving in the
modem industry in regards to more stable pricing, increased unit demand and a
faster migration to the 56Kbps modem speed. It is unlikely that the receivable
will be collected in full in 1997 and further operating losses incurred by
Creatix would impact its ability to pay the full balance. The Company also has a
receivable outstanding of $708,000 from MBf/Boca Asia Pacific Sdn Bhd, a joint
venture in Malaysia in which the Company has a 50% ownership interest. See Notes
to Condensed Consolidated Financial Statements. This company has been impacted
by the currency turmoil in Southeast Asia and has recently been experiencing
losses. These two events
- 16 -
<PAGE> 17
have resulted in a delay of payments beyond the agreed terms. The inability of
the Company to collect the Creatix or MBf/Boca Asia Pacific Sdn Bhd receivables
would adversely affect the liquidity and results of operations of the Company.
The Company's management continually reviews its financing options. The
Company is considering and will continue to consider alternative financing
opportunities including the issuance of equity, debt or convertible debt, if
market conditions make such alternatives financially attractive methods of
funding the Company's short term or long-term needs.
CERTAIN FACTORS THAT MAY AFFECT FUTURE PERFORMANCE.
In addition to the other information contained in this Report, the
following are important factors that should be considered carefully in
evaluating the Company and its business.
NEW PRODUCTS, TECHNOLOGICAL CHANGES AND INVENTORY MANAGEMENT. The markets
for the Company's products are characterized by rapidly changing technology,
evolving industry standards and short product life cycles. The Company's success
depends upon its ability to enhance its existing products and to introduce new
products with features that meet changing end user requirements. Moreover,
because of short product life cycles coupled with long lead times for many
components used in the Company's products, the Company may not be able to
quickly reduce its production or inventory levels in response to unexpected
shortfalls in sales or, conversely, to increase production or inventory levels
in response to unexpected demand. There can be no assurance that the Company
will be successful in identifying new markets, in developing, manufacturing and
marketing new products, or in enhancing its existing products, either internally
or through strategic relationships with third parties. The Company's business
would be adversely affected if the Company were to incur delays in developing
new products or enhancing existing products, if the Company experiences delays
in obtaining any required regulatory approvals for its products or if such new
products or enhancements did not gain market acceptance. In addition, there can
be no assurance that products or technologies developed by others will not
render the Company's products or technologies noncompetitive or obsolete. The
recent introduction of competing technologies on the 56Kbps modem and the
marketing activities to promote the advantages of such technology has heightened
the competitive pressures in the industry. The Company's operating results will
depend on its ability to compete using the Rockwell technology (K56 flex(TM)).
Each increase in speed in modem technology has had transition issues; however,
the Company believes that the transition to 56Kbps technology is resulting in
more extensive upgrade policies which may result in lower gross margins than new
sales of 56Kbps modems. Moreover, price decreases have occurred earlier in the
56Kbps product cycle than occurred with 14.4Kbps and 28.8Kbps products. Motorola
recently announced price reductions on its 56Kbps modems.
Sales of individual products and product lines are typically characterized
by rapid declines in sales, pricing and margins toward the end of the respective
product's life cycle, the precise timing of which may be difficult to predict.
As new products are planned and
- 17 -
<PAGE> 18
introduced, the Company attempts to monitor closely the inventory of older
products and to phase out their manufacture in a controlled manner.
Nevertheless, the Company could experience unexpected reductions in sales of
older generation products as customers anticipate the availability of new
products. These reductions could give rise to additional charges for obsolete or
excess inventory, returns of older generation products by distributors or
substantial price protection charges. To the extent that the Company is
unsuccessful in managing product transitions, its business and operating results
could be materially adversely affected.
Because all of the Company's products are used in PCs and computer
networks, the Company's future operating results could be adversely affected by
changes in the PC and computer networking markets, including major technological
developments or fluctuations in the growth rate. In addition, there is a trend
in original PC system manufacturing to integrate additional functionality onto
the system board of the PC or to utilize chipsets which incorporate additional
functionality, thereby decreasing the market for PC enhancement products. In
this regard, demand for the Company's SoundExpression multimedia products
declined in the last six months of 1995, throughout 1996 and the first nine
months of 1997 due to the increased use by OEMs of chipsets incorporating sound
and modem features which are integrated into the system board of the PC.
Moreover, it is a concern in the PC industry that the penetration of PCs into
the home has flattened at 40% and that PC growth will slow as PCs become more of
a replacement market. Any decrease in the markets for PC enhancement or
networking products or reduction in the growth rates in such markets could have
a material adverse effect on the Company's operating results.
POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS. The Company's quarterly
operating results have varied significantly, and may continue to vary
significantly, depending on a number of factors, some of which could adversely
affect the Company's operating results and the trading price of the Company's
Common Stock. These factors include competitive pricing pressures, the timing of
orders from and shipments to major customers, the timing of new product
introductions by the Company and its competitors, the availability and pricing
of components for the Company's products, the timing of phase-outs of the
Company's products, variations in the Company's product mix and component costs,
variations in the proportion of sales made to wholesale distributors, OEMs and
retailers, product returns or price protection charges from customers, the
timing of sales of the Company's products to end users by the Company's
customers, seasonal promotions by the Company, its customers and competitors,
economic conditions prevailing within the computer industry and economic
conditions generally. Quarterly sales depend on the volume and timing of orders
received during a quarter, which are difficult to forecast. Customers generally
order products on an as-needed basis, and accordingly the Company has
historically operated with a relatively small backlog. Moreover, as is typical
for companies in the PC industry, a disproportionate percentage of the Company's
net sales in any quarter are typically generated in the last month of a quarter.
As a result, a shortfall in net sales in any quarter as compared to expectations
may not be identifiable until the end of the quarter. In addition, from time to
time, a significant portion of the Company's sales are derived from a limited
number of customers, the loss of one or more of which could
- 18 -
<PAGE> 19
adversely impact operating results. The Company's expense levels are based, in
part, on its expectations as to future sales. If sales levels are below
expectations, operating results may be adversely affected, which would likely
have an adverse effect on the trading price of the Company's Common Stock.
DEPENDENCE ON CUSTOM MANUFACTURING SALES. In the third quarter of 1997,
the Company began manufacturing products on a contract basis for other
companies. Custom manufacturing sales accounted for approximately 24% of the
Company's net sales for the three months ended September 30, 1997. The Company
has only recently began custom manufacturing and, accordingly, the Company has
limited experience in the management and operation of custom manufacturing
services. Moreover, the contract manufacturing industry is highly fragmented and
an intensely competitive industry. In addition, the level and timing of orders
placed by the Company's contract manufacturing customers vary due to customer
attempts to manage inventory, changes in the customer's manufacturing strategy
and variation in demand for the customer's product. For all of these reasons,
there can be no assurance that the Company will be successful in developing its
custom manufacturing services. The inability of the Company to expand its custom
manufacturing services could adversely affect the Company's business, results of
operations or financial condition.
ACQUISITIONS. The Company may from time to time pursue the acquisition of
other companies, assets, technologies or product lines that would complement or
expand its existing business. Certain of these acquisitions may involve
businesses in which the Company lacks experience. Acquisitions involve a number
of risks that could adversely affect the Company's operating results, including
the diversion of management's attention, the assimilation of the operations,
products and personnel of the acquired companies, the amortization of acquired
intangible assets and the potential loss of key employees of the acquired
companies. There can be no assurance that the Company will be able to identify
businesses that would complement or expand its existing business or complete
such acquisitions, manage one or more acquisitions successfully, or that the
Company will be able to integrate the operations, products or personnel gained
through such acquisition without a material adverse impact on the Company's
business, financial condition and results of operations, particularly in the
quarters immediately following such acquisitions.
INTERNATIONAL OPERATIONS. The Company's international sales are subject to
the risks inherent in international sales, including various regulatory
requirements (including the need to obtain certifications for the Company's data
communications products), political and economic changes and disruptions,
tariffs or other barriers, difficulties in staffing and managing foreign
operations, and potentially adverse tax consequences. In addition, fluctuations
in exchange rates may render the Company's products less competitive relative to
local product offerings or expose the Company to foreign currency exchange
losses. The currency turmoil in Southeast Asia is
- 19 -
<PAGE> 20
affecting the Company's joint venture in Malaysia and it is expected that the
joint venture will continue to experience reduced sales and incur operating
losses. One or more of these factors may have a material adverse effect on the
Company's future international sales and, consequently, on the Company's
operating results.
DEPENDENCE ON SUPPLIERS. The major components of the Company's products
include circuit boards, microprocessors, chipsets and memory components. Most of
the components used in the Company's products are available from multiple
sources. However, certain components used in the Company's products are
currently obtained from single sources. Certain modem chipsets used in the
Company's data communications products have been in short supply and are
frequently on allocation by semiconductor manufacturers. Similar to others in
the computer industry, the Company has, from time to time, experienced
difficulty in obtaining certain components. The Company has no guaranteed supply
arrangements with any of its suppliers and there can be no assurance that these
suppliers will continue to meet the Company's requirements. Shortages of
components not only limit the Company's production capacity but also could
result in higher costs due to the higher costs of components in short supply or
the need to utilize higher cost substitute components. An extended interruption
in the supply of any of these components or a reduction in their quality or
reliability would have a material adverse effect on the Company's operating
results. While the Company believes that with respect to its single source
components it could obtain similar components from other sources, it could be
required to alter product designs to use alternative components. There can be no
assurance that severe shortages of components will not occur in the future which
could increase the cost or delay the shipment of the Company's products and have
a material adverse effect on the Company's operating results. Significant
increases in the prices of these components could also have a material adverse
effect on the Company's operating results since the Company may not be able to
adjust product pricing to reflect the increases in component costs. Moreover, a
number of components for the Company's products are obtained from foreign
suppliers. Increases in tariffs on such components or fluctuations in exchange
rates could result in increases in the prices paid by the Company for these
components, which could impact the Company's ability to compete with foreign
manufacturers and have a material adverse effect on the Company's operating
results.
SALES CHANNEL RISKS. The Company sells its products to OEMs, national,
regional and international wholesale distributors and retailers and catalog
companies. Sales to OEMs accounted for approximately 38% of net sales in the
nine months ended September 30, 1997. OEMs have significantly different
requirements, and in most cases, more stringent purchasing procedures and
quality standards than wholesale distributors and other resellers. There can be
no assurance that the Company will continue to be successful in developing
products for, and delivering products to, the OEM market, or that it will be
successful in establishing and maintaining an effective distribution and
customer support system for OEMs. The Company's business could be adversely
affected if it is unsuccessful in developing, manufacturing and
- 20 -
<PAGE> 21
marketing products for sale to OEMs. In addition, OEMs may require special
distribution arrangements and product pricing, which could have a material
adverse effect on the Company's operating results. In 1996, the Company's three
largest OEM customers accounted for approximately 42% of the Company's net
sales. Sales to these three OEM customers during the first nine months of 1997
declined to approximately 5% of the Company's net sales. A decline in sales to
any of the Company's significant OEM customers or a delay or default in payment
by these customers could have a material adverse effect on the Company's results
of operations or financial condition.
The Company's three largest wholesale distributors accounted for
approximately 18% of the Company's net sales in the nine months ended September
30, 1997. The PC distribution industry has been characterized by rapid change,
including consolidations and financial difficulties of wholesale distributors
and the emergence of alternative distribution channels. The Company is dependent
upon the continued viability and financial stability of its wholesale
distributors. The loss or ineffectiveness of any of the Company's three largest
wholesale distributors or a number of its smaller wholesale distributors could
have a material adverse effect on the Company's operating results. In addition,
an increasing number of vendors are competing for access to wholesale
distributors which could adversely affect the Company's ability to maintain its
existing relationships with its wholesale distributors or could negatively
impact sales to such distributors. The Company's sales to wholesale distributors
declined in absolute dollars from 1995 to 1996 and this trend continued during
the first nine months of 1997.
COMPETITION. The markets for the Company's products are intensely
competitive resulting in constant pricing pressures. Some of the Company's
competitors have significantly greater financial, technical, product
development, manufacturing or marketing resources than the Company. The Company
believes that its ability to compete depends on a number of factors, including
price, product quality and reliability, product availability, credit terms, name
recognition, delivery time, and post-sale service and support. There can be no
assurance that the Company will be able to continue to compete successfully with
respect to these factors. A variety of companies currently offer products that
compete directly with the Company's products. These competitors could introduce
additional products or add features to their existing products that are superior
to the Company's products or that achieve greater market acceptance. In addition
to U.S.-based firms, the Company faces competition from Pacific Rim suppliers
which generally offer products at significantly lower prices. The introduction
of lower priced competitive products or significant price reductions by the
Company's competitors would result in price reductions in the Company's products
that could have a material adverse effect on the Company's operating results. In
addition, as the Company considers entry into new product markets, such as ISDN,
cable modems and videoconferencing, the Company anticipates that it will
encounter competition from a number of well-established companies,
- 21 -
<PAGE> 22
many of which have greater financial, technical, product development,
manufacturing or marketing resources and experience.
PROPRIETARY RIGHTS; DEPENDENCE ON SOFTWARE LICENSES. Although the Company
has not historically been the subject of significant claims of infringement by
third parties, the Company receives from time to time, and may receive in the
future, communications from third parties asserting intellectual property rights
relating to the Company's products and technologies. There can be no assurance
that in the future the Company will be able to obtain licenses of any
intellectual property rights owned by third parties with respect to the
Company's products or that any such licenses can be obtained on terms favorable
to the Company. If the Company is unable to obtain licenses of protected
technology, it could be prohibited from manufacturing and marketing products
incorporating that technology. The Company could also incur substantial costs in
redesigning its products or in defending any legal action taken against it.
Should the Company be found to infringe the proprietary rights of others, the
Company could be required to pay damages to the infringed party which could have
a material adverse effect on the Company's operating results. The Company has
recently received communications from IBM Corporation ("IBM") alleging that
certain of the Company's products infringe the patent rights of IBM. The
Company is presently investigating this claim and is not yet in a position to
fully evaluate the merits of such claim. The Company cannot predict the outcome
of this claim or any similar claim which may arise in the future, or the effect
of any such claim on the Company's operating results or financial condition.
In certain of its products, the Company includes software licensed from
third parties. The Company's operating results could be adversely affected by a
number of factors relating to this third party software, including lack of
market acceptance, failure by the licensors to promote or support the software,
delays in shipment of the Company's products as a result of delays in the
introduction of licensed software or errors in the licensed software, or excess
customer support costs or product returns experienced by the Company due to
errors in the licensed software. Moreover, any impairment or termination of the
Company's relationship with any licensors of third party software could have a
material adverse effect on the Company's operating results.
RELIANCE ON CENTRALIZED MANUFACTURING. All of the Company's manufacturing
occurs at its leased headquarters facility in Boca Raton, Florida. The Company's
manufacturing operations utilize certain equipment which, if damaged or
otherwise rendered inoperable, would result in the disruption of the Company's
manufacturing operations. Although the Company maintains business interruption
insurance which the Company believes is adequate, any extended interruption of
the operations at this facility would have a material adverse effect on the
Company's operating results.
PRODUCT RETURNS, PRICE PROTECTION AND WARRANTY CLAIMS. Like other
manufacturers of computer products, the Company is exposed to the risk of
product returns from wholesale distributors and retailers, either through
contractual stock rotation privileges or as a result of the Company's interest
in assisting customers in balancing inventories. Although the Company attempts
to monitor and manage the volume of sales to wholesale distributors and
retailers, large shipments in anticipation of sales by wholesale distributors
and retailers can lead to substantial
- 22 -
<PAGE> 23
overstocking by the Company's wholesale distributors and retailers and to higher
than normal returns. Moreover, the risk of product returns may increase if
demand for the Company's products declines. When the Company reduces its prices,
the Company credits its wholesale distributors and retailers for the difference
between the purchase price of products remaining in their inventory and the
Company's reduced price for such products on terms negotiated with the Company,
the result of which could have a material adverse effect on the Company's
operating results. The Company's limited five-year warranty permits customers to
return any product for repair or replacement if the product does not perform as
warranted. The Company to date has not encountered material warranty claims or
liabilities. The Company seeks to continually introduce new and enhanced
products, which could result in higher product returns and warranty claims due
to the risks inherent in the introduction of such products. The Company has
established reserves for product returns, price protection and warranty claims
which management believes are adequate. There can be no assurance that product
returns, price protection and warranty claims will not have a material adverse
effect on future operating results.
VOLATILITY OF STOCK PRICE. The price of the Company's Common Stock
historically has been volatile due to fluctuations in operating results and
other factors relating to the Company's operations, the market's changing
expectations for the Company's growth, overall equity market conditions relating
to the market for technology stocks generally and other factors unrelated to the
Company's operations, including announcements by or relating to the Company's
competitors. Such fluctuations are expected to continue. In addition, stock
markets have experienced more price volatility in recent years. This volatility
has had a substantial effect on the market prices of securities issued by many
technology companies, often for reasons unrelated to the operating performance
of the specific companies.
- 23 -
<PAGE> 24
PART II.
BOCA RESEARCH, INC.
OTHER INFORMATION
Items 1-3.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the
quarter ended September 30, 1997.
Item 5. Other information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
11 Calculation of shares used in determining earnings per share.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed by the Company during the
quarter ended September 30, 1997.
- 24 -
<PAGE> 25
BOCA RESEARCH, INC.
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 of the
undersigned thereunto duly authorized.
Dated: November 13, 1997 /s/ Anthony F. Zalenski
---------------------------------------
Anthony F. Zalenski
President and Chief Executive Officer
(Principal Executive Officer)
Dated: November 13, 1997 /s/ R. Michael Brewer
---------------------------------------
R. Michael Brewer
Vice President - Finance and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
- 25 -
<PAGE> 26
BOCA RESEARCH, INC.
INDEX TO EXHIBITS
Page
----
Exhibit 11 Calculation of shares used in determining earnings per share 27
- 26 -
<PAGE> 1
BOCA RESEARCH, INC.
EXHIBIT 11 - CALCULATION OF SHARES USED IN
DETERMINING EARNINGS PER SHARE
(Unaudited)
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1997
------------------ ------------------
<S> <C> <C>
Shares outstanding at January 1, 1997 .......... 8,678,883 8,678,883
Shares issued January 1, 1997 in connection with
the 1992 Employee Stock Purchase Plan ........ 12,178 12,178
Shares issued in connection with a
non-qualified stock option plan .............. 22,167 20,747
Shares issued July 1, 1997 in connection with
the 1992 Employee Stock Purchase Plan ........ 11,851 3,950
--------- ---------
Weighted average shares outstanding ............ 8,725,079 8,715,758
--------- ---------
</TABLE>
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1996 SEPTEMBER 30 1996
------------------ -----------------
<S> <C> <C>
Shares outstanding at January 1, 1996 ....... 8,522,759 8,522,759
Shares issued January 1, 1996 in
connection with the 1992 Employee
Stock Purchase Plan ....................... 9,502 9,502
Shares issued in connection with a
non-qualified stock option plan ........... 2,778 55,335
Shares issued July 1, 1996 in connection with
the 1992 Employee Stock Purchase Plan ..... 11,243 3,748
Weighted average of optioned shares
using the treasury stock method ........... 245,303 373,958
--------- ---------
Weighted average primary shares
outstanding ............................... 8,791,585 8,965,302
========= =========
</TABLE>
- 27 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF OPERATIONS FILED AS
PART OF THE QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-Q.
</LEGEND>
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 10,332,000
<SECURITIES> 0
<RECEIVABLES> 20,355,000
<ALLOWANCES> 3,100,000
<INVENTORY> 14,285,000
<CURRENT-ASSETS> 49,654,000
<PP&E> 15,945,000
<DEPRECIATION> 10,108,000
<TOTAL-ASSETS> 56,183,000
<CURRENT-LIABILITIES> 8,204,000
<BONDS> 0
0
0
<COMMON> 87,000
<OTHER-SE> 47,892,000
<TOTAL-LIABILITY-AND-EQUITY> 56,183,000
<SALES> 18,549,000
<TOTAL-REVENUES> 18,549,000
<CGS> 17,138,000
<TOTAL-COSTS> 17,138,000
<OTHER-EXPENSES> 4,121,000
<LOSS-PROVISION> 89,000
<INTEREST-EXPENSE> 5,000
<INCOME-PRETAX> (2,469,000)
<INCOME-TAX> (864,000)
<INCOME-CONTINUING> (1,605,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,605,000)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> (.18)
</TABLE>
