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 June 30, 1999
Commission File Number 0-21138
BOCA RESEARCH, INC.
(Exact name of registrant as specified in its charter)
Florida 59-2479377
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
1377 Clint Moore Road
Boca Raton, Florida
(Address of principal 33487
executive offices) (Zip Code)
(561) 997-6227
(Registrant's telephone number, including area code:)
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 August 12, 1999
----- ------------
Common stock, par value 10,743,675
$.01 per share
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<PAGE>
BOCA RESEARCH, INC.
Form 10-Q For The Quarter Ended June 30, 1999
INDEX
Page
----
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
(unaudited) as of June 30, 1999 and
December 31, 1998.............................. 3
Condensed Consolidated Statements of
Operations (unaudited) for the three and six
months ended June 30, 1999 and 1998 ........... 4
Condensed Consolidated Statements of
Cash Flows (unaudited) for the six
months ended June 30, 1999 and 1998............ 5
Notes to Condensed Consolidated
Financial Statements (unaudited)............... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................................ 10
Part II. OTHER INFORMATION
Items 1-3.Not applicable.................................... 23
Item 4. Submission of Matters to a Vote of
Security Holders.................................. 23
Item 5. Other Information................................. 23
Item 6. Exhibits and Reports on Form 8-K.................. 23
Signatures.................................................. 24
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<PAGE>
PART I. Item 1.
BOCA RESEARCH, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
<TABLE>
<CAPTION>
(Unaudited)
June 30, December 31,
1999 1998
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 10,787 $ 6,959
Trade receivables, net................................... 6,986 11,549
Inventory, net........................................... 6,982 9,246
Prepaid expenses and other current assets................ 911 637
Prepaid and deferred income taxes........................ -- 2,051
-------- --------
Total current assets.................................. 25,666 30,442
Property and equipment, net................................. 3,325 3,874
Goodwill and other intangible assets........................ 4,087 4,804
Other assets................................................ 670 622
-------- --------
Total assets........................................ $ 33,748 $ 39,742
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................... $ 3,928 $ 6,804
Notes payable............................................ -- 2,800
Deferred revenue......................................... 511 --
Accrued expenses and other current liabilities........... 3,752 4,037
-------- --------
Total current liabilities............................. 8,191 13,641
-------- --------
Deferred revenue............................................ 67 --
-------- --------
Stockholders' equity:
Common stock, 25,000,000 $.01 par value shares
authorized, 10,578,110 issued and outstanding
at June 30, 1999, 8,756,487 issued and
outstanding at December 31, 1998........................ 106 87
Additional paid-in capital............................... 34,056 26,045
Accumulated deficit...................................... (8,672) (31)
-------- --------
Total stockholders' equity............................ 25,490 26,101
-------- --------
Total liabilities and stockholders' equity......... $ 33,748 $ 39,742
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
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BOCA RESEARCH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands except per share data)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
-------------------- --------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales........................................ $ 8,747 $ 13,210 $ 19,448 $ 28,826
Cost of goods sold............................... 8,305 16,239 16,908 32,006
----- ------ ------ ------
Gross profit (loss)........................... 442 (3,029) 2,540 (3,180)
----- ------ ----- ------
Operating expenses:
Research and development....................... 891 656 1,974 1,233
Selling, general and administrative............ 4,342 2,943 9,304 5,923
In-process research and development............ ----- 2,800 ----- 2,800
----- ----- ----- -----
Total operating expenses....................... 5,233 6,399 11,278 9,956
----- ----- ------ -----
Loss from operations............................. (4,791) (9,428) (8,738) (13,136)
Non-operating income/(expense), net.............. (38) 168 103 372
----- ----- ----- ------
Loss before income taxes ........................ (4,829) (9,260) (8,635) (12,764)
Income taxes .................................... 6 ----- 6 ------
----- ----- ----- ------
Net loss......................................... $ (4,835) $ (9,260) $ (8,641) $ (12,764)
-------- -------- -------- ---------
Net loss per share (Basic and Diluted)........... $( 0.51) $( 1.06) $ (0.95) $ (1.46)
-------- -------- -------- ---------
Weighted average
shares outstanding............................. 9,449 8,742 9,115 8,742
===== ===== ===== =====
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
BOCA RESEARCH, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands except per share data)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
--------------
1999 1998
---- ----
<S> <C> <C>
Cash provided by (used in):
Operating activities:
Net loss................................................ $ (8,641) $ (12,764)
Adjustments for non-cash charges........................ 1,502 4,369
Changes in assets and liabilities....................... 6,037 16,350
--------- ----------
Net cash provided by (used in) operating
activities............................................ (1,102) 7,955
---------- ----------
Investing activities:
Cash paid for acquisition............................... (2,800) (4,580)
Capital expenditures.................................... (299) (140)
---------- -----------
Net cash used in investing activities.................. (3,099) (4,720)
Financing activities - Issuance of common stock ........... 8,029 74
--------- ----------
Net increase in cash and cash equivalents.................. 3,828 3,309
Cash and cash equivalents, beginning of period............. 6,959 8,205
--------- ----------
Cash and cash equivalents, end of period................... $ 10,787 $ 11,514
========= ==========
</TABLE>
See notes to condensed consolidated financial statements.
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<PAGE>
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 June 30, 1999, and the results of its operations and its cash
flows for the three and six month periods ended June 30, 1999 and 1998. 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 1998 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, 1998. The results of operations for the
three and six month periods ended June 30, 1999 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
Net cash refunds of income taxes were $2,045,229 and $7,106,438 in the
six month periods ended June 30, 1999 and 1998, respectively. Interest expense
of $184,937 was paid in the first six months of 1999.
Comprehensive Income (Loss)
Comprehensive income includes all changes in equity during a period
except those resulting from investment by owners and distributions to owners.
The Company's comprehensive income (loss) equals its net loss for the three and
six months ended June 30, 1999 and 1998, and net loss is the only component of
comprehensive income (loss) for such periods.
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<PAGE>
BOCA RESEARCH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (con't)
(Unaudited)
Current Assets
Trade receivables are included in the condensed consolidated balance
sheets net of allowances and consist of the following (in thousands):
June 30, December 31,
1999 1998
-------- ------------
Trade receivables............................... $10,899 $16,241
Allowance for sales returns, allowances and
price protection............................... (1,869) (2,161)
Allowance for doubtful accounts................. (2,044) (2,531)
------- -------
$ 6,986 $11,549
======= =======
Included in the accounts receivable balance is $58,364 in receivables
from PowerTel Boca Pvt., Ltd. ("PowerTel") a joint venture in India in which the
Company has a 20% ownership interest. Sales to this related party in the first
six months of 1999 and 1998 were approximately $67,676 and $192,832,
respectively. The Company has agreed to payment terms of 180 days for PowerTel.
During the first quarter of 1999, the Company charged off an accounts
receivable balance of approximately $406,000 from LocalNet Communications, Inc.
In addition, the Company wrote off its investment of $150,000 in LocalNet
Communications, Inc.
Inventories included in the condensed consolidated balance sheets
consist of the following (in thousands):
June 30, December 31,
1999 1998
-------- ------------
Raw materials............................... $ 5,596 $ 8,024
Work in process............................. 1,678 3,133
Finished goods.............................. 2,508 1,339
Inventory reserves.......................... (2,800) (3,250)
------- -------
$ 6,982 $ 9,246
======= =======
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<PAGE>
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 $12,910,427 at June 30, 1999 and
$13,161,200 at December 31, 1998.
Deferred Revenue
There are two components comprising deferred revenue as of June 30,
1999. Each component is described below.
Revenue related to the providing of engineering services is recognized
as the work is performed, using the percentage of completion method. During the
first six months of 1999, revenue of approximately $363,201 was recognized with
respect to such engineering services and has been included in net sales. Related
costs including labor and direct expenses have been included in the cost of
goods sold.
During the first quarter of 1999, the Company entered into an agreement
that provides e.TV Commerce, Inc., a wholly owned subsidiary of Compu-DAWN, with
an exclusive arrangement, subject to certain exceptions, to market Boca
Research's advanced network capable TV set-top box. Boca Research has agreed not
to manufacture the TV set-top box for any other multi-level marketing company
which resells local and/or long distance telephone services or Internet access
services, subject to, among other things, minimum purchase requirements over a
two year period. At this time, it appears likely that the agreed upon minimum
purchase requirements will not be met. Related to this agreement, Boca Research
has been issued 117,398 unregistered shares of Compu-DAWN's common stock.
Compu-DAWN retains a call on all shares issued at prices ranging from $5.00 to
$5.75. The appraised value of the shares received by the Company is $200,000 and
this amount is being recognized as revenue on a straight-line basis over 24
months.
Line of Credit
The Company entered into a two-year secured revolving line of credit
agreement on November 9, 1998, which permits borrowings of the lesser of
$5,000,000 or 60% of qualified accounts receivable and 20% of eligible
inventory. The interest rate during the first year of the agreement is 1% in
excess of the prime rate. The loan agreement requires the Company to maintain
certain financial ratios, limits the incurrence of additional debt, and
prohibits payment of dividends without the lender's consent. No borrowings were
outstanding as of June 30, 1999 and December 31, 1998.
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<PAGE>
BOCA RESEARCH, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (con't)
(Unaudited)
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 cannot predict the outcome of any such claim which may
arise in the future, or the effect of any such claim on the Company's operating
results or financial condition.
Stockholders' Equity
During the six month period ended June 30, 1999, 73,658 shares were
issued in connection with the exercise of options granted under the Company's
stock purchase and option plans. The aggregate proceeds received from these
exercises were $ 192,045.
On May 28, 1999, Infomatec Integrated Information Systems AG
("Infomatec"), an Internet software company located in Augsburg, Germany
purchased 1,747,965 newly issued shares, or approximately 19.9% of the Company's
then outstanding common stock, at a purchase price of $4.58 per share. Net
proceeds from the issuance were approximately $7,782,000. Under the Stock
Purchase Agreement, Infomatec, agreed to grant stock options to members of the
Company's existing management to purchase from Infomatec 270,000 shares of the
Company's common stock at an option strike price of $4.58 per share. The grant
of options by Infomatec is subject to approval by the Company's shareholders
pursuant to terms of the Stock Purchase Agreement.
Stock Option Plan
During the six month period ended June 30, 1999, the Company granted
options to purchase 85,000 shares at prices ranging from $ 3.22 to $ 7.44 to
both new and existing employees and 121,296 stock options were canceled.
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<PAGE>
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 six month periods ended June 30, 1999 and 1998, 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 Six Months
Ended June 30, Ended June 30,
-------------- Percent -------------- Percent
1999 1998 Change 1999 1998 Change
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Net sales................................... 100.0% 100.0% (33.8)% 100.0% 100.0% (32.5)%
Cost of goods sold.......................... 95.0 122.9 (48.9) 86.9 111.0 (47.2)
----- ----- ----- -----
Gross profit (loss).................. 5.0 (22.9) * 13.1 (11.0) *
----- ----- ----- -----
Operating expenses:
Research and development.................. 10.2 5.0 35.8 10.2 4.3 60.1
Selling, general and administrative....... 49.6 22.3 47.5 47.8 20.6 57.1
In-process research & development......... 0.0 21.2 (100.0) 0.0 9.7 (100.0)
----- ----- ----- -----
Total operating expenses............ 59.8 48.5 (18.2) 58.0 34.6 13.3
----- ----- ----- -----
Loss from operations........................ (54.8) (71.4) (49.2) (44.9) (45.6) (33.5)
Non-operating income (expense), net......... (0.4) 1.3 * 0.5 1.3 (72.3)
----- ----- ----- -----
Loss before income taxes .................. (55.2) (70.1) (47.9) (44.4) (44.3) (32.3)
Income taxes ............................... .1 0.0 * 0.0 0.0 *
----- ----- ----- -----
Net loss.................................... (55.3)% (70.1)% (47.8)% (44.4)% (44.3)% (32.3)%
===== ===== ===== =====
</TABLE>
* Not meaningful
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<PAGE>
RESULTS OF OPERATIONS
Net Sales. The Company's net sales decreased by 33.8% to $8,747,000 in
the three months ended June 30, 1999 from $13,210,000 in the three months ended
June 30, 1998. For the six months ended June 30, 1999, net sales decreased by
32.5% to $19,448,000 from $28,826,000 for the comparable period in 1998. The
sales decrease in the three and six month periods ended June 30, 1999 over the
comparable period in 1998 is shown below by product category. Included in the
data communications product category below is net sales of $4,083,000 and
$3,438,000 of Global Village branded product during the first and second
quarters of 1999, respectively. Net sales of Global Village branded product
during the period from June 18 to June 30, 1998 were $1,434,000. The Company
acquired the modem business of Global Village Communication, Inc. as of June 18,
1998. The addition of the Global Village brand extended Boca Research's customer
base in the Macintosh(R) market with the #1-selling modems for Macs(R). Net
sales by product category were as follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
1999 1998 1999 1998
---- ---- ---- ----
(In Millions) (In Millions)
------------- -------------
<S> <C> <C> <C> <C>
Data Communications........................................... $ 6.9 $ 6.7 $ 15.3 $ 14.8
Custom Manufacturing.......................................... -- 4.1 0.5 8.9
Networking.................................................... 0.3 0.3 0.4 .8
Video Graphics................................................ -- 0.2 -- .5
I/O, IDE, & Multiport........................................ 1.0 1.2 1.9 2.5
Video Conferencing............................................ -- 0.1 0.3 .2
Internet Access Device........................................ 0.2 0.6 0.6 1.1
Engineering Services.......................................... 0.3 -- 0.4 --
----- ------ ------ ------
$ 8.7 $ 13.2 $ 19.4 $ 28.8
===== ====== ====== ======
</TABLE>
Excluding the net sales associated with the modem business of Global
Village, the sales decrease was primarily attributable to decreases in sales of
data communications products and custom manufacturing. Sales of data
communication products were adversely affected by several factors, including
pricing pressure on all modem products, excess industry-wide channel
inventories, and the slow adoption of 56 Kbps technology by consumers who
realize that the 56 Kbps product does not significantly increase Internet
downloading speed capability over the 33.6 Kbps product.
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<PAGE>
With respect to the Global Village branded product, net sales decreased to
$3,438,000 in the second quarter of 1999 as compared to net sales of $4,083,000
in the first quarter of 1999 and $8,737,000 in the fourth quarter of 1998.
During January 1999, Apple Computer, Inc. ("Apple") introduced its new line of
Power Macintosh G3 computers, which negatively impacted sales of the Company's
existing Global Village modems. In fact, because of the introduction of the
Universal Serial Bus interface, no modems were available for the Power Macintosh
G3 computers until Boca Research began shipping the Global Village TelePort
Internal 56K fax/modem in the second half of February. From April 2 through June
27, 1999, Apple offered purchasers of a qualifying Power Macintosh G3 computer
the option of choosing either a 56K internal modem or an internal Zip drive at
no additional cost. The Company believes that the Apple promotion had a negative
impact on sales of Global Village branded modems during the second quarter of
1999. The Apple promotion has resulted in pricing and inventory issues in the
Global Village modem business, which are expected to continue to negatively
impact operations in the third quarter of 1999.
In 1998, the Company continued to provide custom manufacturing to increase
the utilization of its manufacturing facilities. Because the gross margin for
custom manufacturing has historically been low, the Company plans to decrease
its emphasis on this area. Sales in this category in 1998 represented 18% of net
sales. For the six months ended June 30, 1999 sales in this category represented
3% of net sales.
International sales were approximately $1.3 million for the three months
ended June 30, 1999 compared to $2.0 million for the three months ended June 30,
1998. For the six months ended June 30,1999 international sales were
approximately $2.6 million compared to $4.8 million for the six months ended
June 30, 1998, due to the foregoing factors.
Gross Profit (Loss). Gross profit (loss) was $442,000 for the three months
ended June 30, 1999 as compared to ($3,029,000) for the three months ended June
30, 1998 and increased as a percentage of net sales to 5.0% in the three months
ended June 30, 1999 from the (22.9%) in the three months ended June 30, 1998.
For the six months ended June 30, 1999 gross profit (loss) increased to
$2,540,000 from ($3,180,000) in the six months ended June 30, 1998. Gross profit
(loss) as a percentage of net sales increased to 13.1% for the six months ended
June 30, 1999 from (11.0%) for the six months ended June 30, 1998. The gross
profit (loss) percentage is being affected by low utilization of the Company's
manufacturing facilities and aggressive channel pricing to reduce channel
inventories. In the three and six month periods ended June 30, 1999 the
Company's gross profit was impacted favorably by net sales of $4,083,000 and
$3,438,000, respectively, of Global Village branded products, which have higher
gross margins associated with them as compared to sales of Boca Research branded
products.
The gross profit margins for the Company's products depend on a number of
factors, such as the degree of competition in the market for such products, the
product and channel mix (wholesale distributors and retailers versus OEMs),
component costs and manufacturing efficiencies and capacity utilization. In
addition, gross profit margins on product categories differ. In particular,
custom manufacturing is typically a low profit margin business. Accordingly, the
Company's gross profit has varied substantially from quarter to quarter in the
past, and can be expected to continue to do so in the future. There will be
circumstances, which management currently anticipates will occur in the third
quarter, in which the Company accepts lower margin sales for purposes such as to
reduce inventories, and to utilize manufacturing capacity.
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<PAGE>
Research and Development Expenses. Research and development expenses
increased to $891,000 in the three months ended June 30, 1999 from $656,000 in
the three months ended June 30, 1998. This represents an increase in research
and development expenses as a percentage of net sales to 10.2% for the three
months ended June 30, 1999 from 5.0% for the three months ended June 30, 1998.
Research and development expenses increased to $1,974,000 for the six months
ended June 30, 1999 from $1,233,000 in the six months ended June 30, 1998. This
represents an increase in research and development expenses as a percentage of
net sales to 10.2% for the six months ended June 30, 1999 from 4.3% for the six
months ended June 30, 1998. Research and development expenses increased in the
three and six months ended June 30, 1999 versus the comparable periods in 1998
primarily as the result of the acquisition of the modem business of Global
Village. In addition, the Company is placing more emphasis on research and
development and currently anticipates that research and development expenses in
1999 may be greater than such expenses in 1998.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $4,342,000 in the three months ended June
30, 1999 from $2,943,000 in the three months ended June 30, 1998. Selling,
general and administrative expenses as a percentage of net sales increased to
49.6% in the three months ended June 30, 1999 from 22.3% in the three months
ended June 30, 1998. Selling, general and administrative expenses increased to
$9,304,000 in the six months ended June 30, 1999 from $5,923,000 in the six
months ended June 30, 1998. Selling, general and administrative expenses as a
percentage of net sales increased to 47.8% in the six months ended June 30, 1999
from 20.6% in the six months ended June 30, 1998. Selling, general and
administrative expenses increased in the three and six months ended June 30,
1999 versus the comparable periods in 1998 primarily as the result of the
acquisition of the modem business of Global Village. The Company's expenses for
the three months ended June 30, 1999 compared to the three months ended June 30,
1998 were $455,000 higher for marketing development funds, $300,000 higher for
technical support, $180,000 higher for trade shows, and $115,000 higher for
rent. The Company's expenses for the six months ended June 30, 1999 compared to
the six months ended June 30, 1998 were $1,220,000 higher for advertising and
marketing development funds, $750,000 higher for technical support, $280,000
higher for amortization of goodwill, and $150,000 higher for the write-off of
the Company's investment in LocalNet Communications, Inc.
Selling, general and administrative expenses as a percentage of net sales
will continue to fluctuate and will be influenced by the level of sales to the
various distribution channels, and the particular sales and marketing
requirements of each of the channels. Certain selling, general and
administrative expenses have a fixed nature, thus a reduction in net sales may
result in an increase in selling, general and administrative expenses as a
percentage of net sales.
In-Process Research and Development Expenses. On June 18, 1998, the Company
completed its acquisition of the modem business of Global Village in exchange
for $9,855,206 in cash and notes. The Company purchased certain of Global
Village's assets, technology, operations and assumed certain of its liabilities.
This transaction was accounted for using the purchase method of accounting with
the purchase price being partially allocated to purchased technologies and
intangible assets. The value of purchased technology that had not yet reached
technological feasibility and had no alternative future use and, as such, was
recorded as a non-recurring charge for in-process research and development,
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<PAGE>
represented $2,800,000 of the total purchase price. The value attributed to the
in-process research and development was determined by an independent appraisal.
LIQUIDITY AND CAPITAL RESOURCES
In the six months ended June 30, 1999, the Company's working capital
increased by $674,000 from December 31, 1998. This increase was represented by
an increase in cash of $3,828,000, decreases in inventories of $2,264,000, trade
receivables of $4,563,000 and other current assets of $1,777,000; offset by a
decrease in current liabilities of $5,450,000. The Company's operations used
cash of $1,102,000 for the six months ended June 30, 1999. The Company does not
anticipate that it will be profitable in the third quarter of 1999 and this
would negatively impact the generation of cash from operations for the third
quarter of 1999. During the second quarter of 1999, the Company had positive net
cash flows of approximately $2.0 million from refunded federal income taxes and
approximately $7.8 million net proceeds for issuance of 1,747,965 shares of its
common stock to Infomatec Integrated Information Systems AG.
The Company entered into a two-year secured revolving line of credit
agreement on November 9, 1998, which permits borrowings of the lesser of
$5,000,000 or 60% of qualified accounts receivable and 20% of eligible
inventory. The interest rate during the first year of the agreement is 1% in
excess of the prime rate. The loan agreement requires the Company to maintain
certain financial ratios, limits the incurrence of additional debt, and
prohibits payment of dividends without the lender's consent. No borrowings were
outstanding as of June 30, 1999 and December 31, 1998.
On June 1, 1999, Infomatec Integrated Information Systems AG ("Infomatec"),
an Internet software company located in Augsburg, Germany purchased 1,747,965
newly issued shares, or approximately 19.9% of the Company's then outstanding
common stock, at a purchase price of $4.58 per share. Net proceeds from the
issuance were approximately $7,782,000. Under the Stock Purchase Agreement,
Infomatec, agreed to grant stock options to members of the Company's existing
management to purchase from Infomatec 270,000 shares of the Company's common
stock at an option strike price of $4.58 per share. The grant of options by
Infomatec is subject to approval by the Company's shareholders pursuant to terms
of the Stock Purchase Agreement.
The Company regularly evaluates acquisitions of businesses, technologies or
products complementary to the Company's business. In the event that the Company
effects one or more acquisitions, the Company's cash balances may be utilized to
finance such acquisitions and additional sources of liquidity such as debt or
equity financing may be required for such acquisitions or to meet working
capital needs. There can be no assurance that additional capital beyond the
amounts forecasted by the Company will not be required nor that any such
required capital will be available on terms acceptable to the Company, if at
all, at such time or times as required by the Company.
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<PAGE>
YEAR 2000 MATTERS
The "Year 2000 Problem" refers to the fact that many currently installed
computer systems and software products are coded to accept only two-digit
entries in the date code field and are unable to distinguish 21st Century dates
from 20th Century dates. These date code fields are required to distinguish 21st
Century dates from 20th Century dates and, as a result, many companies' software
and computer systems may need to be upgraded or replaced in order to comply with
such "Year 2000" requirements. The ability of a complete system or device in
which a Product is embedded, to operate correctly for an end-user depends in
part on the year 2000 compliance of the system's other components, most of which
are supplied by parties other than the Company, over which the Company has no
control.
State of Readiness. The Company's Year 2000 Readiness Plan addresses year
2000 issues relating to the products made by the Company and the Company's
internal and external IT and non-IT operating systems, including the Company's
Manufacturing Resource Planning(MRP)/Accounting system and manufacturing
equipment. The Company's Year 2000 Readiness Team is responsible for
implementing and executing the Plan which has been developed to provide a
centralized control and monitoring system for the strategic planning, date
critical scheduling and execution of the Company's year 2000 readiness efforts.
The Plan has been structured into the following Phases: Awareness, Inventory,
Assessment, Remediation, Testing/Validation, Cost Analysis,
Dissemination/Implementation and Contingency Planning.
Each Phase addresses the products made by the Company and the Company's
own operating systems and the systems of its material customers, vendors,
suppliers and third party providers as well as the products, components and
services which they provide to the Company. Plan status: Phase I - Awareness,
100% complete, Phase II - Inventory, 100% complete, Phase III - Assessment of
products, 100% complete; Assessment of operating systems approximately 90%
complete, Phase IV -Remediation of products, 100% complete; Remediation of
operating systems and Testing/Validation, Dissemination/Implementation and
Contingency Planning have reached varying levels of completion.
The Company has completed its evaluation of its payroll, MRP/Accounting
systems and its SMT manufacturing equipment. The software supplier for the
Company's automated payroll system has informed the Company that the software
application is Y2K compliant and has provided the Company with a copy of their
year 2000 testing results. New information has been received indicating that the
Company's MRP/Accounting system is not fully Y2K compliant. As a result of this
information, the upgrade for the MRP/Accounting system which the Company had
already purchased to meet other business needs and which was planned for
implementation during the last quarter of the year, has been advanced in
scheduling for implementation during the third quarter of the year. The
accelerated implementation will not financially impact the Company. The Company
has remediated its SMT manufacturing equipment which is now undergoing
post-remediation testing/validation. There can be no assurance that the failure
of the Company to upgrade its MRP/Accounting system, prior to the year 2000,
will not have a material adverse effect on the Company's business, results of
operations and financial condition.
-15-
<PAGE>
In relation to the Company's other operating systems, the Company may
rely, both domestically and internationally, upon various vendors, governmental
agencies, utility companies, telecommunications service companies, delivery
service companies and other service providers who are outside of the Company's
control. The Company is in the process of reviewing the responses they have
received, to date, to the questionnaires which were circulated to vendors, third
party providers and customers with whom the Company has material relationships
to obtain information relating to the year 2000 compliance of their
products/services and operating systems. The Company has received a significant
number of responses from these business partners, however, until the Company
receives the remaining responses to these questionnaires, it will not be able to
effectively evaluate the total remediation efforts which will be required with
respect to its IT operating systems or non-IT operating systems. There is no
assurance that such business partners will not suffer a year 2000 business
disruption, which could have a material adverse effect on the Company's
financial condition and results of operations.
The Company has completed the Inventory, Assessment, Remediation,
Testing/Validation and Dissemination phases for products sold since 1995 and
introduced on an on-going basis since that time. The majority of Company
products are covered under five-year warranties, therefore, 1995 was selected to
cover the warranty period. Products identified, to date, as having operational
issues associated with year 2000 compliance have been remediated through
software application upgrades, software patches or software replacement. The
Company's Web page has been utilized to disseminate the remediation information
and to provide the downloads for the software upgrades and patches. The Company
will continue to evaluate its products as we prepare to move into the new
millennium. In the event other product performance issues associated with the
year 2000 are identified, an appropriate remediation plan will be implemented.
Due to the evolving process of identifying product issues as those issues become
known and any resulting requirements for remediation, we are unable, at this
time, to determine the full financial impact on the Company for the remediation
of its products. There can be no assurance that year 2000 product performance
issues will not have a material adverse effect on the Company's financial
condition and results of operations.
Costs. To date, the Company has identified approximately $205,000, of which
$1,000 has been expended, in necessary costs to bring its operating systems into
year 2000 compliance. Reflected within these expenditures is the cost for the
accelerated installation, to afford a solution to year 2000 capability issues,
of new software and hardware which had, in the normal course of business, been
scheduled for implementation at a later date. Year 2000 Project administration
and overhead costs are expected to total approximately $105,000, of which
$48,000 has been expended to date. The Company has also expended $75,000 on
software development and testing for product remediation. In most cases, where
remediation is achieved by software replacement, more than one option is
available to the customer. Therefore, it is difficult, at this time, to
determine the replacement costs which the Company will incur, however, it is
estimated that the cost will not exceed $50,000. At this time the Company does
not possess all the information necessary to estimate the full potential
financial impact of year 2000 compliance issues relating to its products, its
IT-Systems, non-IT Systems, its vendors, its customers, and other parties. There
can be no assurance that year 2000 performance issues, of products or operating
systems, including the effect of a year 2000 business disruption, will not have
a material adverse effect on the Company's financial condition and results of
operations.
-16-
<PAGE>
Contingency Plan. The Company has targeted the end of the third quarter as
the completion date for developing year 2000-specific contingency plans for
operating systems which have been designated as "Mission Critical". In addition,
if further year 2000 compliance issues are discovered, the Company then will
evaluate the need for one or more contingency plans relating to such issues.
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 any 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
introduction of competing technologies for the 56 Kbps modem and the marketing
activities to promote the advantages of such technology heightened the
competitive pressures in the industry. Each increase in speed in modem
technology has had transition issues; however, the Company believes that the
transition to 56 Kbps technology is resulting in more extensive upgrade policies
which has resulted in lower gross margins. Moreover, price decreases have
occurred earlier in the 56 Kbps product cycle than occurred with 14.4 Kbps and
28.8 Kbps products.
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 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 the majority 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
-17-
<PAGE>
the system board of the PC or to utilize chipsets which incorporate additional
functionality, thereby decreasing the market for PC enhancement products.
Moreover, it is a concern in the PC industry that the penetration of PCs into
the home has flattened and that PC growth will slow as PCs become more of a
replacement market. This could impact modem sales to the Company's OEM customers
in the future. 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.
Technological Change and Development of Thin Client Products Market. The
market for thin client products is characterized by rapidly developing
technology, evolving industry standards and customer demands, and frequent
product introductions. These market characteristics are exacerbated by the
emerging nature of this market and the fact that many companies are expected to
introduce thin client products into the market. A key element of the Company's
business strategy is to introduce products that capitalize on the growth in the
thin client products market. The Company's success in exploiting the growth in
this market will depend in significant part upon the ability of the Company to
continually improve the performance and features of its thin client products.
There can be no assurance that the Company will be successful in developing or
marketing products that will meet with market acceptance. Failure by the Company
to successfully market thin client products could result in a material adverse
effect on the Company's business, results of operations and financial condition.
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 the level of demand for the Company's
products, 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 adversely impact operating results. There can be no assurance that the
Company will be able to return to its growth in sales or profitability on a
quarterly or annual basis. 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.
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
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<PAGE>
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 strength of the U.S. dollar had a negative impact for 1998 which is
expected to continue in 1999. 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 in the past 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.
-19-
<PAGE>
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 49% of net sales in 1998
and 29% of net sales for the six months ended June 30, 1999. 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 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 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. A decline in sales to large customers or a
delay or default in payment by one or more of such 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 32% of the Company's net sales in 1998 and 32% of net sales for
the six months ended June 30, 1999. 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.
During the third quarter of 1998, the Company improved the distribution of
Boca Research branded products by leveraging the strong retail position of its
Global Village line of modems. Direct sales to the retail channel were 7% of net
sales in 1998 and 15% of net sales for the six months ended June 30, 1999.
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 enters into new product markets, such as Internet TV
appliances and thin client devices, the Company anticipates that it will
encounter competition from a number of well-established companies, many of which
have greater financial, technical, product development, manufacturing or
marketing resources and experience.
-20-
<PAGE>
Proprietary Rights; Dependence on Software Licenses. 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.
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.
Dependence on Custom Manufacturing Sales. Custom manufacturing sales
accounted for approximately 18% and 3% of the Company's net sales for the year
ended December 31, 1998 and the six months ended June 30, 1999, respectively.
The contract manufacturing industry is intensely competitive and the level and
timing of orders placed by the Company's contract manufacturing customers is
highly variable. As a result, there can be no assurance that the Company will
continue to successfully provide custom manufacturing services. The inability of
the Company to successfully maintain its custom manufacturing services could
adversely affect the Company's business, results of operations or financial
condition.
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 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
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<PAGE>
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.
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<PAGE>
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 June 30, 1999.
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
On May 5, 1999, the Company filed a Current
Report on Form 8-K to report that the Company
had entered into a definitive agreement with
respect to the purchase of 1,747,965 newly
issued shares by Infomatec Integrated
Information Systems AG, at a purchase price of
$4.58 per share, for an aggregate purchase
price of approximately $8.0 million in cash.
-23-
<PAGE>
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: August 16, 1999 /s/ Anthony F. Zalenski
-----------------------
Anthony F. Zalenski
President and Chief Executive Officer
(Principal Executive Officer)
Dated: August 16, 1999 /s/ Robert P. Heinlein
----------------------
Robert P. Heinlein
Vice President of Finance
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
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<PAGE>
BOCA RESEARCH, INC.
INDEX TO EXHIBITS
Page
----
Exhibit 11 Calculation of shares used in determining earnings per share 26
-25-
<PAGE>
BOCA RESEARCH, INC.
EXHIBIT 11 - CALCULATION OF SHARES USED IN
DETERMINING NET INCOME PER SHARE
(Unaudited)
June 30, 1999
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1999 June 30, 1999
------------- -------------
<S> <C> <C>
Shares outstanding at January 1, 1999......................... 8,756,487 8,756,487
Shares issued January 1, 1999 in
connection with the 1992 Employee
Stock Purchase Plan......................................... 20,643 20,643
Shares issued in connection with a
non-qualified stock option plan............................. 18,443 9,805
Shares issued May 28, 1999 to
Infomatec Integrated Information
Systems AG.................................................. 653,086 328,347
--------- ---------
Weighted average shares
outstanding................................................. 9,448,659 9,115,282
========= =========
June 30, 1998
Three Months Ended Six Months Ended
June 30, 1998 June 30, 1998
------------- -------------
Shares outstanding at January 1, 1998......................... 8,725,079 8,725,079
Shares issued January 1, 1998 in
connection with the 1992 Employee
Stock Purchase Plan......................................... 16,578 16,578
--------- ---------
Weighted average shares
outstanding................................................. 8,741,657 8,741,657
========= =========
</TABLE>
-26-
<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-31-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 10,787,000
<SECURITIES> 0
<RECEIVABLES> 10,899,000
<ALLOWANCES> 3,913,000
<INVENTORY> 6,982,000
<CURRENT-ASSETS> 25,666,000
<PP&E> 16,235,000
<DEPRECIATION> 12,910,000
<TOTAL-ASSETS> 33,748,000
<CURRENT-LIABILITIES> 8,191,000
<BONDS> 0
0
0
<COMMON> 106,000
<OTHER-SE> 25,384,000
<TOTAL-LIABILITY-AND-EQUITY> 33,748,000
<SALES> 8,747,000
<TOTAL-REVENUES> 8,747,000
<CGS> 8,305,000
<TOTAL-COSTS> 8,305,000
<OTHER-EXPENSES> 5,233,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 200,000
<INCOME-PRETAX> (4,829,000)
<INCOME-TAX> 6,000
<INCOME-CONTINUING> (4,835,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,835,000)
<EPS-BASIC> (0.51)
<EPS-DILUTED> (0.51)
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