SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
|_| Transition report pursuant to section 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-21600
ECCS, INC.
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(Exact Name of Registrant as Specified in Its Charter)
New Jersey 22-2288911
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
One Sheila Drive, Tinton Falls, New Jersey 07724
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(Address of Principal Executive Offices) (Zip Code)
(732) 747-6995
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(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:
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Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of June 30, 1999:
Class Number of Shares
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Common Stock, $0.01 par value 11,055,197
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ECCS, INC.
TABLE OF CONTENTS
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Page
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PART I. FINANCIAL INFORMATION ............................................. 1
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Item 1. Financial Statements........................................ 1
Consolidated Balance Sheets as of June 30, 1999 (unaudited)
and December 31, 1998............................................. 2
Consolidated Statements of Operations for the three months
ended June 30, 1999 and June 30, 1998 and for the six months
ended June 30, 1999 and June 30, 1998 (unaudited).................. 3
Consolidated Statements of Cash Flows for the
six months ended June 30, 1999 and
June 30, 1998 (unaudited).......................................... 4
Notes to Consolidated Financial Statements (unaudited)............. 5
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations............10
Overview .........................................................10
Results of Operations..............................................11
Liquidity and Capital Resources....................................17
PART II. OTHER INFORMATION.................................................21
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Item 4. Submission of Matters to a Vote of Security Holders.........21
Item 5 Other Information...........................................21
Item 6. Exhibits and Reports on Form 8-K............................22
SIGNATURES.................................................................23
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
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ECCS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1998 1999
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(unaudited)
Assets
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................ $ 5,374 $ 5,494
Accounts receivable, less allowance for doubtful
accounts of $334 and $47 at December 31, 1998 and
June 30, 1999, respectively............................ 6,644 7,944
Inventories.............................................. 5,563 6,476
Prepaid expenses and other receivables................... 314 291
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17,895 20,205
Property, plant and equipment (net)........................ 1,916 1,718
Capitalized software (net)................................. 1,302 1,562
Other assets............................................... 261 324
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Total Assets..................................... $ 21,374 $ 23,809
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Liabilities and Shareholders' Equity
Current Liabilities:
Payable to Finova Capital................................ 1,231 2,861
Current portion of capital lease obligations............. 110 126
Accounts payable......................................... 2,800 3,003
Accrued expenses and other............................... 1,140 1,464
Warranty................................................. 523 637
Customer deposits, advances and other credits............ 122 12
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5,926 8,103
Capital lease obligations, net of current portions......... 135 95
Deferred rent.............................................. 81 49
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6,142 8,247
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Shareholders' Equity:
Preferred Stock, $0.01 par value per share, Authorized,
3,000,000 shares; Issued and outstanding, none at
December 31, 1998 and June 30, 1999, respectively....... -- --
Common stock, $0.01 par value per share, Authorized,
20,000,000 shares; Issued and outstanding, 11,027,084
shares and 11,055,197 shares at December 31, 1998 and
June 30, 1999, respectively............................. 110 111
Capital in excess of par value - common ................. 25,860 25,908
Accumulated Deficit...................................... (10,738) (10,457)
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15,232 15,562
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Total Liabilities and Shareholders' Equity........... $ 21,374 $ 23,809
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</TABLE>
See notes to consolidated financial statements.
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ECCS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
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1998 1999 1998 1999
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<S> <C> <C> <C> <C>
Net sales............................ $ 6,469 $ 8,909 $14,709 $18,342
Cost of sales........................ 4,502 5,709 10,312 12,203
------- ------- ------- -------
Gross profit....................... 1,967 3,200 4,397 6,139
Operating expenses:
Selling, general & administrative.. 2,053 2,550 3,900 5,048
Research & development............. 717 475 1,321 927
------- ------- ------- -------
Operating (loss) income.............. (803) 175 (824) 164
Net interest income................ (91) (33) (216) (117)
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Net (loss) income ................... $ (712) $ 208 $ (608) $ 281
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Preferred dividends................ - - - - - - - -
------- ------- ------- -------
Net (loss) income applicable to
common shares...................... $ (712) $ 208 $ (608) $ 281
======= ======= ======= =======
(Loss) earnings per common share:
Net (loss) income per common
share - basic...................... $ (0.07) $ 0.02 $ (0.06) $ 0.03
======= ======= ======= =======
(Loss) earnings per common share
assuming dilution:
Net (loss) income per common share -
diluted............................ $ (0.07) $ 0.01 $ (0.06) $ 0.02
======= ======= ======= =======
Weighted average number of common
and dilutive shares - basic........ 10,958 11,029 10,938 11,028
======= ======= ======= =======
Weighted average number of common
and dilutive shares - diluted...... 10,958 11,869 10,938 11,633
======= ======= ======= =======
</TABLE>
See notes to consolidated financial statements.
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ECCS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Six Months Ended June 30,
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1998 1999
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<S> <C> <C>
Cash flows from operating activities:
Net (loss) income................................................... $ (608) $ 281
Adjustments to reconcile net (loss) income to net cash (used in)
provided by operating activities:
Depreciation and amortization..................................... 533 669
Decrease (increase) in accounts receivable........................ 678 (1,300)
Decrease (increase) in inventories................................ 610 (913)
Decrease (increase) in prepaid expenses and other................. 111 (40)
Increase in payable to Finova Capital............................. -- 1,630
(Decrease) increase in accounts payable, accrued liab., deferred
rent and other................................................... (1,515) 609
Decrease in customer deposits, advances and other credits......... (120) (110)
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Net cash (used in) provided by operating activities................... (311) 826
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Cash flows from investing activities:
Additions to property, plant and equipment.......................... (978) (239)
Additions to capitalized software................................... (451) (492)
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Net cash used in investing activities................................. (1,429) (731)
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Cash flows from financing activities:
Borrowings under revolving credit agreement......................... 2,373 9,792
Repayments under revolving credit agreement......................... (3,404) (9,792)
Repayment of long term debt, capital lease obligations.............. (11) (24)
Net proceeds from exercise of employee stock options and issuance
of common stock.................................................... 178 49
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Net cash (used in) provided by financing activities................... (864) 25
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Net (decrease) increase in cash and cash equivalents.................. (2,604) 120
Cash and cash equivalents at beginning of period...................... 11,625 5,374
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Cash and cash equivalents at end of period............................ $ 9,021 $ 5,494
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest.......................................................... $ 48 $ 80
======== ========
</TABLE>
See notes to consolidated financial statements.
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ECCS, Inc.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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(Information for June 30, 1998 and June 30, 1999 is unaudited)
(Dollars in Thousands except Per Share Information)
NOTE 1 - BASIS OF PRESENTATION
The information presented for June 30, 1999, and for the three month and
six month periods then ended, is unaudited, but, in the opinion of the
management of ECCS, Inc. ("ECCS" or the "Company"), the accompanying unaudited
consolidated financial statements contain all adjustments (consisting only of
normal recurring adjustments) which the Company considers necessary for the fair
presentation of the Company's financial position as of June 30, 1999, the
results of its operations for the three and six-month periods ended June 30,
1998 and June 30, 1999, and its cash flows for the six-month periods ended June
30, 1998 and June 30, 1999. The consolidated financial statements included
herein have been prepared in accordance with generally accepted accounting
principles for interim financial information and the instructions to Form 10-Q
and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
These consolidated financial statements should be read in conjunction with the
Company's audited financial statements for the year ended December 31, 1998,
which were included as part of the Company's Annual Report on Form 10-K, as
filed with the Securities and Exchange Commission.
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant inter-company balances and transactions
have been eliminated.
Results for the interim period are not necessarily indicative of results
that may be expected for the entire year.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Business
ECCS provides intelligent solutions to store, protect and access mission
critical information for the Open Systems and related markets. The Company
designs, manufactures and sells high performance, fault tolerant data storage
solutions for a wide range of customer requirements.
ECCS sells to a broad range of customers in various industries (e.g. large
database companies, financial enterprises, retail enterprises, non-profits
organizations, Internet Service Providers, digital imaging users,
telecommunications companies and the US Government).
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ECCS, Inc.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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(Information for June 30, 1998 and June 30, 1999 is unaudited)
(Dollars in Thousands except Per Share Information)
(b) Cash and Cash Equivalents
The Company considers short-term investments with a maturity of three
months or less when purchased to be cash equivalents.
(c) Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
Inventories consist of the following:
December 31, June 30,
1998 1999
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(unaudited)
Purchased parts................................... $ 2,500 $ 3,091
Finished goods.................................... 3,848 4,210
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6,348 7,301
Less: inventory valuation reserve............ 785 825
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$ 5,563 $ 6,476
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(d) Property, Plant and Equipment
Property, plant and equipment are carried at cost. Depreciation and
amortization are provided on a straight-line basis over their estimated useful
lives ranging from 3 to 5 years.
Equipment under capital leases is recorded at the lower of fair value or
present value of minimum lease payments at the inception of the lease.
Amortization of the leased property is computed using the straight-line method
over the term of the lease.
(e) Fair Value of Financial Instruments
The fair value amounts for cash, accounts receivable and short term debt
approximate carrying amounts due to the short maturity of these instruments.
(f) Software Development Costs
The Company capitalizes software development costs in accordance with the
Statement of Financial Accounting Standards ("SFAS") No. 86. Such costs are
capitalized after technological feasibility has been demonstrated. Such
capitalized amounts are amortized commencing with product introduction on a
straight-line basis utilizing the estimated economic life ranging from one to
three years. Amortization of capitalized software development is charged to cost
of sales and aggregated $117 and $232 for the six month period ended June 30,
1998 and June 30, 1999, respectively. At June 30, 1999 and December 31, 1998,
the Company had capitalized $3,787 and $3,661
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ECCS, Inc.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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(Information for June 30, 1998 and June 30, 1999 is unaudited)
(Dollars in Thousands except Per Share Information)
of software development costs, respectively, of which $2,225 and $1,993 had been
amortized, respectively. During 1998, the Company wrote off $366 of previously
capitalized projects.
(g) Impairment of Long-Lived Assets
The Company records impairment losses on long-lived assets used in
operations or expected to be disposed of when events and circumstances indicate
that the cash flows expected to be derived from those assets are less than the
carrying amounts of those assets. No such events and circumstances have
occurred.
(h) Revenue Recognition
In general, revenue is recognized upon shipment of the product or system or
as services are provided. Periodically, revenue is recognized for product which
is being held at the customer's request. Revenue is only recognized on such
product when all risks of ownership have passed to the customer and the Company
has no specific performance obligations remaining. Revenues related to
maintenance contracts are recognized over the respective terms of the
maintenance contracts. Revenue for certain major product enhancements and major
new product offerings, for which the Company believes that significant product
development risks may exist which can realistically only be addressed during
live beta testing at end-user sites, is not recognized until successful
completion of such end-user beta testing.
(i) Warranty
Estimated future warranty obligations related to ECCS products are provided
by charges to operations in the period the related revenue is recognized.
(j) Research and Development Costs
Research and development costs are expensed as incurred, except for
software development costs which are accounted for as noted above.
(k) Income Taxes
Income taxes are accounted for by the liability method in accordance with
the provisions of SFAS No. 109, Accounting for Income Taxes.
(l) Stock Based Compensation
SFAS No. 123, Accounting for Stock-Based Compensation, encourages, but does
not require companies to record compensation cost for stock-based employee
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ECCS, Inc.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Information for June 30, 1998 and June 30, 1999 is unaudited)
(Dollars in Thousands except Per Share Information)
compensation plans at fair value. The Company has chosen to continue to account
for stock-based compensation using the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations. Accordingly, compensation cost for
stock options is measured as the excess, if any, of the quoted market price of
the Company's stock at the date of the grant over the amount an employee must
pay to acquire the stock.
(m) Per Share Information
In 1997, the Financial Accounting Standards Board issued SFAS No. 128,
Earnings per Share. SFAS No. 128 replaced the calculation of primary and fully
diluted earnings per share with basic and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options, warrants and convertible securities. Diluted earnings per
share is very similar to the previously reported fully diluted earnings per
share. All earnings per share amounts for all periods have been presented, and
where appropriate, restated to conform to the SFAS No. 128 requirements.
NOTE 3 - LITIGATION
There are no individual material litigation matters pending to which the
Company is a party or to which any of its property is subject.
NOTE 4 - CONVERTIBLE PREFERRED STOCK
The Company has an authorized class of 3,000,000 shares of Preferred Stock
which may be issued by the Board of Directors on such terms and with such
rights, preferences and designations as the Board may determine.
NOTE 5 - TRANSACTION WITH A SIGNIFICANT CUSTOMER
Compaq Computer Corp. ("Compaq"), the corporate owner of Tandem Computers
Incorporated ("Tandem"), acquired Digital Equipment Corporation ("Digital"), a
competitor of the Company, in 1998. On March 24, 1998, the Company announced a
relationship with Tandem pursuant to which Tandem could purchase Synchronix from
the Company and resell Synchronix under a private label with Tandem's own
systems. Although Tandem purchased product from the Company through the first
six months of 1999, the acquisition of Digital by Compaq has adversely effected
the Company's sales to Compaq/Tandem. As a result of Compaq's acquisition of
Digital, whose products included a similar storage system to that of ECCS,
Compaq decided to focus its marketing efforts on its own products in lieu of
outsourced products. The
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ECCS, Inc.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Information for June 30, 1998 and June 30, 1999 is unaudited)
(Dollars in Thousands except Per Share Information)
Company was informed that Tandem intended to discontinue the marketing of the
Company's product after the second quarter of 1999. Accordingly, the Company
notified Tandem that it terminated the contract effective February 15, 1999,
which, pursuant to the reseller agreement, gave Tandem an additional ninety days
to purchase product from the Company.
NOTE 6 - TRANSACTION WITH A SIGNIFICANT VENDOR
The Company has a $2,000 general line of credit with the Finova Group, Inc.
("Finova"). The agreement with Finova contains covenants relating to net worth,
total assets to debt and total inventory to debt. The Company's obligations
under the agreement with Finova are collateralized by substantially all of the
assets of the Company. Finova increased such general line of credit to $3,000
through January 31, 1999, on the same terms and conditions. After such date, the
Company received temporary approval to extend such line to the June 30, 1999
balance of $2,861.
The Company uses its line of credit with Finova to augment its purchasing
ability with various vendors. The Company relied on this line of credit for 1%
and 20% of its inventory acquisitions, respectively, the majority of which were
purchases from Tech Data Corporation in the six months ended June 30, 1998, and
Bell Micro Corporation in the six months ended June 30, 1999. The maximum
amount, during the preceding twelve months, that the Company has drawn under
such general line of credit has been approximately $2,861. As of June 30, 1999,
the Company had a balance of $2,861 outstanding under this credit line, and
available credit under such line towards future inventory purchases was zero.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
ECCS is a provider of enterprise storage solutions to protect and ensure
access to critical data for server attached, Network Attached Storage (NAS),
Fibre Channel Storage, and Storage Area Networks (SAN) markets. ECCS designs,
manufactures, sells and supports high performance, user-definable, fault and
non-fault tolerant storage subsystems to meet a wide range of customer
applications, needs and Operating Systems (NT and UNIX). These connectivity
options enable storage users the flexibility to choose and deploy a particular
storage solution to meet their needs, accommodating both centralized to
distributed storage environments.
The Company believes it has developed innovative fault tolerant storage
systems through continued investment in engineering and through customer-driven
product development. ECCS' strategy is to provide its customers with product
innovation to meet their changing business and computing needs. The Company also
provides its customers with connectivity options, performance enhancements,
flexibility and improved data migration paths to serve most Opens System
environments. The user tools the Company has engineered and incorporated into
its products are easy to use and automate event fixes, work-arounds and various
notification means to track potential problems.
ECCS products are sold globally through OEM's, VAR's and system
integrators. In addition, ECCS' direct sales force sells its products
domestically. ECCS sells to a broad range of customers in various industries
(e.g. large database companies, financial enterprises, retail enterprises,
non-profits organizations, Internet Service Providers, digital imaging users,
telecommunications companies and the US Federal Government).
The Company's revenues are generated from two primary sources: (i) revenues
derived from sales of mass storage enhancement products, which include sales of
all ECCS mass storage enhancement products, including the Synchronix family of
products, and sales of certain third party component products that are
incorporated into such mass storage enhancement systems; and (ii) revenues
derived from services and other revenue which include professional services and
maintenance contracts.
The statements contained in this Quarterly Report on Form 10-Q that are not
historical facts are forward-looking statements (as such term is defined in the
Private Securities Litigation Reform Act of 1995). Such forward-looking
statements may be identified by, among other things, the use of forward-looking
terminology such as "believes," "expects," "may," "will," "should" or
"anticipates" or the negative thereof or other variations thereon or comparable
terminology, or by discussions of strategy that involve risks and uncertainties.
These forward-looking statements, such as statements regarding anticipated
future revenues, Year 2000 compliance, capital expenditures, selling,
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general and administrative expenditures, research and development expenditures
and other statements regarding matters that are not historical facts, involve
predictions. The Company's actual results, performance or achievements could
differ materially from the results expressed in, or implied by, these
forward-looking statements contained in this Quarterly Report on Form 10-Q.
Factors that could cause actual results, performance or achievements to vary
materially include, but are not limited to: component quality and availability,
changes in business conditions, Year 2000 compliance of the Company's and other
vendors' products and related issues, including impact of the Year 2000 problem
on customer buying patterns, changes in ECCS' sales strategy and product
development plans, changes in the data storage or network marketplace,
competition between ECCS and other companies that may be entering the data
storage host/network attached markets, competitive pricing pressures, continued
market acceptance of ECCS' open systems products, delays in the development of
new technology and changes in customer buying patterns.
RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS)
Three Months Ended June 30, 1998 and 1999
-----------------------------------------
Net Sales
Net sales increased by approximately $2,440 or 38% in the three months
ended June 30, 1999, as compared to net sales in the three months ended June 30,
1998. Sales of the Company's proprietary mass storage enhancement systems,
including sales of certain third party component products, accounted for 95% and
97% of net sales in the quarters ended June 30, 1998 and 1999, respectively.
Sales by the Company in its capacity as a VAR accounted for 2% and less than 1%
of net sales in the quarters ended June 30, 1998 and 1999, respectively.
Services and other revenues accounted for 3% of net sales in each of the
quarters ended June 30, 1998 and 1999. The increase in the 1999 period resulted
primarily from an increase in sales of the Company's mass storage enhancement
systems to the U. S. Air Force through Federal integrators, offset in part by
decreases in sales to both the OEM and commercial markets.
Sales to the U. S. Air Force through Federal integrators were $6,333 and
accounted for approximately 71% of net sales in the quarter ended June 30, 1999.
Sales to the U. S. Air Force in this quarter increased by approximately 428% as
compared to the quarter ended June 30, 1998. The Company believes that sales to
the U. S. Air Force will continue to comprise a significant portion of the
Company's net sales for at least the next 12 months. However, there can be no
assurance that the U. S. Air Force will continue to purchase from the Company at
historical levels, if at all.
Sales to alternate channel partners were $982 and accounted for
approximately 11% of net sales in the quarter ended June 30, 1999. Such sales
represent a 69% decrease as compared to sales to alternate channel partners in
the second quarter of 1998. Such
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decrease represents a decrease in sales to Unisys Corporation, the Company's
primary alternate channel partner, of approximately $832 or 46%, combined with
the $1,016 or 99% decrease in sales to Tandem.
During the first quarter of 1997, the Company commenced selling products to
Tandem. Sales to Tandem accounted for less than 1% of the Company's net sales in
the quarter ended June 30, 1999. In January 1998 Compaq Computer Corp.
("Compaq"), the corporate owner of Tandem, announced its planned acquisition of
Digital Equipment Corp. ("Digital"), a competitor of the Company. Although
Tandem purchased product from the Company during the quarter ended March 31,
1999, the acquisition of Digital by Compaq has adversely effected the Company's
sales to Tandem/Compaq. As a result of Compaq's acquisition of Digital, whose
products include a similar storage system to that of ECCS, Compaq decided to
focus its marketing efforts on its own products in lieu of outsourced products.
The Company was informed that Tandem intended to discontinue the marketing of
the Company's product after the second quarter of 1999. Accordingly, the Company
notified Tandem that it terminated the contract effective February 15, 1999,
which, pursuant to the reseller agreement, gave Tandem an additional ninety days
to purchase product from the Company.
During the second quarter of 1999 the Company was informed by Unisys that
it would not continue the marketing of the Company's Synchronix 1000 product
after December 31, 1999 and that it does not intend to initiate purchases of the
Synchronix 2000. Unisys is under contractual obligation, however, to purchase
certain of the Company's product through year end.
The Company continues its efforts to establish additional OEM relationships
and alternate channel relationships for specialized and standard versions of its
Synchronix product line. As a result of the consolidation of OEMs and the
decrease in demand of OEMs seeking new storage solutions/vendors the Company has
shifted its sales and marketing focus to end users, resellers and VAR's. There
can be no assurance, however, that such additional relationships, including
relationships with end users and resellers, will be established, or if
established, that they will compensate for the adverse impact on Company sales
to Tandem resulting from Compaq's acquisition of Digital and the anticipated
loss of the Company's OEM relationship with Unisys in the Year 2000.
Sales to the Company's commercial customers were $1,594 and accounted for
approximately 18% of net sales in the quarter ended June 30, 1999. Such sales
represent a 26% decrease as compared to sales to commercial accounts in the
quarter ended June 30, 1998. During the latter part of 1998, the Company shifted
its sales and marketing focus to end user and reseller accounts. In addition,
during the first quarter of 1999, the Company introduced Synchronix 2000 and
Synchronection 2 in support of this new sales and marketing strategy. With the
investment in both the sales and marketing infrastructure, including additional
sales personnel, as well as the investment in new product offerings introduced
during the first part of 1999, the Company expects that sales to the commercial
market should improve in the latter part of 1999. To that end, the
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Company announced in June 1999, that it had received a five-terabyte, $1.1
million order for its fault tolerant Synchronection 2 network attached storage
device. There can be no assurance, however, that sales to commercial accounts
will continue at such levels, if at all.
Gross Profit
The Company's cost of sales includes primarily the cost of purchased
material, direct labor and related overhead expenses, and amortization of
capitalized software. The Company's gross profit increased by approximately
$1,233 to approximately $3,200 from $1,967 in the three months ended June 30,
1998. Such increase in gross profit is due primarily to the higher level of
sales in 1999, coupled with favorable gross margin percentages. The Company's
gross profit percentage increased to 36% in the three months ended June 30,
1999, as compared to 30% in the corresponding period in the prior year. The 6%
increase is mainly attributable to the higher content of proprietary product
sales, in addition to favorable costs associated with the quantity discounts
that were received during the quarter for third party component products that
are integrated with the Company's proprietary mass storage enhancement products.
Operating Expenses
Selling, general and administrative ("SG&A") expenses consist primarily of
salaries, commissions, and travel costs for sales and marketing personnel, trade
shows and expenses associated with the Company's management, accounting,
contract and administrative functions. SG&A expenses decreased as a percentage
of net sales representing 32% and 29% for the three months ended June 30, 1998
and 1999, respectively. SG&A expenses increased by $497 to $2,550 in the three
months ended June 30, 1999 from $2,053 in the three months ended June 30, 1998.
Such increase was primarily due to higher commissions associated with higher
sales levels in addition to the hiring of additional sales and marketing
personnel coupled with enhanced efforts related to the Company's current and new
product offering. Salaries, commissions, bonuses, employee benefits and payroll
taxes were the largest components of SG&A expenses, accounting for 68% and 71%
of such expenses in the three months ended June 30, 1998 and June 30, 1999,
respectively.
Research and development expenses consist primarily of salaries and
benefits paid to engineers and programmers and other related overhead expenses.
These expenses decreased in the three months ended June 30, 1999 by $242 to
$475, or 34%, from $717 in the corresponding period of the prior year. This
decrease is due primarily to the Company's decision to discontinue its efforts
to develop a fibre controller and a controller design that incorporates Tandem's
ServerNet Technology. Research and development expenses for the second quarter
of 1999 represented approximately 6% of the Company's net sales and including
the amount capitalized in accordance with SFAS No. 86, represented approximately
9% of the Company's net sales. Research and development expenses are anticipated
to increase substantially, in the near future, to enable the
- 13 -
<PAGE>
Company to update and expand upon its existing product offerings and to
integrate its products into systems of future OEMs.
Research and development products for which the Company expects to devote
resources in the near future relate to: (i) a next generation of the Synchronix
family of products; (ii) the development of a distributed file system storage
architecture; (iii) new interface connectivities; and (iv) customized OEM
products. The Company believes that the anticipated increase in its research and
development investment could adversely affect earnings in the next six months.
Net Interest (Income)Expense
Net interest income was $91 and $33 or the three months ended June 30, 1998
and June 30, 1999, respectively. The $58 reduction in interest income was due
primarily to lower cash balances in 1999 compared to the same period in 1998.
Six Months Ended June 30, 1998 and 1999
---------------------------------------
Net Sales
Net sales increased by approximately $3,633 or 25% in the six months ended
June 30, 1999, as compared to net sales in the six months ended June 30, 1998.
Sales of the Company's proprietary mass storage enhancement systems, including
sales of certain third party component products, accounted for 93% and 97% of
net sales in the six months ended June 30, 1998 and 1999, respectively. Sales by
the Company in its capacity as a VAR accounted for 2% and less than 1% of net
sales in the six months ended June 30, 1998 and 1999, respectively. Services and
other revenues accounted for 5% and 3% of net sales in the six-month periods
ended June 30, 1998 and June 30, 1999, respectively. The increase in the 1999
period resulted primarily from an increase in sales of the Company's mass
storage enhancement systems to the U. S. Air Force through Federal integrators,
offset in part by decreases in sales to both the OEM and commercial markets.
Sales to the U. S. Air Force through Federal integrators were $12,527 and
accounted for approximately 68% of net sales in the six months ended June 30,
1999. Sales to the U. S. Air Force in the six months ended June 30, 1999
increased by approximately 196% as compared to such sales in the six months
ended June 30, 1998. The Company believes that sales to the U. S. Air Force will
continue to comprise a significant portion of the Company's net sales for at
least the next 12 months. However, there can be no assurance that the U. S. Air
Force will continue to purchase from the Company at historical levels, if at
all.
Sales to alternate channel partners were $2,570 and accounted for
approximately 14% of net sales in the six months ended June 30, 1999. Such sales
represent a 63% decrease as compared to sales to alternate channel partners in
the comparable period of
- 14 -
<PAGE>
1998. Such decrease represents a decrease in sales to Unisys Corporation, the
Company's primary alternate channel partner, of approximately $1,653 or 46%,
combined with a $1,664 or 73% decrease in sales to Tandem.
During the first quarter of 1997, the Company commenced selling products to
Tandem. Sales to Tandem accounted for approximately 3% of the Company's net
sales in the quarter ended March 31, 1999. In January 1998 Compaq Computer Corp.
("Compaq"), the corporate owner of Tandem, announced its planned acquisition of
Digital Equipment Corp. ("Digital"), a competitor of the Company. Although
Tandem purchased product from the Company during the quarter ended March 31,
1999, the acquisition of Digital by Compaq has adversely effected the Company's
sales to Tandem/Compaq. As a result of Compaq's acquisition of Digital, whose
products include a similar storage system to that of ECCS, Compaq decided to
focus its marketing efforts on its own products in lieu of outsourced products.
The Company was informed that Tandem intended to discontinue the marketing of
the Company's product after the second quarter of 1999. Accordingly, the Company
notified Tandem that it terminated the contract effective February 15, 1999,
which, pursuant to the reseller agreement, gave Tandem an additional ninety days
to purchase product from the Company.
During the second quarter of 1999 the Company was informed by Unisys that
it would not continue the marketing of the Company's Synchronix 1000 product
after December 31, 1999. Unisys has also informed the Company that it does not
intend to initiate purchases of the Synchronix 2000. Unisys is under contractual
obligation, however, to purchase certain of the Company's product through year
end.
The Company continues its efforts to establish additional OEM and alternate
channel relationships for specialized and standard versions of its Synchronix
product line. As a result of the consolidation of OEMs and the decrease in
demand of OEMs seeking new storage solutions/vendors the Company has shifted its
sales and marketing focus to end users, resellers and VAR's. There can be no
assurance, however, that such additional relationships, including relationships
with end users and resellers, will be established, or if established, that they
will compensate for the adverse impact on Company sales to Tandem resulting from
Compaq's acquisition of Digital and the anticipated loss of the Company's OEM
relationship with Unisys in the Year 2000.
Sales to the Company's commercial customers represented $3,245 and
accounted for approximately 18% of net sales in the six months ended June 30,
1999. Such sales represent a 10% decrease as compared to sales to commercial
accounts in the six months ended June 30, 1998. During the latter part of 1998,
the Company shifted its sales and marketing focus to end user and reseller
accounts. In addition, during the first quarter of 1999, the Company introduced
Synchronix 2000 and Synchronection 2 in support of this new sales and marketing
strategy. With the investment in both the sales and marketing infrastructure,
including additional sales personnel, as well as the investment in new product
offerings introduced during the first part of 1999, the Company expects that
sales to the commercial market should improve in the latter part of 1999. To
that end, the
- 15 -
<PAGE>
Company announced in June 1999, that it had received a five-terabyte, $1.1
million order for its fault tolerant Synchronection 2 network attached storage
device. There can be no assurance, however, that sales to commercial accounts
will continue at such levels, if at all.
Gross Profit
The Company's gross profit increased by approximately $1,742 in the six
months ended June 30, 1999 to approximately $6,139 from $4,397 in the six months
ended June 30, 1998. Such increase in gross profit is due primarily to the
higher level of sales in 1999, coupled with favorable gross profit percentages.
The Company's gross profit percentage increased to 33.5% in the six months ended
June 30, 1999, as compared to 29.9% for the same period last year. The 3.6%
increase in gross margin is primarily due to the higher content of proprietary
product sales in addition to the favorable costs attributable to the quantity
discounts received for third party component products that are integrated with
the Company's proprietary mass storage enhancement products.
In addition, favorable costs attributable to quantity discounts were
received during the quarter for third party component products that are
integrated with the Company's proprietary mass storage enhancement products.
Operating Expenses
SG&A expenses increased by $1,148 to $5,048 in the six months ended June
30, 1999 from $3,900 in the six months ended June 30, 1998. Such increase was
due primarily to higher commissions associated with higher sales levels, in
addition to the hiring of additional sales and marketing personnel, coupled with
enhanced efforts to market the Company's current and new product offerings. SG&A
expenses as a percentage of net sales represented 27% and 26% for the six months
ended June 30, 1999 and 1998, respectively. Salaries, commissions, bonuses,
employee benefits and payroll taxes were the largest components of SG&A
expenses, accounting for 71% and 70% of such expenses in the six months ended
June 30, 1999 and June 30, 1998, respectively.
Research and development expenses decreased in the six months ended June
30, 1999 by $394 to $927, or 30%, from $1,321 in the corresponding period of the
prior year. This decrease is due primarily to the Company's decision to
discontinue its efforts to develop a fibre controller and a controller design
that incorporates Tandem's ServerNet technology. Such expenses for the six
months ended June 30, 1999 represented approximately 5.2% of the company's net
sales and, including the amount capitalized in accordance with SFAS No. 86,
represented approximately 7% of the Company's net sales.
Net Interest (Income) Expense
Net interest income was $216 and $117 for the six months ended June 30,
1998 and June 30, 1999, respectively. The $99 reduction in interest income was
due primarily
- 16 -
<PAGE>
to lower cash balances in 1999 compared to the same period in 1998.
LIQUIDITY AND CAPITAL RESOURCES (DOLLARS IN THOUSANDS)
Since 1994, the Company has funded its operations primarily from cash
generated by operations augmented with funds from borrowings under a line of
credit and inventory financing and through private and public sales of equity
securities. On June 30, 1999, the Company's cash balance was approximately
$5,400.
Net cash used in operating activities was $311 for the six months ended
June 30, 1998. Net cash provided by operating activities was $826 for the six
months ended June 30, 1999. Such source of cash in 1999 resulted primarily from
income from operations after adding back depreciation and amortization. Net cash
used in financing activities was $864 for the six months ended June 30, 1998,
while net cash provided by financing activities was $25 for the six months ended
June 30, 1999.
The Company used $978 and $239 for the acquisition of equipment by direct
purchase during the six months ended June 30, 1998 and 1999, respectively. Such
expenditures in 1999 primarily consisted of computer equipment associated with
the Company's research and development efforts. Total capital expenditures for
1999 are expected to be approximately $600, although such amounts are not
subject to formal commitments. The Company anticipates that such expenditures
will include the purchase of capital equipment for research and development and
general corporate use. There are no other material commitments for capital
expenditures currently outstanding. Net activities, under the Company's
revolving credit agreement, were zero for the six months ended June 30, 1999 and
were net payments of $1,031 for the six months ended June 30, 1998.
The Company's working capital was approximately $12,000 at June 30, 1999
and December 31, 1998, respectively.
On July 9, 1997, the Company entered into a full recourse factoring
facility with NationsBanc Commercial Corporation ("NCC") which provides for
aggregate advances not to exceed the lesser of $7,000 or up to 85% of Eligible
Receivables (as defined). Interest on such advances is payable monthly in
arrears at the prime lending rate and the Company is obligated to pay certain
annual fees. The factoring facility is for a period of three years (unless
terminated by NCC by providing the Company sixty days prior written notice)
beginning on July 30, 1997. The obligations of the Company under such agreement
are collateralized by substantially all of the assets of the Company. As of June
30, 1999, the Company's balance outstanding under this full recourse factoring
facility was zero.
The Company also has a $2,000 general line of credit with the Finova Group,
Inc. ("Finova"). The agreement with Finova contains covenants relating to net
worth, total assets to debt and total inventory to debt. The Company's
obligations under the
- 17 -
<PAGE>
agreement with Finova are collateralized by substantially all of the assets of
the Company. Finova increased such general line of credit to $3,000 through
January 31, 1999, on the same terms and conditions. After such date, the Company
received temporary approval to extend such line to the June 30, 1999 balance of
$2,861.
The Company uses its line of credit with Finova to augment its purchasing
ability with various vendors. The Company relied on this line of credit for 1%
and 20% of its inventory acquisitions, respectively, the majority of which were
purchases from Tech Data Corporation in the six months ended June 30, 1998, and
Bell Micro Corporation in the six months ended June 30, 1999. The maximum
amount, during the preceding twelve months, that the Company has drawn under
such general line of credit has been approximately $2,861. As of June 30, 1999,
the Company had a balance of $2,861 outstanding under this credit line, and
available credit under such line towards future inventory purchases was zero.
NCC and Finova had entered into an intercreditor subordination agreement
with respect to their relative interest in substantially all of the Company's
assets.
The Company's agreement with NCC restricts the Company's ability to pay
certain dividends without NCC's prior written consent. The Company's agreement
with Finova prohibits the payment of dividends.
During 1998, the Company utilized $1,118 of net operating loss carryover
("NOL") for federal tax purposes. The Company has a NOL for Federal income tax
purposes of approximately $10,278 which will begin to expire 2009. The Company
also has research and development tax credit carryovers for Federal income tax
purposes of approximately $226 which will begin to expire in 2009. In addition,
the Company has alternative minimum tax credits of approximately $67. These
credits can be carried forward indefinitely. The Company experienced a change in
ownership in 1996 as defined by Section 382 of the Internal Revenue Code.
Accordingly, future use of these NOLs and income tax credits may be limited.
The Company also has approximately $12,965 of state NOL carryforwards which
will begin to expire in 2001 and state research and development tax credit
carryforwards of $334 as of December 31, 1998.
Under SFAS No. 109, a valuation allowance is established, if based on the
weight of available evidence, it is more likely than not that a portion of the
deferred tax asset will not be realized. Accordingly, a full valuation allowance
has been provided to offset the Company's net deferred tax assets because the
Company is in a cumulative loss position. Such valuation allowance will be
reassessed periodically by the Company.
The Company believes that its existing available cash, credit facilities
and the cash flow expected to be generated from operations, will be adequate to
satisfy its current and planned operations for at least the next 12 months.
- 18 -
<PAGE>
The Company's operating results are affected by seasonal factors,
particularly the spending fluctuations of its largest customers including the
U.S. Air Force through Federal integrators and Unisys. Due to the relatively
fixed nature of certain of the Company's costs, a decline in net sales in any
fiscal quarter will have a material adverse effect on that quarter's results of
operations. The Company does not expect such spending fluctuations to be altered
in the future. A significant reduction in orders from any of the Company's
largest customers could have a material adverse effect on the Company's results
of operations. There can be no assurance that the Company's largest customers
will continue to place orders with the Company or that orders of its customers
will continue at their previous levels.
IMPACT OF THE YEAR 2000
General
Computer systems were originally designed to recognize calendar years by
the last two digits in the date code field. Beginning in the Year 2000, these
date code field will need to accept four digit entries to distinguish
twenty-first century dates from twentieth century dates. Any of ECCS' computer
programs that have time-sensitive software may recognize a date using "00" as
the year 1900 rather than the Year 2000. This could result in a system failure
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities. As a result, in the coming year, the
computerized systems (including both information and non-information technology
systems) and applications used by ECCS will need to be reviewed, evaluated and,
if and where necessary, modified or replaced to ensure that all financial,
information and operating systems are Year 2000 compliant.
State of Readiness
ECCS has formed an internal task force comprised of representatives of its
various relevant departments to address Year 2000 compliance matters. The task
force has undertaken a preliminary review of internal and external areas that
are likely to be affected by Year 2000 compliance matters and has classified the
various areas as mission critical, important or non-critical/non-important.
With respect to internal matters, ECCS has completed a review of its
hardware and software to determine whether its business-related applications
(including applications relating to distribution, finance, inventories,
operations, products, purchasing and sales/marketing) will be Year 2000
compliant. In addition, in 1998, programs designed to identify Year 2000
problems associated with dates embedded in certain business-related files were
created and executed to identify any Year 2000 compliance issues. The testing
unearthed a few Year 2000 problems, all of which have been addressed and
retested for Year 2000 readiness. The results of such tests continue to be
analyzed. There can be no
- 19 -
<PAGE>
assurance, however, that such testing has detected, or will detect, all
compliance issues related to the Year 2000 problem.
With respect to external matters, ECCS has distributed questionnaires and
requests for certification to its mission critical vendors and in the process of
obtaining and reviewing the responses thereto. The questionnaires have requested
information concerning embedded technologies of such vendors, the hardware and
software applications used by such vendors and the Year 2000 compliance efforts
of such vendors relating thereto.
Estimated Year 2000 Compliance Costs
Through June 30, 1999, ECCS has incurred approximately $1,275 in costs
(excluding in-house labor and hardware), which includes installation of the ERP
system in 1998, in connection with Year 2000 compliance matters. ECCS estimates
that it will expend approximately $100 in fiscal year 1999 on additional
hardware, software and other items related to the Year 2000 compliance matters.
Risks Relating to Year 2000 Compliance Matters
ECCS' goal is to become Year 2000 compliant with respect to internal
matters during calendar year 1999. Although ECCS has begun and is undertaking
testing of its internal business-related hardware and software applications,
there can be no assurances that such testing will detect all applications that
may be affected by year 2000 compliance problems. With respect to external
matters, due to the multi-dependent and interdependent issues raised by Year
2000 compliance, including many factors beyond its control, ECCS may face the
possibility that one or more of its mission critical vendors, such as its
utilities, telephone carriers or equipment manufacturers, may not be Year 2000
compliance on a timely basis. Because of the unique nature of such vendors,
alternate providers may not be available.
Contingency Planning
ECCS has begun the process of assessing contingency plans that might be
available in the event of either internal or external Year 2000 compliance
problems. To this end, ECCS' various internal departments have begun to prepare
assessments of potential contingency alternatives. The task force will undertake
a review of these assessments in respect of application of contingency plans on
a department-by-department basis and on a company-wide basis. ECCS intends to
complete its contingency planning in respect to Year 2000 compliance during the
third quarter of calendar year 1999.
- 20 -
<PAGE>
PART II. OTHER INFORMATION
--------------------------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Annual Meeting of Shareholders of the Company (the "Meeting") was held
on June 24, 1999.
There were present at the Meeting either in person or by proxy common
shareholders holding an aggregate of 10,682,818 shares out of a total number of
11,028,084 shares issued, outstanding and entitled to vote at the Meeting. The
results of the vote taken at the Meeting with respect to each nominee for
director were as follows:
NOMINEE FOR WITHHELD
- ------- --- --------
Michael E. Faherty 10,626,246 Shares 56,572 Shares
Gale R. Aguilar 10,626,246 Shares 56,572 Shares
Gregg M. Azcuy 10,626,246 Shares 56,572 Shares
James K. Dutton 10,626,246 Shares 56,572 Shares
Donald E. Fowler 10,626,246 Shares 56,572 Shares
Frank R. Triolo 10,626,246 Shares 56,572 Shares
Thomas I. Unterberg 10,626,246 Shares 56,572 Shares
A vote was also taken at the Meeting on the proposal to ratify the
appointment of Ernst & Young, LLP as the independent auditors of the Company for
the fiscal year ending December 31, 1999. Of the 10,682,818 shares present at
the Meeting in person or by proxy, 10,660,258 shares were voted in favor of such
proposal, 12,350 shares were voted against such proposal and 10,210 shares
abstained from voting.
ITEM 5. OTHER INFORMATION.
(a) TANDEM AND UNISYS.
------------------
Compaq Computer Corp. ("Compaq"), the corporate owner of Tandem Computers
Incorporated ("Tandem") acquired Digital Equipment Corporation ("Digital"), a
competitor of the Company, in 1998. On March 24, 1998, the Company announced a
relationship with Tandem pursuant to which Tandem could purchase Synchronix from
the Company and resell Synchronix under a private label with Tandem's own
systems. Although Tandem purchased product from the Company through 1998, the
acquisition of Digital by Compaq has adversely effected the Company's sales to
Compaq/Tandem. As a result of Compaq's acquisition of Digital, whose products
included a similar storage system to that of ECCS, Compaq decided to focus its
marketing efforts on its own products in lieu of outsourced products. The
Company was informed that Tandem intended to discontinue the marketing of the
Company's product after the second quarter of 1999. Accordingly, the Company
notified Tandem that it terminated the contract effective February 15, 1999,
which, pursuant to the reseller agreement, gave Tandem an
- 21 -
<PAGE>
additional ninety days to purchase product from the Company. For the quarter
ended June 30, 1999 sales to Tandem accounted for less than 1% of the Company's
total net sales.
(b) IN HOUSE MANUFACTURING.
-----------------------
The primary outside manufacturer for the Synchronix system, Unisys, closed
its Winnipeg computer storage systems manufacturing plant on or about July 31,
1999. The Company has commenced manufacturing the Synchronix 1000 and Synchronix
2000 in-house and plans to locate another third party manufacturer and/or
continue to manufacture such systems in-house. Although the Company has achieved
ISO 9000 certification in February, 1999 and anticipates that it has sufficient
facilities and expertise to manufacture such systems in-house, there can be no
assurance that material problems will not arise in the future that could
materially adversely effect the Company's results of operations.
During the second quarter of 1999 the Company was informed by Unisys that
it would not continue the marketing of the Company's Synchronix 1000 product
after December 31, 1999 and that it does not intend to initiate purchases of the
Synchronix 2000. Unisys is under contractual obligation, however, to purchase
certain of the Company's product through year end.
(c) RESIGNATION OF DAVID BOYLE.
---------------------------
On June 21, 1999 David Boyle, Vice President, Sales and Marketing resigned
from his position with the Company. Since the date of Mr. Boyle's resignation
the Company has been actively seeking his replacement.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
11 Calculation of Earnings Per Share
27 Financial Data Schedule for the period ended June 30, 1999.
(b) Reports on Form 8-K.
None.
- 22 -
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ECCS, Inc.
Date: August 9, 1999 By: /s/ Gregg M. Azcuy
-------------------------------------
Gregg M. Azcuy, President
and Chief Executive Officer
(Principal Executive Officer)
Date: August 9, 1999 By: /s/ Louis J. Altieri
-------------------------------------
Louis J. Altieri, Vice President,
Finance and Administration
(Principal Financial and
Accounting Officer)
- 23 -
<PAGE>
EXHIBIT 11
Calculation of Earnings per Share
(In Thousands)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1998 1999 1998 1999
Numerator:
<S> <C> <C> <C> <C>
Net income (loss)................................ $ (712) $ 208 $ (608) $ 281
Preferred stock dividends........................ -- -- -- --
-------- -------- -------- --------
Numerator for basic earnings per share -
(loss) income available to common shareholders... $ (712) $ 208 $ (608) $ 281
Effect of dilutive securities:
Preferred stock dividends........................ -- -- -- --
Interest on unpaid preferred stock dividends..... -- -- -- --
-------- -------- -------- --------
-- -- -- --
Numerator for dilutive (loss) earnings per
share - (loss) income available to common
shareholders after assumed conversion............ $ (712) $ 208 $ (608) $ 281
Denominator:
Denominator for basic (loss) earnings per share-
weighted-average shares.......................... 10,958 11,029 10,938 11,028
Effect of dilutive securities:
Employee stock options and warrants.............. -- -- -- --
Convertible preferred stock...................... -- -- -- --
-------- -------- -------- --------
-- -- -- --
Dilutive potential common shares
Denominator for diluted (loss) earnings per
share - Adjusted weighted-average shares and
assumed conversion............................... 10,958 11,869 10,938 11,633
======== ======== ======== ========
Basic (loss) earnings per share $ (0.07) $ 0.02 $ (0.06) $ 0.03
======== ======== ======== ========
Diluted (loss) earnings per share $ (0.07) $ 0.01 $ (0.06) $ 0.02
======== ======== ======== ========
</TABLE>
- 24 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the audited
consolidated financial statements at March 31, 1999 and for the three month
period ended March 31, 1999 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<CIK> 0000900619
<NAME> ECCS, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 5,494
<SECURITIES> 0
<RECEIVABLES> 7,991
<ALLOWANCES> 47
<INVENTORY> 6,476
<CURRENT-ASSETS> 20,205
<PP&E> 6,779
<DEPRECIATION> 5,061
<TOTAL-ASSETS> 23,809
<CURRENT-LIABILITIES> 8,103
<BONDS> 0
0
0
<COMMON> 111
<OTHER-SE> 15,451
<TOTAL-LIABILITY-AND-EQUITY> 23,809
<SALES> 18,342
<TOTAL-REVENUES> 18,342
<CGS> 12,203
<TOTAL-COSTS> 5,048
<OTHER-EXPENSES> 927
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (117)
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 281
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 281
<EPS-BASIC> .03
<EPS-DILUTED> .02
</TABLE>
