<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended: Commission File No.:
October 31, 1998 0-24338
VARIFLEX, INC.
(Exact name of Registrant as specified in its charter)
Delaware 95-3164466
(State or other jurisdiction of (IRS Employer Identification
incorporation or organization) Number)
5152 North Commerce Avenue
Moorpark, California 93021
(Address of principal executive offices)
Registrant's telephone number, including area code:
(805) 523-0322
-----------------------------------------------------------------
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
------ ------
As of December 11, 1998, there were 6,025,397 shares of Common Stock, $.001 par
value, outstanding.
<PAGE>
VARIFLEX, INC.
INDEX
Part I - Financial Information
Item 1. Financial Statements
<TABLE>
<CAPTION> Page No.
--------
<S> <C>
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets at
October 31, 1998 and July 31, 1998......................... 3
Consolidated Statements of Operations for the
Three Months Ended October 31, 1998 and 1997............... 4
Consolidated Statements of Cash Flows for the
Three Months Ended October 31, 1998 and 1997............... 5
Notes to Consolidated Financial Statements................ 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 8
Part II - Other Information
Item 1. Legal Proceedings.......................................... 13
Item 5. Other Information.......................................... 13
Item 6. Exhibits and Reports on Form 8-K........................... 13
</TABLE>
2
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
VARIFLEX, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
October 31, July 31,
1998 1998
------------ ---------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 8,489 $ 7,522
Marketable securities available for sale 18,626 20,147
Trade accounts receivable, less allowances of $413 and
$413 as of October 31, 1998 and July 31, 1998, respectively 8,615 8,205
Inventory (finished goods) 6,873 5,898
Inventory (raw materials and work-in-process) 472 585
Prepaid expenses and other current assets 1,389 1,809
------- -------
Total current assets 44,464 44,166
Property and equipment, net 478 501
Other assets 85 88
------- -------
Total assets $45,027 $44,755
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade acceptances payable $ 1,248 $ 384
Accounts payable 923 371
Accrued warranty 576 450
Accrued salaries and related liabilities 450 234
Accrued co-op advertising 2,702 2,481
Accrued returns and allowances 353 150
Other accrued expenses 724 813
------- -------
Total current liabilities 6,976 4,883
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.001 par value, 5,000,000 shares
authorized, none issued and outstanding - -
Common stock, $.001 par value, 40,000,000 shares
authorized, 6,025,397 issued and outstanding as
of October 31, 1998 and July 31, 1998 9 9
Common stock warrants 702 702
Additional paid-in capital 21,023 21,023
Accumulated other comprehensive income (2,321) (392)
Retained earnings 18,638 18,530
------- -------
Total stockholders' equity 38,051 39,872
------- -------
Total liabilities and stockholders' equity $45,027 $44,755
======= =======
</TABLE>
See accompanying notes
3
<PAGE>
VARIFLEX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
October 31,
------------------
1998 1997
------ -------
<S> <C> <C>
Net sales $8,876 $13,659
Cost of goods sold 7,222 11,498
------ -------
Gross profit 1,654 2,161
------ -------
Operating expenses:
Selling and marketing 956 1,462
General and administrative 1,092 1,099
------ -------
Total operating expenses 2,048 2,561
------ -------
Loss from operations (394) (400)
------ -------
Other income (expense):
Interest income and other 502 256
------ -------
Total other income (expense) 502 256
------ -------
Income (loss) before income taxes 108 (144)
(Benefit from) provision for income taxes - (123)
------ -------
Net income (loss) $108 ($21)
====== =======
Net income (loss) per share of common stock:
Basic $0.02 ($0.00)
====== =======
Diluted $0.02 ($0.00)
====== =======
Weighted average shares outstanding:
Basic 6,025 6,025
====== =======
Diluted 6,047 6,025
====== =======
</TABLE>
See accompanying notes.
4
<PAGE>
VARIFLEX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended
October 31,
------------------
1998 1997
------ ------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 108 ($21)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization 98 287
Deferred income taxes - (130)
Loss on sale of marketable securities 2 -
Changes in operating assets and liabilities:
Trade accounts receivable (410) (3,161)
Inventory (862) 2,302
Prepaid expenses and other current assets 420 (463)
Trade acceptances payable 864 976
Accounts payable 552 402
Other current liabilities 677 1,013
------ -------
Net cash provided by operating activities 1,449 1,205
------ -------
INVESTING ACTIVITIES
Purchases of property and equipment (75) (76)
Gross purchases of available-for-sale securities (412) (3,435)
Gross sales of available-for-sale securities 2 1,050
Other assets 3 (38)
------ -------
Net cash used in investing activities (482) (2,499)
------ -------
FINANCING ACTIVITIES - -
Net increase (decrease) in cash 967 (1,294)
Cash and cash equivalents at beginning of period 7,522 7,823
------ -------
Cash and cash equivalents at end of period $8,489 $ 6,529
====== =======
Cash paid during the period for:
Interest - -
Income taxes - -
</TABLE>
See accompanying notes.
5
<PAGE>
VARIFLEX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended October 31, 1998
are not necessarily indicative of the results that may be expected for the full
fiscal year. For further information, refer to the financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for the
fiscal year ended July 31, 1998.
Note 2. Reclassifications
Certain reclassifications have been made to the fiscal 1998 financial
statements to conform with fiscal 1999 presentation.
Note 3. Earnings per Share
In 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share." FASB No. 128
replaced the previously reported 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 computed similar to the
previous method used to compute fully diluted earnings per share and includes
the dilutive effects of stock options and warrants. For the three months ended
October 31, 1998 the number of shares used in the calculation of diluted
earnings per share included 21,820 shares issuable under stock options and
warrants using the treasury stock method. The Company's diluted earnings per
share for the three months ended October 31, 1997 is the same as basic earnings
per share since the effect of options and warrants is antidilutive or
immaterial. All earnings per share amounts for all periods have been presented,
and where necessary restated, to conform to the requirements of FASB No. 128.
6
<PAGE>
Note 4. Comprehensive Income
As of January 1, 1998, the Company adopted Statement 130, "Reporting
Comprehensive Income." Statement 130 establishes new rules for the reporting
and display of comprehensive income and its components; however, the adoption of
this statement had no impact on the Company's net income or stockholders'
equity. Statement 130 requires unrealized gains or losses on the Company's
available-for-sale securities, which prior to adoption were reported separately
in stockholders' equity, to be included in other comprehensive income. Prior
year financial statements have been reclassified to conform to the requirements
of Statement 130.
During the first quarter of fiscal 1999 and 1998, total comprehensive
income (loss), which consists of net income (loss) and other comprehensive
income (loss) for the period, amounted to ($1,821,000) and $3,000, respectively.
Note 5. Legal Proceedings
In March 1998, the Company was served with two lawsuits entitled: (i) Mark
C. Carter and International E-Z Up, Inc. v. Variflex, Inc. and Service
Merchandise Co., Inc. (Case No. 98-0167 WJR (RNBx)) in the United States
District Court for the Central District of California in Los Angeles and (ii)
James P. Lynch and KD Kanopy, Inc. v. Variflex, Inc. (Civil Action No. 98-D-477)
in the United States District Court of Colorado. The first complaint (i)
alleges, among other things, that the Company's Quik Shade(R) product infringes
a patent owned by the plaintiff and used in a competing instant set-up,
collapsible canopy product and (ii) prays for unspecified monetary damages,
treble damages, punitive damages, costs and attorney's fees, an injunction and
the destruction of all allegedly infringing products. The second complaint (i)
alleges that the Company's Quik Shade(R) product infringes two patents owned by
the plaintiff and (ii) prays for an accounting, general damages, treble damages,
an injunction and costs and attorney's fees. The Company has filed an answer in
both lawsuits denying the allegations of the complaints and has filed
counterclaims in both lawsuits seeking declarations of patent invalidity and
non-infringement as to the plaintiffs' patents, as well as damages against the
plaintiffs for alleged antitrust violations. In September 1998, the Company
received a demand for defense and indemnification of Service Merchandise
Company, Inc. in that action entitled Mark C. Carter, et. al. v. Service
Merchandise Company, Inc., (Case No. C98-03274 DLJ ENB) in the United States
District Court for the Northern District of California. The complaint in this
action is virtually identical to the complaint on behalf of Service Merchandise
in the above-referenced action by Carter in the Central District of California
in Los Angeles. The Company has agreed to indemnify and defend Service
Merchandise (which is a retailer of the Company's product) in this action. The
Company and Service Merchandise filed an answer to the complaint on behalf of
Service Merchandise in the Central District of California (Los Angeles) action.
Thereafter, the plaintiff dismissed without prejudice the Northern District of
California action, and the claim will proceed in the Los Angeles action. These
lawsuits are at an early stage. The Company believes it has meritorious
defenses to the claims alleged in the complaints and intends to conduct a
vigorous defense. The Company also intends to vigorously pursue its
counterclaims. An unfavorable outcome in the above matters could have a
material and adverse effect on the Company's business prospects and financial
condition. In addition, even if the ultimate outcome in both cases is resolved
in favor of the Company, the defense of such litigation may involve considerable
costs, which could be material, and could divert
7
<PAGE>
the efforts of management, which could have a material and adverse effect on the
Company's business and results of operations.
From time to time the Company is involved in other claims and lawsuits
arising in the ordinary course of its business. In the opinion of management,
all of these claims and lawsuits are covered by insurance or these matters will
not have a material and adverse effect on the Company's business, financial
condition or results of operations.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations.
--------------
Overview
--------
The Company is a leading distributor and wholesaler in the United States
of in-line skates, skateboards, recreational safety helmets and athletic
protective equipment (such as wrist guards, elbow pads and knee pads used by
skaters and skateboarders), snowboards and related accessories, and portable
instant canopies. The Company designs and develops these products which are then
manufactured to the Company's detailed specifications by independent
contractors. The Company distributes its products throughout the United States
and to foreign countries.
Results of Operations
---------------------
Net Sales. Net sales for the first quarter of fiscal 1999 (the quarter
---------
ended October 31, 1998) totaled $8,876,000 compared to $13,659,000 for the first
quarter of fiscal 1998, representing a decrease of $4,783,000 or 35%. The
decrease in net sales primarily resulted from decreases in sales of the
Company's in-line skates, skateboards and athletic protective equipment, offset
to a lesser degree by an increase in sales of the Quik Shade(R) instant canopy.
The decrease in the Company's skate sales was attributable to a continuing
industry-wide decline in consumer demand compared to the same period in fiscal
1998 and prior years. Net sales were also adversely affected during the quarter
by competitive pressures, which caused sale prices to decline in many of the
Company's product categories. Another factor contributing to the decline in net
sales is the fact that Kmart Corporation, which accounted for 14% of the
Company's gross sales for the first quarter of fiscal 1998, is no longer a major
customer for the Company's in-line skates and skateboards.
8
<PAGE>
The following table shows the Company's major product categories as a
percentage of total gross sales:
<TABLE>
<CAPTION>
Quarter Ended October 31
1998 1997
---- ----
<S> <C> <C>
In-line skates 54% 67%
Skateboards and scooters 19% 16%
Canopies 8% 1%
Snowboards and accessories 8% 7%
Bicycle and recreational safety helmets 6% 3%
Athletic protective equipment 3% 6%
Other 2% *
--- ---
Total 100% 100%
=== ===
</TABLE>
-------------------------------
(*) Less than one-half of one percent.
Gross Profit. Gross profit for the first quarter of fiscal 1999 totaled
------------
$1,654,000 compared to $2,161,000 for the first quarter of fiscal 1998, a
decrease of $507,000 or 23%. The Company's gross margin was 18.6% of net sales
for the quarter ended October 31, 1998, compared to 15.8% for the quarter ended
October 31, 1997. The Company's gross margin of 18.6% for the first quarter of
fiscal 1999 represents an increase from 15.3% for the fiscal year ended July 31,
1998. The increase in gross margin percentage was the result of several
factors, including the impact of the addition to the sales product mix of
canopies which had a higher margin, as well as lower product costs as a result
of beneficial sourcing and the decrease in sales to Kmart Corporation during the
first quarter of fiscal 1999 versus the first quarter of fiscal 1998, which had
a positive impact on the Company's gross margin due to the pricing structure for
Kmart. There can be no assurance that the Company can continue to obtain its
products from suppliers at sufficiently low costs to fully offset the downward
pressure on sales prices in order to sustain or improve present gross profit
margins.
Operating Expenses. The Company's selling and marketing expenses totaled
------------------
$956,000 for the first quarter of 1999, compared to $1,462,000 in the first
quarter of 1998, a decrease of $506,000 or 35%. Selling and marketing expenses
for the first quarter of fiscal 1999 amounted to 10.8% of net sales, compared to
10.7% during the first quarter of fiscal 1998. The decrease in selling and
marketing expenses is primarily due to decreases in commissions and co-op
advertising expenses resulting from lower sales volume. The increase as a
percentage of net sales is the result of certain other types of expenses, such
as administrative salaries and some promotional expenses, that are basically
fixed in amount and are not directly related to sales.
General and administrative expenses totaled $1,092,000 in the first
quarter of 1999, compared to $1,099,000 in the first quarter of 1998, a decrease
of $7,000 or 1%. General and administrative expenses for the first quarter of
fiscal 1999 amounted to 12.3% of net sales, compared to 8.0% during the first
quarter of fiscal 1999. The increase as a percentage of net sales is primarily
due to the fixed nature of many expenses which are not directly related to
sales, as well as an increase in legal expenses, related to the legal
proceedings described in Note 5, partially offset by a decrease in computer
consulting expense.
9
<PAGE>
Other Income (Expense). Other income totaled $502,000 in the first
----------------------
quarter of 1999, compared to $256,000 in the first quarter of 1998, an increase
of $246,000 or 96%. This increase was primarily due to an increase in interest
income as a result of a change during the third quarter of fiscal year 1998 in
the investment of marketable securities from lower yielding tax-exempt
securities to higher yielding taxable securities, of which 60% was invested in
high-yield bond funds, compared to the corresponding period of the prior year.
(Benefit from) Provision for Income Taxes The provision for income taxes
-----------------------------------------
is zero for the three months ended October 31, 1998 compared to an income tax
benefit of $123,000 or (85.4%) of the loss before income taxes for the three
months ended October 31, 1997. The provision for income taxes for the three
months ended October 31, 1998 reflects the reduction of approximately $47,000 of
the deferred tax valuation allowance. The provision for income taxes before the
reduction of the deferred tax valuation allowance would have been approximately
$47,000 or 43.5% of income before income taxes. The effective tax rate before
the reduction of the deferred tax valuation allowance for the three months ended
October 31, 1998 differs from the federal statutory rate primarily due to state
income taxes and certain expenses that are not deductible for federal income tax
purposes. The effective tax rate for the three months ended October 31, 1997
differs from the federal statutory rate primarily due to certain interest
income, which is exempt from federal income taxes due to the nature of the
investments from which it is derived.
At October 31, 1998 the Company has a valuation allowance of $1,490,000
for its net deferred tax assets. To the extent that the Company generates
sufficient income in the future the valuation allowance may be reversed as a
reduction of income tax expense and thereby reduce the effective tax rate.
Liquidity and Capital Resources
-------------------------------
The Company has a credit agreement with a major bank providing a
$7,500,000 revolving line of credit for the issuance of commercial letters of
credit. The agreement, which expires December 31, 1998, is unsecured and
contains certain financial covenants which the Company must satisfy.
Cash and marketable securities available for sale totaled $27,115,000 as
of October 31, 1998, compared to $27,669,000 as of July 31, 1998. Net working
capital as of October 31, 1998 was $37,488,000, compared to $39,283,000 as of
July 31, 1998, and the Company's current ratio was 6.4:1 as of October 31, 1998,
compared to 9.0:1 as of July 31, 1998. The decreases in working capital and
current ratio were primarily due to increases in liabilities for trade
acceptances, accounts payable and accruals for co-op advertising and other
various expenses.
The Company had no long-term debt as of October 31, 1998 and July 31,
1998. The Company had net stockholders' equity of $38,051,000 as of October 31,
1998, compared to $39,872,000 as of July 31, 1998, with the difference due to
operating results for the three months ended October 31, 1998, and a decrease in
accumulated other comprehensive income due to unrealized losses on investments
in marketable securities.
10
<PAGE>
Year 2000
---------
Many computer programs were designed and developed utilizing only two
digits in date fields, thereby creating the inability to recognize the Year 2000
or years thereafter. Beginning in the Year 2000, these date codes will need to
accept four digit entries to distinguish 21st century dates from 20th century
dates. This Year 2000 issue creates risks for the Company from unforeseen or
unanticipated problems in its internal computer systems as well as from computer
systems of third parties on which the Company's systems and operations rely.
Failures to address the Year 2000 issue could result in system failures and the
generation of erroneous data.
The Company is currently working to resolve the potential impact of the
year 2000 on the processing of date-sensitive information by the Company's
computerized information systems. The Company has been advised by its outside
information systems consultant that the Company's primary information management
hardware and software systems have been thoroughly tested and verified to be
Year 2000 compliant. The Company believes that its secondary personal computer
based information systems will require hardware and software updating prior to
January 1, 2000 at an estimated cost of approximately $50,000. This program is
targeted for completion by the end of fiscal 1999. The Company believes that it
does not have any significant non-information technology embedded systems that
require Year 2000 assessment.
The Company is contacting its primary suppliers, customers and other
third party providers of significant services to determine that they have a
program in place to address Year 2000 issues and to monitor their progress. The
initial contacts should be completed by December 31, 1998.
During the remainder of 1998 and in 1999, the Company will continually
review its progress against its Year 2000 plans and determine what contingency
plans are appropriate to reduce its exposure to Year 2000 related issues.
The Company presently believes that the Year 2000 problem will not pose a
significant operational problem to the Company. However, there can be no
assurance that the systems of other parties upon which the Company's business
also relies, including but not limited to the Company's customers and suppliers,
will be converted on a timely basis. The Company's business, financial
condition, or results of operations could be materially adversely affected by
the failure of its systems or those of other parties to operate or properly
manage dates beyond 1999.
Risks Associated With Forward Looking Statements
------------------------------------------------
From time to time, the Company may make certain statements that contain
"forward-looking" information or statements within the meaning of Section 27A of
the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. Words such as "anticipate", "believe",
"expect", "estimate", "project", and similar expressions are intended to
identify such forward-looking statements. Forward-looking statements may be
made by management orally or in writing, including, but not limited to, in press
releases, as part of the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained in this Report, and in the
Company's other filings with the Securities Exchange Commission. Although the
Company believes that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to have been correct. Such forward-looking statements are subject to
certain risks, uncertainties and
11
<PAGE>
assumptions, including, without limitation those identified below. Should one
or more of these risks or uncertainties materialize, or should any of the
underlying assumptions prove incorrect, actual results of current or future
operations may vary materially from those anticipated, estimated, or projected.
Readers are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of their dates.
General. There are several risks and uncertainties that may affect the
--------
future operating results, business and financial condition of the Company,
including, without limitation: (1) the risk of reduction in consumer demand for
the product categories in which the Company does business or the Company's
products in particular; (2) the risk of loss of one or more of the Company's
major customers; (3) the risks inherent in the design and development of new
products and product enhancements, including those associated with patent issues
and marketability; (4) the risk that the Company may not be able to continue to
provide its products at prices which are competitive or that it can continue to
design and market products that appeal to consumers even if price-competitive;
(5) the risk that the Company may not be able to obtain its products and
supplies on substantially similar terms, including cost, in order to sustain its
operating margins; and (6) the risks inherent in legal proceedings. Readers are
also encouraged to refer to the Company's most recent annual report on Form 10-K
for a further discussion of the Company's business and the risks and
opportunities attendant thereto.
12
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
See Note 5 to Notes to Consolidated Financial Statements included in
Part I of this Form 10-Q, which is incorporated herein by this
reference.
Item 5. Other Information.
The Company has announced its intention to manufacture and market a new
concept in trampolines--a "springless" trampoline that uses an elastic material
to provide the bounce and lift. The Company also intends to market replacement
kits which can be used to turn existing spring trampolines into the new
"springless trampolines." On December 1, 1998, the Company entered into an
Exclusive License Agreement (the "Agreement") with Product Resource &
Development, Inc., a George corporation ("PRD") and its principal stockholder
Wayne Rich ("Rich"). PRD has a patent pending on technology to be incorporated
into this new type of trampoline. Under the Agreement, PRD and Rich have
granted to the Company an exclusive worldwide license to utilize this technology
in connection with the manufacture and marketing of these new "springless"
trampolines, replacement kits, and related products. The Company paid $1
million to PRD on execution of the Agreement, fifty percent (50%) of which will
be applied as a credit towards royalties otherwise payable by the Company to
PRD. An additional $500,000 will be paid by the Company when the requisite U.S.
patent is issued. There are no minimum sales requirements under the Agreement.
For each trampoline sold by the Company, PRD will received royalties ranging
from $2.50 per trampoline to $7.50, depending upon the price of the trampoline.
For certain trampoline replacement parts and accessories sold by the Company,
PRD will receive a royalty of 10%.
The Company has the right to terminate the Agreement at any time after
three years or the date on which the first U.S. patent covering the trampoline
is issued, whichever occurs first.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
---------
Exhibit 27 Financial Data Schedule.
(b) Reports on Form 8-K.
--------------------
No reports on Form 8-K were filed by the Registrant during the
quarter to which this Form 10-Q relates.
13
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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.
VARIFLEX, INC.
December 11, 1998 /s/ RAYMOND H. LOSI II
------------------------------------------------
Raymond H. Losi II
Chief Executive Officer (Principal Executive Officer)
December 11, 1998 /s/ ROGER M. WASSERMAN
------------------------------------------------
Roger M. Wasserman
Chief Financial Officer (Principal Financial and
Accounting Officer)
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY UNAUDITED FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF INCOME AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1999
<PERIOD-START> AUG-01-1998
<PERIOD-END> OCT-31-1998
<CASH> 8,489
<SECURITIES> 18,626
<RECEIVABLES> 9,028
<ALLOWANCES> 413
<INVENTORY> 7,345
<CURRENT-ASSETS> 44,464
<PP&E> 4,989
<DEPRECIATION> 4,511
<TOTAL-ASSETS> 45,027
<CURRENT-LIABILITIES> 6,976
<BONDS> 0
0
0
<COMMON> 9
<OTHER-SE> 38,042
<TOTAL-LIABILITY-AND-EQUITY> 45,027
<SALES> 8,876
<TOTAL-REVENUES> 8,876
<CGS> 7,222
<TOTAL-COSTS> 7,222
<OTHER-EXPENSES> 2,048
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 108
<INCOME-TAX> 0
<INCOME-CONTINUING> 108
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 108
<EPS-PRIMARY> 0.02
<EPS-DILUTED> 0.02
</TABLE>
