<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
-------- --------
Commission File Number: 000-26222
ONTRAK SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 77-0074302
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1010 RINCON CIRCLE, SAN JOSE, CA 95131
(Address of principal executive offices) (Zip code)
(408) 577-1010
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the Registrant's classes
of common stock, as of the latest practicable date.
Class Shares Outstanding as of January 31, 1997
----- -----------------------------------------
COMMON STOCK 7,622,769
<PAGE>
ONTRAK SYSTEMS, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements Page No.
--------
Condensed Consolidated Statement of Operations for the Quarters
and Six Months Ended December 31, 1996 and 1995............... 3
Condensed Consolidated Balance Sheet as of
December 31, 1996 and June 30, 1996........................... 4
Condensed Consolidated Statement of Cash Flows for the Six Months
Ended December 31, 1996 and 1995.............................. 5
Notes to Condensed 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.............................................. 11
Item 4. Submission of Matters to a Vote of Security-Holders............ 11
Item 6. Exhibits and Reports on Form 8-K............................... 11
SIGNATURES............................................................... 12
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ONTRAK SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
December 31, December 31,
-------------------------- ----------------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenue $ 16,708 $ 13,193 $ 33,195 $ 23,695
Cost of revenue 7,953 6,223 15,846 11,236
-------- -------- -------- --------
Gross profit 8,755 6,970 17,349 12,459
-------- -------- -------- --------
Operating expenses:
Research, development and engineering 5,063 3,505 9,668 6,026
Selling, general and administrative 2,882 2,115 5,564 4,000
-------- -------- -------- --------
Total operating expenses 7,945 5,620 15,232 10,026
-------- -------- -------- --------
Income from operations 810 1,350 2,117 2,433
Interest and other income, net 363 386 753 712
-------- -------- -------- --------
Income before provision for income taxes 1,173 1,736 2,870 3,145
Provision for income taxes 389 614 948 1,107
-------- -------- -------- --------
Net income $ 784 $ 1,122 $ 1,922 $ 2,038
-------- -------- -------- --------
-------- -------- -------- --------
Net income per share $ 0.10 $ 0.14 $ 0.24 $ 0.25
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average common and
common equivalent shares 8,064 8,237 8,059 8,125
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
The accompanying notes are an integral part
of these condensed consolidated financial statements
3
<PAGE>
ONTRAK SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands, except per share data)
(unaudited)
<TABLE>
December 31, June 30,
1996 1996
------------ ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 16,997 $ 24,217
Short-term investments 16,613 12,372
Accounts receivable, net 11,648 8,918
Inventory 8,053 6,892
Prepaid expenses and other assets 2,699 2,440
--------- ---------
Total current assets 56,010 54,839
Property and equipment, net 9,594 7,293
--------- ---------
$ 65,604 $ 62,132
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations $ 283 $ 283
Accounts payable 3,338 3,124
Accrued liabilities 6,794 5,462
--------- ---------
Total current liabilities 10,415 8,869
Long-term obligations, less current portion 1,034 1,173
--------- ---------
Stockholders' equity:
Common stock, $.0001 par value, 30,000 shares authorized;
7,547 and 7,518 shares issued and outstanding 1 1
Capital in excess of par value 46,808 46,665
Retained earnings 7,346 5,424
--------- ---------
Total stockholders' equity 54,155 52,090
--------- ---------
$ 65,604 $ 62,132
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part
of these condensed consolidated financial statements
4
<PAGE>
ONTRAK SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(in thousands, unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31,
-----------------------------
1996 1995
------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,922 $ 2,038
Adjustments to reconcile net income to
net cash used for operating activities:
Depreciation and amortization 1,270 499
Changes in assets and liabilities:
Accounts receivable (2,795) (4,012)
Inventory (1,300) (1,935)
Prepaid expenses and other assets (343) 316
Accounts payable 214 496
Accrued liabilities 1,332 90
Income taxes payable (refundable) ---- 412
-------- --------
Net cash provided by (used for) operating activities 300 (2,096)
-------- --------
Cash flows from investing activities:
Acquisitions of property and equipment (3,571) (2,949)
Net purchases of short-term investments (4,241) ----
-------- --------
Net cash used for investing activities (7,812) (2,949)
-------- --------
Cash flows from financing activities:
Repayments under long-term obligations (139) (285)
Net proceeds from issuance of
Common Stock in initial public offering ---- 41,404
Proceeds from issuance of Common Stock 431 120
Redemption of Mandatorily Redeemable
Preferred Stock ---- (3,450)
-------- --------
Net cash provided by financing activities 292 37,789
-------- --------
Net increase (decrease) in cash and cash equivalents (7,220) 32,744
Cash and cash equivalents:
Beginning of period 24,217 1,767
-------- --------
End of period $ 16,997 $ 34,511
-------- --------
-------- --------
Supplemental disclosure of non-cash investing
and financing activities:
Conversion of Mandatorily Redeemable Preferred
Stock into Common Stock $ ---- $ 3,072
-------- --------
-------- --------
Book value of assets exchanged for Common Stock $ 288 $ ----
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part
of these condensed consolidated financial statements
5
<PAGE>
ONTRAK SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION
The unaudited condensed consolidated financial information of OnTrak
Systems, Inc. (the "Company") furnished herein reflects all adjustments,
consisting only of normal recurring adjustments, which in the opinion of
management are necessary to fairly state the consolidated financial
position of the Company and its subsidiaries, the results of their
operations, and their cash flows for the periods presented. These
financial statements do not contain all of the information and footnotes
required by generally accepted accounting principles for complete
financial statements. This Quarterly Report on Form 10-Q should be read
in conjunction with the consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year
ended June 30, 1996. The consolidated results of operations for the
quarter and six months ended December 31, 1996 are not necessarily
indicative of the results to be expected for any subsequent quarter or for
the entire year ending June 30, 1997.
(2) COMPONENTS OF INVENTORY
<TABLE>
<CAPTION>
DEC. 31, 1996 JUNE 30, 1996
------------- -------------
(in thousands)
<S> <C> <C>
Inventory:
Raw materials $ 3,418 $ 3,338
Work-in-process 4,156 3,481
Finished goods 479 73
-------- --------
$ 8,053 $ 6,892
-------- --------
-------- --------
</TABLE>
(3) SPLIT OFF OF TELEPARTS SUBSIDIARY
In September 1996, the Company entered into an agreement to distribute
all of the shares of Teleparts International, Inc., its former wholly-
owned subsidiary, to the Company's former CEO in exchange for 30,000
shares of the Company's common stock. The book value of the net assets
of Teleparts at the date of distribution was approximately $288,000 and
the fair value of the 30,000 shares of the Company's common stock was
approximately $420,000. Because of the significant ownership in the
Company by the former CEO (approximately 9%, prior to the redemption)
the transaction was recorded at the book value of the assets exchanged
and no gain was recorded.
(4) DELAWARE REINCORPORATION
In November 1996, the Company completed the change in its state of
incorporation from California to Delaware by merging into its wholly-
owned subsidiary, OnTrak Systems, Inc., a Delaware corporation ("OnTrak
Delaware"). OnTrak Delaware continues to operate the business of the
Company under the name OnTrak Systems, Inc. The reincorporation was
approved by the Company's shareholders at the Annual Meeting of
Shareholders held on November 21, 1996. As a result of the
reincorporation, each outstanding share of the Company's Common Stock
was automatically converted into one share of OnTrak Delaware Common
Stock, $.0001 par value.
(5) NET INCOME PER SHARE
Net income per common and common equivalent share for the quarter and
six months ended December 31, 1995 was determined using the treasury
stock method. Under the treasury stock method, earnings per share is
computed by dividing net income by the weighted average number of common
and common equivalent shares outstanding during the period, including
the assumed net shares issuable upon exercise of dilutive stock options.
6
<PAGE>
Net income per common and common equivalent share for the quarter and six
months ended December 31, 1996 was determined using the modified treasury
stock method. Under the modified treasury stock method, all stock options
are assumed exercised whether dilutive or not, and the proceeds from the
assumed exercise are applied in steps. First, stock is assumed to be
repurchased up to a maximum of 20% of the actual outstanding shares. Any
remaining proceeds are assumed to be used to reduce debt, and then to acquire
U.S. Government securities. For purposes of this calculation, net income is
adjusted by the after tax interest effect related to such assumed
transactions. The result of the two step approach is aggregated and, if
dilutive, enters into the earnings per share calculation. The modified
treasury stock method can result in different earnings per share than those
calculated using the treasury stock method.
The calculations of earnings per share for the quarter and six months ended
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
QUARTER SIX MONTHS
ENDED ENDED
DEC. 31, 1996 DEC. 31, 1996
------------- -------------
<S> <C> <C>
CALCULATION OF NUMBER OF SHARES:
Actual outstanding shares at December 31, 1996 7,547 7,547
----- -----
----- -----
Assume exercise of all stock options 2,035 2,035
Assume repurchase of 20% of outstanding shares at December 31, 1996 (1,509) (1,509)
Add average shares outstanding during the period 7,538 7,533
----- -----
Pro forma shares for EPS calculation 8,064 8,059
----- -----
----- -----
CALCULATION OF PRO FORMA NET INCOME FOR PERIOD:
Net income as reported for period 784 1,922
After-tax interest adjustment related to assumed option exercises 11 42
----- -----
Pro forma net income for EPS calculation 795 1,964
----- -----
----- -----
CALCULATION OF EPS:
Pro forma net income divided by pro forma shares $ 0.10 $ 0.24
------- -------
------- -------
</TABLE>
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Statements included in this discussion which are not historical in nature are
intended to be, and are hereby identified as, "forward-looking statements" for
purposes of the safe harbor provided by Section 21E of the Securities Exchange
Act of 1934, as amended. These forward-looking statements are subject to a
number of risks and uncertainties that could cause the actual results to differ
materially from the statements made, including, but not limited to, the matters
discussed herein and under "Item 7 - Future Performance and Risk Factors" in
the Company's Annual Report on Form 10-K for the year ended June 30, 1996.
These forward-looking statements represent the Company's judgment as of the
date of the filing of this 10-Q report. The Company disclaims, however, any
intent or obligation to update these forward-looking statements.
OVERVIEW
The Company was incorporated in 1985 to provide third party sales of spare
parts for certain silicon wafer processing and semiconductor manufacturing
equipment. In 1990, the Company changed its focus and began developing a wafer
cleaning system. Sales of the Company's cleaning systems have increased as new
wafer processing requirements, such as CMP, have driven the need for improved
cleaning processes. As of December 31, 1996, the Company has shipped over 350
cleaning systems to customers worldwide.
The Company has been undergoing a period of rapid growth. The Company has
significantly increased its operations to support increased revenues, including
the hiring of additional personnel, and has made substantial investments in
research, development and engineering to support product development. The
Company's expansion has resulted in significantly higher operating expenses and
the Company expects that its operating expenses will continue to increase
significantly.
The continuing development of the Company's CMP polishing system, the Aurora,
has resulted in a significant increase in research, development and engineering
expenses and a corresponding decrease in operating margins. There can be no
assurance that the Company will not experience difficulties or delays in
developing the polishing system, that such efforts will be successful or that
the polishing system will satisfy customer requirements or achieve market
acceptance.
The Company's operating results have varied significantly, particularly on a
quarterly basis, as a result of a number of factors, including general economic
conditions affecting industry demand for semiconductor and semiconductor
equipment products; the timing and market acceptance of new product
introductions by the Company and its competitors; and the timing of significant
orders from and shipments to large customers. The Company's operating results
may fluctuate in the future as a result of these and other factors, including
continued acceptance of the Company's products, the Company's success in
developing and introducing new products, its product and customer mix, the
level of competition which it experiences, and its success in completing
development of and marketing its CMP polishing system under development. The
Company derives a substantial portion of its revenues from the sale of a
relatively small number of systems which range in purchase price from
approximately $150,000 to $525,000. As a result, a small reduction in the
number of systems shipped in a quarter could have a material adverse effect on
the Company's revenues and results of operations for that quarter.
The Company's gross margins have been and will continue to be affected by a
variety of factors, including the mix and average selling prices of systems,
the mix of customers, the costs associated with new system introductions and
enhancements, and the customization of systems. In addition, sales to
international distributors in Europe and Japan are at discounted prices which
reduce gross margins. Gross margins for initial shipments of new products are
typically lower than those for mature products until volume manufacturing is
achieved due to the inefficiencies associated with the start-up of
manufacturing operations.
The Company's international sales are denominated in U.S. dollars, and an
increase or decrease in the value of the U.S. dollar relative to foreign
currencies could make the Company's products less or more price competitive in
those markets and therefore affect sales to international customers. During
the first half of fiscal 1997, approximately 56% of the Company's revenues were
attributable to sales for installation in semiconductor fabrication facilities
outside the United States. During fiscal 1996 and 1995, approximately 32% and
27%, respectively, of the Company's revenues were attributable to sales for
installation in semiconductor fabrication facilities outside the United States.
8
<PAGE>
The market price of the Company's Common Stock has fluctuated since its initial
public offering in July 1995 and is subject to material fluctuations in the
future in response to a variety of factors, including; quarter to quarter
variations in operating results; announcements of developments related to the
Company's business; fluctuations in the Company's order levels; general
conditions in the semiconductor industry or the worldwide economy;
announcements of technological innovations; new products or product
enhancements by the Company or its competitors; developments relating to
patents or other intellectual property rights or disputes; and developments in
the Company's relationships with its customers, distributors and suppliers. In
addition, in recent years the stock market in general, and the market for
shares of small capitalization stocks in particular, has experienced extreme
price fluctuations which have often been unrelated to the operating performance
of affected companies. Such fluctuations could adversely affect the market
price of the Company's Common Stock.
RESULTS OF OPERATIONS
NET REVENUES. Net revenues are derived primarily from system sales, and to a
lesser extent, sales of spare parts and service. Net revenues for the quarter
ended December 31, 1996 were $16.7 million, an increase of 27% as compared to
net revenues of $13.2 million for the prior year's comparable period. Net
revenues for the six months ended December 31, 1996 were $33.2 million, an
increase of 40% as compared to net revenues of $23.7 million for the prior
year's comparable period. Both the current quarter and year-to-date increases
were primarily due to higher sales of the Company's post-CMP cleaning systems.
System shipments for the quarter and six month period ended December 31, 1996
increased by 14% and 23% respectively, over the prior year's comparable
periods. Higher average selling prices in both periods of the current year,
compared to each period in the prior year, also contributed to the increased
revenues. The increases in average selling prices were attributable to a shift
in the product mix toward systems with higher average selling prices.
International sales accounted for 72% of net revenues in the quarter ended
December 31, 1996, as compared to 30% for the prior year's comparable period.
For the first six months of fiscal 1997, international sales accounted for 56%
of net revenues, as compared to 32% for the prior year's comparable period.
Both the current quarter and year-to-date increases in the percentage of
international sales were attributable to increased system shipments to
customers in Europe and the Pacific Rim.
Sales to customers in Europe increased to $6.9 million during the quarter ended
December 31, 1996, as compared to $2.7 million for the prior year's comparable
period. For the six month period ended December 31, 1996, sales to customers
in Europe increased to $10.2 million, as compared to $5.5 million for the prior
year's comparable period. Sales to customers in the Pacific Rim increased to
$5.2 million during the quarter ended December 31, 1996, as compared to $1.2
million for the prior year's comparable period. For the six month period
ended December 31, 1996, sales to customers in the Pacific Rim increased to
$8.2 million, as compared to $2.2 million for the prior year's comparable
period. It is expected that international sales will continue to represent an
increased percentage of net revenues during the current year as compared to
fiscal 1996.
GROSS MARGIN. Gross margin was 52% for both the quarter and six month period
ended December 31, 1996, as compared to 53% for the prior year's comparable
periods. The slight decrease in both periods was attributable to higher
distributor discounts on the increased international shipments.
RESEARCH, DEVELOPMENT, AND ENGINEERING. Research, development, and engineering
expenses increased to $5.1 million, or 30% of net revenues, for the quarter
ended December 31, 1996, from $3.5 million, or 27% of net revenues, for the
prior year's comparable period. For the six months ended December 31, 1996,
research, development, and engineering expenses increased to $9.7 million, or
29% of net revenues, from $6.0 million, or 25% of net revenues, for the prior
year's comparable period. The increases in both the current quarter and the
year-to-date are attributable to the Company's continued development of a CMP
polishing system. It is anticipated that research, development, and
engineering expenses will remain at a relatively high percentage of revenues
until the polishing system is in commercial production.
SELLING, GENERAL, AND ADMINISTRATIVE. Selling, general, and administrative
expenses increased to $2.9 million, or 17% of net revenues, for the quarter
ended December 31, 1996, from $2.1 million, or 16% of net revenues, for the
prior year's comparable period. For the six months ended December 31, 1996,
selling, general, and administrative expenses increased to $5.6 million, or 17%
of net revenues, from $4.0 million, or 17% of net revenues, for the prior
year's comparable period. The current quarter and year-to-date increases in
absolute dollars are attributable to increased selling and marketing activities
as the Company expands its sales and marketing organization.
9
<PAGE>
INCOME TAXES. The Company's effective tax rate for the quarter and six months
ended December 31, 1996 was 33%, as compared to 35% for the comparable periods
in the prior year. The current quarter and year-to-date decreases are
attributable to the reinstatement of the federal research and development tax
credit.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended December 31, 1996, cash and cash equivalents
decreased by $7.2 million, from $24.2 million at June 30, 1996 to $17.0 million
at December 31, 1996. This decrease consisted of $7.8 million used for
investing activities, offset by $0.3 million provided by operating activities
and $0.3 million provided by investing activities. The cash used for investing
activities consisted of $4.2 million used to purchase short-term investments
and $3.6 million used to purchase fixed assets.
Changes in operating assets and liabilities consisted primarily of increases of
$2.8 million in accounts receivable and $1.3 million in inventory, which
reflects the Company's increased manufacturing activities and sales levels.
The Company expects future inventory levels to fluctuate with anticipated sales
levels and believes that because of the relatively long manufacturing cycle of
its systems, its investment in inventory will continue to represent a
significant portion of working capital. As a result of such investment in
inventories, the Company may be subject to an increased risk of inventory
obsolescence, which could have a material adverse effect on the Company's
operating results.
At December 31, 1996, the Company had working capital of $45.6 million, with
its primary source of liquidity provided by $33.6 million in cash and short-
term investments. In addition, the Company has a $10.0 million working capital
line of credit agreement which expires in November 1997. The line of credit
agreement is a renewal of an agreement which expired in November 1996, and has
substantially the same terms and conditions as the previous agreement. The
Company has no outstanding borrowings under the line of credit. The Company
believes that its existing cash and short-term investments, anticipated cash
flow from operations, and funds available under the line of credit agreement
will be sufficient to meet the Company's cash requirements during the next
twelve months. However, after that period, depending upon its rate of growth
and profitability, the Company may require additional equity or debt financing
to meet its working capital and fixed asset requirements. There can be no
assurance that additional financing will be available when required or, if
available, will be on terms satisfactory to the Company.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In January 1997, the Company received the arbitration ruling in a dispute
involving Homayoun Talieh, the Company's former Vice President, CMP Systems
Division. Pursuant to the terms of the ruling, all claims asserted by Mr.
Talieh were resolved for an immaterial sum.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
The Company's Annual Meeting of Shareholders was held on November 21, 1996.
(a) The following five persons nominated by management were elected
as directors at the meeting: James W. Bagley, Michael C. Child, Jerauld J.
Cutini, Richard J. Elkus, and Gary Hultquist. The results of this election
were as follows:
Name of Director Votes For Votes Withheld
---------------- --------- --------------
James W. Bagley 7,278,943 36,119
Michael C. Child 7,276,883 38,179
Jerauld J. Cutini 7,277,703 37,359
Richard J. Elkus 7,270,950 44,112
Gary Hultquist 7,279,043 36,019
(b) A proposal to ratify the Company's reincorporation in Delaware was
approved by a vote of 4,949,267 for, 659,690 against, and 35,078 abstentions.
(c) A proposal to approve the 1996 Equity Incentive Plan was approved by
a vote of 5,192,745 for, 423,364 against, and 63,796 abstentions.
(d) A proposal to ratify the appointment of Price Waterhouse LLP to serve
as the Company's independent accountants for the current fiscal year was
approved by a vote of 7,272,746 for, 11,403 against and 30,913 abstentions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27 - Financial Data Schedule for the six months ended
December 31, 1996, submitted to the Securities and Exchange
Commission in electronic format.
(b) Reports on Form 8-K:
Report dated November 22, 1996 - to announce the Company's
reincorporation in Delaware.
11
<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.
ONTRAK SYSTEMS, INC.
Date: February 10, 1997 By: /s/ Patrick C. O'Connor
--------------------------
Patrick C. O'Connor
Title: Vice President-Finance and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF ONTRAK SYSTEMS, INC. FOR THE SIX
MONTHS ENDED DECEMBER 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 16,997
<SECURITIES> 16,613
<RECEIVABLES> 12,048
<ALLOWANCES> 400
<INVENTORY> 8,053
<CURRENT-ASSETS> 56,010
<PP&E> 12,642
<DEPRECIATION> 3,048
<TOTAL-ASSETS> 65,604
<CURRENT-LIABILITIES> 10,415
<BONDS> 0
0
0
<COMMON> 46,809
<OTHER-SE> 7,346
<TOTAL-LIABILITY-AND-EQUITY> 65,604
<SALES> 33,195
<TOTAL-REVENUES> 33,195
<CGS> 15,846
<TOTAL-COSTS> 31,078
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 61
<INCOME-PRETAX> 2,870
<INCOME-TAX> 948
<INCOME-CONTINUING> 1,922
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,922
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0
</TABLE>
