<PAGE>
__________________________________________________________________
__________________________________________________________________
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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, 1997
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 0-26516
EUPHONIX, INC.
(Exact name of registrant as specified in its charter)
California 77-0189481
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
220 Portage Avenue, Palo Alto, CA 94306
(Address of principal executives, zip code)
(650) 855-0400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant has filed (1) 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
---------- -----------
The number of shares outstanding of the registrant's common stock as of June
30, 1997 was 5,570,761 ($.001 par value).
<PAGE>
EUPHONIX, INC.
FORM 10-Q
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION ----
ITEM 1. Condensed Consolidated Financial Statements (Unaudited):
Condensed Consolidated Statements of Operations for the
three and six months ended June 30, 1997 and 1996.........................3
Condensed Consolidated Balance Sheets as of
June 30, 1997 and December 31, 1996.......................................4
Condensed Consolidated Statements of Cash Flows
for the three and six months ended June 30, 1997 and 1996.................5
Notes to Condensed Consolidated Financial Statements
as of and for the six months ended June 30, 1997..........................6
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................................8
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K...................................12
Signature..................................................................13
Page 2 of 15
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Euphonix, Inc.
Condensed Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Nets revenues........ $ 4,486,020 $ 5,525,109 $ 9,443,937 $ 10,543,110
Cost of sales........ 2,382,183 2,514,477 4,909,899 4,891,393
------------ ------------- ------------- ------------
Gross profit......... 2,103,837 3,010,632 4,534,038 5,651,717
Operating expenses:
Research & development 885,819 649,585 1,815,679 1,241,011
In-process technology ---- ---- ---- 1,445,839
Sales & marketing.... 1,280,799 1,202,513 2,505,667 2,145,471
General & administrative 675,231 564,128 1,220,116 1,044,646
----------- ------------ ------------ ------------
Total operating expenses 2,841,849 2,416,226 5,541,462 5,876,967
----------- ------------ ------------ ------------
Operating (loss) income (738,012) 594,406 (1,007,424) (225,250)
Other income........... 85,662 143,355 161,114 252,172
----------- ------------ ------------ ------------
(Loss) income before
provision for income
taxes................ (652,350) 737,761 (846,310) 26,922
Tax provision.......... 59,713 228,706 ---- 456,706
----------- ------------ ------------ ------------
Net (loss) income.... $ (712,063) $ 509,055 $ (846,310) $ (429,784)
=========== ============ ============ ============
Net (loss) income per
share ............... $ (0.13) $ 0.09 $ (0.15) $ (0.08)
=========== ============ ============ ============
Number of shares used
in computing per share
amounts (in thousands) 5,569 5,767 5,568 5,479
=========== ============ ============= ============
</TABLE>
See accompanying notes
Page 3 of 15
<PAGE>
Euphonix, Inc.
Condensed Consolidated Balance Sheets
<TABLE>
June 30, December 31,
1997 1996
------------- ------------
(unaudited) (note)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............. $ 721,819 $ 1,428,095
Short-term investments................ 4,999,658 5,591,272
Accounts receivable, net.............. 1,847,166 1,626,756
Inventories........................... 5,863,756 4,674,082
Prepaid expenses and other current assets 619,642 697,064
------------- -------------
Total current assets..................... 14,052,041 14,017,269
Property and equipment, net.............. 1,315,510 1,247,933
Deposits and other assets................ 184,145 200,561
------------- -------------
Total assets............................. $ 15,551,696 $ 15,465,763
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable........................ $ 1,763,813 $ 736,939
Accrued payroll and related liabilities,
including deferred salary.............. 365,506 515,786
Accrued warranty........................ 382,984 382,715
Accrued commissions..................... 161,309 251,958
Income taxes payable.................... 97,902 50,892
Other accrued liabilities............... 624,092 515,680
Customer deposits....................... 453,492 484,960
Short term portion capital leases....... 21,585 43,679
------------- -------------
Total current liabilities................ 3,870,683 2,982,609
Long term portion capital leases......... 65,947 65,948
Deferred rent............................ 4,227 5,284
Deferred income taxes.................... 74,000 74,000
COMMITMENTS
SHAREHOLDERS' EQUITY:
Preferred stock, $0.001 par value: 2,000,000
authorized shares, none issued and
outstanding........................... ---- ----
Common stock, $0.001 par value:
20,000,000 authorized shares, 5,570,761
and 5,565,288 shares issued and outstanding
in 1997 and 1996, respectively.......... 5,571 5,566
Additional paid-in capital............... 13,719,914 13,719,069
Accumulated deficit...................... (2,004,146) (1,157,213)
Deferred compensation.................... (184,500) (229,500)
-------------- --------------
Total shareholders' equity................ 11,536,839 12,337,922
-------------- --------------
Total liabilities and shareholders' equity $ 15,551,696 $ 15,465,763
============== ==============
Note: The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date. See notes to condensed financial statements.
</TABLE>
See accompanying notes
Page 4 of 15
<PAGE>
Euphonix, Inc.
Condensed Consolidated Statements of Cash Flows
(unaudited)
<TABLE>
<CAPTION
Six Months Ended
June 30,
1997 1996
------------- ------------
<S> <C> <C>
Operating activities
Net loss.................................... $ (846,310) $ (429,784)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation................................ 182,340 198,621
Amortization of organization expense........ 4,666 ----
Amortization of patents, trademarks, and
copyrights................................. 3,770 ----
Amortization of technology and goodwill..... ---- 94,962
Deferred compensation amortization.......... 45,000 45,000
Acquired research and development........... ---- 1,445,838
Changes in operating assets and liabilities:
Prepaid expenses and other current assets
and other assets.......................... 85,402 (232,198)
Accounts receivable........................ (220,410) (45,981)
Inventories................................ (1,189,674) (1,032,526)
Accounts payable, accrued liabilities, and
deferred rent............................. 940,579 307,387
Customer deposits.......................... (31,468) (2,087,832)
------------- ------------
Total adjustments............................ (179,795) (1,306,729)
------------- ------------
Net cash used in operating activities........ (1,026,105) (1,736,513)
Investing activities
Purchase of Spectral, Inc. net of cash acquired ---- (2,283,327)
Proceeds from sales of short-term investment
maturities................................... 1,845,466 5,801,625
Purchases of short-term investments........... (1,254,475) (2,200,268)
Purchase of property and equipment............ (249,917) (370,259)
------------- ------------
Net cash provided by investing activities..... 341,074 947,771
Financing activities
Principal payments under capital lease
obligations.................................. (22,095) (15,059)
Proceeds from sale of common stock............ 850 171,305
------------ ------------
Net cash provided by (used in) financing
activities................................... (21,245) 156,246
------------ ------------
Net decrease in cash and cash equivalents..... (706,276) (632,496)
Cash and cash equivalents at beginning of
period....................................... 1,428,095 860,527
------------ ------------
Cash and cash equivalents at end of period...$ 721,819 $ 228,031
============ ============
Supplemental disclosures of cash flow information
Cash paid for income taxes...................$ ---- $ 925,790
</TABLE>
See accompanying note
Page 5 of 15
<PAGE>
EUPHONIX, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
The accompanying unaudited condensed 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 adjust-
ments (consisting only of normal recurring adjustments) considered necessary
for a fair presentation have been included. Operating results for the six-
month period ended June 30, 1997 are not necessarily indicative of the results
that may be expected for the entire year ending December 31, 1997.
For further information, refer to the audited financial statements
and footnotes thereto included in the Registrant Company's annual report on
Form 10-K for the year ended December 31, 1996.
2. Business Activities
Euphonix, Inc. (the "Company") was incorporated on July 6, 1988. The
Company's core business is the development, manufacture and marketing of digit-
ally controlled audio mixing consoles and accessories for use in the production
of audio content for music, post production for film and television, broadcast,
live sound reinforcement and multimedia world-wide markets. On February 7,
1996, Euphonix acquired 100% of the stock of Spectral Incorporated. Spectral,
a wholly owned subsidiary, develops and markets PC-based digital audio worksta-
tions. On March 1, 1997, Euphonix, Japan, a wholly owned subsidiary began oper-
ations. Euphonix, Japan will include sales and marketing, customer service,
technical support and finance functions.
3. Net (Loss) income per share
Net loss per share is based upon the weighted average number of common
stock outstanding during the period. Common equivalent shares from options
have been included in the computation when dilutive.
In February 1997, the Financial Accounting Standards Board Issued
Statement No. 128, Earnings per Share, which is required to be adopted on Decem-
ber 31, 1997. At that time, the Company will be required to change the method
currently used to compute earnings per share and to restate all prior periods.
Under the new requirements for calculating primary earnings per share, the dilu-
tive effect of stock options will be excluded. The impact is not expected to
result in any change in primary earnings per share for the second quarter and
six months ended June 30, 1997 and June 30, 1996. The impact of Statement 128
on the calculation of fully diluted earnings per share for the second quarter
and six months ended June 30, 1997 is also not expected to be material.
Page 6 of 15
<PAGE>
EUPHONIX, INC.
Notes to Condensed Consolidated Financial Statements - Continued
4. Inventories
Inventories are stated at the lower cost (first-in, first-out) or mar-
ket (net realizable value). Inventories consist of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
------------ -------------
<S> <C> <C>
Raw materials..............$ 1,695,782 $ 1,983,382
Work-in-process............ 1,407,666 935,211
Finished goods............. 2,760,308 1,755,489
------------ ------------
$ 5,863,756 $ 4,674,082
============ ============
</TABLE>
5. Income Taxes
The Company's provision for income taxes for the six months ended June
30, 1997 is based on the Company's estimate of the annual effective tax rate for
1997. The Company's effective tax rate for the six months ended June 30, 1997
was 0%. The Company's effective tax rate was 31% in 1996, before the effect of
certain non-deductible merger related charges. The effective tax rate for the
second quarter of 1997 differs from the federal statutory rate due to the limit-
ations on recognition of deferred tax assets imposed by "Statement of Financial
Accounting Standards ("SFAS") 109, Accounting for Income Taxes". The effective
tax rate for the second quarter of 1996 differs from the federal statutory rate
of 34% primarily due to the recognition of certain deferred tax assets based on
available carry-back potential.
6. Preferred Stock
In July 1995, the Board of Directors amended, and the shareholders
subsequently approved, the Company's Articles of Incorporation to authorize
2,000,000 shares of undesignated preferred stock. Preferred stock may be issued
from time to time in one or more series. The Board of Directors is authorized
to determine the rights, preferences, privileges, and restrictions granted to
and imposed upon any wholly unissued series of preferred stock and to fix the
number of shares of any series of preferred stock and the designation of any
such series without any vote or action by the Company's shareholders.
Page 7 of 15
<PAGE>
Item 2. Management's Discussion & Analysis of Financial Condition &
Results of Operations.
This Quarterly Report on Form 10-Q contains forward-looking statements
that involve risks and uncertainties. The Company's actual results may differ
significantly from the results discussed in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in the section entitled "Factors Affecting Future Operating
Results."
Results of Operations
Net Revenues. Net revenues were $4.5 million for the second quarter
of 1997, which was 18.8% below second quarter 1996 revenues of $5.5 million. For
the first six months of fiscal 1997, net revenues of $9.4 million decreased
10.4% from $10.5 million from the first six months of 1996. The Company's
decrease in net revenues resulted primarily from reduced European sales. Sub-
stantially all sales are denominated in United States dollars to reduce the
effect of fluctuations in foreign currency exchange rates.
Domestic sales of the Company's products for the second quarter of 1997
and 1996 were $3.3 million and $2.4 million, respectively, comprising approx-
imately 72.6% and 43.3% of the Company's net revenues for the second quarter of
1997 and 1996, respectively. Domestic sales were $5.8 million and $4.8 million
comprising approximately 61.3% and 45.5% of the Company's net revenues for the
first six months of 1997 and 1996, respectively. Export sales were $1.2 million
and $3.1 million comprising approximately 27.4% and 56.7% of the Company's
revenues for the second quarter of 1997 and 1996, respectively. Export sales
were $3.7 million and $5.7 million comprising approximately 38.7% and 54.5% of
the Company's revenues for the first six months of 1997 and 1996, respectively.
The Company believes that export sales as a percent of net revenues decreased
in the first six months of 1997 due to fewer sales in European countries, as
compared to the first six months of 1996.
Gross Margin. The Company's gross margin decreased to 46.9% in the
second quarter of 1997, down from 54.5% in 1996. For the first six months of
fiscal 1997, gross margin was $4.5 million, or 48% of net revenues, compared
with $5.7 million , or 53.6% of net revenues, for the first six months of fiscal
1996. The decrease in the second quarter and six months of 1997 from the second
quarter and six months of 1996 was primarily attributable to an increase in
inventory reserves and pre-production costs related to the introduction of the
Company's new CS3000 mixing consoles. Margins are expected to increase going
forward as the Company gains efficiencies through volume production of the new
product.
Research and Development Expenses. Research and development expenses
increased to $886,000 in the second quarter of 1997, up from $650,000 in the
second quarter of 1996, representing an increase of 36.4% in 1997. For the
first six months in 1997, research and development expenses of $1.8 million
increased 46.3% from $1.2 million in 1996. Research and development expenses
constituted 19.7%, 11.8%, 19.2%, and 11.8% of net revenues in the second quarter
of 1997 and 1996 and the first six months of 1997 and 1996, respectively. The
increases resulted primarily from new product development costs primarily
related to new generation products, and additional personnel.
Sales and Marketing Expenses. Sales and marketing expenses increased
to $1.3 million in the second quarter of 1997, from $1.2 million in the second
quarter of 1996, representing an increase of 6.5%. For the first six months of
fiscal 1997, sales and marketing expenses of $2.5 million increased 16.8% from
$2.1 million in 1996. Sales and marketing expenses constituted 28.6%, 21.8%,
Page 8 of 15
<PAGE>
26.5%, and 20.3% of net revenues in the second quarter of 1997 and 1996 and
the first six months of 1997 and 1996, respectively. The increases resulted
primarily from investment in targeting new markets and expanding the Company's
international sales and marketing presence in established, and new territories
through increased advertising, trade shows, and product demonstrations.
General and Administrative Expenses. General and administrative
expenses increased to $675,000 in the second quarter of 1997 from $564,000 in
the second quarter of 1996, representing an increase of 19.7%. For the first
six months of fiscal 1997, general and administrative expenses of $1.2 million
increased 16.8% from $1.0 million in the first six months of 1996. General and
administrative expenses constituted 15.0%, 10.2%, 12.9%, and 9.9% of net reve-
nues in the second quarter of fiscal 1997 and 1996 and the first six months of
fiscal 1997 and 1996, respectively. The increases were mostly attributable to
increases in bad debt reserves.
Provision for Income Taxes. The Company's effective tax rate is 9% in
1997. The Company's effective tax rate was 31% in 1996, before the effect of
certain non-deductible merger related charges. The effective tax rate for the
second quarter of 1997 and 1996 differs from the federal statutory rate of 34%
primarily due to the recognition of certain deferred tax assets. The Company
expects that its effective tax rate will be higher in future years as the
amount of unrecognized deferred tax assets is reduced.
Liquidity and Capital Resources
The Company has funded its operations to date primarily through cash
flows from operations, the private sale of equity securities, and the initial
public offering of Common Stock completed in September 1995, which generated
net proceeds of approximately $9.3 million. For the six months ended June 30,
1997, cash, cash equivalents and short-term investments decreased by $1.3 mil-
lion to approximately $5.7 million, mainly due to the operating cash require-
ments of its digital audio workstation subsidiary, Spectral Incorporated, and
lower than anticipated sales in general. Also, during this period, working
capital decreased by $853,000 to approximately $10.2 million.
The Company's operating activities used cash of approximately $1.0
million and $1.7 million for the six months ended June 30, 1997 and 1996,
respectively. Cash used in operating activities for 1997 was comprised primar-
ily of net loss, an increase in inventory and accounts receivable, offset par-
tially by an increase in accounts payable. Cash used in operating activities
for 1996 was comprised primarily of net loss, a decrease in customer deposits
and an increase in inventory, offset partially by an increase in accounts pay-
able.
As of June 30, 1997, the Company's sources of liquidity included cash,
cash equivalents and short-term investments totaling approximately $5.7 million,
and an unsecured bank line of credit of up to $500,000. As of June 30, 1997,
no borrowings were outstanding under such line of credit and the Company
was in compliance with debt covenants.
Factors Affecting Future Operating Results
The Company has derived virtually all of its revenues from sales of
its digitally controlled audio mixing console system, which system is based upon
its proprietary software and hardware platform. The Company believes that sales
of this system, along with enhancements thereof, will continue to constitute
virtually all of the Company's revenues for the foreseeable future, notwith-
standing sale of digital audio workstations sold by Spectral. Accordingly, any
factor adversely affecting the Company's base system, whether technical, compet-
Page 9 of 15
<PAGE>
itive or otherwise, could have a material adverse effect on the Company's
business and results of operations.
A limited number of the Company's system sales typically account for a
substantial percentage of the Company's quarterly revenue because of the rela-
tively high average sales price of such systems. The Company believes that it is
more difficult to secure orders in the summer months, which may in turn adverse-
ly affect the Company's revenues. Moreover, the Company's expense levels are
based in part on its expectations of future revenue. Therefore, if revenue is
below expectations, the Company's operating results are likely to be adversely
affected. In addition, the timing of revenue is influenced by a number of
other factors, including the timing of individual orders and shipments, indus-
try trade shows, seasonal customer buying patterns, changes in product develop-
ment and sales and marketing expenditures, custom financing arrangements,
production limitations and international sales activity. Because the Company's
operating expenses are based on anticipated revenue levels and a high percent-
age of the Company's expenses are relatively fixed in the short term, variations
in the timing of recognition of revenue could cause significant fluctuations
in operating results from quarter to quarter and may result in unanticipated
quarterly earnings shortfalls or losses.
The markets for the Company's system are characterized by changing
technologies and new product introductions. The Company's future success will
depend in part upon its continued ability to enhance its base system with
features, including new software and hardware add-ons, and to develop or
acquire and introduce new products and features which meet new market demands
and changing customer requirements on a timely basis. In addition, there can
be no assurance that products or technologies developed by others will not
render the Company's products or technologies non-competitive or obsolete.
To date, the Company's primary market success has been in the music
segment of the professional audio market. In order for the Company to grow,
the Company believes that it must continue to gain market share in the music
market segment, as well as in its other targeted market segments. There can be
no assurance that the Company will be able to compete favorably in any other
market segments. The Company's inability to compete favorably could have a
material adverse effect on its business and results of operations. The markets
for the Company's products are intensely competitive and characterized by
significant price competition. The Company believes that its ability to compete
depends on elements both within and outside its control, including the success
and timing of new product development and introduction by the Company and its
competitors, product performance and price, distribution, availability of lease
or other financing alternatives, resale of used systems and customer support.
Currently, the Company uses many sole or limited source suppliers,
certain of which are critical to the integrated circuits included in the
Company's base system. Major delays or terminations in supplies of such com-
ponents could have a significant adverse effect on the Company's timely ship-
ment of its products, which in turn would adversely affect the Company's busi-
ness and results of operations. The Company also relies on single vendors to
manufacture major subassemblies for its products. Any extended interruption in
the future supply or increase in the cost of subassemblies manufactured by its
primary or other third party vendors could have a material adverse effect on
the Company's business and results of operations.
In addition, as different electrical, radiation or other standards
applicable to the Company's products are adopted in countries, including the
United States, or groups of countries in which the Company sells its products,
the failure of the Company to modify its products, if necessary, to comply with
such standards would likely have an adverse effect on the Company's business and
results of operations.
Page 10 of 15
<PAGE>
The Company generally relies on a combination of trade secret, copy-
right law and trademark law, contracts and technical measures to establish and
protect its proprietary rights in its products and technologies. However, the
Company believes that such measures provide only limited protection of its
proprietary information, and there is no assurance that such measures will be
adequate to prevent misappropriation. In addition, significant and protracted
litigation may be necessary to protect the Company's intellectual property
rights, to determine the scope of the proprietary rights of others or to
defend against claims of infringement. There can be no assurance that third-
party claims alleging infringement will not be asserted against the Company
in the future. Any such claims could have a material adverse effect on the
Company's business and results of operations.
The Company's success depends, in part, on its ability to retain key
management and technical employees and its continued ability to attract and
retain highly skilled personnel. In addition, the Company's ability to manage
any growth will require it to continue to improve and expand its management,
operational and financial systems and controls. If the Company's management is
unable to manage growth effectively, its business and results of operations
will be adversely affected.
As a result of these and other factors, the Company has experienced
significant quarterly fluctuations in operating results and anticipates that
these fluctuations will continue in future periods. There can be no assurance
that the Company will be successful in maintaining or improving its profitabil-
ity or avoiding losses in any future period. Further, it is likely that in some
future period the Company's net revenues or operating results will be below the
expectations of public market securities analysts and investors. In such event,
the price of the Company's Common Stock would likely be materially adversely
affected.
Page 11 of 15
<PAGE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders:
The Company's Annual Meeting of Shareholders was held on June 26, 1997.
The results of the voting were as follows:
Proposal 1: Election of the Board of Directors of the Company.
<TABLE>
<CAPTION>
Nominee Votes For Votes Withheld
------- --------- --------------
<S> <C> <C> <C>
Robert F. Kuhling, Jr. 4,571,954 33,897
Guy Paul Nohra 4,571,754 34,097
Scott W. Silvast 4,264,616 341,235
</TABLE>
Proposal 2: Ratification of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending
December 31, 1997.
Votes For: 4,586,389
Votes Against: 16,012
Votes Abstaining: 3,450
Item 6: Exhibits and Reports on Form 8-K/A
----------------------------------
(a) Exhibits.
Exhibit 11.1 - Statement Regarding Computation of Per Share
Earnings (page 14)
Exhibit 27 - Financial Data Schedule (page 15)
The exhibits listed on the accompanying index immediately
following the signature page are filed as part of this report.
(b) Reports on Form 8-K
None.
Page 12 of 15
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the under-
signed thereunto duly authorized.
Euphonix, Inc.
Date: August 14, 1997 By: /s/ BARRY L. MARGERUM
--------------------- -------------------------------
Barry L. Margerum, Chief Executive
Officer, President
Page 13 of 15
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibit Title
- ------ -------------
11.1 Calculation of Earnings Per Share
27 Financial Data Schedule
EXHIBIT 11.1 Statement re: Computation of Per Share Earnings (Loss)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
--------- --------- ------- -------
<S> <C> <C> <C> <C>
(in thousands, except per share data)
Weighted average common shares
outstanding........................ 5,569 5,525 5,568 5,479
Common equivalent shares attributable
to convertible preferred stock..... --- --- --- ---
Common equivalent shares attributable
to the net effect of dilutive stock
options based on the treasury stock
method using average market price. --- 242 --- ---
Shares related to SAB No. 55, 64 and 83 --- --- --- ---
--------- --------- -------- ------
Number of shares used in computing per
share amounts....................... 5,569 5,767 5,568 5,479
========= ========= ======== ======
Net (loss) income.................... $ (712) $ 509 $ (846) $(430)
========= ========= ======== ======
Net (loss) income per share.......... $ (0.13) $ 0.09 $(0.15) $(0.08)
========= ========= ======== ======
FULLY DILUTED
Weighted average common shares
outstanding......................... 5,569 5,525 5,568 5,479
Common equivalents shares attributable
to convertible preferred stock...... --- --- --- ---
Common equivalent shares attributable
to the net effect of dilutive stock
options based on the treasury stock
method using quarter-end (year-end)
price, if higher than average market
price................................ --- 242 --- ---
Shares related to SAB No. 55, 64 and 83 --- --- --- ---
------- -------- -------- ------
Number of shares used in computing per
share amounts........................ 5,569 5,767 5,568 5,479
======= ======== ======== ======
Net (loss) income..................... $ (712) $ 509 $ (846) $(430)
======= ======== ======== ======
Net (loss) income per share........... $(0.13) $ 0.09 $ (0.15) $(0.08)
======= ======== ======== ======
</TABLE>
Page 14 of 15
<PAGE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
EXHIBIT 27 Financial Data Schedule
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 721,819
<SECURITIES> 4,999,658
<RECEIVABLES> 1,847,166
<ALLOWANCES> 0
<INVENTORY> 5,863,756
<CURRENT-ASSETS> 14,052,041
<PP&E> 1,497,850
<DEPRECIATION> 182,340
<TOTAL-ASSETS> 15,551,696
<CURRENT-LIABILITIES> 3,870,683
<BONDS> 0
0
<COMMON> 5,571
<OTHER-SE> 11,531,268
<TOTAL-LIABILITY-AND-EQUITY> 15,551,696
<SALES> 9,443,937
<TOTAL-REVENUES> 9,443,937
<CGS> 4,909,899
<TOTAL-COSTS> 5,541,462
<OTHER-EXPENSES> (161,114)
<INCOME-PRETAX> (846,310)
<INCOME-TAX> 0
<INCOME-CONTINUING> (846,310)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (846,310)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> (0.15)
Page 15 of 15
</TABLE>
