<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 MARCH 31, 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 chapter)
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)
(415) 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 regis-
trant 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 March
31, 1997 was 5,567,788 ($.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 Income for the
three months ended March 31, 1997 and 1996.............................3
Condensed Consolidated Balance Sheets as of
March 31, 1997 and December 31, 1996...................................4
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 1997 and 1996.....................5
Notes to Condensed Consolidated Financial Statements
as of and for the three months ended March 31, 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
Signatures..............................................................13
Page 2 of 15
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Euphonix, Inc.
Condensed Consolidated Statements of Operations
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
----------- -----------
<S> <C> <C>
Nets revenues.................................. $ 4,957,917 $ 5,018,001
Cost of sales.................................. 2,527,716 2,376,916
----------- -----------
Gross profit................................... 2,430,201 2,641,085
Operating expenses:
Research & development....................... 929,860 591,426
In-process technology........................ ---- 1,445,839
Sales & marketing............................ 1,224,868 942,958
General & administrative..................... 544,885 480,518
----------- -----------
Total operating expenses....................... 2,699,613 3,460,741
----------- -----------
Operating loss................................. (269,412) (819,656)
Other income................................... 75,452 108,817
----------- -----------
Loss before provision (benefit) for
income taxes................................ (193,960) (710,839)
Tax provision (benefit)........................ (59,713) 228,000
----------- -----------
Net loss....................................... $ (134,247) $ (938,839)
=========== ===========
Net loss per share............................. $ (0.02) $ (0.17)
=========== ===========
Number of shares used in computing
per share amounts (in thousands)............ 5,567 5,432
=========== ===========
</TABLE>
See accompanying notes
Page 3 of 15
<PAGE>
Euphonix, Inc.
Condensed Consolidated Balance Sheets
<TABLE>
March 31, December 31,
1997 1996
------------- --------------
(unaudited) (note)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................ $ 893,491 $ 1,428,095
Short-term investments................... 5,800,858 5,591,272
Accounts receivable, net................. 2,731,694 1,626,756
Inventories.............................. 5,033,384 4,674,082
Prepaid expenses and other current assets 665,416 697,064
------------- -------------
Total current assets....................... 15,124,843 14,017,269
Property and equipment, net................ 1,379,441 1,247,933
Deposits and other assets.................. 142,065 200,561
------------- -------------
Total assets............................... $ 16,646,349 $ 15,465,763
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable......................... $ 1,313,870 $ 736,939
Accrued payroll and related liabilities,.
including deferred salary.............. 475,469 515,786
Accrued warranty......................... 398,270 382,715
Accrued commissions...................... 206,473 251,958
Income taxes payable..................... 58,716 50,892
Other accrued liabilities................ 929,165 515,680
Customer deposits........................ 860,289 484,960
Short term portion capital leases........ 32,838 43,679
------------- ------------
Total current liabilities.................. 4,275,090 2,982,609
Long term portion capital leases........... 65,948 65,948
Deferred Rent.............................. 4,755 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, 5,567,788 and
5,565,288 shares issued and outstanding
in 1997 and 1996, respectively......... 5,568 5,566
Additional paid-in capital............... 13,719,447 13,719,069
Retained earnings (deficit).............. (1,291,459) (1,157,213)
Deferred compensation.................... (207,000) (229,500)
------------- ------------
Total shareholders' equity................. 12,226,556 12,337,922
------------- ------------
Total liabilities and shareholders' equity. $ 16,646,349 $ 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>
Three Months Ended
March 31,
1997 1996
--------------- ---------------
<S> <C> <C>
Operating activities
Net income (loss)..................... $ (134,247) $ (938,839)
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation.......................... 101,200 55,428
Amortization of organization expense.. 2,333 ----
Amortization of patents, trademarks,..
and copyrights....................... 1,885 ----
Amortization of technology and goodwill ---- 39,260
Deferred compensation amortization.... 22,500 22,500
Acquired research and development..... ---- 1,445,838
Changes in operating assets and liabilities:
Prepaid expenses and other current
assets and other assets........... 85,926 (146,165)
Accounts receivable................ (1,104,938) 115,760
Inventories........................ (359,302) (307,247)
Accounts payable, accrued
liabilities, and deferred rent.... 927,465 492,448
Customer deposits.................. 375,329 (1,228,922)
----------- -------------
Total adjustments...................... 52,398 488,900
----------- -------------
Net used in operating activities....... (81,849) (449,939)
Investing activities
Purchase of Spectral, Inc. net of cash
acquired.............................. ---- (2,283,327)
Proceeds from sales of short-term
investment maturities................. 1,044,889 4,550,791
Purchases of short-term investments.... (1,254,475) (2,200,268)
Purchase of property and equipment..... (232,708) (107,917)
----------- -------------
Net cash used in investing activities.. (442,294) (40,721)
Financing activities
Principal payments under capital lease
obligations........................... (10,841) (3,698)
Proceeds from sale of common stock..... 380 20,388
----------- -------------
Net cash provided by financing activities (10,461) 16,690
----------- -------------
Net decrease in cash and cash equivalents (534,604) (473,970)
Cash and cash equivalents at beginning of
period................................. 1,428,095 860,527
----------- -------------
Cash and cash equivalents at end of period $ 893,491 $ 386,557
=========== =============
Supplemental disclosures of cash flow
information
Cash paid for income taxes.............. $ ---- $ 431,000
</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 accruals) considered necessary for
a fair presentation have been included. Operating results for the three-month
period ended March 31, 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, 1997.
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 dig-
itally controlled audio mixing consoles and accessories for use in the produc-
tion 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
workstations. On March 1, 1997 the Company's new subsidiary company, Euphonix,
Japan, began operations. Euphonix, Japan will include sales and marketing,
customer service, technical support and finance functions.
3. Net Loss per Share
Net loss per share is based upon the weighted average number of shares of
common stock outstanding during the period.
In February 1997, the Financial Accounting Standards Board issued "State-
ment of Financial Accounting Standards ("SFAS") No. 128, Earnings per Share,"
which is required to be adopted on December 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 cal-
culating primary earnings per share, the dilutive effect of stock options will
be excluded. The impact is not expected to result in any change in primary
earnings per share for the first quarter ended March 31, 1997 and March 31,
1996. The impact of Statement 128 on the calculation of fully diluted earnings
per share for these quarters 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 market
(net realizable value). Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---------------- ----------------
<S> <C> <C>
Raw materials.... $ 1,829,557 $ 1,983,382
Work-in-process.. 1,447,483 935,211
Finished goods... 1,756,344 1,755,489
------------ ------------
$ 5,033,384 $ 4,674,082
============ ============
</TABLE>
5. Income Taxes
The Company's provision for income taxes for the three months ended March
31, 1997 is based on the Company's estimate of the annual effective tax rate
for 1997. The Company's effective tax rate for the three months ended March 31,
1997 was a benefit of 31%. The recognition of this tax benefit is dependent
upon the generation of future taxable income sufficient to realize the Company's
deferred tax assets. The amount of the deferred tax assets considered realiz-
able, however, could be reduced in the near term if estimates of future tax-
able income are reduced.
6. Preferred Stock
In July 1995, the Board of Directors amended, and the shareholders subse-
quently 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 deter-
mine the rights, preferences, privileges, and restrictions granted to and im-
posed 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.
7. Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
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 $4.96 million for the first quarter of
1997, which was 1.2% below first quarter 1996 revenues of $5.02 million. The
Company's decrease in net revenues resulted primarily from reduced European
sales.
Sales of the Company's products in the United States for the first quarter
of 1997 and 1996 were $2.5 million and $2.4 million, respectively, comprising
approximately 51.0% and 48.0% of the Company's net revenues for the first
quarter of 1997 and 1996, respectively. Export sales were $2.4 million and $2.6
million for the same periods, comprising approximately 49.0% and 52.0% of the
Company's revenues for the first quarter of 1997 and 1996, respectively. The
Company believes that export sales as a percent of net revenues decreased in
the first quarter of 1997 due to fewer sales in European countries, as compared
to the first quarter of 1996. Substantially all sales are denominated in United
States dollars to reduce the effect of fluctuations in foreign currency exchange
rates.
Gross Margin. The Company's gross margin decreased to 49.0% in the first
quarter of 1997, down from 52.6% in 1996. The decrease in the first quarter of
1997 from the first quarter of 1996 was primarily attributable to pre-production
costs related to the introduction of the Company's new CS3000 mixing consoles.
Research and Development Expenses. Research and development expenses
increased to $930,000 in the first quarter of 1997, up from $591,400 in the
first quarter of 1996, representing an increase of 57.2% in 1997. Research
and development expenses as a percentage of net revenues increased to 18.8%
in the first quarter of 1997, up from 11.8% in the first quarter of 1996. The
increase in research and development expenses in the first quarter of 1997
from the first quarter of 1996 was primarily due to new product development
costs which included the new CS3000 mixing console, and personnel costs.
Sales and Marketing Expenses. Sales and marketing expenses increased to
$1.2 million in the first quarter of 1997, from $943,000 in the first quarter
of 1996, representing an increase of 29.9%. Sales and marketing expenses
increased as a percentage of net revenues to 24.7% in the first quarter of 1997
from 18.8% in the first quarter of 1996. The increase in sales and marketing
expenses in the first quarter of 1997 from the same period in 1996 was attri-
butable to increases in advertising costs and additions to the sales and market-
ing staff.
General and Administrative Expenses. General and administrative expenses
increased to $545,000 in the first quarter of 1997 from $481,000 in the first
quarter of 1996, representing an increase of 13.4%. General and administrative
expenses as a percent of net revenues increased to 11.0% in the first quarter
of 1997 from 9.6% in the first quarter of 1996. The increase in the first quar-
ter of 1997 is primarily due to increases in insurance and personnel staffing
costs.
Page 8 of 15
<PAGE>
Provision for Income Taxes. The Company's effective tax rate is 31% 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
first 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 pro-
ceeds of approximately $9.3 million. For the first quarter ended March 31, 1997,
cash, cash equivalents and short-term investments decreased by $325,000 to
approximately $6.7 million, mainly due to the operating cash requirements of
its digital audio workstation subsidiary, Spectral Incorporated. Also, during
this period, working capital decreased by $185,000 to approximately $10.8
million.
The Company's operating activities used cash of approximately $93,000 and
$450,000 in the first quarter of 1997 and 1996, respectively. Cash used in
operating activities for 1997 was comprised primarily an increase in inventory,
and in accounts receivable offset partially by an increase in accounts payable
and customer deposits. Cash used in operating activities for 1996 was comprised
primarily of net loss, a decrease in customer deposits and an increase in inven-
tory, offset partially by a decrease in accounts receivable and an increase in
accounts payable.
As of March 31, 1997, the Company's sources of liquidity included cash,
cash equivalents and short-term investments totaling approximately $6.7 million,
and an unsecured bank line of credit of up to $500,000. As of March 31, 1997,
no borrowings were outstanding under such line of credit.
Newly Issued Financial Reporting Pronouncements
In February 1997, the Financial Accounting Standards Board issued "State-
ment of Financial Accounting Standards ("SFAS") 128, Earnings per Share." The
new standard revises the disclosure requirements of earnings per share, simpli-
fies the computation of earnings per share and increases the comparability of
earnings per share on an international basis. SFAS 128 will be effective for
the Company for the year ending December 31, 1997. The Company has not deter-
mined the impact that adopting SFAS 128 will have on its financial statements.
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, compe-
titive 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
Page 9 of 15
<PAGE>
is more difficult to secure orders in the summer months, which may in turn
adversely 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 adverse-
ly affected. In addition, the timing of revenue is influenced by a number of
other factors, including the timing of individual orders and shipments, industry
trade shows, seasonal customer buying patterns, changes in product development
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 percentage 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 operat-
ing 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 tech-
nologies and new product introductions. The Company's future success will
depend in part upon its continued ability to enhance its base system with fea-
tures 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 perfor-
mance and price, distribution, availability of lease or other financing alter-
natives, 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 components could have
a significant adverse effect on the Company's timely shipment of its products,
which in turn would adversely affect the Company's business and results of oper-
ations. The Company also relies on single vendors to manufacture major subassem-
blies 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 applic-
able 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.
The Company generally relies on a combination of trade secret, copyright
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 Companys intellectual property rights, to
Page 10 of 15
<PAGE>
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 signi-
ficant 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 profitability
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 1: Legal Proceedings: Not applicable
Item 2: Changes In Securities: Not applicable
Item 3: Defaults Upon Senior Securities: Not applicable
Item 4: Submission of Matters to a Vote of Security Holders: Not applicable
Item 5: Other Information: Not applicable
Item 6: Exhibits and Reports on Form 8-K/A
(a) Exhibits.
Exhibit 11.1 - Statement Regarding Computation of Per Share
Earnings (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>
SIGNATURES
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: May 14, 1997 By: /s/ JEFFREY A. CHEW
------------------------------ -------------------------------
Jeffrey A. Chew, Vice President
of Finance, Chief Financial
Officer
Page 13 of 15
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibit Title
- ------- -------------
11.1 Calculation of Earnings Per Share
Page 14 of 15
<PAGE>
EXHIBIT 11.1 Statement re: Computation of Per Share Earnings (Loss)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
------------ ------------
(in thousands, except per share data)
<S> <C> <C>
PRIMARY
Weighted average common shares outstanding.. 5,567 5,432
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............................... --- ---
Shares related to SAB No. 55, 64 and 83...... --- ---
--------- ---------
Number of shares used in computing per share
amounts..................................... 5,567 5,432
========= =========
Net (loss) income............................ $ (134) $ (939)
========= =========
Net (loss) income per share.................. $ (0.02) $ (0.17)
========= =========
FULLY DILUTED
Weighted average common shares outstanding... 5,567 5,432
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 aver-
age market price........................... --- ---
Shares related to SAB No. 55, 64 and 83...... --- ---
-------- --------
Number of shares used in computing per share
amounts.................................... 5,567 5,432
======== ========
Net (loss) income............................ $ (134) $ (939)
======== ========
Net (loss) income per share.................. $ (0.02) $ (0.17)
======== ========
</TABLE>
Page 15 of 15
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 893,491
<SECURITIES> 5,800,858
<RECEIVABLES> 2,731,694
<ALLOWANCES> 0
<INVENTORY> 5,033,384
<CURRENT-ASSETS> 15,124,843
<PP&E> 2,309,475
<DEPRECIATION> 930,034
<TOTAL-ASSETS> 16,646,349
<CURRENT-LIABILITIES> 4,275,090
<BONDS> 0
0
<COMMON> 5,568
<OTHER-SE> 12,220,988
<TOTAL-LIABILITY-AND-EQUITY> 16,646,349
<SALES> 4,957,917
<TOTAL-REVENUES> 4,957,917
<CGS> 2,527,716
<TOTAL-COSTS> 2,527,716
<OTHER-EXPENSES> 2,699,613
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> <75,452>
<INCOME-PRETAX> <193,960>
<INCOME-TAX> <59,713>
<INCOME-CONTINUING> <134,247>
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> <134,247>
<EPS-PRIMARY> <.02>
<EPS-DILUTED> <.02>
</TEST>
