__________________________________________________________________ __________________________________________________________________ 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). 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 PART I.	FINANCIAL INFORMATION Item 1.	Condensed Consolidated Financial Statements Euphonix, Inc. Condensed Consolidated Statements of Operations (unaudited) 			 Three Months Ended Six Months Ended June 30, June 30, 1997 1996 1997 1996 -------- -------- -------- -------- 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 =========== ============ ============= ============ See accompanying notes Page 3 of 15 Euphonix, Inc. Condensed Consolidated Balance Sheets 						 June 30,	 December 31, 						 1997 			 1996 ------------- ------------ (unaudited) (note) 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. 				 	See accompanying notes Page 4 of 15 Euphonix, Inc. Condensed Consolidated Statements of Cash Flows (unaudited) 						 <CAPTION							 Six Months Ended 							 June 30, 							 1997 1996 ------------- ------------ 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 See accompanying note Page 5 of 15 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 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: 			 June 30, December 31, 						 1997 1996 ------------ ------------- 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 ============ ============ 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 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 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 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 		 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 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. 	Nominee			 Votes For	 Votes Withheld ------- --------- -------------- 	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 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 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 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) Three Months Ended Six Months Ended June 30, June 30, 1997 1996 1997 1996 --------- --------- ------- ------- (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) ======= ======== ======== ====== Page 14 of 15