Barry: Bottom line (kind of in that it is actually several paragraphs) from the quarterly earnings report. Essentially, we had half the sales of the second quarter of 1997. So, this explains why the stock is selling for the low price it currently holds, but what of the future?
Consolidated sales for the three months ended March 31, 1998 were $2,288,027,
representing a decrease of $2,301,760 or a 50% decrease from the first quarter
of 1997. Imaging segment sales decreased $1,750,077 or a 70% decrease from the
same period last year primarily due to significant printer sales to three major
customers in the first quarter of 1997 and no significant printer sales to major
customers in the first quarter of 1998. Marking segment sales decreased $551,683
or a 26% decrease from the same period last year due to a decrease in domestic
marker sales. The Company's ability to improve future sales may be affected by
the volatility of market demand, timing of large governmental and state agency
contracts, competition and technological innovations.
Consolidated cost of sales for the three months ended March 31, 1998 was
$1,427,975, representing a decrease of $1,234,597 or a 46% decrease from the
first quarter of 1997. The decrease was primarily attributable to the decrease
in sales. Gross margin as a percentage of sales decreased in the first quarter
of 1998 to 38% from 42% in the same period in 1997. The decrease in gross margin
for the three months ended March 31, 1998 was primarily due to increased product
costs and warranty expense in the marking segment of the Company's business.
Consolidated research and development expenses were $1,576,783 representing an
increase of $823,532 or a 109% increase over the first quarter of 1997. The
increase was due to the expenditure of approximately $1,000,000 for new product
development costs associated with the Technology Development Agreement with XL
Vision, Inc., a Safeguard Scientifics partnership company.
Consolidated general and administrative expenses for the three months ended
March 31, 1998, were $1,329,066, representing an increase of $326,565 or a 33%
increase over the first quarter of 1997. This increase was primarily due to
legal, printing and accounting costs associated with the special shareholder
meeting held in March 1998 to consider and vote on proposals to effect a 1-for
20 reverse stock split, change the authorized common shares and the name change
to AXCESS Inc.
Consolidated selling and marketing expenses for the three months ended March 31,
1998, were $1,079,334, representing a decrease of $389,255 or a 27% decrease
from the first quarter of 1997. Imaging segment's net decrease was approximately
$330,000 primarily because of lower DataGlyph(TM) license fees and marketing
expenses, lower commissions due to lower sales and lower customer service costs.
Other expense, consisting primarily of interest expense, for the three months
ended March 31, 1998 was $197,177 compared to $143,885 for the same period in
1997. Total interest expense was $291,806 in 1998 compared to $171,249 in 1997
for an increase of $120,557 or 70%. The higher interest costs is in line with
the higher level of debt outstanding during the 1998 quarter plus the interest
charge associated with the shares and warrants issued in connection with the
note payable to shareholders.
The consolidated net loss for the three months ended March 31, 1998 was
$3,667,961 compared to the $1,630,226 loss incurred in the same period of 1997
for an increase of $2,037,735 or 125%. Lower sales resulted in lower gross
profits of approximately $1,000,000. The remainder of the increase is the result
of $1,000,000 in research and development costs associated with the new product
development agreement with XL Vision, and a higher preferred dividend
requirement due to the increase in outstanding convertible preferred stock. |
