<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q/A
(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 to
Commission File Number 2-31438
NUKO Information Systems, Inc.
Delaware 16-0962874
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(State of Other Jurisdiction or (I.R.S. Employer Identification No.)
Incorporation or Organization)
2391 Qume Drive, San Jose, California 95131
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(Address of Principal Executive Offices) (Zip Code)
(408) 526-0288
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(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [ X ] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock as of the latest feasible date:
CLASSES Outstanding as of July 31, 1997
------------------------------ -------------------------------
Common Stock ($0.001 par value) 13,383,963
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NUKO Information Systems, Inc.
Index to Quarterly Report on Form 10-Q
For the Period Ended June 30, 1997
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION PAGE NO.
- ------ --------------------- --------
<S> <C> <C>
Item 1 Financial Statements
Condensed Consolidated Balance Sheets
June 30, 1997 and December 31, 1996. 3
Condensed Consolidated Statement of Operations
Three Months Ended June 30, 1997 and 1996. 5
Condensed Consolidated Statement of Operations
Six Months Ended June 30, 1997 and 1996. 6
Condensed Consolidated Statement of Cash Flows
Three Months Ended March 31, 1997 and 1996. 7
Notes to Condensed Consolidated Financial Statements. 8
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
PART II OTHER INFORMATION
- ------- -----------------
Item 1 Legal Proceedings 14
Item 2 Changes in Securities 14
Item 4 Submissions of Matters to a Vote of Security Holders 15
Item 5 Other Information 15
Item 6 Exhibits and Reports on Form 8-K 24
</TABLE>
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
The condensed consolidated financial statements have been restated to
reflect an allocation of the proceeds from the issuance of convertible
preferred stock to the intrinsic value of the beneficial conversion
feature. This amount has been recognized as a dividend to the preferred
stockholders ratably over the 90 day period from issuance, which is the
minimum period in which the benefit can be realized.
NUKO Information Systems, Inc.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Restated
June 30,
1997 December 31,
(unaudited) 1996
----------- -----------
<S> <C> <C>
ASSETS:
Current Assets:
Cash and cash equivalents $ 1,958,674 $ 2,270,423
Restricted cash -- 200,000
Accounts receivable, trade 4,182,621 6,864,479
Inventories, net 6,109,645 4,828,632
Other current assets 609,267 564,729
----------- -----------
Total Current Assets 12,860,207 14,728,263
Property and Equipment, net 3,467,589 3,445,868
Equity Investment 1,000,000 --
Other Assets 490,458 6,127
----------- -----------
TOTAL ASSETS $17,818,254 $18,180,258
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
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NUKO Information Systems, Inc.
CONSOLIDATED BALANCE SHEETS (Cont'd.)
<TABLE>
<CAPTION>
Restated
June 30,
1997 December 31,
(unaudited) 1996
------------ ------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 6,139,929 $ 7,216,513
Accrued liabilities 1,928,144 1,052,553
Notes payable 110,000 --
Line of credit 2,663,353 2,160,255
Current portion -- capital lease obligation 248,070 225,105
------------ ------------
Total current liabilities 11,089,496 10,654,426
Deferred revenue 1,820,000 --
Other long-term liabilities 315,064 --
Capital lease obligation, less current portion 136,242 39,128
------------ ------------
Total liabilities 13,360,802 10,693,554
------------ ------------
REDEEMABLE PREFERRED STOCK 4,112,837 --
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value; 5,000,000 shares
authorized; issued and outstanding: 3,000 shares
at June 30, 1997 and 5,000 at December 31, 1996 3 5
Common stock, $0.001 par value, 20,000,000 shares
authorized; shares issued and outstanding: 11,574,535
shares at June 30, 1997 and 10,491,101 shares
shares at December 31, 1996 11,574 10,491
Additional paid-in capital 30,767,839 27,293,448
Deferred compensation expense (585,433) (710,596)
Accumulated deficit (29,849,368) (19,106,644)
------------ ------------
Total stockholders' equity 344,615 7,486,704
------------ ------------
TOTAL LIABILITIES, REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY $ 17,818,254 $ 18,180,258
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
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NUKO Information Systems, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
Restated
June 30, June 30,
1997 1996
------------ ------------
<S> <C> <C>
Net sales $ 1,905,440 $ 2,162,867
------------ ------------
Cost and Expenses:
Cost of sales 1,977,167 1,389,909
Research and development 1,771,127 1,524,143
Selling, general and administrative expenses 2,545,150 2,174,558
------------ ------------
6,293,444 5,088,610
Loss from operations (4,388,004) (2,925,743)
Other income (expense), net (65,001) 111,965
------------ ------------
Net loss (4,453,005) (2,813,778)
------------ ------------
Accretion of dividends on preferred stock (1,101,994) --
------------ ------------
Net loss available to common shareholders $ (5,554,999) $ (2,813,778)
============ ============
Net loss available to common shareholders per share ($0.50) ($0.27)
============ ============
Weighted average shares outstanding 11,039,715 10,256,785
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
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NUKO Information Systems, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
Restated
June 30, June 30,
1997 1996
------------ ------------
<S> <C> <C>
Net sales $ 4,151,680 $ 2,637,280
------------ ------------
Cost and Expenses:
Cost of sales 3,929,091 1,532,230
Research and development 3,700,642 3,712,190
Selling, general and administrative expenses 4,726,355 3,855,088
------------ ------------
12,356,088 9,099,508
------------ ------------
Loss from operations (8,204,408) (6,462,228)
Other income (expense), net (122,975) 208,825
------------ ------------
Net loss (8,327,383) (6,253,403)
------------ ------------
Accretion of dividends on preferred stock (2,415,340) --
------------ ------------
Net loss available to common shareholders $(10,742,723) $ (6,253,403)
------------ ------------
Net loss available to common shareholders per share ($1.00) ($0.70)
============= ============
Weighted average shares outstanding 10,778,305 8,976,242
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
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NUKO Information Systems, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1997 June 30, 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities
Net loss $ (8,327,383) $ (6,253,403)
Adjustments to reconcile net loss to
net cash used in operating activities:
Compensation expense 231,863 659,066
Allowance for excess and obsolete inventory 300,000 630,714
Depreciation and amortization 811,282 170,764
Changes in operating assets and liabilities:
Restricted cash 200,000 --
Accounts receivable 2,681,858 (941,895)
Interest on stock subscriptions -- 30,567
Inventories (1,581,014) (1,369,254)
Prepaid expenses (44,538) (225,976)
Other assets (487,673) 241,037
Accounts payable (1,076,584) 1,503,831
Accrued liabilities 190,655 (108,719)
Deferred revenue 1,820,000 --
------------ ------------
Net cash used in operating activities (5,281,534) (5,663,268)
------------ ------------
Cash flows from investing activities:
Short term investments -- (2,654,273)
Purchases of property and equipment (829,661) (1,345,789)
------------ ------------
Net cash used in investing activities (829,661) (4,000,062)
Cash flows from financing activities
Proceeds from borrowings 503,099 --
Notes payable 110,000 --
Sale and leaseback under capital lease 371,467 89,475
Payments on capital lease obligations (251,388) (60,627)
Proceeds from exercise of common stock options and warrants 269,168 606,923
Proceeds from share subscriptions -- 311,400
Proceeds from issuance of common stock -- 3,834,754
Proceeds from issuance of preferred stock 4,797,100 --
------------ ------------
Net cash provided by financing activities 5,799,446 4,781,925
------------ ------------
NET DECREASE IN CASH (311,749) (4,881,405)
AND CASH EQUIVALENTS
Cash and cash equivalents at beginning of period 2,270,423 11,255,820
------------ ------------
Cash and cash equivalents at end of period $ 1,958,674 $ 6,374,415
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
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NUKO Information Systems, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
1. BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q. 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 adjustments (consisting
of normal recurring accruals) considered necessary for fair
presentation have been included. Operating results for the three months
and six months ended June 30, 1997 and 1996 are not necessarily
indicative of the results that may be expected for a full fiscal year.
The December 31, 1996 balance sheet data was derived from the audited
financial statements, but does not include the disclosure required by
generally accepted accounting principles. The Company has sustained
recurring losses from operations. Management has developed a fiscal
1997 operating plan in which the Company has placed significant
reliance on obtaining outside financing. Management is actively
pursuing additional debt and equity financing from both institutional
and corporate investors and funding opportunities from strategic
corporate partners. Since there is no assurance that management will
complete their plans, there is substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty. For further information, refer to the financial statements
and accompanying footnotes for the year ended December 31, 1996,
included in the Company's Annual Report on Form 10-K for such period.
2. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market. The components of inventory consists of the following:
<TABLE>
<CAPTION>
June 30, 1997 December 31,
(unaudited) 1996
------------- ------------
<S> <C> <C>
Raw material $1,283,611 $1,445,748
Work in progress 1,190,706 1,253,617
Finished Goods 3,635,328 2,129,267
---------- ----------
Net Inventory $6,109,645 $4,828,632
========== ==========
</TABLE>
3. INCOME TAXES
The Company's tax rate differs from the federal tax rate primarily
because net operating losses have not been benefited.
8
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NUKO Information Systems, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
4. REDEEMABLE PREFERRED STOCK
Pursuant to the Company's Articles of Incorporation, as amended, the
holder of Preferred Stock may only convert its outstanding Preferred
Stock to a maximum aggregate common stock ownership percentage of
19.99% calculated as of date of issuance of the Preferred Stock. Any
excess shares over 19.99% that are issuable upon conversion of
outstanding Preferred Stock are subject to mandatory redemption unless,
within sixty days, the Company either obtains stockholder approval of
the additional conversions over 20%, or the Company obtains permission
to allow such issuances from the NASDAQ Stock Market.
As of June 30, 1997, based on the common stock price at that date, a
portion of the outstanding Preferred Stock will be subject to mandatory
redemption. The holder of the Preferred Stock has agreed to waive the
mandatory redemption, under certain conditions as described in an
agreement, through January 1, 1998. The Company has reclassified
$4,060,358, which represents the portion that may be subject to
mandatory redemption, from Preferred Stock to Redeemable Preferred
Stock.
5. RECENT ACCOUNTING PRONOUNCEMENTS
During February 1997, the Financial Accounting Standards Board (FASB)
issued Statement No. 128, "Earnings per Share" (SFAS No. 128) which
establishes standards for computing and presenting earnings per share
(EPS) more comparable to international standards. It replaces the
presentation of primary EPS with a presentation of basic EPS. It also
requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures and
requires a reconciliation of the numerator and denominator of the basic
EPS computation to the numerator and denominator of the diluted EPS
computation. The Company is studying the impact of the adoption of SFAS
No. 128, which is effective for the financial statements issued for
periods ending after December 15, 1997, will have on its EPS
calculation.
On July 1, 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" (SFAS 130). This
statement establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general purpose financial statements. This
statement is effective for fiscal years beginning after December 15,
1997, with earlier application permitted.
The FASB has issued Statement of Financial Accounting Standards No.
131, "Disclosures About Segments of an Enterprise and Related
Information" (SFAS 131), which supersedes SFAS 14 "Financial Reporting
for Segments of a Business Enterprise". SFAS 131 changes current
practice under SFAS 14 by establishing a new framework on which to base
segment reporting and also requires interim reporting of segment
information. SFAS 131 is effective for fiscal years beginning after
December 31, 1997, with earlier application encouraged. The Statement's
interim reporting disclosures would not be required in the first year
of adoption, but would commence in the first
9
<PAGE> 10
quarter immediately subsequent to the first year in which the company
provides year end disclosure.
6. CONTINGENCIES
On March 18, 1997, Manufacturers' Services Limited ("MSL") commenced
litigation against the Company in the United States District Court for
the Northern District of California. In its complaint, MSL alleges that
the Company breached certain express and implied contractual
obligations to MSL by failing to pay for products manufactured by MSL
and for inventory MSL acquired on behalf of the Company. The relief
sought by MSL includes damages estimated at approximately $3.2 million.
The Company intends to vigorously defend against MSL's claims in this
lawsuit.
On April 29, 1997, Bruce Young, a former employee of the Company, filed
a lawsuit in Superior Court of California, County of Santa Clara,
against the Company. The complaint was filed alleging breach of
contract and violation of certain labor codes. The Company intends to
vigorously defend the action.
On May 23, 1997, Lillian Levine filed a lawsuit in the Unites States
District Court for the Northern District of California against the
Company and its former Chief Financial Officer. The action was filed as
a class action on behalf of all persons who purchased the Company's
Common Stock from April 24, 1997 through May 20, 1997 or their
successors in interest. The Company intends to vigorously defend the
action.
On June 24, 1997, Bruce and Carol Wolitarsky filed a lawsuit in the
Unites States District Court for the Northern District of California
against the Company, its President/Chief Executive Officer/Chairman of
the Board and its former Chief Financial Officer. The action was filed
as a class action on behalf of all persons who purchased the Company's
Common Stock from April 24, 1997 through May 20, 1997 or their
successors in interest. The Company intends to vigorously defend the
action.
7. SUBSEQUENT EVENTS
On July 10, 1997, the company completed a private financing which
resulted in the issuance of 1,318,027 shares of Common Stock for
proceeds of approximately $3.0 million in proceeds, net of associated
fees, commission and expenses. The shares were issued to two
institutional investors in separate transactions that were each
conditioned upon the concurrent closing of the other transaction.
8. RESTATEMENT
The condensed consolidated financial statements have been restated to
reflect an allocation of the proceeds from the issuance of convertible
preferred stock to the intrinsic value of the beneficial conversion
feature. This amount has been recognized as a dividend to the preferred
stockholders ratably over the 90 day period from issuance, which is the
minimum period in which the benefit can be realized.
The restatement has resulted in an increase in the previously reported
net loss available to common stockholders for the three and six month
periods ended June 30, 1997 of $955,665 and $2,269,001 to $5,554,999 and
$10,742,723, respectively. Net loss available to common stockholders per
share for the three and six month periods ended June 30, 1997 increased
by $(0.08) and $(0.21) to $(0.50) and $(1.00), respectively.
10
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NUKO Information Systems, Inc.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
This report contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated as a result of certain factors, including those set forth in Item 5
of this report and in the Company's Annual Report on Form 10-K for the year
ended December 31, 1996.
NET SALES AND NET LOSS
Net sales for the second quarter are $1.9 million compared to $2.2
million for the same period in 1996. Sales for the six month period
ended June 30, 1997 are $4.2 million compared to $2.6 million for the
same period in the prior year. Sales for the quarter included shipment
of the Company's Highlander products and the Company's OEM products. The
net loss for the quarter is $5.6 million or $0.50 per share, compared to
a net loss of $2.8 million or $0.27 per share for the same period in
1996. The net loss for the six month period ended June 30, 1997 is $10.7
million or $1.00 per share compared to a loss of $6.3 million or $0.70
per share for the same period in 1996. Net losses reflect the Company's
continued investment in research and development and demonstration
product to support the customer requirements.
COST OF SALES
Cost of sales for the second quarter of 1997 was $2.0 million compared
to $1.4 million for the same period in 1996. Cost of sales for the six
month period ended June 30, 1997 was $3.9 million compared to $1.5
million for the same period in the prior year. Cost of sales reflects
the increased proportion of product sales in 1997 versus 1996, with the
associated increase in material and related costs, and an increase in
manufacturing overhead. The gross margin resulting from the cost of
sales as a percentage of net sales was (4)% for the quarter and 5% for
the six month period ended June 30, 1997.
RESEARCH AND DEVELOPMENT EXPENSE
Research and development expenses for the second quarter of 1997 were
$1.8 million compared to $1.5 million for the same period in 1996.
Research and development expenses for the six months ended June 30,
1997 were $3.7 million, the same as in the prior year. The research and
development expenses reflect the Company's commitment to invest in the
development and enhancement of the Company's family of product lines.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the second quarter of
1997 were $2.5 million compared to $2.2 million for the same period in
1996. Expenses for the six month period ended June 30, 1997 were $4.7
million compared to $3.9 million for the same period in the prior year.
The increase in expenses was primarily related to adding marketing,
technical support and other sales personnel to support the Company's
customers and marketing partners.
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<PAGE> 12
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation (Cont'd.)
RECENT ACCOUNTING PRONOUNCEMENTS
During February 1997, the Financial Accounting Standards Board (FASB)
issued Statement No. 128, "Earnings per Share" (SFAS No. 128) which
establishes standards for computing and presenting earnings per share
(EPS) more comparable to international standards. It replaces the
presentation of primary EPS with a presentation of basic EPS. It also
requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures and
requires a reconciliation of the numerator and denominator of the basic
EPS computation to the numerator and denominator of the diluted EPS
computation. The Company is studying the impact of the adoption of SFAS
No. 128, which is effective for the financial statements issued for
periods ending after December 15, 1997, will have on its EPS
calculation.
On July 1, 1997, the FASB issued Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" (SFAS 130). This
statement establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general purpose financial statements. This
statement is effective for fiscal years beginning after December 15,
1997, with earlier application permitted.
The FASB has issued Statement of Financial Accounting Standards No.
131, "Disclosures About Segments of an Enterprise and Related
Information" (SFAS 131), which supersedes SFAS 14 "Financial Reporting
for Segments of a Business Enterprise". SFAS 131 changes current
practice under SFAS 14 by establishing a new framework on which to base
segment reporting and also requires interim reporting of segment
information. SFAS 131 is effective for fiscal years beginning after
December 31, 1997, with earlier application encouraged. The Statement's
interim reporting disclosures would not be required in the first year
of adoption, but would commence in the first quarter immediately
subsequent to the first year in which the company provides year end
disclosure.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily through debt and
equity financing. At June 30, 1997, the Company's ending balance of
cash and cash equivalents, which consist of investments in demand
deposits, commercial paper and U.S. Treasury obligations with
maturities of less than 90 days was $2.0 million which reflects a
decrease of $0.3 million from the December 31, 1996 balance. The
Company had working capital of approximately $1.8 million, representing
a decrease of $2.3 million from the Company's working capital at
December 31, 1996. During the quarter, the Company used cash to funds
its operating requirements.
In October 1996, the Company obtained a $6.0 million line of credit
with Silicon Valley Bank. The line of credit was renewed on June 10,
1997 for a period of one year. At June 30, 1996, the Company has
borrowed $2.7 million under the Silicon Valley Bank Line of Credit.
Subsequent to quarter end, the Company completed the private placement
of 1,318,027 shares of common stock which generated approximately $3.0
million in proceeds, net of associated fees, commission and expenses.
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<PAGE> 13
On May 6, 1997, the Company issued 157,532 shares of Common Stock to
Internext Compression, Inc. ("Internext") pursuant to that certain
Series B Preferred Stock and Warrant Purchase Agreement ("Purchase
Agreement") dated as of April 21, 1997. As consideration for the
issuance of the 157,532 shares and a post-closing adjustment payment of
$587,463 payable to Internext on or before September 7, 1997, for a
total valuation of $1 million, Internext issued 1,600,000 shares of
Series B Preferred Stock and a Warrant to purchase an additional
1,600,000 shares of Series B Preferred Stock, as well as exclusive
marketing rights limited to certain NUKO markets.
The Company has long term debt consisting of lease agreements for the
purpose of financing the acquisition of general furnishings, computers
and manufacturing equipment and an obligation related to an equity
investment in another company. The unpaid long term balance of these
obligations was approximately $0.5 million and $0.03 million at June
30, 1997 and December 31, 1996, respectively.
While the Company believes that it has sufficient resources to meet its
capital requirements through the third quarter of 1197, Management
believes that in order to implement the Company's 1997 Operating Plan
the Company will need additional financing during the third quarter or
early in the fourth quarter of 1997. The Company completed a private
placement subsequent to quarter end, but does not have any additional
arrangements to obtain additional financing. The Company intends to
actively pursue additional debt or equity financing from institutional
or corporate investors or funding opportunities from strategic
partners. There can be no assurance that the Company will be able to
obtain such financing on acceptable terms or at all. Failure to obtain
such additional capital could a material adverse effect on the Company.
See "Item 5. Other Information - RISK FACTORS - Indispensable Need for
Capital/Report of Independent Accountants Regarding Ability to Continue
as a Going Concern" and "Additional Capital Requirements."
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NUKO Information Systems, Inc.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
On March 18, 1997, Manufacturers' Services Limited ("MSL") commenced
litigation against the Company in the United States District Court for
the Northern District of California. In its complaint, MSL alleges that
the Company breached certain express and implied contractual
obligations to MSL by failing to pay for products manufactured by MSL
and for inventory MSL acquired on behalf of the Company. The relief
sought by MSL includes damages estimated at approximately $3.2 million.
The Company intends to vigorously defend against MSL's claims in this
lawsuit.
On April 29, 1997, Bruce Young, a former employee of the Company, filed
a lawsuit in Superior Court of California, County of Santa Clara,
against the Company. The complaint was filed alleging breach of
contract and violation of certain labor codes. The Company intends to
vigorously defend the action.
In addition, the Company and certain of its present and former
executive officers have been named as defendants to two lawsuits styled
as class actions:
On May 23, 1997, Lillian Levine filed a lawsuit in the Unites States
District Court for the Northern District of California against the
Company and its former Chief Financial Officer. The action was filed as
a class action on behalf of all persons who purchased the Company's
Common Stock from April 24, 1997 through May 20, 1997 or their
successors in interest. The plaintiff alleges that during this period,
the defendants disseminated materially false and misleading press
releases and public statements concerning the financial results for the
fiscal quarter ended March 31, 1997. The plaintiff alleges claims under
the federal securities laws and seeks damages for all members of the
class. The Company intends to vigorously defend the action.
On June 24, 1997, Bruce and Carol Wolitarsky filed a lawsuit in the
Unites States District Court for the Northern District of California
against the Company, its President/Chief Executive Officer/Chairman of
the Board and its former Chief Financial Officer. The action was filed
as a class action on behalf of all persons who purchased the Company's
Common Stock from April 24, 1997 through May 20, 1997. The plaintiffs
allege that during this period, the defendants issued incorrect
financial and business information about the Company, its finances,
performance and reporting of its revenues and financial results for its
first quarter of 1997. The plaintiffs allege that this caused the
market price of the Company's Common Stock to be artificially inflated
and caused them and other purchasers to pay too much for their Common
Stock. The plaintiff's allege claims under the federal securities laws
and seek damages for all members of the class. The Company intends to
vigorously defend the action.
Item 2. Changes in Securities
On May 6, 1997, the Company issued 157,532 shares of Common Stock to
Internext Compression, Inc. ("Internext") pursuant to that certain
Series B Preferred Stock and Warrant Purchase Agreement dated as of
April 21, 1997 (the "Purchase Agreement"). The Company issued such
shares to Internext pursuant to Rule 506 under the Securities Act.
Internext
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<PAGE> 15
represented to the Company that it is an "accredited investor" within
the meaning of Rule 501 under the Securities Act. As consideration for
the issuance of the 157,532 shares of the Company's Common Stock,
Internext issued to the Company 1,600,000 shares of its Series B
Preferred Stock, no par value ("Series B Preferred"), and a Warrant to
purchase an additional 1,600,000 shares of Series B Preferred at an
exercise price of $0.625 per share (the "Warrant"). Internext also
entered into a Supply Agreement with the Company which confers certain
exclusive supply and marketing rights on the Company. Pursuant to the
Purchase Agreement, the Company has agreed to make a post-closing
adjustment payment to the Selling Stockholder in the amount of $587,463
payable in cash 30 days after the effectiveness of a Registration
Statement on Form S-3 (the "Registration Statement") registering the
shares to Internext under the Securities Act. The Purchase Agreement
stated that if the Registration Statement were not declared effective
by the SEC within 90 days after the closing (the "Anticipated
Effectiveness Date"), then the Company would be required within 30
days, at its option, to redeem the common stock for $1,000,000 cash or
make or arrange an interest-free loan to Internext of up to $1,000,000
in aggregate principal amount which would be advanced in increments of
up to $250,000 per month until the Registration Statement became
effective. The loan would become due either 30 days after the effective
date of the Registration Statement or 12 months after the first advance
under the loan, whichever is earlier. The Registration Statement became
effective on August 8, 1997, four days after the Anticipated
Effectiveness Date. Although not required to do so under the Purchase
Agreement, the Company made an advance of $250,000 under the loan prior
to the Anticipated Effectiveness Date.
Item 4. Submissions of Matters to a Vote of Security Holders
On May 28, 1997, the Company held an Annual Meeting of Stockholders at
which directors were elected. The votes cast for, against or withheld
as to each nominee are set forth below. There were no abstentions or
broker non-votes.
<TABLE>
<CAPTION>
Nominee For Against Withheld
------- --- ------- --------
<S> <C> <C> <C>
Pratap Kesav Kondamoori 8,161,685 111,066
H.R. Kedlaya 8,172,565 100,186
Anders O. Field, Jr. 8,172,685 100,066
Marc Dumont 8,172,685 100,066
Robert C. Marshall 8,172,685 100,066
</TABLE>
Item 5. Other Information
RISK FACTORS
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, readers of this document, and
any document referenced herein, are advised that this document and
documents referenced herein contain both statements of historical facts
and forward looking statements. Forward looking statements are subject
to certain risks and uncertainties, which could cause actual results to
differ materially from those indicated by the forward looking
statements.
In addition to the other information contained in the Quarterly Report,
the following risk factors should be carefully considered in evaluating
the Company.
15
<PAGE> 16
HISTORY OF LOSSES. Since its decision to enter the video networking
market, the Company has operated at a loss because the Company's
revenues have been insufficient to support the comparatively
substantial expenses incurred by the Company, primarily for research
and development. The Company recorded net losses of approximately $.7
million in fiscal 1994, $1.7 million is fiscal 1995, $2.0 million for
the eight months ended December 31, 1995, $14.7 million in fiscal 1996
and $8.5 million for the six months ending June 30, 1997. The Company's
accumulated deficit at June 30, 1997 is approximately $27.6 million.
There can be no assurance that the Company's products will be widely
accepted in the marketplace or to the extent sales are made, that the
volume, pricing and timing will be sufficient to permit the Company to
achieve profitability in the future.
INDISPENSABLE NEED FOR CAPITAL/REPORT OF INDEPENDENT ACCOUNTANTS
REGARDING ABILITY TO CONTINUE AS A GOING CONCERN. Primarily because of
the Company's history of operating losses, there is substantial doubt
about the Company's ability to continue as a going concern unless the
Company is able to obtain additional financing. While the Company has
secured additional funding subsequent to quarter end, there is no
guarantee that this has provided sufficient capital for the balance of
the year. The Company currently does not have any additional
arrangements to obtain additional financing. If the Company is unable
to secure sufficient financing, the Company would at a minimum be
forced to revise its 1997 Operating Plan. The report of independent
accountants on the Company's financial statements included in the
Company's Annual Report includes an explanatory paragraph to this
effect.
ADDITIONAL CAPITAL REQUIREMENTS. Although the Company believes that its
existing cash resources and the proceeds of a $3.0 million private
placement completed in July 1997 will provide adequate funding for its
capital requirements through the third quarter of 1997, the Company may
require additional funds to support is operating plan at some time
during 1997. The Company's capital requirements will depend on many
factors, including the progress of its research and development
efforts, its timely receipt of revenue from sales of its products to
large customers, the need to devote resources to manufacturing
operations, and the demand for the Company's products. Additional
future financing may occur through the sale of unregistered stock or
convertible debt. An institutional investor has a right of first
refusal until February 23, 1998 to purchase securities on the same
terms offered by potential investors during such period, unless such
financing is by way of a firm commitment underwriting, the issuance of
securities in connection with a merger, consolidation or sale of assets
or the issuance of securities in connection with a strategic alliance.
Such right of first refusal could impair the Company's ability to
obtain needed financing on acceptable terms or could prevent the
Company from obtaining such financing on any terms. There can be no
assurance that new financing will be available when needed by the
Company or that the terms, if available, will be satisfactory to the
Company. If adequate funds are not available, the Company may be
required to delay, scale back or eliminate one or more of its research
and development or manufacturing programs or to obtain funds through
arrangements that may require the Company to relinquish rights to
certain of its technologies or potential products or other assets that
the Company would not otherwise relinquish. The inability of the
Company to raise needed funds would have a material adverse effect on
the Company's business, financial condition and results of operations.
SHORT OPERATING HISTORY. The Company's operations are subject to all of
the risks inherent in a new business enterprise, including the absence
of a substantial operating history and the expense of new product
development. Various problems, expenses, complications and delays may
be encountered in connection with the development of the Company's
products and business. Future
16
<PAGE> 17
growth beyond present capacity will require significant expenditures
for expansion, marketing, research and development. These expenses must
be paid out of future equity or debt financings or out of generated
revenues and Company profits. The availability of funds from any of
these sources cannot be assured.
The Company was incorporated in the State of New York in 1968 under the
name Yondata Corporation and, in October 1992, changed its name to
Growers Express Corporation. In May 1994, Growers Express Corporation
merged with NUKO Technologies, Inc., a California corporation, and
following the merger, Growers Express changed its name to NUKO
Information Systems, Inc. and commenced operations through NUKO
Technologies, Inc., which survived the merger as the Company's wholly
owned subsidiary. In January 1997, the Company effected a
reincorporation from New York to Delaware by merging itself into its
wholly-owned Delaware subsidiary. From 1970 to 1994, the Company had no
operations and no revenues. The Company's management, which had no
affiliation with Growers Express prior to the merger with NUKO
Technologies in May 1994, has almost no knowledge of the Company's
activities between its incorporation in 1968 and the merger, and very
few corporate records relating to the period between 1970 and 1994 are
available. As a result, while management believes that there are no
material liabilities relating to the predecessor company, there can be
no assurance that there are no potential liabilities relating to such
period or that the Company always conducted its corporate activities
during this period in accordance with the New York Business
Corporations Law.
UNCERTAIN ACCEPTANCE OF THE COMPANY'S PRODUCTS. Since early 1994, the
Company has been primarily engaged in research and development of its
technologies, product design and establishment of strategic alliances
on which the Company expects to depend for manufacturing, sales and
distribution of its potential products. The Company has to date sold
its initial products only in limited quantities, primarily for use in
development, demonstration and testing of prototypes. Certain contracts
may relate to new technologies that may not have been previously
deployed on a large-scale commercial basis. The Company's products are
based on technologies that have not been widely deployed, and there can
be no assurance that the Company will be able successfully to market
its initial products to generate the increased revenues necessary to
sustain full scale commercial production or that the Company's products
will be well received when introduced into the marketplace on a full
commercial scale. The Company's products also must interoperate
effectively among a wide variety of different equipment, different
protocols and different transmission speeds. While the Company believes
its products interoperate effectively among the principal
configurations of equipment, protocols and transmission speeds that are
currently commercially deployed, there can be no assurances that the
Company's products will continue to interoperate effectively among
other configurations of equipment, protocols and transmission speeds
which may be developed or utilized in the future. Moreover, management
of the Company has limited experience with the distribution of
technologically complex products in commercial quantities and there can
be no assurance that the Company will be able to make necessary
adaptations to successfully move from the research and development
stage to full commercial production and distribution.
COMPETITION. The segments of the telecommunications industry in which
the Company competes are intensely competitive and are characterized by
declining average selling prices and rapid technological change. The
Company competes with major domestic and international companies,
virtually all of which have substantial greater financial, technical,
production and marketing resources than the Company with which to
pursue engineering, manufacturing, sales, marketing and distribution of
their products. For example, in its compression and networking
business, the
17
<PAGE> 18
Company competes with vertically integrated system suppliers including
General Instrument Corporation, Scientific-Atlanta, Inc., and Philips,
as well as more specialized suppliers including DMV division of News
Corp., C-Cube Microsystems' DiviCom Inc. subsidiary, and the TV/COM
subsidiary of Hyundai. In addition, some of the Company's customers are
actual or potential competitors of the Company, competing against the
Company with its own products. The Company believes that the principal
criteria for competition in its market include cost competitiveness,
flexibility, revenue generation capability, compatibility with existing
networks and upgradeability, as well as customer support. There can be
no assurance that the Company will be able to compete successfully with
other companies on these factors or otherwise.
MANAGEMENT OF GROWTH. During 1996, the Company began to experience
significant growth. Such growth placed, and will continue to place,
significant strain on the Company's limited personnel and other
resources. The Company's ability to manage any further growth, should
it occur, will require it to implement and continually expand
operational and financial systems, recruit additional employees and
train and manage both current and new employees. There can be no
assurance that the Company will be able to find qualified personnel to
fill needed positions or be able to successfully manage a broader
organization. The failure of the Company to effectively expand or
manage these functions consistent with any growth that may occur could
have a material adverse effect on the Company's business and results of
operations.
DEPENDENCE ON CUSTOMER CAPITAL SPENDING REQUIREMENTS AND PURCHASING
TRENDS. The Company's business is directly impacted by capital spending
requirements and funding of the Regional Bell Operating Companies
("RBOCs") and other major customers in the telecommunications industry.
The capital budgets of these customers or potential customers is beyond
the control of the Company and can be affected by numerous factors
completely unrelated to the performance, quality and price of the
Company's products. Should the Company's customers or potential
customers suffer budgeting cutbacks affecting their capital purchasing
plans, the Company's results of operations could be adversely affected.
In addition, in recent years, the purchasing behavior of the Company's
customers has increasingly been characterized by the use of large
contracts with few suppliers. This trend is expected to intensify and
will contribute to the variability of the Company's results. Such
larger purchase contracts typically involve longer negotiating cycles,
require dedication of substantial amounts of working capital and other
resources and, in general, require investments that may substantially
precede recognition of associated revenues. Moreover, in return for
larger, longer-term purchase agreements, customers often demand more
stringent acceptance criteria, which may also cause revenue recognition
delays. For example, if customers ask the Company to price its products
based on estimates of such customers' future requirements, and such
customers fail to take delivery of an amount comparable to the
estimated amount on which the Company bases its prices, the Company may
recognize lower margins on product revenue.
18
<PAGE> 19
DEPENDENCE ON SUPPLIERS. The Company purchases certain of the chips and
chip sets needed in its products from single source suppliers. The
Company is dependent upon such suppliers to deliver parts and
components as needed for the manufacture of the Company's products, and
there can be no assurance that such suppliers will continue to be able
to serve the Company's needs. While there are alternative sources of
supply for each of the components outsourced by the Company, the
Company would incur delays if required to switch to another supplier.
Any disruption of the Company's relationships with any of its key
single source suppliers or manufacturers or other limitations on the
availability of these products provided by such suppliers could have an
adverse effect on the Company's business and operating results.
PRICING PRESSURES. The markets into which the Company sells or will
sell its products are characterized by extreme price competition, and
the Company expects the average selling prices of its products will
decrease over the life of each product. In order to partially offset
declines in the selling price of its products, the Company will need to
reduce the cost of its products by implementing cost reduction design
changes, obtaining cost reductions as and if volumes increase and
successfully managing manufacturing and subcontracting relationships.
Since the Company does not operate its own manufacturing facilities and
must make binding commitments to purchase products, it may not be able
to reduce its costs as rapidly as companies that operate their own
manufacturing facilities. The failure of the Company to design and
introduce lower cost versions of its products in a timely manner or to
successfully manage its manufacturing relationships would have a
material adverse effect on its business and results of operations.
DEPENDENCE ON SUBCONTRACTORS. The Company's reliance on subcontractors
to manufacture and assemble certain products involves significant
risks, including reduced control over delivery schedules, quality
assurance, manufacturing yields and cost, the potential lack of
adequate capacity and potential misappropriation of its intellectual
property. Although the Company has not
19
<PAGE> 20
experienced material disruptions in supply to date, there can be no
assurance that manufacturing or assembly problems will not occur in the
future or that any such disruptions will not have a material adverse
effect upon the Company's results of operations. Further, there can be
no assurance that suppliers who have committed to provide product will
do so, or that the Company will meet all conditions imposed by such
suppliers. Failure to obtain an adequate supply of products on a timely
basis would delay product delivery to the Company's customers, which
would have a material adverse effect on the Company's business and
results of operations. In addition, the Company's business could also
be materially and adversely affected if the operations of any supplier
are interrupted for a substantial period of time, or if the Company is
required, as a result of capacity constraints in its industry or
otherwise, to increase the proportion of goods purchased from higher
cost suppliers in order to obtain adequate product volumes.
FLUCTUATIONS IN QUARTERLY RESULTS; LACK OF BACKLOG. The Company has
experienced, and expects to continue to experience, significant
fluctuations in its quarterly results of operations. Factors that have
contributed or may contribute to future fluctuations in the Company's
quarterly results of operations include the size and timing of customer
orders and subsequent shipments, customer order deferrals in
anticipation of new products, timing of product introductions or
enhancements by the Company or its competitors, market acceptance of
new products, technological changes in the telecommunications industry,
competitive pricing pressures, accuracy of customer forecasts of
end-user demand, changes in the Company's operating expenses, personnel
changes, changes in the mix of product sales and contract and
consulting fees, quality control of products sold, disruption in
sources of supply, regulatory changes, capital spending, delays of
payments by customers and general economic conditions. The timing and
volume of customer orders are difficult to forecast. The Company does
not have a material backlog of orders for its products.
The Company intends to continue to make significant ongoing research
and development expenditures for new products and technologies, which
may have a material adverse effect on the Company's quarterly results
of operations. The Company's expense levels are based in part on
expectations of future revenues and are relatively fixed in the short
term. The Company intends to increase operating expenditures as the
Company expands its operations to develop and market its compression
and networking products. Consequently, a shortfall in quarterly
revenues due to a lack of sales of the Company's products or otherwise
would adversely impact the Company's business, financial condition and
results of operations in a given quarter due to the Company's inability
to adjust expenses or inventory to match revenues for that quarter. In
addition, there can be no assurance that, as the Company increases
sales of its products, warranty returns will not become significant or
that warranty returns, if significant, will not have a material adverse
effect on the Company's business, financial condition and results of
operations.
GOVERNMENT REGULATION. Although the extensive regulation of telcos by
Federal, state and foreign regulatory agencies, including the FCC and
various state public utility and service commissions, does not directly
affect the Company, the effects of such regulation on the Company's
customers may have a material adverse effect on the Company's business,
financial condition and results of operations. For example, FCC
regulatory policies affecting the availability of telco services, and
other terms on which telcos conduct their business, may impede the
Company's penetration of certain markets. Although the
Telecommunications Act of 1996 eliminated or modified many FCC
restrictions on telcos' ability to provide interactive multimedia
services, the remaining or any future restrictions may have a material
adverse effect on telcos' demand for the Company's products. Cable
operators, which may become another market for the Company's products,
are also subject
20
<PAGE> 21
to extensive governmental regulations that may discourage them from
deploying the Company's compression and networking technology. In
addition, rates for telecommunications services are generally governed
by tariffs of licensed carriers that are subject to regulatory
approval. These tariffs could have a material adverse effect on the
demand for the Company's products. The imposition of certain tariffs,
duties and other import restrictions on components which the Company
intends to obtain from non-domestic suppliers, the imposition of export
restrictions on products which the Company intends to sell
internationally or other changes in laws or regulations in the United
States or elsewhere could also have a material adverse effect on the
Company's business, financial condition and results of operations.
POTENTIAL PRODUCT LIABILITIES. One or more of the Company's products
may contain undetected component, hardware, software or mechanical
defects or failures when first introduced or may develop defects or
failures after commencement of commercial production or shipments. Any
such defects or failures could cause loss of goodwill, if any, with
distributors and with customers, prevent or delay market acceptance of
the Company's products, result in cancellations or rescheduling of
orders or shipments or product recalls or returns and expose the
Company to claims from customers. The Company also could incur
unexpected and significant costs, including product redesign costs and
costs associated with customer support. The Company expects to sell its
products with a limited warranty against defects in materials and
workmanship. If any of the Company's products are found within the
warranty period to contain such defects, the Company could be required
to repair or replace the defective products or refund the purchase
price. The occurrence of any such defect or failure could have a
material adverse effect on the Company's business, financial condition
and results of operations. The Company does not maintain insurance to
protect against claims associated with the use of its products and
there can be no assurance that the Company will be able to satisfy
claims that may be asserted against the Company.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS. The Company attempts to
protect its technology through a combination of patents, copyrights,
trade secrets, confidentiality procedures and licensing arrangements.
While the Company currently has no patents, the Company has applied for
certain patents and intends to continue to seek patents on its
technology, when appropriate. There can be no assurance that patents
will issue from any of the pending applications or that any claims
allowed from pending patents will be sufficiently broad to protect the
Company's technology. While the Company intends to protect its
intellectual property rights vigorously, there can be no assurance that
any patents issued to the Company will not be challenged, invalidated
or circumvented, or that the rights granted thereunder will provide
competitive advantages to the Company. The Company will endeavor to
keep the results of its research and development program proprietary,
but may not be able to prevent others from using some or all of such
information or technology with or without compensation. The Company's
ultimate success will depend to some extent on its ability to avoid
infringement of patent or other proprietary rights of others. The
Company is not aware that it is infringing any such rights, nor is it
aware of proprietary rights of others for which it will be required to
obtain a license in order to market its initial products. However,
there is no assurance that the Company is not infringing proprietary
rights of others or that it will be able to obtain any technology
licenses it may require in the future.
DEPENDENCE ON EMERGING MARKETS. The markets into which the Company is
targeting its products are newly developing. The potential size of the
market opportunities and the timing of their development is uncertain.
In addition, the emergence of markets for certain digital video
applications will be affected by a variety of factors beyond the
Company's control. In particular, certain sectors of the communications
market will require the development and deployment of an
21
<PAGE> 22
extensive and costly communications infrastructure. There can be no
assurance that the communications providers will make the necessary
investment in such infrastructure or that the creation of this
infrastructure will occur in a timely manner. In addition, the
deployment of such infrastructure will be subject to governmental
regulatory policies, taxes and tariffs. The development of such markets
could be delayed or otherwise adversely affected by new governmental
regulations or changes in taxes or tariffs, or by the failure of
government agencies to adopt changes to existing regulations necessary
to permit new technologies to enter the market.
POSSIBLE TECHNOLOGICAL ADVANCES. The market for the Company's initial
products is expected to be characterized by rapidly changing
technology, evolving industry standards and frequent new product
introductions. The Company's future success will depend in part upon
its ability to successfully bring to market and then enhance its
existing products and to introduce new products and features to meet
changing customer requirements and emerging industry standards. There
can be no assurance that the Company will successfully complete the
development of its future products or that the Company's initial or
future products will achieve market acceptance. Any delay or failure of
these products to achieve market acceptance would adversely affect the
Company's business. In addition, there can be no assurance that
products or technologies developed by others will not render the
Company's initial or future products or technologies non-competitive or
obsolete.
ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER PROVISIONS. Certain provisions
of the Company's Amended and Restated Certificate of Incorporation and
Bylaws could discourage potential acquisition proposals, could delay or
prevent a change in control of the Company and could make removal of
management more difficult. Such provisions could diminish the
opportunities for a stockholder to participate in tender offers,
including tender offers that are priced above the then current market
value of the Common Stock. Additionally, the Board of Directors of the
Company, without further shareholder approval, may issue up to
4,990,000 shares of Preferred Stock, in one or more series, with such
terms as the Board of Directors may determine, including rights such as
voting, dividend and conversion rights which could adversely affect the
voting power and other rights of the holders of Common Stock. Preferred
Stock may be issued quickly with terms which delay or prevent the
change in control of the Company or make removal of management more
difficult. Also, the issuance of Preferred Stock may have the effect of
decreasing the market price of the Common Stock.
CONTROL BY OFFICERS AND DIRECTORS. As of July 31, 1997, the officers
and directors of the Company control, directly or indirectly,
approximately 26.5% of the voting power of the Company's voting stock,
including options and warrants immediately exercisable or exercisable
within 60 days. Although management does not control a majority of the
outstanding voting stock, it holds a sufficient amount to make it more
difficult for an independent third party to effect a change in control
of the Company than would be the case if the stock ownership were less
concentrated among members of management.
STOCK MARKET VOLATILITY; VOLATILITY OF THE COMPANY'S COMMON STOCK.
There have been periods of extreme volatility in the stock market that,
in many cases, were unrelated to the operating performance of, or
announcements concerning, the issuers of the affected securities.
General market price declines or volatility in the future could
adversely affect the price of the Common Stock. There can be no
assurance that the Common Stock will maintain its current market price.
Short-term trading strategies of certain investors can have a
significant effect on the price of
22
<PAGE> 23
specific securities. The price of the Company's Common Stock, in
particular, has been extremely volatile.
ABSENCE OF DIVIDENDS. The Company does not expect to declare or pay any
cash or stock dividends in the foreseeable future, but instead intends
to retain all earnings, if any, to invest in the Company's operations.
The payment of future dividends is within the discretion of the Board
of Directors and will depend upon the Company's future earnings, if
any, its capital requirements, financial condition and other relevant
factors.
23
<PAGE> 24
NUKO Information Systems, Inc.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
11.1 Calculation of Net Loss Per Share
27.1 Financial Data Schedule
b) Reports on Form 8-K
None
24
<PAGE> 25
NUKO Information Systems, Inc.
SIGNATURE
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
NUKO INFORMATION SYSTEMS, INC.
DATE: September 19, 1997 By: /s/ Ramesh Sekar
------------------ ---------------------------
NAME: Ramesh Sekar
TITLE: Chief Financial Officer
25
<PAGE> 1
EXHIBIT 11.1
CALCULATION OF NET LOSS PER SHARE FOR THREE MONTH PERIOD ENDED JUNE 30
Earnings per share is computed using the weighted average number of common and
common equivalent shares outstanding during the period. Common equivalent shares
result from the assumed exercise of outstanding stock options that have a
dilutive effect when applying the treasury stock method.
<TABLE>
<CAPTION>
Restated
1997 1996
------------ ------------
<S> <C> <C>
PRIMARY LOSS PER SHARE
Net loss for period $ (4,453,005) $ (2,813,778)
Accretion of dividends on preferred stock (1,101,994) --
------------ ------------
Net loss available to common shareholders $ (5,554,999) $ (2,813,778)
============ ============
Shares outstanding at the beginning
of the period 10,604,435 10,250,918
Weighted average effect of shares
issued during period -- --
Weighted average effect of warrants
and options exercised in the period 435,280 5,867
Weighted average effect of share
subscriptions paid in the period -- --
------------ ------------
Weighted average shares outstanding 11,039,715 10,256,785
============ ============
Net loss available to common shareholders
per share $ (0.50) $ (0.27)
============ ============
</TABLE>
There is no difference in the per share amounts computed under the primary
and the fully diluted basis.
26
<PAGE> 2
EXHIBIT 11.1
(continued)
CALCULATION OF NET LOSS PER SHARE FOR SIX MONTH PERIOD ENDED JUNE 30
Earnings per share is computed using the weighted average number of common and
common equivalent shares outstanding during the period. Common equivalent shares
result from the assumed exercise of outstanding stock options that have a
dilutive effect when applying the treasury stock method.
<TABLE>
<CAPTION>
Restated
1997 1996
------------ ------------
<S> <C> <C>
PRIMARY LOSS PER SHARE
Net loss for period $ (8,327,384) $ (6,253,403)
Accretion of dividends on preferred stock (2,415,340) --
------------ ------------
Net loss available to common shareholders $(10,742,723) $ (6,253,403)
============ ============
Shares outstanding at the beginning
of the period 10,491,101 9,128,418
Weighted average effect of shares
issued during period -- 551,346
Weighted average effect of warrants
and options exercised in the period 287,204 190,845
Weighted average effect of share
subscriptions paid in the period -- (894,367)
------------ ------------
Weighted average shares outstanding 10,778,305 8,976,242
============ ============
Net loss available to common shareholders
per share $ (1.00) $ (0.70)
============ ============
</TABLE>
There is no difference in the per share amounts computed under the primary and
the fully diluted basis.
27
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,958,674
<SECURITIES> 0
<RECEIVABLES> 4,563,715
<ALLOWANCES> 381,094
<INVENTORY> 6,109,645
<CURRENT-ASSETS> 12,860,207
<PP&E> 5,043,573
<DEPRECIATION> 1,575,984
<TOTAL-ASSETS> 17,818,254
<CURRENT-LIABILITIES> 11,089,496
<BONDS> 0
<COMMON> 11,574
4,112,837
3
<OTHER-SE> 333,038
<TOTAL-LIABILITY-AND-EQUITY> 17,818,254
<SALES> 1,905,440
<TOTAL-REVENUES> 1,905,440
<CGS> 1,977,167
<TOTAL-COSTS> 1,977,167
<OTHER-EXPENSES> 4,316,277
<LOSS-PROVISION> 300,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,388,004)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,388,004)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,453,005)
<EPS-PRIMARY> (0.50)
<EPS-DILUTED> (0.50)
</TABLE>
