<PAGE> 1
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 September 30, 1999
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 0-21352
APPLIED INNOVATION INC.
(Exact name of registrant as specified in its charter)
DELAWARE 31-1177192
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification no.)
5800 INNOVATION DRIVE, DUBLIN, OHIO 43016
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (614)-798-2000
Indicate by check mark whether the registrant (1) has filed 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
--- ---
As of November 8, 1999 there were 15,384,232 shares of common stock outstanding.
<PAGE> 2
APPLIED INNOVATION INC.
Table of Contents
Page
----
Facing Page 1
Table of Contents 2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of
September 30, 1999 (Unaudited) and December 31, 1998 3
Condensed Consolidated Statements of Operations for the
three- and nine-month periods ended September 30, 1999
and 1998 (Unaudited) 4
Condensed Consolidated Statements of Cash Flows for the
nine-month periods ended September 30, 1999 and 1998 (Unaudited) 5
Notes to Condensed Consolidated Financial Statements (Unaudited) 6 - 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8 - 12
Item 3. Quantitative and Qualitative Disclosure About Market Risk 12
PART II. OTHER INFORMATION
Items 1 - 5 12
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits 12
(b) Reports on Form 8-K - None 12
Signatures 14
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<PAGE> 3
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
APPLIED INNOVATION INC.
Condensed Consolidated Balance Sheets
ASSETS
<TABLE>
<CAPTION>
(Unaudited)
September 30, 1999 December 31, 1998
-------------------- -------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 17,591,910 $ 17,211,499
Short-term investments 1,462,986 -
Accounts receivable, net of allowance 7,100,414 7,698,250
Inventory 4,656,500 3,620,655
Prepaid expenses 107,257 295,923
Deferred income taxes 1,350,000 1,410,000
-------------------- -------------------
Total current assets 32,269,067 30,236,327
Property, plant and equipment - less accumulated 8,646,475 9,426,240
depreciation of $5,508,604 and $5,276,287, respectively
Investments 2,639,754 -
Other assets 49,137 107,106
-------------------- -------------------
Total Assets $ 43,604,433 $ 39,769,673
==================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,270,322 $ 1,051,922
Accrued expenses 3,644,162 4,355,069
Accrued warranty expenses 2,225,726 2,644,738
Deferred revenue 440,816 11,261
-------------------- -------------------
Total current liabilities 8,581,026 8,062,990
-------------------- -------------------
Deferred income taxes - 64,000
-------------------- -------------------
Stockholders' equity:
Common stock; $.01 par value; 30,000,000 shares
authorized; 15,497,732 and 15,786,132 shares issued
and outstanding, respectively 154,977 157,861
Additional paid-in capital 7,281,884 8,337,154
Retained earnings 27,605,565 23,147,668
Accumulated other comprehensive loss - net (19,019) -
-------------------- -------------------
35,023,407 31,642,683
-------------------- -------------------
Total Liabilities and Stockholders' Equity $ 43,604,433 $ 39,769,673
==================== ===================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-3-
<PAGE> 4
APPLIED INNOVATION INC.
Condensed Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
Three months ended September 30, Nine months ended September 30,
------------------------------------------------------------------------------
1999 1998 1999 1998
----------------- ----------------- -------------------- -------------------
<S> <C> <C> <C> <C>
Net sales $ 11,779,417 $ 14,020,173 $ 35,156,048 $ 40,321,748
Cost of sales 4,719,553 5,598,202 14,329,916 16,974,972
----------------- ----------------- -------------------- -------------------
Gross profit 7,059,864 8,421,971 20,826,132 23,346,776
Operating expenses:
Research and development 2,041,484 3,183,857 5,443,025 10,471,342
Selling, general, and administrative 2,946,852 3,741,502 9,085,455 11,393,299
Non-recurring charge - 3,800,000 - 3,800,000
----------------- ----------------- -------------------- -------------------
Income (loss) from operations 2,071,528 (2,303,388) 6,297,652 (2,317,865)
Other income, net 287,584 202,161 669,245 474,461
----------------- ----------------- -------------------- -------------------
Income (loss) before income taxes 2,359,112 (2,101,227) 6,966,897 (1,843,404)
Income taxes 849,000 (715,000) 2,509,000 (627,000)
----------------- ----------------- -------------------- -------------------
Net income (loss) $ 1,510,112 $ (1,386,227) $ 4,457,897 $ (1,216,404)
================= ================= ==================== ===================
Basic earnings (loss) per share $ 0.10 $ (0.09) $ 0.28 $ (0.08)
================= ================= ==================== ===================
Diluted earnings (loss) per share $ 0.10 $ (0.09) $ 0.28 $ (0.08)
================= ================= ==================== ===================
Shares used in per share
calculation - basic 15,526,895 15,816,907 15,657,586 15,803,365
================= ================= ==================== ===================
Shares used in per share
calculation - diluted 15,561,283 15,816,907 15,692,873 15,803,365
================= ================= ==================== ===================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-4-
<PAGE> 5
APPLIED INNOVATION INC.
Condensed Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-----------------------------------------
1999 1998
-------------------- -------------------
<S> <C> <C>
Cash flows from operating activities:
Net income(loss) $ 4,457,897 $ (1,216,404)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,450,417 2,139,542
Loss on sale of assets 69,067 1,955,433
Provision for deferred income taxes (4,000) (221,000)
Effects of change in operating assets and liabilities:
Accounts receivable 597,836 3,288,626
Inventory (1,035,845) (377,240)
Prepaid expenses 188,666 54,307
Other assets 57,969 (8,322)
Accounts payable 1,218,400 (1,569,690)
Accrued expenses (1,129,919) 2,858,394
Deferred revenue 429,555 -
-------------------- -------------------
Net cash provided by operating activities 6,300,043 6,903,646
-------------------- -------------------
Cash flows from investing activities:
Purchases of property and equipment (763,644) (1,071,494)
Proceeds from sale of assets 23,925 29,845
Purchases of short-term available for sale investments (1,482,005) -
Purchases of available for sale investments (2,639,754) -
-------------------- -------------------
Net cash (used) by investing activities (4,861,478) (1,041,649)
-------------------- -------------------
Cash flows from financing activities:
Proceeds from issuance of common stock - 50,273
Tax benefit associated with exercise of stock options - 8,082
Common stock repurchased (1,058,154) -
-------------------- -------------------
Net cash provided (used) by financing activities (1,058,154) 58,355
-------------------- -------------------
Increase in cash and cash equivalents 380,411 5,920,352
Cash and cash equivalents - beginning of period 17,211,499 8,195,156
-------------------- -------------------
Cash and cash equivalents - end of period $ 17,591,910 $ 14,115,508
==================== ===================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
-5-
<PAGE> 6
APPLIED INNOVATION INC.
Notes to Condensed Consolidated Financial Statements
September 30, 1999 and 1998
(Unaudited)
1. Basis of presentation - The condensed consolidated balance sheet as of
September 30, 1999, the condensed consolidated statements of operations for the
three- and nine-month periods ended September 30, 1999 and 1998, and the
condensed consolidated statements of cash flows for the nine-month periods then
ended have been prepared by the Company without audit. In the opinion of
management, all adjustments, which consist solely of normal recurring
adjustments, necessary to present fairly, in accordance with generally accepted
accounting principles, the financial position, results of operations and cash
flows for all periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. These condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto included in the Company's December 31, 1998 Annual
Report on Form 10-K. The results of operations for the period ended September
30, 1999 are not necessarily indicative of the results for the full year.
2. Inventory - Inventory is stated at the lower of cost or market using the
first-in, first-out method, net of allowances for estimated obsolescence. Major
classes of inventory at September 30, 1999 and December 31, 1998 are summarized
below:
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
Raw materials $ 1,962,308 $ 2,280,652
Work-in-process 1,779,132 235,062
Finished goods 1,075,060 1,264,941
--------- ---------
4,816,500 3,780,655
Reserve for obsolescence (160,000) (160,000)
------------- -------------
$ 4,656,500 $ 3,620,655
=========== ===========
</TABLE>
3. Investments - During the nine-month period ended September 30, 1999, the
Company invested $4,122,000 in securities and Treasury notes. Those investments
scheduled to mature in more than one year have been classified as non-current
investments. All investments at September 30, 1999 are considered
available-for-sale and, accordingly, are recorded at fair value. The difference
between historical cost (purchase price) and fair value has been recorded as a
reduction to stockholders' equity, net of tax.
-6-
<PAGE> 7
4. Income taxes - The Company has recorded its interim income tax provision
based on estimates of the Company's effective tax rate expected to be applicable
for the full fiscal year. Estimated effective rates recorded during interim
periods may be periodically revised, if necessary, to reflect current estimates.
5. Comprehensive income - Comprehensive income for the three- and nine-month
periods ended September 30, 1999 was $1,491,093 and $4,438,878, respectively.
Comprehensive income for the three- and nine-month periods ended September 30,
1998 was $1,386,227 and $1,216,404, respectively. The sole adjustment necessary
to reconcile net income with comprehensive income is for the net unrealized
losses, net of taxes, on investment securities.
6. Earnings per share - Basic earnings (loss) per share is calculated using the
weighted average number of common shares outstanding during the periods. Diluted
earnings (loss) per share is calculated using the weighted average number of
common and common equivalent shares outstanding during the periods.
Outstanding shares of common stock used in calculating earnings per share
differed from those amounts reported in the consolidated financial statements as
follows:
<TABLE>
<CAPTION>
Three months ended Three months ended
September 30, 1999 September 30, 1998
------------------------------------ ---------------------------
Basic earnings Diluted earnings Basic and diluted earnings
(loss) per share (loss) per share (loss) per share
---------------- ---------------- ---------------------------
<S> <C> <C> <C>
Outstanding shares 15,497,732 15,497,732 15,819,932
Effect of weighting changes
in outstanding shares 29,163 29,163 (3,025)
Stock options - - 34,388 - -
---------------- ------------- -----------------
Adjusted shares 15,526,895 15,561,283 15,816,907
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Nine months ended Nine months ended
September 30, 1999 September 30, 1998
------------------------------------ --------------------------
Basic earnings Diluted earnings Basic and diluted earnings
(loss) per share (loss) per share (loss) per share
---------------- ---------------- --------------------------
<S> <C> <C> <C>
Outstanding shares 15,497,732 15,497,732 15,819,932
Effect of weighting changes
in outstanding shares 159,854 159,854 (16,567)
Stock options - - 35,287 - -
---------------- ------------- -----------------
Adjusted shares 15,567,586 15,692,873 15,803,365
========== ========== ==========
</TABLE>
7. Subsequent event - On October 21, 1999, the Company's Board of Directors
approved a one year extension of the Company's 1,000,000 share stock repurchase
program originally adopted in October 1998. Under this program, the Company has
repurchased 334,600 shares through October 21, 1999. With the extension, the
Company may repurchase up to an additional 665,400 shares of its Common Stock,
$0.01 par value, through October 31, 2000.
-7-
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF THE THREE- AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1999 COMPARED
TO THREE- AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1998
Net sales for the third quarter of 1999 were $11,779,000, a decrease of 16% from
net sales of $14,020,000 for the third quarter of 1998. Year-to-date, net sales
of $35,156,048 for 1999 are down 13% over 1998 year-to-date sales of
$40,321,748. The Company believes the decrease in sales is largely attributed to
increased competition in markets served by the Company's AI Switch 180 and, to a
lesser extent, temporary postponement of orders from certain customers as they
address year 2000 issues within their networks. Due to these factors, the
Company expects sales for all of 1999 to be lower than 1998. However, the
Company has introduced several products late in the third quarter and early
fourth quarter of 1999, including AIscout, AIspy, NEWEB and AIflex. The Company
believes these products will be well received in our current markets and will
contribute to overall sales in the fourth quarter 1999 and in 2000.
Because of the Company's concentration of sales to Regional Bell Operating
Companies (RBOC's) and long distance phone companies, a small number of
customers have represented substantial portions of net sales. For the first nine
months of 1999, sales to four companies comprised 67% of net sales. Each of the
four customers contributed between 10% and 30% of net sales. The Company sells
to all of the RBOC's.
Gross profit as a percentage of net sales was 60% for the third quarter of 1999,
versus 60% for the third quarter of 1998. Year-to-date gross profit percentages
were 59% and 58% for 1999 and 1998, respectively. The Company anticipates that
gross profit as a percentage of net sales will decrease over the remainder of
1999 due to competitive pricing pressure in the Company's markets. Additionally,
the Company expects to begin shipping recently introduced products in the fourth
quarter. These products have lower selling prices and are expected to generate
slightly lower gross margins than the Company's products have historically
achieved.
Research and development (R&D) expenses decreased 36% to $2,041,000 for the
third quarter of 1999, from $3,184,000 for the same period in 1998. R&D
decreased as a percentage of net sales to 17% for the third quarter of 1999,
from 23% for the same period in 1998. Year-to-date R&D expenses were $5,443,000
for 1999 and $10,471,000 for 1998. As a percentage of net sales, this represents
15% for 1999 and 26% for 1998. The decrease in R&D expenses was attributable to
the termination of the Access Products Group on September 14, 1998. R&D expenses
for the Access Products Group were $6,263,000 for the first nine months of 1998.
The Company anticipates that R&D expenses for 1999 will be significantly less
than 1998. However, the Company expects R&D expenses to increase in the fourth
quarter of 1999 compared to amounts in the first three quarters of 1999 as the
Company increases the amount of resources allocated to the investigation of
potential new products and technologies.
-8-
<PAGE> 9
Selling, general and administrative expenses (SG&A) decreased to $2,947,000 in
the third quarter of 1999, from $3,742,000 in 1998. As a percentage of net
sales, this represents 25% in 1999 and 27% in 1998. Year-to-date SG&A was
$9,085,000 for 1999 and $11,393,000 for 1998, which represented 26% of net sales
in 1999 and 28% in 1998. The decrease in SG&A is primarily attributed to a
reduction in sales commissions and marketing expenses, as well as rent and other
costs associated with the Company's terminated Access Products Group. The
Company anticipates that SG&A expenses for 1999 will be lower than 1998, and
expects the fourth quarter of 1999 to be similar to amounts spent during the
first three quarters of 1999.
As a result of the above factors, income from operations increased to $2,072,000
in the third quarter of 1999, from a loss of $2,303,000 in the third quarter of
1998. Third quarter income from operations represents 18% of net sales versus a
loss from operations of 16% of net sales in 1999 and 1998, respectively.
Year-to-date income from operations was $6,298,000 for 1999, versus a loss from
operations of $2,318,000 in 1998. Year-to-date income from operations represents
18% of net sales in 1999, versus a loss from operations of 6% in 1998.
The Company's effective income tax rate was 36% for the current quarter versus
an effective rate of 34% for the same period in 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company had $21,695,000 of cash and cash equivalents and short- and
long-term investments at September 30, 1999. During the nine-month period then
ended, operating activities provided $6,300,000 in cash. During the same period
the Company purchased $763,000 of equipment to support operations and purchased
$4,122,000 of investment securities. The Company may invest in additional
investment securities during the remainder of 1999, with a greater emphasis on
securities with maturities greater than one year, to increase the yield on the
Company's portfolio.
Net working capital was $23,688,000 at September 30, 1999, compared to
$22,173,000 at December 31, 1998. At September 30, 1999, the current ratio was
3.8:1 and the Company had no debt outstanding.
On October 21, 1999, the Company's Board of Directors approved a one year
extension of the Company's 1,000,000 share stock repurchase program originally
adopted in October 1998. Under this program, the Company has repurchased 334,600
shares through October 21, 1999. With the extension, the Company may repurchase
up to an additional 665,400 shares of its Common Stock, $0.01 par value, through
October 31, 2000.
The Company believes that its existing cash, cash equivalents, investments, and
cash to be generated from future operations will provide sufficient capital to
meet the business needs of the Company through the end of 2000.
-9-
<PAGE> 10
YEAR 2000
The Company faces year 2000 compliance issues similar to those faced by other
companies which design, manufacture, and sell equipment used in the
telecommunications industry. Year 2000 compliance issues typically arise with
respect to computer software systems and programs that use only two digits,
rather than four digits, to represent a particular year. Consequently, these
systems and programs may not process dates properly beyond the year 1999 and may
result in miscalculation or system failures causing disruptions of business
operations.
The Company's product development processes currently contain steps to include
year 2000 compliance verification for all current and future products. Most of
the Company's products are currently year 2000 compliant, and the Company
believes that compliance for all of its products will be achieved prior to
January 1, 2000. Customers may upgrade non-compliant products to existing
compliant products. Although the products currently offered by the Company have
been tested for year 2000 compliance, any failure of the Company's products to
perform, including the failure to process dates beyond the year 1999, could have
a material adverse effect on the Company's business, financial condition, and
results of operations. The Company's future net sales could be impacted if
customers divert portions of their capital expenditure budgets toward the year
2000 issue and away from programs that include purchases of the Company's
products.
During the third quarter of 1999, the Company completed comprehensive testing of
its internal computer information systems infrastructure and non-computer
systems that contain embedded computer technology, to determine if such systems
are year 2000 compliant. Such testing included shutting down all significant
systems and the subsequent restart of the systems using various dates in the
year 2000 and beyond. The testing procedures confirmed our previous expectations
that only a small number of non-compliant systems would require remediation.
Non-compliant systems have been categorized by their importance to the Company's
operations as critical, moderate, and non-critical. The Company is currently
correcting known non-compliant systems and presently believes that the amount of
remediation work required to address year 2000 problems is not extensive.
The Company currently estimates that the total cost of addressing year 2000
issues will be approximately $700,000. The Company has already incurred
approximately $505,000 through September 30, 1999 in addressing year 2000
evaluation and remediation work. All costs related to year 2000 evaluation and
compliance are being expensed by the Company as incurred, except for long-lived
assets, which will be capitalized in accordance with the Company's
capitalization policies.
The Company is undertaking several steps to help minimize exposure to any
potential year 2000 issues affecting key suppliers, significant customers, or
critical service providers. For suppliers of critical components, such steps
include identifying multiple suppliers, inquiring with suppliers regarding their
year 2000 readiness, and requiring that suppliers include special year 2000
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<PAGE> 11
warranties in purchase agreements. Likewise, the Company has discussed with
significant customers the likelihood that year 2000 issues could affect
potential future orders of the Company's products or payments due to the
Company. Also, many of the Company's critical service providers, such as banks
and other financial institutions, health-care and benefit plan administrators,
and telecommunications and utilities providers, provide public disclosure of
their year 2000 readiness, and are subject to scrutiny by Federal and industry
regulators. The Company monitors year 2000 disclosure from such service
providers to minimize any potential business interruption.
A reasonably likely worst case scenario of the year 2000 issue could include:
isolated performance problems with engineering, financial and administrative
systems; isolated interruption of deliveries from critical suppliers; product
liability or warranty issues; and the temporary inability of key customers to
pay amounts due. The Company believes that the potential impact of a failure of
its products in its customers' telecommunications networks would be minimal due
to the function that its products serve. The Company's products assist customers
in managing their telecommunications networks but do not carry customer
telecommunications traffic.
The Company is currently conducting contingency planning for high-risk areas.
Our contingency plans include manual work arounds for potential software and
hardware failures, as well as the substitution of system, if necessary.
Likewise, the Company plans to have sufficient liquidity available to sustain a
temporary interruption of cash receipts during early 2000, and is identifying
alternative suppliers for critical components.
The actual outcomes and results could be affected by future factors including,
but not limited to, the continued availability of skilled personnel, cost
control, the ability to locate and remediate software code problems, critical
suppliers and subcontractors meeting the commitments to be year 2000 ready, and
timely actions by customers.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The foregoing Management's Discussion and Analysis of Financial Condition and
Results of Operations contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, which are intended to be
covered by the safe harbors created thereby. These statements include, but may
not be limited to, all statements regarding intent, beliefs, expectations,
projections, forecasts, and plans of the Company and its management, and include
statements regarding sales growth in the fourth quarter and in 2000 (paragraph
1), future gross profit margins (paragraph 3), future R&D expenditures
(paragraph 4), future SG&A expenditures (paragraph 5), future investment
maturities (paragraph 8), implementation and financing of the stock repurchase
program (paragraph 10), sufficiency of capital resources (paragraph 11) and
preparedness and compliance with year 2000 issues (paragraphs 12 through 19).
These forward-looking statements involve numerous risks and uncertainties,
including, without limitation, general economic and business conditions, the
Company's ability to develop new products as planned and on budget, the impact
of competitive products and services, the fact that
-11-
<PAGE> 12
the Company may decide to substantially increase R&D expenditures to meet the
needs of its business and customers, currently unforeseen circumstances could
require the use of capital resources, year 2000 issues are not fully determined
and resolved and could require additional efforts and expenditures and could
impose additional and unknown risks, current and future mergers of key customers
and the various risks inherent in the Company's business and other risks and
uncertainties detailed from time to time in the Company's periodic reports filed
with the Securities and Exchange Commission, including, the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998. One or more of
these factors have affected, and could in the future affect, the Company's
business and financial results and could cause actual results to differ
materially from plans and projections. Therefore, there can be no assurance that
the forward-looking statements included in this press release will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company, or any other person,
that the objectives and plans of the Company will be achieved. All
forward-looking statements are based on information presently available to the
management of the Company. The Company assumes no obligation to update any
forward-looking statements.
Item 3. Quantitative and Qualitative Disclosure about Market Risk -
The Company does not have any material exposure to interest rate changes,
commodity price changes, foreign currency fluctuation, or similar market risks.
Furthermore, the Company has not entered into any derivative contracts and the
Company has no debt outstanding as of September 30, 1999.
PART II. OTHER INFORMATION
Items 1 - 5. Inapplicable
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits - Exhibit 11
Exhibit 27 - Financial Data Schedule
(b) Reports on Form 8-K
-12-
<PAGE> 13
APPLIED INNOVATION INC.
EXHIBIT 11
Statement Regarding Computation of Earnings Per Share
For the three- and nine-month periods ended
September 30, 1999 and 1998
(unaudited)
<TABLE>
<CAPTION>
1999 1998
Three-months Nine-months Three-months Nine-months
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Weighted average number of common
shares outstanding - used for
computation of basic earnings per share 15,526,895 15,657,586 15,816,907 15,803,365
Add net shares issuable pursuant to stock
option plans less shares assumed
repurchased at the average market price 34,388 35,287 0 0
------- ------- ------- -------
Number of shares for computation of
diluted earnings per share 15,561,283 15,692,873 15,816,907 15,803,365
========== ========== ========== ==========
Net income (loss) for basic and diluted
earnings per share $1,510,112 $4,457,897 $(1,386,227) $(1,216,404)
Basic earnings (loss) per share $ 0.10 $ 0.28 $ (0.09) $ (0.08)
======== ======= ========= =========
Diluted earnings (loss) per share $ 0.10 $ 0.28 $ (0.09) $ (0.08)
======== ======= ========= =========
</TABLE>
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<PAGE> 14
SIGNATURES
Pursuant to the requirements 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.
APPLIED INNOVATION INC.
-----------------------
(Registrant)
November 12, 1999 /s/ Gerard B. Moersdorf, Jr.
- ----------------- -----------------------------
Date Gerard B. Moersdorf, Jr.
Chairman of the Board, President,
Chief Executive Officer and Treasurer
(Principal Executive Officer)
November 12, 1999 /s/ Michael P. Keegan
- ----------------- ----------------------
Date Michael P. Keegan
Vice President and Chief Financial Officer
(Principal Financial Officer)
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000798399
<NAME> APPLIED INNOVATION INC.
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 17,591,910
<SECURITIES> 1,462,986
<RECEIVABLES> 7,100,414
<ALLOWANCES> 277,547
<INVENTORY> 4,656,500
<CURRENT-ASSETS> 32,269,067
<PP&E> 14,155,079
<DEPRECIATION> 5,508,604
<TOTAL-ASSETS> 43,604,433
<CURRENT-LIABILITIES> 8,581,026
<BONDS> 0
0
0
<COMMON> 154,977
<OTHER-SE> 34,868,430
<TOTAL-LIABILITY-AND-EQUITY> 43,604,433
<SALES> 35,156,048
<TOTAL-REVENUES> 35,156,048
<CGS> 14,329,916
<TOTAL-COSTS> 14,329,916
<OTHER-EXPENSES> 14,528,480
<LOSS-PROVISION> 100,000
<INTEREST-EXPENSE> 0
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<INCOME-TAX> 2,509,000
<INCOME-CONTINUING> 4,457,897
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<EPS-BASIC> .28
<EPS-DILUTED> .28
</TABLE>
