<PAGE> 1
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF
1934
Commission file number 0-15810
OSICOM TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
New Jersey 22-2367234
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) identification no.)
1800 Stewart St., Santa Monica, California 90404
(Address of principal executive offices)
(310) 828-7496
(Issuer's telephone number)
---------------------------------
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
---- ----
Number of shares outstanding of each of the issuer's classes of common
equity as of November 5, 1995
Title of Each Class Number of Shares Outstanding
Common Stock, $.20 par value per share 1,263,898
<PAGE> 2
OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
FORM 10-QSB
INDEX
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Unaudited Balance Sheet at October 31, 1995 3
Consolidated Unaudited Statements of Operations for the Three Months and Nine Months
Ended October 31, 1995 and 1994 4
Consolidated Unaudited Statements of Cash Flows for the Nine Months Ended
October 31, 1995 and 1994 5
Notes to Consolidated Unaudited Financial Statements 6-11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12-13
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14-15
Signature 16
</TABLE>
2
<PAGE> 3
OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED UNAUDITED BALANCE SHEET
<TABLE>
<CAPTION>
October 31, 1995
- - ------------------------------------------------------------------------------
<S> <C>
ASSETS
CASH $605,749
ACCOUNTS RECEIVABLE 2,069,783
ALLOWANCE FOR DOUBTFUL ACCOUNTS (85,894)
NOTES RECEIVABLE (Note C) 882,288
NOTES RECEIVABLE - Affiliates (Note D) 283,249
INVENTORIES (Note B(4)) 3,826,174
PREPAID EXPENSES 359,990
- - ------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 7,941,339
- - ------------------------------------------------------------------------------
NET PROPERTY AND EQUIPMENT (Note E) 206,161
- - ------------------------------------------------------------------------------
OTHER ASSETS 163,100
- - ------------------------------------------------------------------------------
TOTAL ASSETS $8,310,600
==============================================================================
LIABILITIES and STOCKHOLDERS' EQUITY
LIABILITIES
LOAN PAYABLE - BANK (Note F) $2,454,104
ACCOUNTS PAYABLE AND
ACCRUED EXPENSES (Note J) 2,234,050
- - ------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 4,688,154
- - ------------------------------------------------------------------------------
NEGATIVE GOODWILL (Note B(2)) 562,383
- - ------------------------------------------------------------------------------
LONG TERM DEBT 58,181
- - ------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY (Note L)
PREFERRED STOCK
Series A, 2500 shares issued and outstanding 250,000
COMMON STOCK
Par value $.20 per share, authorized 20,000,000 shares,
1,263,898 shares issued and outstanding 252,780
ADDITIONAL PAID-IN-CAPITAL 945,083
RETAINED EARNINGS 1,554,019
- - ------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 3,001,882
- - ------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $8,310,600
==============================================================================
</TABLE>
The accompanying notes to consolidated unaudited financial statements are an
integral part hereof.
3
<PAGE> 4
OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED UNAUDITED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
October 31, October 31,
1995 1994 1995 1994
- - -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES $2,694,817 $2,040,199 $5,558,757 $4,631,166
COST OF SALES 1,608,864 1,364,818 3,327,930 2,984,809
- - -----------------------------------------------------------------------------------------------------------------
GROSS MARGIN 1,085,953 675,381 2,230,827 1,646,357
- - -----------------------------------------------------------------------------------------------------------------
SELLING, GENERAL & ADMINISTRATIVE EXPENSES 779,205 484,753 1,574,845 1,081,239
- - -----------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS
BEFORE INTEREST EXPENSE 306,748 190,628 655,982 565,118
- - -----------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE 40,371 22,372 85,762 55,930
- - -----------------------------------------------------------------------------------------------------------------
EARNINGS FROM CONTINUING OPERATIONS 266,377 168,256 570,220 509,188
- - -----------------------------------------------------------------------------------------------------------------
LOSS ON DISCONTINUED OPERATIONS (52,243) (276,270)
- - -----------------------------------------------------------------------------------------------------------------
NET INCOME $ 266,377 $ 116,013 $ 570,220 $ 232,918
=================================================================================================================
EARNINGS PER COMMON SHARE (NOTE K)
Earnings per share $0.18 $0.08 $0.36 $0.13
- - -----------------------------------------------------------------------------------------------------------------
Weighted average shares used in computation 1,286,220 982,629 1,280,430 982,146
=================================================================================================================
</TABLE>
The accompanying notes to consolidated unaudited financial statements are an
integral part hereof.
4
<PAGE> 5
OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED UNAUDITED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------
Nine Months Ended
October 31,
1995 1994
- - -----------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM CONTINUING OPERATIONS ($1,570,982) ($910,164)
- - -----------------------------------------------------------------------------------------------
CASH FLOWS FROM DISCONTINUED OPERATIONS (15,650)
- - -----------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (6,951) (14,808)
- - -----------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on acquisition liability (269,807) (95,554)
Proceeds from bank loan-net 1,893,895
Proceeds (repayments) of other debt (11,819) 90,620
Payments on bank loan (100,000)
Proceeds from note receivable-net 504,010 554,647
Increase in notes receivable - affiliates (84,115)
Issuance of common stock 165,000 3,000
- - -----------------------------------------------------------------------------------------------
NET CASH FLOWS FROM FINANCING ACTIVITIES 2,097,164 552,713
- - -----------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH 519,231 (387,909)
CASH AT BEGINNING OF PERIOD 86,518 543,693
- - -----------------------------------------------------------------------------------------------
CASH AT END OF PERIOD $ 605,749 $ 155,784
===============================================================================================
</TABLE>
Supplemental Cash Flow Disclosures
Interest expense approximated $40,000 and $86,000 and was accrued at October
31, 1995 for the three months and nine months then ended October 31, 1995.
Interest expense which approximated $22,000 and $56,000, was paid during the
three months and nine months ended October 31, 1994.
The accompanying notes to consolidated unaudited financial statements are an
integral part hereof.
5
<PAGE> 6
OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
(NOTE A) - The Company, Basis of Presentation and Acquisitions
The accompanying consolidated unaudited financial statements have been
prepared in accordance with the instructions to Form 10-QSB and, in the opinion
of management, include all adjustments (consisting of only normal recurring
adjustments) necessary for a fair presentation. The results of operations for
the three months and nine months ended October 31, 1995 are not necessarily
indicative of the results that may be expected for the fiscal year ending
January 31, 1996. These statements should be read in conjunction with the
consolidated audited financial statements and notes thereto included in the
Company's annual report on Form 10-KSB for the year ended January 31, 1995.
In addition, refer to the acquisition of Dynair Electronics, Inc. reported on
the Form 8-K filed August 22, 1995.
(NOTE B) - Significant Accounting Policies
(1) Principles of Consolidation:
The balance sheet reflects the accounts of Osicom and its wholly-owned
subsidiary Meret. The consolidated unaudited statements of operations for the
three months and nine months ended October 31, 1995 include the results of
operations of Osicom and Meret. The consolidated unaudited statements of
operations for the three months and nine months ended October 31, 1994 include
the results of operations of Osicom and its subsidiaries, and the discontinued
operations of Adtech.
(2) Amortization of Intangibles:
Excess of fair value over cost of net assets acquired (negative
goodwill) is amortized over 3 years on a straight-line basis.
(3) Depreciation and Amortization:
Depreciation of property and equipment is computed using the
straight-line method over the estimated useful lives of the assets (generally 3
to 5 years). Leasehold improvements are amortized over the shorter of their
estimated useful life or the term of the lease.
(4) Inventories:
Inventories, comprised of raw materials, work in process and finished
goods, are stated at the lower of cost (first-in, first-out method) or market.
Inventories consist of:
<TABLE>
<CAPTION>
Raw Work in Finished Reserve for
materials process goods Subtotal obsolescence Net
--------- ------- -------- -------- ------------ ---
<S> <C> <C> <C> <C> <C>
$3,613,567 1,108,256 924,370 5,646,193 1,820,009 $3,826,184
</TABLE>
(5) Per Share Data:
Earnings (loss) per common share is computed based on the weighted
average number of common and dilutive common equivalent shares outstanding
during each period presented. All references in the financial statements to
common shares and per share data give effect to the 2:1 reverse split effective
November 7, 1994.
6
<PAGE> 7
OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
(6) Revenue Recognition:
Revenues are recognized upon shipment of product.
(7) Cash Equivalents:
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months and
nine months or less to be cash equivalents.
(8) Allowance for Doubtful Accounts:
The Company provides an allowance for doubtful accounts based on its
continuing evaluation of its customers' credit risk. The Company does not
require collateral from its customers.
(NOTE C) - Notes Receivable
The Company carried the following notes receivable totaling $882,288
at October 31, 1995:
(1) Other notes receivable were $217,697. During the Nine Months
ended October 31, 1995, the Company collected $554,647 against the notes
receivable which were outstanding at January 31, 1995.
(2) Agama, Inc., owed the Company $430,555. The amount is due on
demand and does not accrue interest. On April 26, 1995 Agama, Inc. agreed to
repay the entire balance by January 31, 1996 with interest from November 1,
1995 at 1% over the prime rate. Subsequent to October 31, 1995, Agama, Inc.
repaid $335,000.
(3) In the fourth quarter of Fiscal 1995, Stratuslink issued the
Company a $261,036 note which is guaranteed. As of October 31, 1995, the note
balance was $234,036 and subsequently $180,000 was paid to the Company leaving
a balance of $54,036.
The total outstanding after these collections is $367,288.
(NOTE D) - Notes Receivable - affiliates
Rand owed the Company $283,249 which is due on demand and does not
accrue interest. Subsequent to October 31, 1995, $61,000 was repaid to the
Company, leaving a balance of $222,249.
(NOTE E) - Property and Equipment
The Company did not record property and equipment which Meret and
Catel carried at $1,978,000 net of accumulated depreciation of $4,191,000 as a
result of the revaluation of Meret's assets at acquisition and the purchase of
Catel. The Company still uses these assets in its business. Property and
equipment at cost, less accumulated depreciation and amortization, consists of:
7
<PAGE> 8
OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
(NOTE E) - Property and Equipment (Continued)
<TABLE>
<S> <C>
Automobile $ 31,410
Plant Equipment 1,481,503
Office Furniture and Fixtures 39,040
-----------
Total 1,551,953
Less accumulated depreciation (1,345,792)
-----------
$ 206,161
===========
</TABLE>
(NOTE F) - Loan Payable - Bank
At October 31, 1995, the Company had outstanding indebtedness under
its revolving demand loan agreement with Banca di Roma of $560,209. The
agreement provides for interest at 1% above the bank's base lending rate, which
was 9%, at October 31, 1995. The line of credit is collateralized by accounts
receivable and personally guaranteed by a director of the Company. In
addition, the Company had outstanding indebtedness under its line of credit
with a financing company of $1,893,895 at October 31, 1995. The line of credit
is collateralized by accounts receivable, inventory and property, plant and
equipment. This line of credit provides for interest at prime plus 2.5%.
(NOTE G) - Income Taxes
The Company recorded no income tax provision for the three months and
nine months ended October 31, 1995 and 1994. A significant portion of the net
income reported by the Company for those periods arose from the amortization of
negative goodwill which is not taxable. In addition, the Company has other
temporary differences, primarily depreciation, that can be utilized to offset
any remaining taxable income. Both the negative goodwill amortization and the
depreciation differences arose out of the Company's acquisitions of Meret and
Catel. The Company also has other tax attributes arising from the Meret and
Catel acquisitions that could give rise to the recording of deferred tax
assets. Upon acquisition, management determined that realization of such
benefits was not assured thus, no deferred asset was recorded. At October 31,
1995, management determined that realization of any future benefits is still
not assured thus, no deferred tax assets were recorded. The Company believes
that any remaining net operating losses incurred by the Company, prior to the
acquisitions, available to offset future taxable income, may be severely
limited by the provisions of Section 382 of the Internal Revenue Code.
(NOTE H) - Commitments and Contingencies
(1) The Company leases warehouse and office space in Santa Monica,
Fremont and San Diego, California. The Santa Monica and Fremont leases end on
January 31, 1996 and July 31, 1997 respectively. The San Diego facility is a
month-to-month lease. These leases include escalations for real estate taxes
and certain operating expenses. Rent expense for the Company for the three
months and nine months ended October 31, 1995 and 1994 was $123,000 and
$285,000 and $84,000 and $222,000, and respectively net of monthly sublease
income of $8,000. The sublease expires on January 31, 1996.
8
<PAGE> 9
OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
(NOTE H) - Commitments and Contingencies (Continued)
Future minimum annual rentals for the Company and its subsidiaries are as
follows:
<TABLE>
<CAPTION>
Period ended
January 31, Rental Sublease Income Net Rent
------------ -------- --------------- --------
<S> <C> <C> <C>
1996 $111,000 ($25,000) $86,000
1997 108,000 108,000
1998 54,000 54,000
---------------------------------------
Total $273,000 ($25,000) $248,000
=======================================
</TABLE>
(2) The Company is party to several lawsuits related to trade
claims made by and against the Company. The Company is in litigation or is
attempting to settle these lawsuits. The majority of such claims have been
assigned to Agama, Inc. in conjunction with the sale of the Company's former
computer business and as such Agama, Inc. has indemnified the Company against
any unfavorable outcomes. Management believes that the ultimate outcome of
these lawsuits will not have a material adverse effect on the Company's
financial position and future operations.
(3) Under the terms of the purchase agreement, the Company is
obligated to pay the Seller of Dynair additional cash consideration equal to a
percentage of net revenues in excess of $5,000,000 within a post-closing year
derived from sale of Dynair products, for each of the five years subsequent to
the acquisition date. As of October 31, 1995, no liability related to this
additional consideration has been incurred.
(NOTE I) - Stockholders' Equity
(1) In January 1987, the Company adopted a qualified stock option
plan which granted options to key employees to purchase an aggregate of 7,500
shares of the Company's common stock at a price equal to 100% of the fair
market value (110% of the fair market value if the optionee owns more than 10%
of the Company's stock) as of the date of the grant. The options expire at a
date determined by the Board of Directors ("BOD"), but in no event later than
ten years from the date of grant.
In April 1988, the Company adopted a stock option plan which provides
for the granting of incentive stock options (ISO) and non-qualified stock
options (NQSOs) to key employees to purchase an aggregate of 7,500 shares of
the Company's common stock. On May 8, 1992 and August 20, 1992, 4,175 and
2,427 options were issued under this plan. Also on May 8, 1992, 1,247 options
were reissued under this plan. 350 of the above options were canceled during
Fiscal 1993. During Fiscal 1994, the BOD increased the aggregate number of
shares available to be issued under this plan to 60,000. During Fiscal 1994,
the Company granted options to purchase 37,450 shares. During Fiscal 1994,
20,960 options were exercised under this plan and 40 options were canceled.
In December 1994, the Company's BOD granted 120,000 NQSOs to employees
and consultants. The Company filed a Form S-8 registration statement for these
NQSOs with the Securities and Exchange Commission on June 15, 1995.
9
<PAGE> 10
OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
(2) During Fiscal 1993, in conjunction with the retirement of its
United Jersey Bank debt, the Company issued United Jersey Bank options to
purchase 50,000 shares of its common stock. This option expires on December
31, 2002. Under a redemption agreement, the Company can redeem the options for
$450,000 or $600,000 if redeemed by September 30, 1995 or 1996, respectively
and $1 million thereafter.
(3) On August 21, 1992, the Company issued 2,500 shares of Series A
Convertible Preferred stock in exchange for $2,500,000 of trade debt. The
preferred stock was ascribed a value of $250,000 based on the estimated market
value of the underlying common stock of the Company. The preferred stock
accrues cumulative dividends at 6% and is convertible into common stock (i) at
the option of the holder at the market price of the common stock provided the
market price is equal to or exceeds $135, and (ii) at the option of the Company
at 110% of the market price of the common stock. In no event shall a
conversion result in the holder having more than 49% of the outstanding common
stock of the Company. The shares of preferred stock are redeemable at the
option of the Company at $1,000 per share. At October 31, 1995, there was
$475,000 of cumulative preferred stock dividends.
(NOTE J) - Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of:
<TABLE>
<S> <C>
Accounts Payable $1,441,176
Accrued Vacations 207,478
Other 585,396
----------
Total $2,234,050
==========
</TABLE>
(NOTE K) - Earnings Per Share Calculation
Earnings per share has been computed on a primary basis only as the
result of the fully diluted calculation is anti-dilutive. Earnings per share
were calculated as follows at October 31, 1995, giving effect to accrued
preferred share dividends:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------- -----------------
1995 1994 1995 1994
-------- ----- ------- ------
<S> <C> <C> <C> <C>
Net earnings $266,377 $116,013 $570,220 $232,918
Accrued undeclared dividends 37,500 37,500 112,500 112,500
-----------------------------------------------
Earnings used for computation $228,877 $78,513 $457,720 $120,418
===============================================
Weighted average number of shares outstanding 1,217,853 1,028,305 1,203,722 1,027,822
Shares issuable upon exercise of dilutive warrants
and options, net of shares assumed to have
been purchased, at the average market price for
the period, with assumed exercise proceeds. 68,367 (45,676) 76,708 (45,676)
-----------------------------------------------
Weighted average shares used in computation 1,286,220 982,629 1,280,430 982,146
Net earnings per share of common stock $0.18 $0.08 $0.36 $0.13
===============================================
</TABLE>
10
<PAGE> 11
OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
(NOTE L) - Pro Forma Financial Information
The following pro forma financial information presents the effects of
the acquisition of Dynair Electronics, Inc. by the registrant as if the
acquisition had been completed as of February 1, 1995. The pro forma
adjustment reflects interest on debt not acquired. The pro forma financial
information is not necessarily indicative of the results of operations and
financial position which will be attained in the future. The pro forma
information should be read in conjunction with the historical consolidated
financial statements of Osicom Technologies, Inc. as reported on Forms 10-QSB
and 10-KSB for the three months and the year ended April 30 and January 31,
1995 respectively.
<TABLE>
<CAPTION>
Dynair
Four Months
Osicom Ended Pro forma Pro forma
consolidated May 31, 1995 Ref adjustments consolidated
------------ ------------ --- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net sales $5,558,757 $2,065,133 $7,623,890
Cost of sales 3,327,930 1,115,381 4,443,311
-------------------------------------------------------------------------
Gross profit 2,230,827 949,752 3,180,579
Selling, general and administrative 1,574,845 1,087,320 2,662,165
-------------------------------------------------------------------------
Earnings (loss) from continuing
operations 0 0 0
before interest expense 655,982 (137,568) 518,414
Interest expense - net 85,762 64,222 (a) (64,222) 85,762
-------------------------------------------------------------------------
NET EARNINGS (LOSS) $570,220 ($201,790) $64,222 $432,652
=========================================================================
Weighted average shares used in computation of per share information (Note K): 1,280,430
NET EARNINGS (LOSS) per share $0.36 ($0.16) $0.05 $0.25
</TABLE>
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the consolidated unaudited
financial statements and related notes thereto.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED OCTOBER 31, 1995 AND 1994
Results of operations for the three months ended October 31, 1995
include the continuing operations of Osicom and its wholly-owned subsidiary
Meret. Results of operations for the three months ended October 31, 1994
include the continuing operations of Osicom and its subsidiaries and the
discontinued operations of Adtech.
Consolidated net sales increased by 32% to $2,695,000 from
$2,040,000. Consolidated gross profit increased by 61% to $1,086,000 from
$675,000, due to the increase in net sales.
Selling, general and administrative expenses increased to $779,000
from $484,000, an increase as a percentage of sales from 24% to 29%. This
increase is due to the commissions to independent representatives that sell
certain of its products. For the three months ended October 31, 1995 these
commissions were $125,000. Amortization of negative goodwill of $238,000 was
consistent with the previous year's three months ended October 31. Interest
expense incurred increased from $22,000 to $40,000 due to the borrowings
against the working capital line to fund the increased level of business
revenues.
Consolidated income from continuing operations increased 58% to
$266,000 as compared to $168,000. As a percentage of sales, consolidated
income from continuing operations increased from 8% to 10%. Consolidated net
income increased 129% to $266,000 from $116,000. As a percentage of sales,
consolidated net income increased from 6% to 10% due to the discontinuance of
the operations of Adtech. Consolidated net income included a loss from the
discontinued operations of Adtech approximately $52,000 for the three months
ended October 31, 1994.
Due to the offsetting of non-current assets against negative goodwill
in the Meret and Catel acquisitions, as required by generally accepted
accounting principles, productive fixed assets which cost $6.1 million and with
a net book value of approximately $1,900,000 at acquisition, have not been
recorded. Accordingly, there is no depreciation charge to operations for these
assets which are used in the operations of Meret and Catel.
As of November 15, 1995, the Company had a backlog of over $2,300,000.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED OCTOBER 31, 1995 AND 1994
Results of Operations for the nine months ended October 31, 1995
include the operations of Osicom and its wholly-owned subsidiary Meret. Results
of operations for the nine months ended October 31, 1994 include continuing
operations of Osicom and its subsidiaries and the discontinued operations of
Adtech.
Consolidated net sales increased by 20% to $5,559,000 from
$4,631,000. Consolidated gross profit increased by 36% to $2,231,000 from
$1,646,000, due to the increase in net sales.
Selling, general and administrative expenses increased to $1,575,000
from $1,081,000, an increase as a percentage of sales from 23% to 28%. This
increase is due to the commissions to independent representatives that sell
certain of its products. For the nine months ended October 31, 1995 these
commissions were $264,000. Amortization of negative goodwill was $713,000
compared to $724,000 for the previous year. Interest expense incurred
increased from $56,000 to $86,000 due to the borrowings against the new line of
credit.
Consolidated income from continuing operations increased 12% to
$570,000 as compared to $509,000. As a percentage of sales, consolidated
income from continuing operations decreased from 11% to 10%. Consolidated net
income increased 145% to $570,000 from $233,000. As a percentage of sales,
consolidated net income increased from 5% to 10% due primarily to the
discontinuance of the operations of Adtech.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Consolidated net income included a loss from the discontinued operations of
Adtech of approximately $276,000 for the nine months ended October 31, 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a cash balance of $606,000 and working capital of
$3,253,000 at the period ended October 31, 1995, which management believes is
adequate to meet its planned level of growth.
The continuing operations of the Company consumed cash of
approximately $1,571,000 as compared to $910,000 for the nine months ended
October 31, 1995 and 1994 respectively. Cash flows from financing activities
for the nine months ended October 31, 1995 and 1994 provided $2,097,000 and
$553,000 respectively. During the nine months ended October 31, 1995, the
Company paid $100,000 against the bank loan, borrowed a net amount of
$1,894,000 against the credit line described below and collected $504,000 from
notes receivable. In addition, the Company received $165,000 in proceeds from
the issuance of common stock during the nine months ended October 31, 1995.
During the three months and nine months ended October 31, 1994, the Company
paid $96,000 against the note issued for the acquisition of Catel in 1993 and
collected $555,000 from notes receivable. Expenditures for capital equipment
in both periods were negligible.
On April 14, 1995, Coast Business Credit ("the lender") and Meret
entered into an agreement ("the agreement") for a $5 million revolving line of
credit collateralized by inventories, receivables and property, plant and
equipment. Osicom has guaranteed the debt to the extent of $600,000. The
agreement provides for interest at 2 1/2% over the prime rate, but in no event
less than 8%. The agreement provides for advances of 80% of eligible accounts
receivable and 25% of eligible inventories not to exceed the lesser of
$1,000,000 or 75% of the then outstanding accounts receivable loan. The
proceeds must be used for working capital for expansion and for other business
purposes. The agreement remains in effect until May 31, 1998 and
automatically renews for successive additional terms of one year on a
continuous basis unless terminated by written notice of either party or by
default As of November 16, 1995, approximately $1,742,000 was outstanding
under the loan agreement.
On June 8, 1995, the Company acquired 100% of Dynair Electronics, Inc.
("Dynair"). Dynair is engaged in the business of designing, manufacturing,
marketing and supporting digital and analog switches and routers which are used
by the telecommunications industry to build the next generation of networks for
video-on-demand and related services.
The purchase price agreed to by the Company for Dynair was $269,807,
which was equal to the audited shareholder's equity of Dynair as of May 31,
1995 and was paid on September 8, 1995. In addition to the above-mentioned
consideration, the seller of Dynair is entitled to receive additional cash
consideration equal to a percentage of net revenues in excess of $5,000,000
within a post-closing year derived from the sale of Dynair products, for each
of the five years subsequent to the acquisition date.
Management believes that the Company has sufficient working capital to
meet the needs of the current level of operations. Management is implementing
plans which it believes will enable the Company to internally generate funds
for its continuing operations. There can be no assurance that these mechanisms
to improve liquidity will be effective. The Company, however, is actively
seeking acquisitions and anticipates that it will require additional capital in
order to fund any acquisitions or substantial growth in its current business
and no assurances can be given that sufficient capital will be available when
needed.
13
<PAGE> 14
OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is party to several lawsuits related to trade claims made
by and against the Company. The Company is in litigation or is attempting to
settle these lawsuits. The majority of such claims have been assigned to
Agama, Inc. in conjunction with the sale of the Company's computer business,
and as such Agama, Inc. has indemnified the Company against any unfavorable
outcomes. Management believes that the ultimate outcome of these lawsuits will
not have a material adverse effect on the Company's financial position and
future operations.
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Shareholders, on September 11,
1995, the following members were elected to the Board of Directors:
Par Chadha Sharon Chadha Xin Cheng
The following proposals were approved at the Company's Annual Meeting:
<TABLE>
<CAPTION>
Affirmative Negative Votes
Votes Votes Withheld
----- ----- --------
<S> <C> <C> <C> <C>
1. Approval of issuance of 25,000
stock options for Sharon Chadha
in lieu of other compensation for
services rendered for the year ended
January 31, 1995. 653,153 57,622 11,874
2. Approval of issuance of 25,000
stock options for Par Chadha
in lieu of other compensation for
services rendered for the year ended
January 31, 1995. 641,012 57,855 13,143
3. Approval of issuance of 25,000
stock options for Sharon Chadha
in lieu of other compensation for
services rendered for the year ended
January 31, 1996. 648,350 57,692 5,958
</TABLE>
14
<PAGE> 15
OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION (CONTINUED)
Item 4. Submission of Matters to a Vote of Security Holders (continued)
<TABLE>
<CAPTION>
Affirmative Negative Votes
Votes Votes Withheld
----- ----- --------
<S> <C> <C> <C> <C>
4. Approval of issuance of 25,000
stock options for Par Chadha
in lieu of other compensation for
services rendered for the year ended
January 31, 1996. 644,372 56,935 7,643
5. Approval of issuance of 25,000
stock options for Xin Cheng in addition
to other compensation for services
rendered for the year ended
January 31, 1996. 643,742 56,092 10,171
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
August 22, 1995 - Financial Statements of Dynair Electronics, Inc.
15
<PAGE> 16
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf the
undersigned thereunto duly authorized.
OSICOM TECHNOLOGIES, INC.
(Registrant)
Date: November 17, 1995
By: /s/ Par Chadha
---------------------------
Chairman and Director
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
UNAUDITED BALANCE SHEET AT OCTOBER 31, 1995 AND CONSOLIDATED UNAUDITED STATEMENT
OF OPERATIONS FOR THE NINE MONTHS ENDED OCTOBER 31, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH UNAUDITED FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-START> FEB-01-1995
<PERIOD-END> OCT-31-1995
<CASH> 605,749
<SECURITIES> 0
<RECEIVABLES> 2,069,783
<ALLOWANCES> 85,894
<INVENTORY> 3,826,174
<CURRENT-ASSETS> 7,941,339
<PP&E> 1,551,953
<DEPRECIATION> 1,345,792
<TOTAL-ASSETS> 8,310,600
<CURRENT-LIABILITIES> 4,688,154
<BONDS> 0
<COMMON> 252,780
0
250,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 8,310,600
<SALES> 5,558,757
<TOTAL-REVENUES> 5,558,757
<CGS> 3,327,930
<TOTAL-COSTS> 1,574,845
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 85,762
<INCOME-PRETAX> 570,220
<INCOME-TAX> 0
<INCOME-CONTINUING> 570,220
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 570,220
<EPS-PRIMARY> .36
<EPS-DILUTED> .36
</TABLE>
