<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 July 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)
<TABLE>
<S> <C>
New Jersey 22-2367234
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer identification no.)
</TABLE>
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 August 5, 1995
<TABLE>
<S> <C>
Title of Each Class Number of Shares Outstanding
Common Stock, $.20 par value per share 1,195,898
</TABLE>
<PAGE> 2
OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
FORM 10-QSB
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<S> <C>
Item 1. Financial Statements
Consolidated Unaudited Balance Sheet at July 31, 1995 3
Consolidated Unaudited Statements of Operations for the Three Months
and Six Months Ended July 31, 1995 and 1994 4
Consolidated Unaudited Statements of Cash Flows for the Six
Months Ended July 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
Signature 15
</TABLE>
2
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS
OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED UNAUDITED BALANCE SHEET
JULY 31, 1995
<TABLE>
<CAPTION>
<S> <C>
ASSETS
CASH $ 497,745
ACCOUNTS RECEIVABLE 990,586
ALLOWANCE FOR DOUBTFUL ACCOUNTS (78,714)
NOTES RECEIVABLE (Note C) 675,252
NOTES RECEIVABLE - Affiliates (Note D) 433,170
INVENTORIES (Note B(4)) 3,840,161
PREPAID EXPENSES 258,235
----------
TOTAL CURRENT ASSETS 6,616,435
NET PROPERTY AND EQUIPMENT (Note E) 224,484
OTHER ASSETS 153,402
----------
TOTAL ASSETS $6,994,321
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
LOAN PAYABLE - BANK (Note F) $1,353,128
NOTES PAYABLE 264,807
ACCOUNTS PAYABLE AND ACCRUED EXPENSES 1,942,237
----------
TOTAL CURRENT LIABILITIES 3,560,172
----------
NEGATIVE GOODWILL (Note B(2)) 800,100
LONG TERM DEBT 63,544
STOCKHOLDERS' EQUITY
PREFERRED STOCK
Series A, 2500 shares issued and outstanding 250,000
COMMON STOCK
Par value $.20 per share, authorized 20,000,000 shares,
1,195,898 shares issued and outstanding 239,180
ADDITIONAL PAID-IN CAPITAL 793,683
RETAINED EARNINGS 1,287,642
----------
TOTAL STOCKHOLDERS' EQUITY 2,570,505
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $6,994,321
==========
</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
FOR THE THREE MONTHS AND SIX MONTHS ENDED JULY 31, 1995 AND 1994
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET SALES $1,689,433 $1,546,136 $2,863,940 $2,589,968
COST OF SALES 1,019,371 1,034,340 1,719,066 1,619,991
---------- ---------- ---------- ----------
GROSS MARGIN 670,062 511,796 1,144,874 969,976
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 479,889 307,081 795,640 595,486
---------- ---------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS BEFORE
INTEREST EXPENSE 190,173 204,715 349,234 374,490
INTEREST EXPENSE 28,307 16,779 45,391 33,558
---------- ---------- ---------- ----------
EARNINGS FROM CONTINUING OPERATIONS 161,866 187,936 303,843 340,932
LOSS ON DISCONTINUTED OPERATIONS (110,906) (224,027)
---------- ---------- ---------- ----------
NET INCOME $ 161,866 $ 77,030 $ 303,843 $ 116,905
========== ========== ========== ==========
EARNINGS PER COMMON SHARE (NOTE M)
Earnings per share $0.10 $0.04 $0.18 $0.04
Weighted average shares used in computation 1,248,244 1,049,662 1,249,397 1,049,662
========== ========== ========== ==========
</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
FOR THE SIX MONTHS ENDED JULY 31, 1995 AND 1994
<TABLE>
<CAPTION>
Six Months Ended
1995 1994
---------- ---------
<S> <C> <C>
CASH FLOWS FROM CONTINUING OPERATIONS $ (703,355) $(828,016)
CASH FLOWS FROM DISCONTINUED OPERATIONS (229,402)
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (597) (13,412)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on acquisition liability (5,000) (95,554)
Proceeds from bank loan 699,625
Proceeds (repayments) of other debt (6,456) 90,620
Payments on bank loan (50,000)
Proceeds from note receivable-net 477,010 554,647
Issuance of common stock 3,000
---------- ---------
NET CASH FLOWS FROM FINANCING ACTIVITIES 1,115,179 552,713
---------- ---------
NET (DECREASE) INCREASE IN CASH 411,227 (518,117)
CASH AT BEGINNING OF PERIOD 865,518 543,693
---------- ---------
CASH AT END OF PERIOD $ 497,745 $ 25,576
========== =========
</TABLE>
The accompanying notes to consolidated unaudited financial statements
are an integral aprt 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 Six Months ended July 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 Meret, Catel, Dynair and
Osicom. The consolidated unaudited statement of operations for the Three
Months and Six Months ended July 31, 1995 includes the results of operations of
Osicom, Meret, Catel and Dynair for the two months subsequent to the effective
acquisition date, May 31, 1995. The consolidated unaudited statement of
operations for the Three Months and Six Months ended July 31, 1994 includes
the results of operations of Meret, Osicom and Catel, 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 on 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>
$3,600,278 949,105 1,083,839 5,633,222 1,793,061 $3,840,161
</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
Six 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 $675,252
at July 31, 1995:
(1) Other notes receivable were $219,172. During the Six Months
ended July 31, 1995 the Company collected $557,053 against the notes receivable
which were outstanding at January 31, 1995.
(2) Agama, Inc., owed the Company $456,080. 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.
(NOTE D) - Notes Receivable - affiliates:
(1) Rand owed the Company $199,134 which is due on demand and does
not accrue interest.
(2) In the fourth quarter of Fiscal 1995, Stratuslink issued the
Company a $261,036 note which is guaranteed. As of July 31, 1995, Stratuslink
had paid $27,000 against the note.
(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:
<TABLE>
<S> <C>
Automobile $ 31,410
Plant Equipment 1,481,729
Office Furniture and Fixtures 32,460
-----------
Total 1,545,599
Less accumulated depreciation (1,321,115)
-----------
$ 224,484
===========
</TABLE>
7
<PAGE> 8
OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
(NOTE F) - Loan Payable - Bank:
At July 31, 1995, the Company had outstanding indebtedness under its
revolving demand loan agreement with Banca di Roma of $610,209. The agreement
provides for interest at 1% above the bank's base lending rate, which was 9%,
at July 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 $742,919 at July 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
Six Months ended July 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 July 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. Amoco has guaranteed Meret's Santa Monica facility
lease. These leases include escalations for real estate taxes and certain
operating expenses. Rent expense for the Company for the Three Months and Six
Months ended July 31, 1995 and 1994 was $108,000 and $162,000 and $84,000 and
$138,000, and respectively net of monthly sublease income of $8,000. The
sublease expires on January 31, 1996.
Future minimum annual rentals for the Company and its subsidiaries are as
follows:
<TABLE>
<CAPTION>
Rental Sublease Income Net Rent
-------- --------------- --------
<S> <C> <C> <C>
1995 $217,000 $(60,500) $156,500
1996 98,000 98,000
1997 49,000 49,000
-------- -------- --------
Total $364,000 $(60,500) $303,500
======== ======== ========
</TABLE>
8
<PAGE> 9
OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
(Note H) - Commitments and Contingencies (Continued):
(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.
(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.
(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
after August 21, 1994 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 July 31, 1995
there was $400,000 of cumulative preferred stock dividends.
9
<PAGE> 10
OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
(NOTE J) - Accounts Payable and Accrued Expenses:
Accounts payable and accrued expenses consisted of:
<TABLE>
<S> <C>
Accounts Payable $1,248,396
Accrued Vacations 217,501
Other 476,340
----------
Total $1,942,237
==========
</TABLE>
(NOTE K) - Subsequent Events:
The purchase price paid by the Company for Dynair is equal to the
audited shareholder's equity of Dynair as of May 31, 1995, and was due and
payable in cash on September 8, 1995. In addition to the above-mentioned
consideration, Seller 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.
(NOTE L) - Supplemental Cash Flow Disclosures:
Interest expense approximated $28,000 and $45,000 was accrued at July
31, 1995 for the Three Months and Six Months then ended July 31, 1995.
Interest expense which approximated $17,000 and $33,000, was paid during the
Three Months and Six Months ended July 31, 1994.
(NOTE M) - 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 July 31, 1995, giving effect to accrued preferred
share dividends:
<TABLE>
<CAPTION> Three Months Ended Six Months Ended
-------------------- ---------------------
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net earnings $ 161,866 $ 77,030 $ 303,843 $ 116,905
Accrued undeclared dividends 37,500 37,500 75,000 75,000
--------- --------- --------- ---------
Earnings used for computation $ 124,366 $ 39,530 $ 228,843 $ 41,905
========= ========= ========= =========
Weighted average number of
shares outstanding 1,195,898 1,026,824 1,198,898 1,026,824
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 52,346 22,838 53,499 22,838
--------- --------- --------- ---------
Weighted average shares used in
computation 1,248,244 1,049,662 1,249,397 1,049,662
Net earnings per share of
common stock $0.10 $0.04 $0.18 $0.04
========= ========= ========= =========
</TABLE>
10
<PAGE> 11
OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
(NOTE N) - 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 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.
Pro Forma Condensed Consolidated Income Statements
For the Six Months Ended July 31, 1995
<TABLE>
<CAPTION>
OSICOM Pro forma Pro forma
& MERET DYNAIR Ref adjustments consolidated
---------- ---------- --- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net sales $2,258,569 $2,065,133 $4,323,702
Cost of sales 1,393,626 1,115,381 2,509,007
---------- ---------- ----------
Gross profit 864,943 949,752 1,814,695
Selling, general and administrative expenses 503,763 1,087,320 1,591,083
---------- ---------- ----------
Earnings (loss) from continuing operations
before interest expense 361,180 (137,568) 223,612
Interest expenses - net 41,378 64,222 (a) (64,222) 41,378
---------- ---------- --- -------- ----------
NET EARNINGS (LOSS) $ 319,802 $ (201,790) $ 64,222 $ 182,234
========== ========== === ======== ==========
Weighted average shares used in computation
(Note M) 1,249,397 1,249,397 1,249,397
NET EARNINGS (LOSS) per share $0.20 $(0.22) $0.09
</TABLE>
(a) To remove interest expense on debt not acquired
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 July 31, 1995 and 1994
Results of operations for the three months ended July 31, 1995 include
the continuing operations of Osicom, Meret, Catel and Dynair for the two months
subsequent to the effective acquisition date, May 31, 1995. Results of
operations for the three months ended July 31, 1994 include the results of
continuing operations of Meret, Catel and Osicom and the discontinued
operations of Adtech.
Consolidated unaudited net sales increased by 9% to $1,689,000 from
$1,546,000. Consolidated unaudited gross profit increased by 31% to $670,000
from $512,000, due to the increased efficiency related to having consolidated
the manufacturing facilities of Meret and Catel as well as the higher gross
profit margin of the Dynair product line.
Selling, general and administrative expenses increased to $480,000
from $307,000, due to the acquisition of Dynair and the exclusion of Adtech, an
increase as a percentage of sales from 20% to 28%. Amortization of negative
goodwill of $238,000 was consistent with the previous year. Interest expense
incurred increased from $17,000 to $28,000 due to the borrowings against the
new line of credit.
Consolidated unaudited income from continuing operations decreased 14%
to $162,000 as compared to $188,000. As a percentage of sales, consolidated
unaudited income from continuing operations decreased from 12% to 10%.
Consolidated net income increased 110% to $162,000 from $77,000. As a
percentage of sales, consolidated unaudited net income increased from 5% to 10%
due primarily to the discontinuance of the operations of Adtech. Consolidated
net income included a loss from the discontinued operations of Adtech
approximately $111,000 for the three months ended July 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 with a net book value of
approximately $1,900,000 at date of 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 August 31, 1995, the Company had a backlog of over $3,000,000.
Results of Operations for the Six Months Ended July 31, 1995 and 1994
Results of Operations for the six months ended July 31, 1995 include
the operations of Osicom, Meret, Catel and Dynair for the two months subsequent
to the effective acquisition date, May 31, 1995. Results of operations for the
six months ended July 31, 1994 include the results of continuing operations of
Meret, Catel and Osicom and the discontinued operations of Adtech.
Consolidated unaudited net sales increased by 11% to $2,864,000 from
$2,590,000. Consolidated unaudited gross profit increased by 18% to $1,145,000
from $970,000, due to the continued effects of consolidating the manufacturing
facilities of Meret and Catel as well as the higher gross profit margin of the
Dynair product line.
Selling, general and administrative expenses increased to $796,000
from $595,000, due to the exclusion of Adtech from continuing operations, an
increase as a percentage of sales from 23% to 28%. Amortization of negative
goodwill was $475,000 compared to $486,000 for the previous year. Interest
expense incurred increased from $34,000 to $45,000 due to the borrowings
against the new line of credit.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Consolidated unaudited income from continuing operations decreased 11%
to $304,000 as compared to $341,000. As a percentage of sales, consolidated
unaudited income from continuing operations decreased from 13% to 11%.
Consolidated net income increased 160% to $304,000 from $117,000. As a
percentage of sales, consolidated unaudited net income increased from 5% to 11%
due primarily to the discontinuance of the operations of Adtech. Consolidated
net income included a loss from the discontinued operations of Adtech
approximately $224,000 for the six months ended July 31, 1994.
Liquidity and Capital Resources
The continuing operations of the Company reduced cash balances by
approximately $703,000 as compared to $828,000 for the Six Months ended July
31, 1995 and 1994 respectively. Cash flows from financing activities for the
Six Months ended July 31, 1995 and 1994 approximated $1,115,000 and $553,000
respectively. During the Six Months ended July 31, 1995, the Company paid
$50,000 against the bank loan, obtained proceeds from net borrowings of
$700,000 and collected $477,000 from notes receivable. During the Three Months
and Six Months ended July 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 bears interest at 2 1/2% over the prime rate, but in no event less
than 8%. The agreement provides for advance 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 to provide 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 September 7, 1995, approximately $1,002,000 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
being used by the telecommunications industry to build the next generation of
networks to provide video-on-demand and related services.
The purchase price paid by the Company for Dynair is equal to the
audited shareholder's equity of Dynair as of May 31,1995, payable and due in
cash on September 8, 1995. In addition to the above-mentioned consideration,
Seller 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 6. Exhibits and Reports on Form 8-K
June 12, 1995 - Acquisition of Dynair Electronics, Inc.
14
<PAGE> 15
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: September 11, 1995
By: /s/ Par Chadha
-----------------------------
Chairman and Director
15
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
UNAUDITED BALANCE SHEET AT JULY 31, 1995 AND CONSOLIDATED UNAUDITED STATEMENT OF
OPERATIONS FOR THE SIX MONTHS ENDED JULY 31, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH UNAUDITED FINANCIAL STATEMENTS.
</LEGEND>
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<SECURITIES> 0
<RECEIVABLES> 990,586
<ALLOWANCES> 78,714
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0
2,500
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<CGS> 1,719,066
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