<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 11, 1996
OSICOM TECHNOLOGIES, INC.
(Exact name of Registrant as specified in charter)
New Jersey 0-15810 22-2367234
State or other juris- (Commission (IRS Employer
diction of incorporation File Number) Identification No.)
2800 28th Street, Suite 100, Santa Monica, CA 90405
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 581-4030
<PAGE> 2
<TABLE>
<S> <C>
Item 2. Acquisition or Disposition of Assets (Page 2)
Item 5. Other Events (Pages 2-3)
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements of Business Acquired (Pages 4-17)
(b) Pro Forma Financial Information (Page 18)
SIGNATURES (Page 19)
</TABLE>
Item 2. Acquisition or Disposition of Assets
On September 4, 1996, Osicom Technologies, Inc. ("Osicom") agreed to acquire
100% of Digital Products, Inc. ("DPI") through a merger with a newly-formed
subsidiary, DPI Acquisition Corp. for common stock and options to acquire common
stock of Osicom valued at $5 million less agreed upon merger expenses of DPI and
DPI option repurchases. The acquisition, which will be effective as of June 30,
1996, closed on September 12, 1996 and will be accounted for as a pooling. The
purchase price was determined by negotiations between the buyer and seller.
In addition, a new $3 million line of credit with a lender will provide funds to
repay approximately $1,344,000 owed by DPI to one of its lenders and to provide
additional working capital.
DPI, a privately-held company established in 1984, produces and markets to
printer original equipment manufactures a broad line of print server products
that provide board level and chip level integrated solutions for local area
networks and remote access. DPI's products are compatible with a variety of
networks included Novell NewWare, Banyan, Vines, DEC LAT, Apple, UNIX, Microsoft
Windows NT and Microsoft Windows for Workgroups.
DPI employs 90 at its Waltham, Massachusetts facility. The current employee base
will be retained, with the management team receiving both retention and
performance-based incentive options.
All assets acquired in this transaction will continue to be used in the conduct
of the normal business activities of DPI and Osicom. No significant business
relationship existed between DPI and Osicom or their officers or directors.
Item 5. Other Events
On November 13, 1996, Osicom completed the acquisition of Distributed Systems
International, Inc. ("DSI"). The acquisition of DSI was not a reportable event
under Item 310 of Regulation S-B.
Through this acquisition Osicom obtained DSI's FDDI Workgroup Hub Technology
which promises to yield a tenfold increase in speed as compared to today's
existing networks. Osicom acquired DSI to start design of Workgroup Ethernet
switches with a variety of uplink connections including Gigabit Ethernet
backbone connections, a new emerging standard. Gigabit Ethernet is expected to
be deployed in backbone environments as the preferred interconnection between
switches which aggregate multiple lower speed Ethernet segments. Osicom is a
member of the Gigabit Ethernet Alliance, the industry organization with the
objective to create formal standardization of Gigabit Ethernet. Osicom plans on
participating as the standard and the customers evolve to a point of
interoperability and economic sense.
2
<PAGE> 3
On November 8, 1996 Osicom was presented with a signed engagement agreement for
the performance of audit and related services for its year ending January 31,
1997, by KPMG Peat Marwick LLP (KPMG), an international accounting firm and on
November 18, 1996, management executed the agreement. The engagement letter
conformed with audit standards as published by the American Institute of
Certified Public Accountants.
In order to ensure an orderly transition of auditors and timely performance of
the audit for the year ending January 31, 1997, the engagement partner and
senior manager from KPMG met with the former auditor, Weinbaum & Yalamanchi, and
were given full access to confidential internal information and documents of the
Registrant. The personnel of KPMG were authorized to review the prior year
workpapers of Weinbaum & Yalamanchi and, in fact, did so at this time.
As required by Item 304(a) of Regulation S-B, as promulgated by the Securities
and Exchange Commission, a Form 8-K, reporting the engagement of a new principal
auditor, was filed on November 19, 1996. Such filing is required to be made
within 5 days of the engagement. As further required under Item 304, KPMG
personnel were given the opportunity to review the filing and to provide a
letter to the issuer, addressed to the Securities and Exchange Commission, that
contains any disagreement with the disclosures required in Form 8-K; such letter
to be filed as an exhibit to the filing. The engagement partner at KPMG did not
request a review nor indicate any disagreement with the filing.
Subsequently, the management of Osicom received a letter from the engagement
partner at KPMG informing Osicom that KPMG was not engaged to perform the audit
for the year ending January 31, 1997, indicating that the engagement letter had
been issued prematurely. Osicom has no knowledge as to the justification for
this contention.
Accordingly, the Form 8-K filed on November 19, 1996 is hereby amended and
Weinbaum & Yalamanchi remain the auditors for Osicom.
3
<PAGE> 4
DIGITAL PRODUCTS, INC.
Financial Statements
June 30, 1996 and December 31, 1995
(With Independent Auditors' Report Thereon)
4
<PAGE> 5
Independent Auditors' Report
The Board of Directors
Digital Products, Inc.:
We have audited the accompanying balance sheets of Digital Products, Inc. as of
June 30, 1996 and December 31, 1995, and the related statements of operations,
stockholders' equity (deficit), and cash flows for the six months ended June 30,
1996 and the year ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Digital Products, Inc. as of
June 30, 1996 and December 31, 1995, and the results of its operations and its
cash flows for the six months ended June 30, 1996 and the year ended December
31, 1995, in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
September 6, 1996, except as to note 15,
which is as of September 12, 1996
5
<PAGE> 6
DIGITAL PRODUCTS, INC.
Balance Sheets
June 30, 1996 and December 31, 1995
<TABLE>
<CAPTION>
June 30, December 31,
Assets (notes 5 and 6) 1996 1995
---- ----
<S> <C> <C>
Current assets:
Cash $ -- 157,873
Accounts receivable, less allowance for doubtful accounts
of $66,000 in 1996 and $144,000 in 1995 3,534,774 2,584,110
Inventories (note 2) 2,617,483 3,177,678
Prepaid expenses and other current assets 97,875 151,466
----------- ----------
Total current assets 6,250,132 6,071,127
----------- ----------
Property and equipment (notes 3 and 7) 2,695,774 2,633,549
Less accumulated depreciation and amortization 2,080,403 1,892,571
----------- ----------
Net property and equipment 615,371 740,978
----------- ----------
Software development costs, net (note 4) 402,914 439,326
Other assets, net 54,669 66,152
----------- ----------
Total other assets 457,583 505,478
----------- ----------
Total assets $ 7,323,086 7,317,583
=========== ==========
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Current installments of long-term debt (note 6) $ 435,001 462,086
Current installments of obligations under capital leases (note 7) 119,816 123,669
Accounts payable 3,084,158 2,386,742
Note payable to bank (note 5) 1,942,187 1,741,655
Vendor notes (note 8) 327,753 958,391
Accrued expenses 1,070,649 1,250,155
----------- ----------
Total current liabilities 6,979,564 6,922,698
----------- ----------
Long-term debt, excluding current installments (note 6) 363,965 381,833
Obligations under capital leases, excluding current installments (note 7) 85,443 134,857
----------- ----------
Total liabilities 7,428,972 7,439,388
----------- ----------
Commitments and contingencies (note 7)
Stockholders' equity (deficit) (notes 10 and 11):
Convertible preferred stock, Series A, $.10 par value. Authorized
300,000 shares; issued 141,727 shares 14,173 14,173
Common stock, Class A, $.025 par value. Authorized 5,000,000
shares; issued 1,451,812 shares in 1996 and 1,422,460 shares in
1995 39,431 37,095
Common stock, Class B, $.025 par value. Authorized 800,000
shares; issued 760,000 shares 19,000 19,000
Additional paid-in capital 2,490,418 2,414,455
Accumulated deficit (2,668,908) (2,585,528)
Less: Note receivable for purchase of warrants -- (21,000)
----------- ----------
Total stockholders' (deficit) (105,886) (121,805)
----------- ----------
$ 7,323,086 7,317,583
=========== ==========
</TABLE>
See accompanying notes to financial statements
6
<PAGE> 7
DIGITAL PRODUCTS, INC.
Statements of Operations
Six months ended June 30, 1996 and year ended December 31, 1995
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---- ----
<S> <C> <C>
Net sales (note 14) $ 10,305,965 19,152,241
Cost of goods sold 5,985,831 10,432,804
------------ -----------
Gross profit 4,320,134 8,719,437
------------ -----------
Operating expenses:
Marketing expenses 1,987,619 4,635,074
General and administrative 832,451 1,844,925
Product development 959,283 2,183,067
Amortization of software development costs (note 4) 122,914 495,392
Stock option compensation expense (note 11) 99,299 76,258
Acquisition expenses (note 15) 187,778 --
------------ -----------
Total operating expenses 4,189,344 9,234,716
------------ -----------
Operating income (loss) 130,790 (515,279)
------------ -----------
Interest expense, net (note 12) 212,914 406,385
------------ -----------
Loss before income taxes (82,124) (921,664)
Income tax expense (note 9) 1,256 9,845
------------ -----------
Net loss $ (83,380) (931,509)
============ ===========
</TABLE>
See accompanying notes to financial statements.
7
<PAGE> 8
DIGITAL PRODUCTS, INC.
Statements of Stockholders' Equity (Deficit)
Six months ended June 30, 1996 and year ended December 31, 1995
<TABLE>
<CAPTION>
Note Total
Series A Class A Class B Additional receivable stockholders'
convertible common common paid-in for purchase Accumulated equity
preferred stock stock stock capital of warrants deficit (deficit)
--------------- ----- ----- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $14,173 33,653 19,000 2,331,691 (21,000) (1,654,019) 723,498
Issuance of 9,948 shares of
Class A common stock upon
exercise of stock options -- 509 -- 9,439 -- -- 9,948
Stock options issued (note 11) -- 2,933 -- 73,325 -- -- 76,258
Net loss -- -- -- -- -- (931,509) (931,509)
------- ------ ------ ---------- ------- ---------- --------
Balance at December 31, 1995 14,173 37,095 19,000 2,414,455 (21,000) (2,585,528) (121,805)
Cancellation of note receivable of
purchase warrants -- -- -- (21,000) 21,000 -- --
Stock options issued (note 11) -- 2,336 -- 96,963 -- -- 99,299
Net loss -- -- -- -- -- (83,380) (83,380)
------- ------ ------ ---------- ------- ---------- --------
Balance at June 30, 1996 $14,173 39,431 19,000 2,490,418 -- (2,668,908) (105,886)
======= ====== ====== ========== ======= ========== ========
</TABLE>
See accompanying notes to financial statements.
8
<PAGE> 9
DIGITAL PRODUCTS, INC.
Statements of Cash Flows
Six months ended June 30, 1996 and year ended December 31, 1995
<TABLE>
<CAPTION>
June 30, December 31
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (83,380) (931,509)
Adjustments to reconcile net loss to net cash (used in) provided
by operating activities:
Depreciation and amortization 310,746 908,164
Stock option compensation 99,299 76,258
Changes in operating assets and liabilities:
Accounts receivable (950,664) 719,410
Inventories 560,195 (224,754)
Prepaid expenses and other current assets 53,591 (37,289)
Other assets 11,483 22,426
Accounts payable, vendor notes and accrued expenses (112,728) (69,463)
--------- --------
Net cash (used in) provided by operating activities (111,458) 463,243
--------- --------
Cash flows from investing activities:
Acquisition of property and equipment (62,225) (148,295)
Capitalized software development costs (86,502) (433,313)
--------- --------
Net cash used in investing activities (148,727) (581,608)
--------- --------
Cash flows from financing activities:
Proceeds from (principal payments of) capital lease obligations (53,267) 78,718
(Payments on) proceeds from note payable to bank 200,532 (180,532)
Proceeds from (principal payments on) long-term debt (44,953) 154,685
Proceeds from issuance of Class A common stock -- 9,948
--------- --------
Net cash provided by financing activities 102,312 62,819
--------- --------
Net decrease in cash (157,873) (55,546)
Cash at beginning of period 157,873 213,419
--------- --------
Cash at end of period $ -- 157,873
========= ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 214,232 396,209
========= ========
Income taxes $ 1,256 1,494
========= ========
Supplemental disclosures of noncash transactions:
Employee stock option expense $ 99,299 76,258
========= ========
Capital lease obligations incurred $ -- 135,719
========= ========
</TABLE>
See accompanying notes to financial statements.
9
<PAGE> 10
DIGITAL PRODUCTS, INC.
Notes to Financial Statements
June 30, 1996 and December 31, 1995
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Nature of Business
Digital Products, Inc. (the "Company") manufactures and sells low cost and
easy solutions for connecting peripherals throughout an enterprise
network. The Company's principle products are print directors, which
enable multiple computers to be connected to one printer.
(b) Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out (FIFO) method.
(c) Property and Equipment
Property and equipment, stated at cost, is depreciated and amortized over
its estimated useful life using the straight-line method. Estimated
useful lives are as follows:
<TABLE>
<S> <C>
Furniture and fixtures 5-7 years
Motor vehicles 3 years
Computer equipment 3-5 years
Manufacturing, tooling and test equipment 5-7 years
Leasehold improvements 5 years
</TABLE>
(d) Software Development Costs
The Company charges all costs of establishing technological feasibility,
planning and designing, including detailed program design, to research
and development expense as incurred and, thereafter, capitalizes
certain software and product costs in compliance with Statement of
Financial Accounting Standards No. 86 ("SFAS 86"), "Accounting for the
Costs of Computer Software to be Sold, Leased, or Otherwise Marketed."
Software development costs of $86,502 and $433,313 were capitalized during
the six months ended 1996 and fiscal 1995, respectively. The total
amount of software and product costs amortized was $122,914 and
$495,392 in the six months ended 1996 and fiscal 1995, respectively.
The capitalized costs are amortized on a straight-line basis at the
greater of the amount computed using (a) the ratio that current
revenues for the product bear to the total of current and anticipated
future revenues for that product or (b) the straight-line method over
the estimated economic life of the product.
The recoverability of capitalized software and product costs is reviewed
on an ongoing basis.
(e) Amortization of Loan Costs
Loan costs represent legal and other costs associated with loans and are
amortized on a straight-line basis over the life of the loan.
(f) Income Taxes
The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable
to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected
(Continued)
10
<PAGE> 11
DIGITAL PRODUCTS, INC.
Notes to Financial Statements
to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
(g) Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure
of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles.
Actual results could differ from those estimates.
(h) Financial Instruments
Financial instruments of the Company consist of cash, accounts receivable,
software development costs, accounts payable, notes payable, vendor
notes and capital leases. The carrying amount of these financial
instruments approximates their fair value.
(i) Concentrations of Credit Risk
Financial instruments which subject the Company to concentrations of
credit risk consist primarily of trade receivables. The Company had
three customers who together made up 64% of trade receivables as of
June 30, 1996.
(2) INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---- ----
<S> <C> <C>
Evaluation/exchange units $ 29,345 58,133
Finished goods 222,470 263,383
Work in process 1,374,692 1,684,666
Raw materials 990,976 1,171,496
---------- ---------
$2,617,483 3,177,678
========== =========
</TABLE>
(3) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---- ----
<S> <C> <C>
Computer equipment $1,632,087 1,571,630
Manufacturing equipment 312,183 312,183
Furniture and fixtures 311,969 311,969
Phone system 178,157 178,157
Motor vehicles 22,165 22,165
Leasehold improvements 105,046 105,046
Test equipment 59,195 57,427
Tooling 74,972 74,972
---------- ---------
$2,695,774 2,633,549
========== =========
</TABLE>
(Continued)
11
<PAGE> 12
DIGITAL PRODUCTS, INC.
Notes to Financial Statements
(4) SOFTWARE DEVELOPMENT COSTS
Software development costs consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------- -----------
<S> <C> <C>
Software development costs $1,388,835 1,302,333
Accumulated amortization 985,921 863,007
---------- ---------
Net software development costs $ 402,914 439,326
========== =========
</TABLE>
(5) NOTE PAYABLE TO BANK
During 1995, the Company renegotiated a revolving credit agreement with a
lender. The agreement allows the Company to borrow up to the lesser of
$2,250,000 or 75% of the Company's eligible trade accounts receivable,
at the lender's prime interest rate plus 4% (12.25% at June 30, 1996),
with all outstanding principal balances payable on demand. Borrowings
from the lender represent senior debt and are secured by substantially
all assets of the Company. Borrowings are also guaranteed by a
stockholder and his spouse. The Company is in compliance with all debt
covenants with regards to this credit agreement as of June 30, 1996.
(6) LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---- ----
<S> <C> <C>
Notes payable in monthly principal installments of $2,976 through
December 1999; with interest at the prime rate plus 2.75% (11% at
June 30, 1996), secured by a subordinated interest in
substantially all assets and guaranteed by a
stockholder $ 124,998 142,866
Notes payable to stockholders, interest payable monthly
at the prime rate plus 3% (11.25% at June 30, 1996) 124,679 124,679
Subordinated note payable to stockholder, payable in monthly
installments of $8,000, including interest at the prime rate plus
3% (11.25% at June 30, 1996), secured by a second
lien on software 90,088 117,173
Unsecured subordinated note payable to stockholders, interest payable
monthly at the prime rate plus 4% (12.25% at
June 30, 1996 100,000 100,000
</TABLE>
(Continued)
12
<PAGE> 13
DIGITAL PRODUCTS, INC.
Notes to Financial Statements
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---- ----
<S> <C> <C>
Unsecured subordinated notes payable to stockholder, interest payable
monthly at the prime rate plus 3% (11.25% at June 30,
1996) $150,000 150,000
Unsecured subordinated notes payable to stockholders, interest payable
monthly at the prime rate plus 4.5% (12.75% at
June 30, 1996) 209,201 209,201
-------- -------
Total long-term debt 798,966 843,919
Less current portion 435,001 462,086
-------- -------
Long-term debt, less current portion $363,965 381,833
======== =======
</TABLE>
Aggregate maturities of long-term debt for the twelve-month periods ending
June 30, are as follows: 1998, $35,712; 1999, $35,712; 2000, $17,862; and
2001, $274,679.
(7) COMMITMENTS AND CONTINGENCIES
(a) Capital Leases
The Company is obligated under capital leases that expire through
October 1, 1998 for telephone systems, automobiles and office
equipment. At June 30, 1996 and December 31, 1995, the gross
amount of property and equipment recorded under capital leases was
$205,259 and $258,525, respectively. The Company leases its
facilities under an operating lease expiring in 1996. The Company
is presently renegotiating its facility lease for renewal.
At June 30, 1996, future minimum lease payments under these noncancelable
agreements are as follows:
<TABLE>
<CAPTION>
Capital Operating
leases lease
------- --------
<S> <C> <C> <C> <C>
Six months ending December 31, 1996 $ 68,469 67,500
Year ending December 31, 1997 125,524 -
Year ending December 31, 1998 42,841 -
-------- ------
Total minimum lease payments 236,834 67,500
======
Less amounts representing interest 31,575
-------
Present value of minimum lease payments 205,259
Less current installments of capital lease obligations 119,816
-------
Capital lease obligations, excluding current installments $ 85,443
=====++=
</TABLE>
Rent expense for facilities amounted to $135,000 and $269,210 for the six
months ended June 30, 1996 and the year ended December 31, 1995, respectively.
(Continued)
13
<PAGE> 14
DIGITAL PRODUCTS, INC.
Notes to Financial Statements
(b) Litigation
Certain claims, suits and complaints have been filed or are pending
against the Company. In the opinion of management, these matters are
without merit. However, should these claims be settled or adjudicated
in favor of the plaintiffs, the outcome of this litigation is not
expected to have a material effect on the financial position of the
Company.
(8) VENDOR NOTES
During 1995, the Company reached agreements with several vendors to
convert trade payables to unsecured notes with maturities of less than
one year. The largest notes are with vendors that continue to supply
the Company on an unsecured, open account basis. Total principal
payments in 1996 and 1995 were $630,638 and $651,125, respectively.
(9) INCOME TAXES
Actual income tax expense for the six months ended June 30, 1996 and the
year ended December 31, 1995, differs from the "expected" benefit
computed by applying the U.S. federal corporate income tax rate of 34%
to loss before income tax expense as follows:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---- ----
<S> <C> <C>
Computed "expected" tax (benefit) $(27,922) (313,367)
State tax 828 2,797
Increase (decrease) in income taxes resulting from:
Federal net operating loss unavailable for carryback
and change in valuation allowance 22,105 304,555
Other 6,245 15,860
-------- --------
Total $ 1,256 9,845
======== ========
</TABLE>
Total income tax expense for the six months ended June 30, 1996 and the
year ended December 31, 1995, consists of the following:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---- ----
<S> <C> <C>
Current:
Federal $ -- --
State 1,256 9,845
------------- -------------
$ 1,256 9,845
============= =============
</TABLE>
(Continued)
14
<PAGE> 15
DIGITAL PRODUCTS, INC.
Notes to Financial Statements
The tax effects of temporary differences that give rise to deferred tax
assets and liabilities at June 30, 1996 and December 31, 1995, are as
follows:
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts $ 34,372 65,383
Inventory reserve 157,348 182,901
Tax loss carryforward 705,389 835,916
Investment tax credits 26,321 26,321
Accrued expenses 101,979 114,295
Research and development credits 283,995 278,484
Alternative minimum tax 8,418 8,418
Other 187,011 3,074
----------- -----------
Gross deferred tax assets 1,504,833 1,514,792
Less valuation allowance (1,334,832) (1,312,727)
----------- -----------
Deferred tax asset 170,001 202,065
Deferred tax liabilities:
Developed software (165,797) (193,458)
Depreciation (4,204) (8,607)
----------- -----------
Deferred tax liabilities (170,001) (202,065)
----------- -----------
Net deferred tax asset (liability) $ -- --
=========== ===========
</TABLE>
At June 30, 1996, operating loss carryforwards of $1,713,473 were
available to offset future taxable income for federal income tax
purposes. These carryforwards expire at various dates through 2010. If
a more than 50% change of ownership occurs during a three-year period,
the amount of net operating loss carryforwards which may be utilized
each year will be subject to limitation.
In assessing the realizability of deferred tax assets, the Company
considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The recognition of
deferred tax assets as of June 30, 1996 is supported by the fact that
the Company has sufficient reversals of temporary differences to
support the recognition of the deferred tax assets.
(10) CAPITAL STOCK
In May 1993, the Company entered into a Preferred Stock Purchase
Agreement (the "Agreement") to sell 141,727 shares of Series A
Convertible Preferred Stock (the "Preferred Stock") at $.10 per share
par value for gross proceeds of $2,150,000.
(Continued)
15
<PAGE> 16
DIGITAL PRODUCTS, INC.
Notes to Financial Statements
The Preferred Stock is senior to all classes of common stock of the
Company as to the distribution of assets. No dividends will be
declared or set aside for the Preferred Stock. However, the Preferred
stockholders are entitled to dividends at a converted per share rate
equivalent to common stock. The Preferred shareholders are entitled
to the same number of votes per share as shall equal the number of
full shares of common stock into which each such share of Preferred
Stock is convertible.
The Preferred Stock can be converted at any time into fully paid and
nonassessable shares of Class A common stock. The conversion price
shall be the product obtained by multiplying the conversion rate
stipulated in the agreement by the number of shares of Preferred
Stock being converted. Upon the occurrence of an underwritten public
offering that nets total proceeds to the Company of at least
$5,000,000, the Preferred Stock shares then outstanding shall
automatically be converted to Class A common stock.
The Class A common shareholders are entitled to one vote per share and
the Class B common shareholders are entitled to ten votes per share.
In all other respects the common share classes have similar rights.
(11) STOCK OPTIONS AND WARRANTS
(a) Stock Option Plan
Under the terms of the Company's Incentive Stock Option Plan, options
are granted by the board of directors only to persons who are key
employees of the Company and who do not own more than ten percent of
the voting rights of the Company. The options are granted at a price
at least equal to the fair market value of the stock at the date of
grant. Options may be exercised at various dates as specified at the
time of grant. If the employee's term of employment ends, any
outstanding options not exercised are canceled.
The Company has set aside up to 750,000 shares of Class A common stock
for issuance under the Plan. At June 30, 1996 and December 31, 1995,
there were outstanding options for 582,164 and 652,604 shares,
respectively, at prices ranging from $.03 to $2.50. At June 30, 1996,
320,793 shares were exercisable at prices ranging from $.03 to $2.50.
In 1995, the Company granted 294,400 non-qualified stock options to
employees at an exercise price of $.10. The Company recorded stock
option compensation expense of $99,299 and $76,258 for the six months
ended June 30, 1996 and the year ended December 31, 1995,
respectively, to reflect the difference between the exercise price
and the market price per share. These options vest over an 18-month
period. All options vest 100% in the event of a change of control of
ownership.
(b) Stock Warrants
During 1992, warrants were sold at a price of $1 per warrant to
directors to acquire 72,000 shares of the Company's Class A common
stock. A note receivable was received as consideration for $21,000 of
the total warrant proceeds of $72,000 and is reflected as a reduction
of additional paid-in capital received for the warrants. This note
receivable was canceled during 1996. Warrants to acquire 51,000
shares of the Company's Class A common stock remain exercisable at
June 30, 1996.
At June 30, 1996, total warrants to purchase 643,269 shares were
exercisable at prices of $.31 to $3.00.
(Continued)
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<PAGE> 17
DIGITAL PRODUCTS, INC.
Notes to Financial Statements
(12) RELATED PARTY TRANSACTIONS
During 1996 and 1995, the Company incurred interest expense of $26,389
and $73,634, respectively, on amounts due to stockholders of which
$30,130 and $20,516 was accrued at June 30, 1996 and December 31,
1995, respectively.
(13) 401(k) PROFIT SHARING PLAN AND TRUST
In January 1991, the Company established a 401(k) Plan (the "Plan")
which covers substantially all of its employees. The Plan allows
employees to defer a percentage of their annual salary. The Company
may also match a percentage of employee contributions. Matching
contributions of $12,638 and $24,772 were made by the Company in the
six months ended June 30 1996 and fiscal 1995, respectively.
The Company is the trustee of the Plan and pays all administrative
services and expenses. Annual Plan expenses were $3,300 and $6,638
for the six months ended June 30, 1996 and the year ended December
31, 1995, respectively.
(14) SIGNIFICANT CUSTOMERS
Three customers accounted for 54% of net sales in 1996 and 48% of net
sales in 1995.
(15) SUBSEQUENT EVENT
On August 9, 1996, a non-binding letter of intent was signed with Osicom
Technologies, Inc. outlining the terms for Osicom's potential
acquisition of the Company. A definitive agreement was signed and the
transaction consummated on September 12, 1996.
Acquisition expenses consist of finder fees, attorney and accounting
fees related to a potential acquisition of the company in July 1996
and the above transaction.
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<PAGE> 18
ITEM 7 (b) Pro Forma Financial Information
The following pro forma financial information presents the effects of
the acquisition of Digital Products, Inc. ("DPI") by Osicom as if the
acquisition had been completed as of January 31, 1996.
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 six months and the year ended
July 31 and January 31, 1996 respectively.
OSICOM TECHNOLOGIES, INC.
Pro Forma Condensed Consolidated Income Statements
For the Twelve Months Ended January 31, 1996
<TABLE>
<CAPTION>
Company
before
pro forma Pro forma Pro forma
adjustments DPI Ref adjustments consolidated
----------- --- --- ----------- ------------
<S> <C> <C> <C> <C> <C>
Twelve Months Ended January 31, 1996
Revenues $7,733,000 $19,152,000 $26,885,000
Cost of Sales 4,621,000 10,433,000 15,054,000
------------------------------------------------------------
Gross Profit 3,112,000 8,719,000 11,831,000
Operating expenses 2,251,000 9,234,000 11,485,000
------------------------------------------------------------
Operating income (loss) 861,000 (515,000) 346,000
Other income (charges) (158,000) (416,000)(b) (574,000)
------------------------------------------------------------
Net income (loss) $703,000 ($931,000) ($228,000)
============================================================
EARNINGS (LOSS) PER COMMON SHARE
Primary $0.21 ($0.34) ($0.13)
Weighted average shares used in computation 2,649,006 2,649,006 (a) 414,384 3,063,390
Fully diluted $0.20 ($0.33) ($0.13)
Weighted average shares used in computation 2,798,378 2,798,378 (a) 414,384 3,212,762
</TABLE>
(a) To recognize shares issued pursuant to the acquisition agreement
(b) No adjustment to interest expense is presented due to the effect of the
1 1/2% per annum reduction in interest rate applied to the new loan balance
18
<PAGE> 19
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.
Osicom Technologies, Inc.
-------------------------
(Registrant)
Dated: December 11, 1996 By: /s/Christopher E. Sue
--------------------------
Christopher E. Sue,
Chief Financial Officer
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