<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 April 30, 1996
/ /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>
2800 28th St., Suite 100, Santa Monica, California 90405
(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 April 30,1996
Title of Each Class Number of Shares Outstanding
Common Stock, $.10 par value per share 3,056,174
<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 April 30, 1996 3
Consolidated Unaudited Statements of Operations for the Three Months
Ended April 30, 1996 and 1995 4
Consolidated Unaudited Statements of Cash Flows for the Three Months Ended
April 30, 1996 and 1995 5
Notes to Consolidated Unaudited Financial Statements 6-13
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 14-15
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
Signature 17
</TABLE>
2
<PAGE> 3
OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED UNAUDITED BALANCE SHEET
April 30, 1996
<TABLE>
<S> <C>
ASSETS
- - ------
CASH $ 970,917
ACCOUNTS RECEIVABLE 4,796,382
ALLOWANCE FOR DOUBTFUL ACCOUNTS (376,639)
NOTES RECEIVABLE (Note C) 143,190
INVENTORIES (Note B(4)) 9,749,207
PREPAID EXPENSES 557,285
- - --------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 15,840,342
- - --------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, NET (Note D) 3,519,905
- - --------------------------------------------------------------------------------------------------
PURCHASED SOFTWARE, NET (Note E) 4,556,177
- - --------------------------------------------------------------------------------------------------
OTHER ASSETS 262,336
- - --------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 24,178,760
==================================================================================================
LIABILITIES and STOCKHOLDERS' EQUITY
- - ------------------------------------
LIABILITIES
- - -----------
LOAN PAYABLE - BANK (Note F) $ 2,794,245
NOTES PAYABLE - Current (Note G) 500,047
NOTES PAYABLE - Affiliate (Note H) 1,149,101
ACCOUNTS PAYABLE AND ACCRUED EXPENSES (Note L) 5,188,864
- - --------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 9,632,257
- - --------------------------------------------------------------------------------------------------
NEGATIVE GOODWILL (Note B(2)) 86,949
- - --------------------------------------------------------------------------------------------------
COMMITMENT AND CONTINGENCIES (NOTE J)
LONG TERM DEBT (Note G) 3,318,059
- - --------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY (Note K)
- - --------------------
PREFERRED STOCK
Series A, 2500 shares issued and outstanding - Liquidation preference 3,050,000 250,000
Series B, 5,269 shares issued and outstanding - Liquidation preference 5,269,487 5,269,487
COMMON STOCK
Par value $.10 per share, authorized 20,000,000 shares,
3,056,174 shares issued and outstanding 305,618
ADDITIONAL PAID-IN-CAPITAL 3,380,849
RETAINED EARNINGS 1,935,541
- - --------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 11,141,495
- - --------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 24,178,760
==================================================================================================
</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
April 30,
1996 1995
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $ 6,069,879 $ 1,174,507
COST OF SALES 3,363,755 699,695
- - ----------------------------------------------------------------------------------------------------------
GROSS MARGIN 2,706,124 474,812
- - ----------------------------------------------------------------------------------------------------------
SELLING, GENERAL & ADMINISTRATIVE EXPENSES 2,555,766 553,551
- - ----------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS
BEFORE AMORTIZATION OF NEGATIVE GOODWILL 150,358 (78,739)
- - ----------------------------------------------------------------------------------------------------------
AMORTIZATION OF NEGATIVE GOODWILL 237,717 237,717
- - ----------------------------------------------------------------------------------------------------------
EARNINGS FROM OPERATIONS 388,075 158,978
- - ----------------------------------------------------------------------------------------------------------
INTEREST EXPENSE 139,285 17,000
- - ----------------------------------------------------------------------------------------------------------
NET INCOME $ 248,790 $ 141,978
==========================================================================================================
EARNINGS PER COMMON SHARE (Note M)
Earnings per share - Primary (a) $ 0.07 $ 0.04
- Fully Diluted $ 0.06 N/A
- - ----------------------------------------------------------------------------------------------------------
Weighted average shares used in computation - Primary (a) 3,198,306 2,391,796
- Fully Diluted 3,266,667 N/A
==========================================================================================================
</TABLE>
(a) Adjusted for 2-for-1 stock split effected February 12, 1996.
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>
Three Months Ended
April 30,
1996 1995
- - ------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATIONS $ (101,759) $(204,622)
- - ------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Product enhancement costs (Notes B(2) and D) (403,694)
Capital expenditures (1,781,428) (3,397)
- - ------------------------------------------------------------------------------------
(2,185,122) (3,397)
- - ------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of bank loan, net (1,336,453) (50,000)
Increase in notes payable - affiliates 1,093,028
Notes payable, other 1,331,000
Proceeds from note receivable-net 357,053
Proceeds from issuance of convertible debentures 2,464,363
Redemption of preferred stock (1,000,000)
Proceeds from stock option exercises 254,000
- - ------------------------------------------------------------------------------------
NET CASH FLOWS FROM FINANCING ACTIVITIES 2,805,938 307,053
- - ------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH 519,057 99,034
CASH AT BEGINNING OF PERIOD 451,860 86,518
- - ------------------------------------------------------------------------------------
CASH AT END OF PERIOD $ 970,917 $ 185,552
====================================================================================
</TABLE>
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 ended April 30, 1996 are not necessarily indicative of the
results that may be expected for the fiscal year ending January 31, 1997. 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, 1996.
(NOTE B) - Significant Accounting Policies
(1) Principles of Consolidation:
The balance sheet reflects the accounts of Osicom and its wholly-owned
subsidiary Meret, including its RNS division. The consolidated unaudited
statements of operations for the three months ended April 30, 1996 include the
results of operations of Osicom and Meret, including its RNS division. The
consolidated unaudited statements of operations for the three months ended April
30, 1995 include the results of operations of Osicom and Meret, and does not
include results of operations of Meret's RNS division or Dynair Electronics,
Inc. which were both acquired subsequent to April 30, 1995.
(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.
Software assets acquired are amortized over 10 years on a straight-line
basis. Software development costs where technological feasibility has not been
established are expensed in the period in which they occurred, otherwise,
development costs that will become an integral part of the Company's products
are deferred in accordance with FASB 2. The deferred cost is amortized on a
straight-line basis over the remaining estimated economic life of the product.
(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 lives or the term of the lease. Depreciation of land and
building is computed using the straight-line method over 39 years.
6
<PAGE> 7
OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
(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>
$ 7,116,994 2,651,451 2,038,725 11,807,170 2,057,963 $9,749,207
</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 split effective February
12, 1996.
(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
Agama, Inc., owed the Company $140,690. The amount is due on demand
accrues interest at 1% over the prime rate.
7
<PAGE> 8
OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
(NOTE D) - Property and Equipment
Property and equipment at cost, less accumulated depreciation and amortization,
consists of:
<TABLE>
<S> <C>
Automobile $ 31,410
Plant Equipment 1,538,350
Office Furniture and Fixtures 1,022,129
Leasehold Improvements 206,085
Land and Building 1,779,350
Product Enhancement Costs 403,694
------------
Total 4,981,018
Less accumulated depreciation 1,461,113
------------
$ 3,519,905
============
</TABLE>
(NOTE E) - Purchased Software
The Company has acquired software assets in connection with the
acquisition of the RNS division of Meret. Accumulated amortization was $116,826
as of April 30, 1996.
(NOTE F) - Loan Payable - Bank
At April 30, 1996, the Company had outstanding indebtedness under its
revolving demand loan agreement with Banca di Roma of $460,209. The agreement
provides for interest at 1% above the bank's base lending rate, which was 9.25%,
at April 30, 1996. The line of credit is collateralized by accounts receivable
and personally guaranteed by a director of the Company.
In addition, the Company's wholly-owned subsidiary, Meret, had
outstanding indebtedness under its $8 million line of credit with a bank of
$2,334,036 at April 30, 1996. The line of credit is collateralized by accounts
receivable, inventory and property, plant and equipment. Osicom has guaranteed
this line, for which Meret is the borrower, to the extent of $1,000,000. This
line of credit provides for interest at prime plus 2.5% which was 10.75%, at
April 30, 1996.
(NOTE G) - Notes Payable and Long Term Debt
Notes payable and long term debt consisted of:
<TABLE>
<S> <C>
8.95% Notes Payable $ 1,331,000
10.75% Term Notes Payable 1,227,300
8% Convertible Debentures 1,186,545
Capital Lease Obligation 73,261
-----------
Total 3,818,106
Less: Current Portion 500,047
-----------
$ 3,318,059
===========
</TABLE>
8
<PAGE> 9
OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
On March 25, 1996, Meret purchased land and building in San Diego,
California for $1,779,350 paid in cash. On April 24, 1996, Meret entered into a
mortgage agreement with a lender in the amount of $1,331,000, amortized over 30
years with an adjustable interest rate of 5.50% over the LIBOR rate, with an
initial rate of 8.95% for the initial six months.
In addition, Meret has term loans outstanding of $1,227,300. The term
loans are collateralized by machinery and equipment and bears interest at prime
plus 2.5%, which was 10.75% at April 30, 1996. Combined monthly principal
payments of $38,900 per month and $760,500 is reflected as long-term debt.
During the fiscal quarter ended April 30, 1996, the Company received
net proceeds of $2,464,363 from placement of convertible debentures to
unaffiliated parties. As of April 30, 1996, $1,186,545 was still outstanding.
The debentures mature on December 31, 1999 and accrue interest at 8% with
various commencement dates.
The principal payments under notes payable and long-term debt for years ended
January 31, and thereafter are as follows, by year:
<TABLE>
<S> <C>
1997 $ 373,863
1998 527,839
1999 417,747
2000 8,193
2001 8,708
Thereafter 2,481,756
-----------
Total 3,818,106
Less: Current Portion 500,047
-----------
$ 3,318,059
===========
</TABLE>
(NOTE H) - Note Payable - Affiliate
As of April 30, 1996, a net amount of $1,149,101 was due to an entity
owned by two directors of the Company. The amount is due on demand and does not
accrue interest.
(NOTE I) - Income Taxes
The Company recorded no income tax provision for the three months ended
April 30, 1996 and 1995. 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
9
<PAGE> 10
OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
such benefits was not assured thus, no deferred asset was recorded. At April 30,
1996, 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 J) - Commitments and Contingencies
(1) Osicom and its subsidiary lease a total of 117,400 square feet.
Lease terms generally range from month to month to 5 years with options to renew
at varying terms.
Future minimum annual rentals for the Company and its subsidiaries are as
follows:
<TABLE>
<CAPTION>
Period ended
January 31, Net Rent
----------- --------
<S> <C>
1997 $ 478,583
1998 492,217
1999 153,152
2000 122,328
2001 122,328
Thereafter 30,582
----------
Total $1,399,190
==========
</TABLE>
(2) The Company is party to several lawsuits related to trade claims
made by and against the Company. 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. Interphase, Inc. sued the Company and Rockwell
International Corporation in connection with Osicom's acquisition of RNS. The
Company believes the suit is frivolous and without merit. The Company is also
indemnified by Rockwell International Corporation against any losses arising
from this action. 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 April 30, 1996, no liability related to this
additional consideration has been incurred.
(4) In February 1996, the Company issued convertible preferred stock
in the amount of $6,269,487 to refinance the promissory note issued in
conjunction with the RNS acquisition to
10
<PAGE> 11
OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
an entity owned by two of the Company's directors. The entity has assumed the
promissory note as the primary obligor and indemnified the Company (See Note
K(5)).
(NOTE K) - Stockholders' Equity
(1) The Company has two stock option plans in effect: The 1987 Stock
Option Plan and the 1988 Stock Option Plan. The stock options have been made
available to certain employees and consultants. All options were granted at not
less than fair market value at date of grant.
(2) Pursuant to the acquisition of RNS, the Company granted 64,000
options at an exercise price of $3.50 per share, 227,600 options at an exercise
price of $6.32 per share and agreed to issue 167,238 shares of its common stock
to the employees of RNS, conditioned upon their continuous employment by the
Company through January 31, 1998. Furthermore, the Company granted 40,000
non-qualified stock options at an exercise price of $3.50 per share to a key
employee of RNS, which are immediately exercisable. All the options were granted
at or above the market price of the Company's common stock.
(3) During Fiscal 1993, in conjunction with the retirement of its
United Jersey Bank debt, the Company issued United Jersey Bank options to
purchase 100,000 shares of its common stock at an exercise price of $4.00 per
share. This option expires on December 31, 2002. Under a redemption agreement,
the Company can redeem the options for $600,000 if redeemed by September 30,
1996, and $1 million thereafter.
(4) 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 $67.50, 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 April 30, 1996, there was $550,000 of cumulative
preferred stock dividends.
(5) In February 1996, the Company issued convertible preferred stock
in the amount of $6,269,487 to refinance the promissory note issued in
conjunction with the RNS acquisition to an entity owned by two of the Company's
directors. The entity also indemnified the Company for any non-performance. The
preferred stock has no dividends and the Company can redeem the preferred stock
for cash at any time or convert it to common stock if not redeemed after two
years from the date of issuance at the current market price. As of April 30,
1996, the Company has redeemed $1,000,000 of the preferred stock.
11
<PAGE> 12
OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
(NOTE L) - Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of:
<TABLE>
<S> <C>
Accounts Payable $3,702,967
Accrued Vacations 377,325
Accrued Warranty Reserve 236,947
Other 871,625
----------
Total $5,188,864
==========
</TABLE>
(NOTE M) - Earnings Per Share Calculation
Earnings per share were calculated as follows, giving effect to accrued
preferred share dividends:
<TABLE>
<CAPTION>
Three months ended April 30,
----------------------------
1996 1995
---- ----
<S> <C> <C>
Net earnings $ 248,790 $ 141,978
Accrued undeclared dividends 37,500 37,500
-------------------------------
Earnings used for computation $ 211,290 $ 104,478
===============================
Weighted average number of shares outstanding 3,133,675 2,391,796
Primary shares issued:
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. 64,631
-------------------------------
Weighted average shares used in computation 3,198,306 2,391,796
Primary earnings per share $ 0.07 $ 0.04
===============================
Fully diluted shares issued:
Shares issuable upon exercise of dilutive warrants and options, net of shares
assumed to have been purchased, at the market price at the end of the period, with
assumed exercise proceeds. 132,992
-------------------------------
Weighted average shares used in computation 3,266,667 N/A
Fully diluted earnings per share $ 0.06 N/A
===============================
</TABLE>
For the three months ended April 30, 1995, earnings per share has been computed
on a primary basis only as the result of the fully diluted calculation is
anti-dilutive.
12
<PAGE> 13
OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS (CONTINUED)
(NOTE N) - Supplemental Cash Flow Disclosures
Interest expense approximated interest paid of $142,000 and $17,000 for
the three-month periods ended April 30, 1996 and 1995.
Summary of non-cash financing and investing activities during the three months
ended April 30, 1996:
(1) The Company issued 35,328 shares of common stock in an exercise of
a stock options.
(2) As of April 30, 1996, $1,277,818 of the 8% convertible debentures
were retired by issuance of 166,666 shares of common stock.
There were no non-cash financing and investing activities during the
three months ended April 30, 1995.
(NOTE O) - Subsequent Events
In May 1996, the Company received net proceeds of $4,738,000 of 8%
convertible debentures due December 31, 1999. The debentures are convertible at
$13.75 per share or market price. Should the Company's stock price fall below
$10.50 per share the holders cannot convert the debentures. The Company has the
right to buy back the debentures back at a premium of 15%.
13
<PAGE> 14
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 APRIL 30, 1996 AND 1995
Results of operations for the three months ended April 30, 1996 include
the operations of Osicom and its wholly-owned subsidiary Meret and include the
results of Dynair and RNS. Results of operations for the three months ended
April 30, 1995 include the operations of Osicom and its wholly-owned subsidiary
Meret, but do not include the operations of Dynair or RNS, which were acquired
subsequent to the period.
Consolidated net sales increased by 417% to $6,069,900 from $1,174,500,
due to the acquisitions of Dynair and RNS.
Consolidated gross profit increased by 470% to $2,706,100 from
$474,800, due to the increase in net sales, related to the acquisitions. Gross
margins increased to 45% from 40% due to the higher gross margins achieved in
the switching, fast networking and remote access product lines provided by
Dynair and RNS as well as the consolidation of certain manufacturing expenses.
Selling, general and administrative expenses increased to $2,555,800
from $553,600, a decrease as a percentage of sales from 47% to 42%. Amortization
of negative goodwill of $237,700 was consistent with the previous year's three
months ended April 30, however, as a percentage of sales amortization of
negative goodwill for the period was 4% versus 20% last year.
Net interest expense incurred increased to $139,300 from $17,000 due to
the borrowings against the working capital line to fund the increased level of
business and the acquisition of RNS, which was financed in part by $3.5 million
of bank debt.
Consolidated income from operations increased 144% to $388,100 as
compared to $159,000. As a percentage of sales, consolidated income from
operations decreased to 6% from 14%. Consolidated net income increased 75% to
$248,800 from $142,000. As a percentage of sales, consolidated net income
decreased to 4% from 12%.
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.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a cash balance of $970,900 and working capital of
$6,213,000 at the period ended April 30, 1996, which management believes is
adequate to meet its planned level of growth.
Operations of the Company consumed cash of approximately $101,800 as
compared to $204,600 for the three months ended April 30, 1995. Cash flows from
financing activities for the three months ended April 30, 1996 and 1995 provided
$2,805,900 and $307,100, respectively. During the three months ended April 30,
1996, the Company paid $50,000 against the Banca de Roma bank loan, and paid
down a net amount of $1,286,500 against the credit line. In addition, the
Company received $2,464,400 in net proceeds from the issuance of convertible
debentures.
14
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
During the three months ended April 30, 1996, the Company redeemed $1,000,000 of
the series B preferred stock. Capital expenditures were $2,185,100 and $3,400,
for the three months ended April 30, 1996 and 1995, respectively. In March 1996,
The Company's wholly-owned subsidiary, Meret, purchased land and building in San
Diego, California for $1,779,350 which will be Meret's corporate headquarters
and manufacturing facility.
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 current 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.
15
<PAGE> 16
OSICOM TECHNOLOGIES, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
See Note J(2) in the "Notes to Consolidated Unaudited Financial
Statements" herein.
Item 6. Exhibits and Reports on Form 8-K
April 12, 1996 - Financial Statements of RNS
16
<PAGE> 17
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: May 30, 1996
By: /s/ Christopher E. Sue
--------------------------------------
Christopher E. Sue
Chief Financial Officer
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET, CONSOLIDATED STATEMENTS OF OPERATIONS AND
CONSOLIDATED STATEMENTS OF CASH FLOW AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> APR-30-1996
<CASH> 970,917
<SECURITIES> 0
<RECEIVABLES> 4,796,382
<ALLOWANCES> 376,639
<INVENTORY> 9,749,207
<CURRENT-ASSETS> 15,840,342
<PP&E> 4,981,018
<DEPRECIATION> 1,461,113
<TOTAL-ASSETS> 24,178,760
<CURRENT-LIABILITIES> 9,632,257
<BONDS> 3,318,059
0
5,519,487
<COMMON> 305,618
<OTHER-SE> 5,316,390
<TOTAL-LIABILITY-AND-EQUITY> 24,178,760
<SALES> 6,069,879
<TOTAL-REVENUES> 6,069,879
<CGS> 3,363,755
<TOTAL-COSTS> 2,318,049
<OTHER-EXPENSES> 139,285
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 139,285
<INCOME-PRETAX> 248,790
<INCOME-TAX> 0
<INCOME-CONTINUING> 248,790
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 248,790
<EPS-PRIMARY> .07
<EPS-DILUTED> .06
</TABLE>
