<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended OCTOBER 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File number: 1-15810
OSICOM TECHNOLOGIES, INC.
(Exact name of Registrant as specified in charter)
New Jersey 22-2367234
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
2800 28th Avenue, Suite 100
Santa Monica, California
90405
(Address of principal executive offices)
(Zip Code)
(310) 581-4030
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.10 par value per share, Outstanding: 9,994,094 Shares
at December 1, 1996.
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TABLE OF CONTENTS
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Page
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PART I: FINANCIAL INFORMATION
ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Unaudited Balance Sheet at October 31, 1996 3
Consolidated Unaudited Statements of Income (Loss) for the three and nine months ended
October 31, 1996 and 1995 4
Consolidated Unaudited Statements of Cash Flows for the nine months ended
October 31, 1996 and 1995 5
Notes to Consolidated Financial Statements 6-26
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 27-29
PART II: OTHER INFORMATION 30
ITEM 1: LEGAL PROCEEDINGS
ITEM 2: CHANGES IN SECURITIES
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
ITEM 4: SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS
ITEM 5: OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURE 31
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2
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OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (UNAUDITED)
(In Thousands)
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October 31, 1996
===========================================================================================================
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ASSETS
CURRENT ASSETS
Cash and equivalents $ 9,224
Receivables, net of reserve for bad debts $1,147 18,059
Inventory (Notes B, E and F) 24,720
Other receivables (Notes C and O) 1,887
Prepaid expenses and other current assets 1,499
Marketable securities, less allowance for unrealized losses (Note O) 62
- - -----------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 55,451
- - -----------------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, NET (Notes B, D, E and F) 15,098
- - -----------------------------------------------------------------------------------------------------------
OTHER ASSETS
Purchased technology, net (Notes A and B) 8,711
Excess of cost over net assets acquired, less accumulated amortization (Notes A and B) 3,097
Other assets 2,242
- - -----------------------------------------------------------------------------------------------------------
TOTAL OTHER ASSETS 14,050
- - -----------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 84,599
===========================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt (Note E) $ 14,553
Current maturities of long term debt (Note F) 1,508
Accounts payable 17,797
Accrued liabilities 6,680
Dividend payable (Note A) 1,032
Income taxes payable 309
- - -----------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 41,879
- - -----------------------------------------------------------------------------------------------------------
Long-term debt and capital lease obligations (Note F) 4,246
Deferred income taxes (Note M) 248
Other liabilities 87
- - -----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 46,460
- - -----------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Notes A, H, and I) 1,993
STOCKHOLDERS' EQUITY (Note J)
Preferred stock, $.01 par value; cumulative dividends; 202,317 shares issued
and outstanding; $24,638,560 liquidation preference 2
Common stock, $.10 par value; 20,000,000 shares authorized; 9,671,550 shares
issued and 9,668,766 shares outstanding 967
Additional paid-in capital 45,809
Retained earnings (deficit) (10,455)
Treasury stock, 2,784 shares, at cost (177)
- - -----------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 36,146
- - -----------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 84,599
===========================================================================================================
</TABLE>
See accompanying notes.
3
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OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In Thousands, except per share amounts)
===============================================================================================================
THREE MONTHS ENDED NINE MONTHS ENDED
OCTOBER 31 OCTOBER 31
------------------------------ -------------------------------
1996 1995 1996 1995
- - --------------------------------------------------------------------------------------------------------------
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NET SALES $ 33,320 $ 8,943 $ 78,716 $ 25,603
COST OF SALES 22,965 5,581 54,985 16,332
- - --------------------------------------------------------------------------------------------------------------
GROSS MARGIN 10,355 3,362 23,731 9,271
- - --------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Selling, general and administrative 6,508 2,447 16,335 6,762
Engineering 2,218 692 4,944 2,413
Purchased research and development (Note A) 0 0 9,672 0
Acquisition and restructure costs 0 0 1,116 0
- - --------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 8,726 3,139 32,067 9,175
- - --------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM OPERATIONS 1,629 223 (8,336) 96
- - --------------------------------------------------------------------------------------------------------------
OTHER EXPENSES, NET 192 94 831 437
- - --------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES 1,437 129 (9,167) (341)
PROVISION FOR INCOME TAXES (Note M) 105 9 230 10
- - --------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 1,332 $ 120 $ (9,397) $ (351)
===============================================================================================================
INCOME (LOSS) PER COMMON SHARE (Note N)
ACCRUED UNDECLARED DIVIDENDS 38 38 113 113
NET INCOME (LOSS) APPLICABLE
TO COMMON SHARES $ 1,294 $ 82 $ (9,510) $ (464)
===============================================================================================================
PRIMARY
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (RESTATED) 9,469,660 4,565,898 7,185,382 3,538,767
NET INCOME (LOSS) PER COMMON SHARE: $ 0.14 $ 0.02 $ (1.32) $ (0.13)
===============================================================================================================
FULLY DILUTED
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (RESTATED) 10,116,627 4,565,898 n/a n/a
NET INCOME (LOSS) PER COMMON SHARE: $ 0.13 $ 0.02 $ n/a $ n/a
===============================================================================================================
</TABLE>
See accompanying notes.
4
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OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In Thousands)
===============================================================================================
NINE MONTHS ENDED
OCTOBER 31
---------------------------
1996 1995
- - ----------------------------------------------------------------------------------------------
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ 582 $ (1,534)
- - ----------------------------------------------------------------------------------------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment (5,177) (150)
Product enhancement costs (Notes B and D) (1,370) (325)
Net increase in other receivables (1,471) 0
Cash outlays for acquired companies in excess of cash acquired
cash acquired (16,641) 0
Other assets (435) 0
- - ----------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (25,094) (475)
- - ----------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES (Notes A and Q):
Proceeds from issuance of convertible debentures 16,828 0
Proceeds from issuance of convertible preferred stock 19,231 0
Redemption of preferred stock (6,269) 0
Proceeds from issuance of common stock 0 260
Proceeds from stock option exercises 378 175
Stock issuance costs (8) (16)
Proceeds from capital contributions (Note K) 0 100
Notes payable issued net of payments 2,000 2,537
Repayment of capitalized leases (194) (31)
Net proceeds (repayments) of short term bank loans 909 (270)
- - ----------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 32,875 2,755
- - ----------------------------------------------------------------------------------------------
INCREASE IN CASH AND CASH EQUIVALENTS 8,363 746
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 861 (138)
- - ----------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 9,224 $ 608
===============================================================================================
</TABLE>
See accompanying notes.
5
<PAGE> 6
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Osicom Technologies, Inc. (the "Company") through its subsidiaries designs,
manufactures and markets transmission, networking, remote access and
connectivity products for use in local area networks, wide area networks and
broadband global networks. The Company's products include remote access
products, routers, concentrators, hubs and switches, high-performance network
adapters, multi-function servers, network printer servers, frame relay
encryption devices, video switches and routers, a family of products to build
broadcast systems over copper, fiber optic or wireless transmission, products
and products using Phase-Locked Loop, direct analog, and direct digital RF
synthesis.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates that
affect the reported amounts of assets, liabilities, revenues and expenses, and
the disclosure of contingent assets and liabilities. Actual results could
differ from these estimates.
Dollar amounts in tables following are in thousands, except for per
share and share amounts.
A. THE COMPANY, BASIS OF PRESENTATION, ACQUISITIONS, AND DISCONTINUED
OPERATIONS
The accompanying consolidated unaudited financial statements have been
prepared in accordance with the instructions to Form 10-QSB and, in the opinion
of management, include all adjustments (consisting of only normal recurring
adjustments) necessary for a fair presentation. The results of operations for
the three months and nine months ended October 31, 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 and
the consolidated audited financial statements and notes thereto included in
Builders Warehouse Association, Inc.'s ("BW") annual report on Form 10-KSB for
the year ended May 31, 1996.
ROCKWELL NETWORK SYSTEMS - On January 31, 1996, Meret Communications,
Inc. ("Meret"), a wholly owned subsidiary, acquired all the assets and assumed
certain specified liabilities of Rockwell Network Systems ("RNS") from Rockwell
International Corporation ("Seller") for approximately $11 million in cash and
notes. In addition, approximately $593,000 in finders fees and fees for
providing collateral for the notes issued, was paid with a combination of cash
and stock. RNS provides high-speed LAN solutions and connections to the extended
workgroups and servers in high growth networking (FDDI, Fast Ethernet) markets.
In addition, RNS is a leading supplier of remote access router-based
technologies for connections to network backbones via public switch facilities
(ISDN and analog modems). RNS operates as a division of Meret.
DIGITAL PRODUCTS, INC. - In September 1996, the Company acquired
Digital Products, Inc. ("DPI") through a merger with a newly-formed subsidiary
DPI Acquisition Corp. for the Company's common stock valued at $5 million less
agreed upon merger expenses of DPI and DPI stock option repurchases. In
addition, a new $3 million line of credit with a lender provided funds to repay
approximately $1.3 million owed to a lender and provide additional working
capital. DPI produces and markets to printer original equipment manufacturers,
distributors and end- users a line of multi-function networking products that
provide system, board, and chip level integrated solutions for local area
networks and remote access. The acquisition is accounted for as a pooling of
interests which requires the inclusion of the results of operations of DPI for
all periods presented herein.
6
<PAGE> 7
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CRAY COMMUNICATIONS, INC. - In September 1996, the Company acquired
100% of CEH Holdings, Inc. and its wholly-owned subsidiaries including Cray
Communications, Inc. (collectively "Cray"), the U.S. division of UK-based Cray
Electronics Holdings, PLC, for $11 million in cash plus preferred stock of the
Company valued at $3 million. The preferred shares are convertible into common
stock at the market price at conversion and are being held in escrow pending
resolution of acquisition contingencies. Cray designs, manufactures, markets,
and supports an extensive range of communications products and systems for
remote access and internetworking markets. Cray provides its customers with
intelligent products to build networks that support data, voice, and video
transmission over a wide variety of carrier services as well as being an
industry leader in frame relay encryption.
As a result of the Cray acquisition the Company recorded a one-time
charge to earnings for purchased research and development of $7,114,000.
ACQUISITION OF BUILDERS WAREHOUSE ASSOCIATION, INC. - In September
1996, the Company acquired all of BW's subsidiaries, which constituted
substantially all its assets, through the issuance of .94 common shares for
each currently outstanding share of BW. The acquisition is accounted for as a
pooling of interests which requires the inclusion of the results of operations
of BW for all periods presented herein.
BW was a Colorado corporation originally incorporated under the name
of Ceetac Corp. on June 30, 1988, and subsequently did business as Omni
Corporation. The primary purpose of BW was to evaluate acquisition candidates
and complete acquisitions of, or mergers with those candidates. The Company
was therefore accounted for as a "development stage company" and until
September 20, 1991, conducted no business activities.
Effective May 31, 1995, BW acquired 100% of the outstanding common
stock of Relialogic Technology Corporation ("RTC"), a designer and manufacturer
of add-on products for the multimedia computer marketplace as well as a
distributor of computer products manufactured by others. At the time of this
acquisition, the shareholders of RTC gained voting control of BW and therefore
RTC became the acquiring entity. As a result, RTC is the accounting survivor
and reporting successor. The acquisition of RTC by BW was recorded as a
reverse acquisition. The predecessor company's balance sheets were adjusted to
reflect the recapitalization of RTC pursuant to the acquisition. The
historical stockholders' equity of RTC was adjusted to reflect the cost basis
of the RTC shareholders in the net assets of RTC.
BW recorded the following summarized balances effective May 31, 1995
to reflect the reverse acquisition:
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Current assets (including cash of $44) $ 1,789
Inventories 1,744
Property and equipment (net) 967
Other assets 6
Current liabilities (5,220)
Notes payable (100)
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Stockholder's equity (net) $ (814)
=======
</TABLE>
BW ACQUISITION OF UNI PRECISION INDUSTRIAL LIMITED - On April 1, 1996,
the BW acquired 100% of the common stock of Uni Precision Industrial Limited
("FED"), a Hong Kong corporation, for a purchase price of approximately $6
million in cash and debt assumed: $500,000 was paid at the closing of the
transaction and an additional $5.5 million was paid upon the provision to BW of
audited financial statements as of the acquisition date. An additional $4.0
million payment will be made on April 1, 1997 subject to pro rata adjustment
based upon
7
<PAGE> 8
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FED having net income after tax of $2.5 million during the 12-month period
ending March 31, 1997. BW incurred additional costs in connection with the
purchase of FED of $813,000, of which $809,000 was paid through the issuance of
restricted common shares.
BW ACQUISITION OF SCITEQ ELECTRONICS, INC. - On May 31, 1996, through
a merger with a newly-formed corporation, Sciteq Communications, Inc.
("Sciteq"), BW acquired 100% of Sciteq Electronics, Inc., for $600,000 in cash,
plus stock and below-market stock options of BW valued at $2.4 million. An
additional payment in stock of the Company valued at $2.0 million will be made
12 months from closing subject to pro rata adjustment based upon Sciteq
achieving pre-tax net income of $750,000 during the 12 month period ending
December 31, 1996. BW incurred additional costs in connection with the
purchase of Sciteq of $579,000, of which $532,000 was paid or will be paid
through the issuance of common shares.
The former shareholders of Sciteq have the right to have the Company
redeem their shares for cash during the 12 days beginning May 31, 1997. The
value of the shares issued at closing of $1,993,000 has been reclassified as
commitments and contingencies in the accompanying financial statements.
As a result of the Sciteq acquisition BW recorded a one-time charge to
earnings for purchased research and development of $1,890,000.
BW ACQUISITION OF PACIFIC DATA PRODUCTS, INC. - On May 24, 1996, BW,
through its newly-created, wholly owned subsidiary PDP Acquisition Corp.
("PDPA"), acquired substantially all of the assets of Pacific Data Products,
Inc. ("PDP"). BW paid $273,000 in cash and assumed PDP's bank indebtedness of
approximately $2.4 million in return for substantially all of PDP's assets,
including cash, accounts receivable, inventory, fixed assets and intangibles
including patents, trademarks, copyrights, in-process software development and
certain specified agreements. BW incurred additional costs in connection with
the purchase of PDP's assets of $123,000 of which $121,000 was paid through the
issuance of common shares.
PDPA entered into an agreement with Coast Business Credit ("Coast")
for a $5.0 million credit facility secured by all of PDPA's newly- acquired
assets. BW provided a $500,000 infusion of working capital to PDPA, as well as
a limited guarantee of $750,000 to effectuate the Coast credit facility.
As a result of the asset acquisition by PDPA BW recorded a one-time
charge to earnings for purchased in-process software development costs of
$668,000.
BW DISCONTINUED OPERATIONS - As of May 31, 1995, BW disposed of its
loss-generating, wholly-owned subsidiary, BWA, Inc., which owned two
Arkansas-incorporated operating subsidiaries, Builders Warehouse Association,
Inc. and American Plywood Sales, Inc., both of which were engaged in the
building supply industry. Such operations incurred an operating loss of
approximately $2.4 million during the year ended May 31, 1995 and had a
consolidated negative book value at that date of $1,143,000. Accordingly, BW
delivered 125,000 post reverse split shares of its common stock with an
approximate market value of $437,500 at May 31, 1995 to the purchaser of BWA,
Inc. In addition the buyer assumed certain future costs and potential losses.
8
<PAGE> 9
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The balance sheet reflects the accounts
of Osicom, its wholly-owned subsidiaries Meret Communications, Inc. ("Meret"),
including its RNS division, DPI, Cray, FED, RTC, R-Net International, Inc.
("Rnet"), Sciteq, and PDPA. The consolidated unaudited statements of operations
for the three months and nine months ended October 31, 1996 include the results
of operations of Osicom, Meret, including its RNS division, DPI, BW and RTC for
the periods presented, Cray from June 30, 1996, FED from April 1, 1996, Rnet
from November, 1995 (formation), Sciteq from May 31, 1996 and PDPA from May 24,
1996. (See Note A). Immaterial subsidiaries of FED have been accounted for on
the equity method. All significant intercompany transactions and balances have
been eliminated in the consolidation. The consolidated unaudited statements of
operations for the three months and nine months ended October 31, 1995 have been
restated to account for the acquisitions of BW and DPI accounted for as pooling
of interests. For purposes of financial reporting, RTC was treated as purchaser
in a reverse acquisition of BW and its subsidiary, BWA, Inc. The consolidated
group is referred to individually and collectively as the "Company".
CASH AND CASH EQUIVALENTS - All cash on hand and in banks,
certificates of deposit and other highly-liquid investments with maturities of
three months or less, when purchased.
ACCOUNTS AND NOTES RECEIVABLE - In the normal course of business, the
Company extends unsecured credit to its customers related to the sales of
various products. Typically credit terms require payment on the tenth day of
the month following sales. The Company evaluates and monitors the
creditworthiness of each customer on a case-by-case basis.
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.
INVENTORY - Inventory, comprised of raw materials, work in process,
finished goods and spare parts, are stated at the lower of cost (first-in,
first-out method) or market. Accumulated amortization of spare parts was
$2,723,000 at October 31, 1996. Inventories at October 31, 1996 consist of:
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Raw material $ 17,181
Work in process 7,033
Spare parts, net 602
Finished goods 5,780
--------
30,596
Less: Reserve for obsolescence ( 5,876)
--------
$ 24,720
=======
</TABLE>
FAIR VALUE OF FINANCIAL INSTRUMENTS - The fair value of financial
instruments is determined by reference to various market data and other
valuation techniques as appropriate. Management believes that there are no
material differences between the recorded book values of its financial
instruments and their estimated fair value.
PROPERTY AND EQUIPMENT - Property and equipment are recorded at
historical cost. Depreciation and amortization are provided over the estimated
useful lives of the individual assets or the terms of the leases if shorter
using accelerated and straight-line methods. Useful lives for property and
equipment range from 3 to 15 years. Depreciation of land improvements and
buildings is computed using the straight-line method over 39 years.
9
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OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Technology and 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 Statement of Financial
Accounting Standards Nos. 2 and 86. The deferred costs are amortized using the
straight-line method over the remaining estimated economic life of the product
or the ratio that current revenues for the product bear to the total of current
and anticipated future revenues for that product.
The recoverability of capitalized technology and software costs are
reviewed on an ongoing basis.
Capitalized leases are initially recorded at the present value of the
minimum payments at the inception of the contracts, with an equivalent
liability categorized as appropriate under current or non-current liabilities.
Such assets are depreciated on the same basis as described above. Interest
expense, which represents the difference between the minimum payments and the
present value of the minimum payments at the inception of the lease, is
allocated to accounting periods using a constant rate of interest over the
lease.
PURCHASED TECHNOLOGY - Technology assets were acquired in connection
with the acquisitions of Cray, the RNS division of Meret and Sciteq. These
assets were analyzed by the Company during and after the close of the related
acquisition. The discounted projected cash flow from proven technology and
software are capitalized and amortized over their remaining estimated economic
life (5 to 10 years) using the straight-line method. Accumulated amortization
was $558,000 at October 31, 1996.
EXCESS OF COST OVER NET ASSETS ACQUIRED - Excess of cost over net
assets acquired is being amortized over 7 to 15 years and represents the excess
of the purchase price over the fair value of net assets acquired in connection
with RTC and FED. Cost and accumulated amortization were $2,143,000 and
$204,000, respectively, at October 31, 1996.
OTHER INTANGIBLE ASSETS (LOAN COSTS AND CUSTOMER LISTS) - Loan costs
represent legal and other costs associated with loans and are amortized on a
straight-line basis over the life of the loan. Customer lists (PDPA) are
amortized on a straight-line basis over its estimated economic life (5 years).
OTHER INVESTMENTS - Other investments include insignificant
subsidiaries of FED accounted for on the equity method, non-marketable
securities held in other companies and an investment in a joint venture net of
an allowance for permanent impairment of value.
REVENUE RECOGNITION - Revenues are recognized when the products are
shipped to the customers.
INCOME TAXES - At October 31, 1996 the deferred taxes and income tax
provisions recorded in the financial statements relate primarily to FED's
operations in China. (See Note M)
ADVERTISING - The Company expenses advertising expenditures as
incurred. Advertising expenses of the Company consist of allowances given to
customers as well as direct expenditures by the Company.
INCOME AND LOSS PER COMMON SHARE - Income and loss per common share is
computed by dividing net loss by the weighted average number of common shares
and dilutive common equivalent shares outstanding during each period presented
(applicable to income per share only). Convertible securities outstanding and
common stock equivalents are not included in the loss per share computation for
the nine months ended October 31, 1996 and
10
<PAGE> 11
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1995 as they would be anti-dilutive. All references in the financial
statements of common shares and per share data give effect to the 2 for 1 stock
split effective February 12, 1996.
FOREIGN CURRENCY TRANSLATION - Foreign operations of the Company have
been translated into U.S. dollars in accordance with the principles prescribed
in Statement of Financial Accounting Standards No. 52, "Foreign Currency
Translation". For the three and nine months ended October 31, 1996 the current
rate method was used whereby all assets and liabilities are translated at
period end exchange rates, and the resultant translation adjustments are
included as a separate component of stockholders' equity. Revenues and
expenses are translated at the average rates of exchange prevailing throughout
the period, and the resultant gains and losses are included in net earnings.
C. OTHER RECEIVABLES
Other receivables at October 31, 1996 consisted of the following:
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8% demand loan due from an officer of RTC
including accrued interest (see Note O) $ 105
Due to Company under indemnification against loss in value of
marketable securities received in private placement
of shares due from directors (see Note O) 265
Due to Company under indemnification of costs related to
BWA, Inc. (see Notes A and I) 196
8% 90 day loan due January 30, 1997 due from non-affiliate
including accrued interest 692
8% demand loans due from non-affiliates including accrued
interest 488
Demand note receivable due from non-affiliate; interest accrues
at 1% over the prime rate 141
------
Total other receivables $ 1,887
======
</TABLE>
11
<PAGE> 12
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
D. PROPERTY AND EQUIPMENT
Property and equipment of the Company consisted of the following
components as of October 31, 1996:
<TABLE>
<S> <C>
Manufacturing, engineering and plant equipment and software $ 24,389
Office furniture and fixtures 4,727
Land and building 3,953
Software development 1,749
Automobiles 226
Leasehold and building improvements 2,076
--------
Total property and equipment 37,120
Less: Accumulated depreciation (22,022)
-------
Net book value at May 31, 1996 $ 15,098
=======
</TABLE>
Leasehold land and buildings of FED with a cost of $2,174,000 are
pledged to secure FED's banking facility as more fully described in Notes E and
F.
All the assets of PDPA, DPI, and Cray including their property, plant
and equipment are pledged to secure their credit facilities with Coast as more
fully described in Note E.
All the property, plant and equipment of Meret is pledged to secure
its credit facility with Coast as more fully described in Note E.
E. SHORT TERM DEBT
Short term debt at October 31, 1996 consisted of the following:
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Floating interest rate loan (2.5% over Coast's prime rate)
secured by the tangible assets of Meret..
Interest rate at October 31, 1996 was 10.75% $ 3,239
Floating interest rate loan (2.5% over Coast's prime rate)
secured by substantially all the assets of Cray.
Interest rate at October 31, 1996 was 10.75% 2,776
Floating interest rate loan (2.5% over Coast's prime rate)
secured by substantially all the assets of DPI.
Interest rate at October 31, 1996 was 10.75% 2,462
Floating interest rate loan; a portion of banking facility of FED
more fully described in Note F. Interest rate at
October 31, 1996 was 9.5%. 3,519
Floating interest rate loan (2% over Coast's prime rate);
debt assumed by PDPA in asset acquisition (see Note A).
Interest rate at October 31, 1996 was 10.25% 2,147
Floating interest rate loan (1% over bank's base lending rate)
secured by accounts receivable and a director's personal
guarantee. Interest rate at October 31, 1996 was 9.25% 410
-------
Total short term debt $14,553
=======
</TABLE>
12
<PAGE> 13
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company's wholly owned subsidiary, Meret, has a $8 million line of
credit with Coast. The line of credit is collateralized by accounts
receivable, inventory and property 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 2.5% over the bank's prime rate but not less
than 8%; the interest rate on the line of credit remained substantially
unchanged at 10.75% for the nine months ended October 31, 1996.
On October 2, 1996 the Company's wholly owned subsidiary, Cray,
obtained a $5 million line of credit from Coast. The line of credit is
collateralized by substantially all the assets of Cray and a guarantee by
Osicom. Advances are limited to 80% of eligible receivables and 30% of
eligible inventory. The loan bears interest at 2.5% over the bank's prime rate
but not less than 8%; the interest rate on the line of credit remained
substantially unchanged at 10.75% during the month ended October 31, 1996. The
proceeds from this line of credit were used to replace, in part, the line of
credit outstanding at the acquisition of Cray.
On October 11, 1996 the Company's wholly owned subsidiary, DPI,
obtained a $3 million line of credit from Coast. The line of credit is
collateralized by substantially all the assets of DPI and a guarantee by
Osicom. Advances are limited to 80% of eligible receivables and 30% of
eligible inventory. The loan bears interest at 2.5% over the bank's prime rate
but not less than 8%; the interest rate on the line of credit remained
substantially unchanged at 10.75% during the month ended October 31, 1996. The
proceeds of this loan were used to repay the line of credit outstanding at the
acquisition of DPI under which the interest rate was 4% over the lender's prime
rate.
In connection with the acquisition of PDP's assets, the Company
assumed approximately $2.4 million in debt to Coast Business Credit ("Coast"),
an asset based lender. The debt is collateralized by inventories, accounts
receivable, property, plant and equipment with a book value of approximately
$1.5 million and a limited guarantee by BW of $750,000. The loans bear
interest at 2% over the prime rate but not less than 8%; the interest rate on
the line of credit remained substantially unchanged over the period May 24,
1996 to October 31, 1996 at 10.25%. At the end of the six month period
beginning with the acquisition any unpaid balance of the loans assumed in the
asset purchase will be converted into a term loan payable over an estimated
three years.
In addition to the debt assumed in the acquisition of PDP, PDPA and BW
entered into an agreement with the Coast for a $5 million credit facility
secured by all of PDPA's acquired assets. BW provided an injection of $500,000
working capital to PDPA, as well as a limited guarantee of $750,000. After
using approximately $2.2 million outstanding as of October 31, 1996 for the
purchase of PDP, $2.8 million is available for internal growth and for
acquisitions.
At October 31, 1996, the Company had outstanding indebtedness under
its revolving demand loan agreement with Banca di Roma of $410,000. The
agreement provides for interest at 1% above the bank's base lending rate, which
was 9.25%, at October 31, 1996. The line of credit is collateralized by
accounts receivable and personally guaranteed by a director of the Company.
13
<PAGE> 14
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
F. LONG TERM DEBT
Long term debt at October 31, 1996 consisted of the following:
<TABLE>
<S> <C>
Floating rate interest loan; a portion of banking facility of FED
more fully described below. Interest rate at October
31, 1996 was 9.5% $ 1,581
8.95% 30 year mortgage note payable 1,328
Floating rate interest term loans (2.5% over Coast's prime rate)
secured by machinery and equipment of Meret. Interest
rate at October 31, 1996 was 10.75% 932
Floating interest rate notes payable to shareholder (former
shareholders of DPI) (3% over Coast's prime rate).
Interest rate at October 31, 1996 was 11.25% 54
Floating interest rate notes payable to shareholders (former
shareholders of DPI) (4% over Coast's prime rate).
Interest rate at October 31, 1996 was 12.25% 118
5% term note payable to shareholder (former shareholder and
present officer of DPI) 364
Obligations under finance leases 956
Debentures payable (See Note G) 421
-------
5,754
Less: Current portion (1,508)
-------
Total long term debt $ 4,246
=======
</TABLE>
As of October 31, 1996, FED had aggregate loan facilities of
approximately $5.9 million from various banks for overdrafts, loans and trade
financing. These facilities are secured by a priority lien on FED's leasehold
land and buildings (Note D), a pledge of FED's bank deposits of approximately
$1.8 million, liens on FED's inventories released under trust receipt loans and
guarantees by former directors of FED and a corporation controlled by former
directors of FED.
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 5.5% over the LIBOR rate, with an
initial rate of 8.95% for the initial six months.
In addition, Meret has terms loans outstanding which are
collateralized by machinery and equipment. Combined monthly principal payments
are $38,900 per month.
DPI has various notes payable to certain of its former shareholders
including a note payable requiring installments of $8,000 including both
principal and interest, and notes due September 1997 with interest only payable
monthly.
14
<PAGE> 15
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Long term debt at October 31, 1996 was payable by year as follows:
<TABLE>
<S> <C>
1998 $ 922
1999 377
2000 769
2000 199
2001 1,483
2002 and later 496
------
$4,246
======
</TABLE>
G. DEBENTURES PAYABLE
During the nine months ended October 31, 1996, the Company and BW
received net proceeds of $16.8 million from the private placement of
convertible debentures to unaffiliated parties and 2,063,631 shares of the
Company's common stock and equivalent shares of BW (BW shares issued converted
to Osicom equivalent shares at .94) were issued in conversions of these
securities and accrued interest thereon. The Company has the right to call the
debentures prior to conversion at 90% of face value. The debentures bear
interest at 8.0% beginning after date of issue which is payable in common
shares of the Company.
H. LEASES AND OTHER COMMITMENTS
The Company occupies 519,000 square foot of office, manufacturing and
distribution space; 240,000 square feet in the United States and 279,000 square
feet in Hong Kong and China. The lease for 14,000 square feet in San Diego,
California occupied by Sciteq expires on September 1, 1997; upon expiration the
business will relocate to the facility owned by the Company in San Diego,
California. Lease terms for all other facilities generally range from month to
month to 5 years with options to renew at varying terms.
Future minimum operating lease payments for the Company and its
subsidiaries at October 31, 1996 are as follows, by year:
<TABLE>
<S> <C>
1997 $2,123
1998 1,302
1999 921
2000 408
2001 108
------
$4,862
======
</TABLE>
As of October 31, 1996, FED, had significant commitments and
contingent liabilities for open letters of credit, discounted bills and
shipping guarantees executed in favor of various banks totaling approximately
$2,115,000
Under the terms of the purchase agreement for Dynair, the Company is
obligated to pay the seller additional cash consideration equal to a percentage
of net revenues in excess of $5,000,000 within a post-closing year derived from
the sales of Dynair products, for each of the five years subsequent to the
acquisitions date. As of October 31, 1996, no liability related to this
additional consideration has been incurred.
15
<PAGE> 16
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Two officers of Sciteq have three year employment contracts under
which Sciteq is obligated to make payments of $220,000 per year in total. The
Company has the right to terminate these contracts for cause.
I. LITIGATION
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 the Company's acquisition of RNS.
The Company believes the suit is frivolous and without merit and in any case
the Company is 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.
BW and certain former officers and directors are defendants in
litigation filed in May 1994 seeking unspecified damages for allegedly
violating sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and
making a series of positive public statements to the securities market place.
Management believes the claims to be without merit; nevertheless, the ultimate
outcome of the litigation cannot presently be determined. No provisions for any
loss that may result upon resolution of this matter were made in the May 1996
audited financial statements of BW and the Company did not assumed any
liability in this matter in its acquisition agreement with BW. In addition the
Company is indemnified against any loss that may result by the buyer of BWAI
see Note A.
The Company and its subsidiaries are involved in various other legal
proceedings and claims incident to the normal conduct of its business.
Although it is impossible to predict the outcome of any outstanding legal
proceedings, the Company believes that such legal proceedings and claims,
individually and in the aggregate, are not likely to have a material effect on
its financial position or results of operations.
J. STOCKHOLDERS' EQUITY
The Company is authorized to issue the following shares of stock:
20,000,000 shares of Common Stock ($.10 par value)
2,500 shares of Preferred Stock, Series A ($.01 par value)
10,000,000 shares of Preferred Stock, Series C ($.01 par value)
3,000,000 shares of Preferred Stock, Series D ($.01 par value)
10,000,000 shares of Preferred Stock, Series E ($.01 par value)
16
<PAGE> 17
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company has outstanding the following shares of preferred stock:
<TABLE>
<CAPTION>
Shares Par Liquidation
Outstanding Value Preference
----------- ----- ----------
<S> <C> <C> <C>
Series A 2,500 $ - $ 3,125
Series B (BW) 114,740 1 5,737
Series C 77,000 - 7,700
Series D 3,000 - 3,000
Series E 5,077 1 5,076
------- ---- -------
Total 202,317 $ 2 $24,638
======= ==== =======
</TABLE>
The Series A Convertible Preferred stock was issued on August 21, 1992
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 October 31, 1996, there was $625,000 of cumulative preferred
stock dividends.
In February 1996, the Company issued convertible preferred stock in
the amount of $6,269,000 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 July 31, 1996, the
Company had fully redeemed the preferred stock.
In July 1996, the Company issued 10,000 shares of 8% Series C
preferred stock with a $0.01 par value and a $1,000 liquidation value. The
received net proceeds were $7,524,850. Holders of Series C preferred stock are
not entitled to vote. The Series C preferred stock bears a cumulative 8%
annual dividend payable annually on July 31 of each year. Such dividend is
payable at the Company's option in either cash or common stock at the
immediately preceding business day's closing price as reported by NASDAQ. Each
share of Series C preferred stock is convertible into common shares at a
maximum of $18.00 or at market or at conditions thereof.
In September 1996, the Company issued 5,077 shares of 8% Series E
preferred stock with a $.01 par value and a $1,000 liquidation value receiving
net proceeds of $3,806,000. The rights and privileges of Series E is identical
to that of Series C. In connection with this placement a director of the
company received a finder's fee of $254,000.
In July 1996, BW issued 114,740 shares of its 8% Series B preferred
stock with a $.01 par value and a $50 liquidation value receiving net proceeds
of $8,091,000. The Series B preferred stock bears a cumulative 8% annual
dividend payable annually on July 31 of each year. Such dividend is payable at
the Company's option in either cash or common stock at the immediately
preceding business day's closing price as reported by NASDAQ. Each share of
Series B preferred stock is convertible into common shares at a maximum of
$18.00 or at market or at conditions thereof. In connection with the
acquisition of BW, the Company has assumed the obligations, including
conversions, for the Series B preferred shares.
17
<PAGE> 18
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In conjunction with the acquisition of Cray, the Company issued 3,000
shares of Series D preferred stock with a liquidation value of $1,000. The
Series D preferred stock bears no dividend and is convertible into the
Company's common shares having an aggregate market value at the time of
conversion equal to $3,000,000. The holder of Series D preferred stock is not
entitled to vote. These shares are held in escrow pending resolution of
acquisition contingencies.
K. OTHER CAPITAL STOCK TRANSACTIONS AND BUSINESS ACQUISITIONS
STOCK SPLIT - In February 1996, approval was granted for a two for one
stock split effective February 12, 1996. The effect of this change was
reflected in the financial statements retroactively as if the reverse splits
occurred at the beginning of the earliest period reported.
CRAY ACQUISITION - In the acquisition described in Note A, the Company
issued 26,000 shares of common stock valued at $175,000 in payment of costs
incurred in connection with the transaction
DPI ACQUISITION - In the acquisition described in Note A, the Company
issued 414,368 shares of its to the holders of DPI's outstanding common stock.
In addition, the Company issued 14,000 shares of its common stock valued at
$83,000 in payment of costs incurred in connection with the transaction.
RNS ACQUISITION - In the acquisition described in Note A, the Company
issued 61,224 shares of its common stock valued at $214,286 in payment of costs
incurred in connection with the transaction.
SCITEQ ACQUISITION - As described in Note A, BW issued 229,646 shares
of common stock (215,867 Osicom equivalent shares) to the holders of Sciteq's
outstanding common stock and in payment of costs incurred in connection with
the transaction. In addition the BW issued options to acquire an additional
60,205 shares (56,593 Osicom equivalent shares) of common stock at $5.02 per
share ($5.34 post acquisition). The additional payment contingent upon the net
income of Sciteq for the year ended December 31, 1996 will be made in common
shares at the then market price. At October 31, 1996 it Sciteq has reported
unaudited net income for the earn-out period sufficient to fully meet the
contingent payment requirement.
COVENANT NOT TO COMPETE - In connection with the acquisition of
Sciteq, a former shareholder and officer of Sciteq executed a covenant not to
compete with the Company and any of its subsidiaries for a period of five
years. Shares with a value at issue of $200,000 will be issued in quarterly
installments over two years. The first payments resulted in the issuance of
11,142 shares (10,473 Osicom equivalent shares) of common stock.
FED ACQUISITION - In connection with the Company's acquisition of FED
on March 31, 1996 BW issued 142,000 shares of its common stock (133,480 Osicom
equivalent shares) valued at $809,400 in payment of costs incurred in
connection with the transaction to two officers of RTC. (See Note A).
PDP ACQUISITION - In connection with the Company's acquisition of the
assets of PDP on May 24, 1996 the Company issued 17,200 shares of its common
stock (16,168 Osicom equivalent sharers) valued at $120,600 in payment of costs
incurred in connection with the transaction to a director. (See Note A).
WARRANTS - In connection with the placements of convertible debentures
and convertible preferred stock the Company and BW issued options to purchase
297,578 shares at prices ranging from $10.24 to $18.00.
18
<PAGE> 19
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In addition, warrants to purchase 202,248 shares at prices ranging
from $3.125 to $4.125 are outstanding from bank loan financing agreements and
business acquisitions.
OPTIONS - 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 of its common stock at an exercise price of $4.00 per share.
The option expire on December 31, 2002. Under a redemption agreement, the
Company can redeem the options for $1 million.
PRIVATE PLACEMENT - The BW issued 175,824 shares of its common stock
(equal to 165,275 post-acquisition Osicom shares) to certain stockholders in
exchange for marketable securities of a company controlled by them (See Note
O).
RTC ACQUISITION - Pursuant to an Amended and Restated Stock Purchase
Agreement dated May 31, 1995 (the "Agreement") the Company acquired all the
outstanding shares of RTC, a California corporation, which began business on
July 1, 1994 and in which certain shareholders had a indirect ownership
interest. The Agreement provided that the Company issue 1,085,798 post
reverse-split Common shares and 4,000 Class A Preferred shares (convertible
into 1,143,000 common shares). Acquisition costs to the Company in this
transaction were $250,000. The acquisition was recorded as a "reverse merger".
(See Note A).
CONTRIBUTION TO CAPITAL - RTC had a non-interest bearing demand loan
of $100,000 from Jardine Cho, the former owner of RTC, which was contributed to
the capital of the Company as of May 31, 1995. No shares were issued in this
transaction.
MANAGEMENT FEE - RTC had an agreement through January 1, 1996 with
Jardine Cho which provided compensation of $300,000 per annum or 5% RTC sales,
whichever is greater, for management services. Jardine Cho and its
shareholders had control of the Company immediately following the reverse
merger. As of May 31, 1995 Jardine Cho terminated its agreement with RTC and
accepted payment of its $334,600 obligation in common stock issued by BW. BW
issued 95,600 shares of common stock (89,864 Osicom equivalent shares) in full
satisfaction of this liability.
PRIVATE PLACEMENT - BW issued 65,000 Common shares (61,100 Osicom
equivalent shares) for $260,000 cash during the nine months ended October 31,
1995.
L. STOCK OPTION PLANS AND STOCK AWARD PLAN
The Company has two stock options 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. At the date of acquisition BW
had in effect two stock option plans, the 1994 Stock Option Plan ("94 SOP") and
the 1995 Stock Option Plan ("95 SOP") and a Stock Award Plan ("SAP"). . All
options were granted at not less than fair value at the date of grant. The
purpose of these plans is to attract, retain, motivate and reward officers,
directors, employees and consultants of the Company to maximize their
contribution towards the Company's success.
As of October 31, 1996 the Company had 581,924 options outstanding at
prices ranging from $1 to $10.625. On an Osicom share equivalent basis, BW had
965,838 options outstanding at prices ranging from $3.38 to $7.05 .
19
<PAGE> 20
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
M. INCOME TAXES
At October 31, 1996, the Company has accumulated federal net operating
losses which may be potentially available to reduce future taxable income.
However, among potential adjustments which may reduce available loss
carryforwards, the Internal Revenue Code of 1986, as amended, (IRC), reduces
the extent to which net operating loss carryforwards may be utilized in the
event there has been an "ownership change" of a company as defined by
applicable IRC provisions. The Company believes that the issuances of its
equity securities and transfers of ownership of outstanding equity securities
may have resulted in one or more such ownership changes and intends to analyze
the impact of such transfers on the continued availability, for tax purposes,
of the Company's net operating losses incurred through 1996. Further ownership
changes in the future, as defined by the IRC, may reduce the extent to which
any net operating losses may be utilized.
<TABLE>
<CAPTION>
Three Months Three Months
October 31, 1996 October 31, 1995
---------------- ----------------
United Non- United Non-
States U.S. Total States U.S. Total
------ ---- ----- ------ ---- -----
<S> <C> <C> <C> <C> <C> <C>
Income taxes:
Current $ 6 $ 99 $ 105 $ 9 $ 0 $ 9
Deferred 0 0 0 0 0 0
------ ------ ------ ------ ------ ------
Total income taxes: $ 6 $ 99 $ 105 $ 9 $ 0 $ 9
====== ====== ====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
Nine Months Nine Months
October 31, 1996 October 31, 1995
---------------- ----------------
United Non- United Non-
States U.S. Total States U.S. Total
------ ---- ----- ------ ---- -----
<S> <C> <C> <C> <C> <C> <C>
Income taxes:
Current $ 34 $ 196 $ 230 $ 10 $ 0 $ 10
Deferred 0 0 0 0 0 0
------ ------ ------ ------ ------ ------
Total income taxes: $ 34 $ 196 $ 230 $ 10 $ 0 $ 10
====== ====== ====== ====== ====== ======
</TABLE>
The reconciliation between income tax expense and a theoretical United
States tax computed by applying a rate of 35% for the fiscal periods presented,
is as follows:
20
<PAGE> 21
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------
Three months ended Nine months ended
October 31 October 31
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Earnings before U.S. and non U.S.
income taxes:
United States $ 809 $ 129 $ (10,819) $ (341)
Foreign 628 0 1,652 0
---------- ---------- ---------- ----------
Earnings before income taxes: $ 1,437 $ 129 $ (9,167) $ (341)
========== ========== ========== ==========
Theoretical tax (benefit) at 35% 503 45 (3,208) (119)
Loss for which no benefit was recorded as
there is no assurance of realization (283) 0 3,787 119
Adjustment for non-U.S. taxes in excess
of theoretical rate (116) (306)
Permanent differences (5) (36) (77) 0
Other 6 0 34 10
---------- ---------- ---------- ----------
Total $ 105 $ 9 $ 230 $ 10
========== ========== ========== ==========
</TABLE>
N. EARNINGS PER SHARE CALCUATION
Weighted average shares outstanding for the periods presented were
calculated as follows. Common stock equivalents (options and warrants) for
periods reporting a loss were anti-dilutive and therefore excluded. Common
stock equivalents for periods reporting income which would have reduced the
weighted average shares outstanding under the mandated treasury stock method
were anti-dilutive and therefore excluded.
21
<PAGE> 22
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------
Three months ended Nine months ended
October 31, October 31,
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Weighted average number of shares outstanding 8,727,195 3,989,970 7,185,382 3,538,767
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 742,465 575,928 N/A N/A
----------------------------------------------------------------
Weighted average shares used in computation 9,469,660 4,565,898 7,185,382 3,538,767
----------------------------------------------------------------
Fully diluted shares issued:
Shares issuable upon conversion of convertible
securities, net of shares assumed to have been
purchased, at the average market price for the
period, with assumed exercise proceeds 646,967 0 N/A N/A
----------------------------------------------------------------
Weighted average shares used in computation 10,116,627 4,565,898 N/A N/A
================================================================
</TABLE>
O. OTHER RELATED PARTY TRANSACTIONS
Summarized below are all material related party transactions entered
into by the Company and its subsidiaries during the periods presented not
otherwise disclosed in these notes.
In May 1995, the Company issued 175,824 post reverse split shares of
common stock to certain shareholders and directors (Note K) in exchange for
marketable securities in a company controlled by them. Such securities had a
market value of $62,000 as of October 31, 1996. These shareholders have agreed
to indemnify the Company against any decline in value of the marketable
securities. As of October 31, 1996 the liability to the Company for this
indemnification was $265,000 and it is included in other receivables.
On February 29, 1996, the Company made a 8% demand loan in the amount
of $100,000 to an officer of RTC. Accrued and unpaid interest at October 31,
1996 totalled $5,000.
Accrued dividends payable are due a former shareholder and current
officer of FED and were declared prior to the acquisition of FED by the
Company.
FED, as a founding shareholder, holds 35% of the outstanding of shares
of Spectra Electronics Systems, Ltd. ("Spectra"), a Hong Kong private company,
which sells point of sale equipment such as credit card readers for merchants
in the Asian market. At October 31, 1996 the amount due FED from Spectra for
sales in the ordinary course of business was $335,000.
22
<PAGE> 23
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In the ordinary course of business, FED made sales of $263,000 and
paid marketing research service fees of $129,000 to companies controlled by a
former director and present officer of FED.
P. SUBSEQUENT EVENTS
During the period subsequent to the balance sheet 325,328 shares of
common stock have been issued in conversions of preferred shares.
Q. SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest expense and taxes paid approximated the related expenses for
the three and nine months ended October 31, 1996.
The stock issued to effect, in part, the Cray, DPI, FED, Sciteq and
PDP accquisitions during the periods presented neither provided nor used cash.
Accordingly, the stock has been excluded from the statement of cash flows.
Common shares issued on conversion of convertible debentures during
the nine months ended October 31, 1996 either provided nor used cash.
Accordingly, the stock has been excluded from the statement of cash flows.
23
<PAGE> 24
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- - --------------------------------------------------------------------------------
R. PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The following unaudited pro forma information presents the
consolidated results of operations of the Company as if the acquisitions of
RNS, FED, Sciteq and Cray had occurred at the beginning of each period
presented. This pro forma presentation does not necessarily reflect the
results as they would have been had the acquisitions actually occurred at the
beginning of the periods presented.
<TABLE>
<CAPTION>
Three months ended Company RNS FED Sciteq Cray Pro Forma Pro Forma
October 31, 1995 Consolidated (i) (ii) (iii) (iv) Adjustments Note Consolidated
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $8,943 $3,490 $13,243 $646 $6,869 $33,191
Costs of Sales 5,581 2,318 10,871 438 4,037 23,245
------------------------------------------------------------------------------------------------
Gross Profit 3,362 1,172 2,372 208 2,832 9,946
Operating Expenses 3,139 3,277 1,743 362 3,025 165 (v)
108 (vi)
303 (vii)
117 (viii)
320 (ix)
7,114 (x)
------------------------------------------------------------------------------------------------
Operating Income (Loss) 223 (2,105) 629 (154) (193) (8,127) (9,727)
Other Income (Charges) (94) (122) 142 (74)
------------------------------------------------------------------------------------------------
Income (Loss) - Pre Tax 129 (2,105) 507 (12) (193) (8,127) (9,801)
Provision for Income Taxes 9 9
------------------------------------------------------------------------------------------------
Net Income (Loss) $120 ($2,105) $507 ($12) ($193) ($8,127) ($9,810)
================================================================================================
Weighted average shares
outstanding 4,565,898
Earnings (Loss) Per Share:
Primary and Fully Diluted $0.02 ($2.15)
</TABLE>
24
<PAGE> 25
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
Nine months ended Company FED Sciteq Cray Pro Forma Pro Forma
October 31, 1996 Consolidated (ii) (iii) (iv) Adjustments Note Consolidated
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $78,716 $9,820 $1,445 $11,751 $101,732
Costs of Sales 54,985 8,235 661 7,202 71,083
--------------------------------------------------------------------------------------
Gross Profit 23,731 1,585 784 4,549 30,649
Operating Expenses 32,067 803 494 6,060 39,424
--------------------------------------------------------------------------------------
Operating Income (Loss) (8,336) 782 290 (1,511) (8,775)
Other Income (Charges) (831) (363) (152) (1,346)
--------------------------------------------------------------------------------------
Income (Loss) - Pre Tax (9,167) 419 290 (1,663) (10,121)
Provision for Income Taxes 230 220 1 7 458
--------------------------------------------------------------------------------------
Net Income (Loss) ($9,397) $199 $289 ($1,670) ($10,579)
======================================================================================
Weighted average shares
outstanding 7,185,382
Earnings (Loss) Per Share
Primary ($1.31) ($1.47)
Fully Diluted (xi) N/A N/A
</TABLE>
<TABLE>
<CAPTION>
Nine months ended Company RNS FED Sciteq Cray Pro Forma Pro Forma
October 31, 1995 Consolidated (i) (ii) (iii) (iv) Adjustments Note Consolidated
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $25,603 $9,270 $40,761 $2,496 $21,248 $99,378
Costs of Sales 16,332 5,397 35,173 1,399 13,195 71,496
--------------------------------------------------------------------------------------
Gross Profit 9,271 3,873 5,588 1,097 8,053 27,882
Operating Expenses 9,175 9,725 3,834 1,126 11,498 495 (v)
324 (vi)
909 (vii)
351 (viii)
960 (ix)
7,114 (x)
--------------------------------------------------------------------------------------
Operating Income (Loss) 96 (5,852) 1,754 (29) (3,445) (10,153) (17,629)
Other Income (Charges) (437) (407) 142 (191) (893)
--------------------------------------------------------------------------------------
Income (Loss) - Pre Tax (341) (5,852) 1,347 113 (3,636) (10,153) (18,522)
Provision for Income Taxes 10 1 17 28
--------------------------------------------------------------------------------------
Net Income (Loss) ($351) ($5,852) $1,347 $112 ($3,653) ($10,153) ($18,550)
======================================================================================
Weighted average shares
outstanding 3,538,767
Earnings (Loss) Per Share
Primary ($0.10) ($5.24)
Fully Diluted (xi) N/A N/A
</TABLE>
25
<PAGE> 26
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Notes to pro forma financial information:
(i) The RNS acquisition is recorded as a purchase effective
January 31, 1996. The Company consolidated results include
the results of RNS from January 31, 1996.
(ii) The FED acquisition is recorded as a purchase effective April
1, 1996. The Company consolidated results include the results
of FED from April 1,1996.
(iii) The Sciteq acquisition is recorded as a purchase effective
May 31, 1996. The Company consolidated results include the
results of Sciteq from May 31, 1996.
(iv) The Cray acquisition is recorded as a purchase effective June
30, 1996. The Company consolidated results include the
results of Cray from June 30, 1996.
(v) To recognize interest expense assuming that the Company
borrowed $6,000,000 at 11% interest per annum to complete the
FED acquisition.
(vi) To amortize purchased technology of $4,327,000 arising from
the Cray acquisition, using an estimated 10 year useful life.
(vii) To recognize interest expense assuming that the Company
borrowed $11,000,000 at 11% interest per annum to complete the
Cray acquisition.
(viii) To amortize purchased technology of $4,673,000 arising from
the RNS acquisition, using an estimated 10 year useful life.
(ix) To recognize interest expense assuming that the Company
borrowed $11,648,000 at 11% interest per annum to complete the
RNS acquisition.
(x) To recognize in-process research and development arising from
the Cray acquisition.
(xi) Common stock equivalents for periods reporting a loss are
anti-dilutive and therefore excluded.
26
<PAGE> 27
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. Further reference should be
made to the Company's Form 10-KSB for the year ended January 31, 1996 and to
BW's Form 10-KSB for the year ended May 31, 1996.
Results of operations for the nine months ended October 31, 1996 include the
operations of Osicom and its wholly owned subsidiaries for the periods noted in
Note B to the consolidated unaudited financial statements contained herein.
RESULTS OF OPERATIONS/COMPARISON OF THE THREE AND NINE MONTHS ENDED
OCTOBER 31, 1996 AND 1995
Net sales of the Company for the quarter ended October 31, 1996 increased by
274% to $33.3 million from $8.9 million for the quarter ended October 31, 1995
due primarily to the acquisitions of FED, Sciteq, PDP, RTC, Cray, and RNS and
increased demand for the Company's products. Consolidated net sales increased
for the nine months ended October 31, 1996 by 207% from $78.7 million from
$25.6 million due to acquisitions and increased demand for the Company's
products.
Consolidated gross profit increased by 206% to $10.4 million for the quarter
ended October 31, 1996 from $3.4 million for the quarter ended October 31, 1995
due to the increase in net sales related to acquisitions. Gross margins on a
consolidated basis declined to 31.2% from 38.2%. For the nine months ended
October 31, 1996 gross profit increased by 155% to $23.7 million from $9.3
million for the comparable nine months in the prior year. Gross margins
declined to 30.1% from 36.3%. These declines in gross margins were
substantially due to the lower gross margins of the OEM hub product line.
Research and development expense increased to $2.2 million from $700,000, or
214%, for the three months ended October 31, 1996 and 1995, respectively. As a
percentage of revenues research and development expense for the quarter ended
October 31, 1996 declined to 6.6% from 7.9% for the quarter ended October 31,
1995. For the nine month periods presented research and development expenses
increased 104% to $4.9 million from $2.4 million. As a percentage of net sales
for the nine months ended October 31, 1996 these expenses declined to 6.2% from
9.4% for the nine months ended October 31, 1995. These declines in research
and development expenses as a percentage of net sales is predominately the
result of the lower research and development expenses associated with the OEM
hub product line.
General, administrative and selling expenses increased 171% to $6.5 million for
the three months ended October 31, 1996 from $2.4 million for the quarter ended
October 31, 1995. As a percentage of net sales these expenses declined to
19.5% from 27%. For the nine months ended October 31, 1996 general,
administrative and selling expenses increased 140% from $6.8 million for the
nine months ended October 31, 1995 to $16.3 million. As a percentage of net
sales these expenses for the nine months ended October 31, 1996 declined to
20.7% from 26.6% for the nine months ended October 31, 1995. These declines in
selling, general and administrative expenses as a percentage of net sales is
predominately the result of lower expenses associated with the OEM hub product
line.
Due to the offsetting of non-current assets against negative goodwill in the
broadband acquisitions, as required by generally accepted accounting
principles, productive fixed assets which cost $6.1 million and with a net book
value of approximately $1.9 million at acquisition, have not been recorded.
Accordingly, there is no depreciation charge to operations for these assets
which are used in the broadband operations.
The operating expenses of the Company for the nine months ended October 31,
1996 were impacted by the Company's and BW's acquisition program and included
$9.7 million of purchased research and development costs from the acquisitions
of Cray, Sciteq, and PDPA (see Note A to the consolidated financial statements
contained herein), $1.1 million of acquisition-related and restructuring
expenses, and $385,000 of amortization of excess cost
27
<PAGE> 28
over net book value of assets acquired and purchased technology for a total of
$11.2 million. No such expenses were incurred for other periods presented.
The Company's net income from operations would have been $2.9 million for the
nine months ended October 31, 1996, exclusive of the acquisition related
expenses above as compared to net income from operations of $96,000 for the nine
months ended October 31, 1995. For the three months ended October 31, 1996 net
income from operations increased 617% to $1.6 million from $223,000 for the
three months ended October 31, 1995.
Other non-operating expenses net of income for the three months ended October
31, 1996 increased 104% to $192,000 from $94,000 primarily as a result of the
interest expense associated with lines of credit and banking facilities of
acquisitions. Acquisitions costs were not financed by increased borrowings.
For the nine months ended October 31, 1996 the increase in net non-operating
expenses was 90% to $831,000 from $437,000 for the comparable period last year.
The provision for income taxes relates primarily to FED which is subject to a
16.5% tax on its net profits in Hong Kong. The Company has a carryforward of
federal net operating losses which may be potentially available to reduce
future taxable income in the United States. However, due to potential
adjustments to the net operating loss carryfowards as provided by the Internal
Revenue Code with respect to future ownership changes, future availability of
these tax benefits is not assured.
Net income for quarter ended October 31, 1996 was $1.3 million, a 983%
increase over net income for the quarter ended October 31, 1995 of $120,000.
Exclusive of acquisition related items and amortization expenses, the Company
would have had net income of $1.8 million for the nine months ended October 31,
1996. After these expenses, the Company experienced a net loss for the nine
months ended October 31, 1996 of $9.4 million or $1.32 per common share as
compared to a loss of $351,000 or $.13 per common share for the nine months
ended October 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
At October 31, 1996, the Company had cash balances of $9.2 million and working
capital of $13.6 million, which management believes is adequate to meet its
planned level of growth.
During the nine months ended October 31, 1996, the Company and BW completed
private placements of 8% callable, convertible debentures which resulted
in net proceeds of $16.8 million. If not called by the Company prior to
conversion by the holders, the debentures convert into the Company's common
stock at the then common stock market price or, depending upon certain
conditions, at other prices including premiums to market. 97.5% of the
debentures have been converted into common stock or called by the Company as of
October 31, 1996. See Note G to the financial statements.
Additionally, the Company and BW completed private placements of their
callable, convertible preferred stock with warrants attached during the nine
months ended October 31, 1996, and received $19.4 million as net proceeds.
These shares carry a dividend rate of 8% beginning after issue, and include
call and conversion provisions at market or various conditions thereto.
Warrants to purchase 297,578 shares of common stock at prices ranging from
$10.24 to $18.00 were issued in connection with these placements.
At October 31, 1996 the Company had $26.9 million in credit lines and banking
facilities of which $13.6 million was in use.
Operations of the Company provided cash of $582,000 as compared to cash used of
$1.5 million for the nine months ended October 31, 1995. Cash flows from
financing activities for the nine months ended October 31, 1996 were $32.9
million compared to $2.8 million for the same period last year and included
$29.8 million in proceeds,
28
<PAGE> 29
net of redemptions, from the convertible debentures and convertible preferred
shares. Cash flows used in investing activities increased to $25.1 million for
the nine months ended October 31, 1996 from $475,000 for the same period last
year primarily as a result of acquisitions (see Note A) and expenditures for
land, building and plant by Meret and FED.
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.
FLUCTUATIONS IN REVENUE AND OPERATING RESULTS
The networking and remote access industry is subject to fluctuation and the
growth rates recently experienced by the Company are not necessarily indicative
of the operating results for any future periods. The Company's operating
results may fluctuate as a result of a number of factors, including the timing
of orders from, and shipments to, customers; the timing of new product
introductions and the market acceptance of those products; increased
competition; changes in manufacturing costs; changes in the mix of product
sales; the rate of end user adoption and carrier and private network
deployment of WAN data, video and audio communication services; factors
associated with international operations; and changes in world economic
conditions.
FACTORS AFFECTING FUTURE RESULTS
The Company makes forward-looking statements under the provision of the "safe
harbor" section of the Private Securities Litigation Reform Act of 1995 which
involve a number of risks and uncertainties that could cause actual results to
differ materially. Thus, some of the Company's statements are forward-looking,
including without limitation, statements relating to new product development,
strategic alliances and the Company's intentions to expand its business, which
involve a number of risks and uncertainties. The Company's future results
remain difficult to predict and may be affected by any number of factors,
including the factors discussed above in the Section entitled "Fluctuations in
Revenue and Operating Results". Because of these and other factors, past
financial performance should not be considered an indicator of future
performance.
29
<PAGE> 30
PART II
OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
For a discussion of material legal proceedings, see Part I, Item 3 of
the Form 10-KSB for the year ended January 31, 1996 and Note J to the
Consolidated Financial Statements included therein and BW's Form
10-KSB for the year ended May 31, 1995 and Note 13 to the Consolidated
Financial Statements included therein.
ITEM 2: CHANGES IN SECURITIES
Not Applicable
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4: SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS
Not Applicable
ITEM 5: OTHER INFORMATION
Not Applicable
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<S> <C> <C>
A. Exhibits
--------
None
B. Reports on Form 8-K
-------------------
September 20, 1996 Acquisition of Digital Products, Inc.
September 23, 1996 Acquisition of CEH Holdings, Inc.
November 13, 1996 Appointment of Par Chadha as Chief Executive Officer
</TABLE>
30
<PAGE> 31
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)
By: /s/ Christopher E. Sue Date: December 6, 1996
______________________________________
Christopher E. Sue,
Chief Financial Officer
31
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED UNAUDITED BALANCE SHEET, CONSOLIDATED STATEMENT OF OPERATIONS AND
CONSOLIDATED STATEMENT OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> OCT-31-1996
<CASH> 9,224,000
<SECURITIES> 62,000
<RECEIVABLES> 19,206,000
<ALLOWANCES> 1,147,000
<INVENTORY> 24,720,000
<CURRENT-ASSETS> 55,451,000
<PP&E> 37,120,000
<DEPRECIATION> 22,022,000
<TOTAL-ASSETS> 84,599,000
<CURRENT-LIABILITIES> 41,879,000
<BONDS> 4,246,000
0
2,000
<COMMON> 967,000
<OTHER-SE> 35,177,000
<TOTAL-LIABILITY-AND-EQUITY> 84,599,000
<SALES> 78,716,000
<TOTAL-REVENUES> 78,716,000
<CGS> 54,985,000
<TOTAL-COSTS> 32,067,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 894,000
<INCOME-PRETAX> (9,167,000)
<INCOME-TAX> 230,000
<INCOME-CONTINUING> (9,397,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,397,000)
<EPS-PRIMARY> (1.32)
<EPS-DILUTED> 0
</TABLE>
