<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 JULY 31, 1997
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: 16,903,944 shares at
September 12, 1997.
This Form 10-QSB, future filings of the registrant, and oral statements made
with the approval of an authorized executive officer of the Registrant may
contain forward looking statements. In connection therewith, please see the
cautionary statements and risk factors contained in Item 2. "Fluctuations in
Revenue and Operating Results" and "Forward Looking Statements - Cautionary
Statement", which identify important factors which could cause actual results to
differ materially from those in any such forward-looking statements.
<PAGE> 2
TABLE OF CONTENTS
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Page
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PART I: FINANCIAL INFORMATION
ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Consolidated Balance Sheet at July 31, 1997
and Audited Consolidated Balance Sheet at January 31, 3
1997
Unaudited Consolidated Statements of Operations for the
Three and Six Months ended July 31, 1997 and 1996 4
Unaudited Consolidated Statements of Cash Flows for the
Six Months ended July 31, 1997 and 1996 5
Notes to Consolidated Financial Statements 6-28
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations/Comparison of the Three and Six Months
ended July 31, 1997 and 1996 29
Liquidity and Capital Resources 31
Impact of Recent Accounting Pronouncements 32
Other Matters 32
Fluctuations in Revenue and Operating Results 32
Forward-Looking Statements - Cautionary Statement 32
PART II: OTHER INFORMATION 34
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 35
</TABLE>
2
<PAGE> 3
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
JULY 31, 1997 JANUARY 31, 1997
------------- ----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents $ 2,634 $ 4,055
Restricted cash (Notes B and E) 1,896 1,744
Accounts receivable, net of reserve for doubtful accounts $1,059 (Note E) 21,649 19,090
Inventory (Notes B and E) 21,475 21,835
Other receivables (Notes C and O) 2,992 985
Prepaid expenses and other current assets 1,321 1,239
------------ ------------
TOTAL CURRENT ASSETS 51,967 48,948
------------ ------------
PROPERTY AND EQUIPMENT, NET (Notes B, D, E and F) 16,106 15,417
------------ ------------
OTHER ASSETS
Purchased technology, net (Notes A and B) 2,485 7,588
Excess of cost over net assets acquired, net (Notes A and B) 6,984 1,464
Capitalized software, net (Note B) 2,569 2,005
Other assets (Notes K and Q) 9,213 3,054
------------ ------------
TOTAL OTHER ASSETS 21,251 14,111
------------ ------------
TOTAL ASSETS $ 89,324 $ 78,476
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt (Note E) $ 12,449 $ 11,151
Current maturities of long-term debt (Note F) 1,345 1,492
Accounts payable 18,519 18,706
Accrued liabilities 8,478 5,029
Other current liabilities (Note A) 712 2,737
Income taxes payable (Note M) 260 235
------------ ------------
TOTAL CURRENT LIABILITIES 41,763 39,350
------------ ------------
Long-term debt and capital lease obligations (Notes F and H) 3,531 3,919
Deferred income taxes (Note M) 295 299
Other liabilities -- 44
------------ ------------
TOTAL LIABILITIES 45,589 43,612
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes A, H and I)
Redeemable common stock (Note A) -- 1,994
STOCKHOLDERS' EQUITY (Note J)
Preferred stock, $.01 par value; 27 shares authorized; cumulative dividends;
19 shares issued and outstanding, $20,610 liquidation preference including
accumulated dividends at July 31, 1997; 41 shares issued and outstanding,
$19,578 liquidation preference at January 31, 1997 1 1
Common stock, $.10 par value; 20,000 shares authorized; 14,354 shares issued
and 14,351 shares outstanding at July 31, 1997; 10,978 shares issued and
10,975 shares outstanding at January 31, 1997 1,435 1,098
Additional paid-in capital 71,610 49,246
Accumulated deficit (29,133) (17,297)
Treasury stock, 3 shares, at cost (178) (178)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 43,735 32,870
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 89,324 $ 78,476
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 4
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In Thousands, except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JULY 31 JULY 31
------------------------- -------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
NET SALES $ 32,649 $ 27,477 $ 65,281 $ 45,631
COST OF SALES 22,250 23,172 44,868 35,296
---------- ---------- ---------- ----------
GROSS PROFIT 10,399 4,305 20,413 10,335
---------- ---------- ---------- ----------
OPERATING EXPENSES
Selling and marketing 5,017 3,325 9,088 5,721
Engineering, research and development 1,883 1,509 3,373 2,776
General and administrative 4,885 2,552 7,937 4,077
Purchased in-process research and development (Note A) -- 13,653 -- 13,653
Other operating expenses (Notes A and B) 11,026 1,279 11,493 1,182
---------- ---------- ---------- ----------
TOTAL OPERATING EXPENSES 22,811 22,318 31,891 27,409
---------- ---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS (12,412) (18,013) (11,478) (17,074)
---------- ---------- ---------- ----------
OTHER INCOME (CHARGES)
Investment income 153 289 253 137
Interest expense (530) (1,104) (964) (1,442)
Gain on disposal of assets -- -- 426 --
Other income (charges) 36 75 (57) 84
---------- ---------- ---------- ----------
TOTAL OTHER INCOME (CHARGES) (341) (740) (342) (1,221)
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (12,753) (18,753) (11,820) (18,295)
PROVISION FOR INCOME TAXES (Note M) -- 80 16 83
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ (12,753) $ (18,833) $ (11,836) $ (18,378)
========== ========== ========== ==========
INCOME (LOSS) PER COMMON SHARE (Note N)
ACCRUED UNDECLARED DIVIDENDS 38 38 75 75
NET INCOME (LOSS) APPLICABLE
TO COMMON SHARES $ (12,791) $ (18,871) $ (11,911) $ (18,453)
========== ========== ========== ==========
PRIMARY
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (RESTATED, IN THOUSANDS) 12,618 6,961 12,009 6,373
NET INCOME (LOSS) PER COMMON SHARE: $ (1.01) $ (2.71) $ (0.99) $ (2.90)
========== ========== ========== ==========
FULLY DILUTED
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (RESTATED) n/a n/a n/a n/a
NET INCOME (LOSS) PER COMMON SHARE: n/a $ n/a n/a n/a
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In Thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JULY 31
-------------------------
1997 1996
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (11,836) $ (18,378)
---------- ----------
Adjustments to reconcile net loss to net cash used in operating activities:
Intangible assets valuation allowances (Notes A and B) 8,530 --
Purchased research and development (Note A) -- 12,320
Depreciation and amortization 2,329 724
Accounts receivable and inventory reserves (1,571) 705
Account and note receivable recoveries 154 --
Debt issuance costs reducing proceeds recorded as interest expense -- 582
Expenses paid through issuances of securities 121 224
Gain on disposals of fixed assets (419) --
Unrealized losses (gains) in investment securities -- (90)
Changes in assets and liabilities net of effects of business entity acquisitions:
Increase in restricted cash (152) (129)
(Increase) decrease in accounts receivable (2,477) 816
Decrease in inventories 1,849 1,938
Increase in other current assets (76) (3,806)
Decrease in accounts payable (187) (532)
Increase in accrued expenses 3,492 585
Increase (decrease) in other current liabilities (4) 118
---------- ----------
NET CASH USED IN OPERATING ACTIVITIES (247) (4,923)
---------- ----------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment (4,349) (4,628)
Capitalized software development costs (Notes B and D) (2,446) (928)
Proceeds from disposal of fixed assets 729 --
Purchase of other assets (Note A) 28 (827)
Cash outlays for acquired companies in excess of cash acquired (Note A) (14) (3,779)
Other receivables (Notes C and O) (2,537) (488)
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (8,589) (10,650)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible preferred stock (Note J) 6,175 15,616
Proceeds from issuance of common stock (Note K) 5,528 --
Proceeds from issuance of convertible debentures (Note G) -- 16,831
Redemption of preferred stock (Notes A and J) -- (6,269)
Proceeds from issuance of short-term debt, net of repayments (Note E) 1,298 (485)
Proceeds from long-term debt (Note F) -- 2,996
Repayment of long-term debt (Note F) (535) (1,407)
Repayment of acquisition liabilities (Note A) (3,274) --
Repayment of liability due on cashless warrant exercise (Note K) (1,567) --
Proceeds from stock option exercises (Note L) 28 328
Other (238) 37
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 7,415 27,647
---------- ----------
INCREASE IN CASH AND CASH EQUIVALENTS (1,421) 12,074
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 4,055 910
---------- ----------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 2,634 $ 12,984
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
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,
broadband networks and wireless-enabled networks(TM). The Company operates in
one business segment with products including remote access products, routers,
concentrators, multiplexors, hubs and switches, high-performance network
adapters, network print servers, frame relay encryption devices, video switches
and routers, and a family of products to build broadcast systems over copper,
fiber optic or wireless transmission.
The preparation of the accompanying unaudited 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, the disclosure of contingent assets and liabilities and the values
of purchased assets and assumed liabilities in acquisitions. Actual results
could differ from these estimates.
In the opinion of Management, the accompanying unaudited financial
statements contain all adjustments (all of which are normal and recurring in
nature) necessary to present fairly the financial position of Osicom
Technologies, Inc. and subsidiaries at July 31, 1997 and the results of
operations for the quarters and six months ended July 31, 1997 and 1996. The
Consolidated Financial Statements which are contained in Part I, Item 7 of Form
10-KSB for the year ended January 31, 1997 should be read in conjunction with
the accompanying unaudited financial statements; disclosures which duplicate
those contained in Form 10-KSB for the year ended January 31, 1997 have been
omitted from the accompanying unaudited financial statements.
The accompanying consolidated financial statements are the
responsibility of the management of the Company.
A. THE COMPANY, BASIS OF PRESENTATION AND ACQUISITIONS
The Company, incorporated in New Jersey on July 7, 1981, operates as a
holding company for its various subsidiaries, more fully described below. The
companies and assets acquired have been integrated into divisions in accordance
with product line: Networking (including routers, hubs, switches and network
interface cards), Broadband and Network Print Servers, and in accordance with
function: Sales, Distribution Sales, Marketing and Manufacturing; all of which
are currently doing business as Osicom Technologies. For reference purposes
acquisitions have been identified by legal entity, which is not indicative of
the organizational integration of the operations of the Company.
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 $11,000 in cash and notes
in a transaction accounted for as a purchase. In addition, $593 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.
To reflect the decline in net realizable value of purchased assets as
the result of changing market conditions RNS recorded, as other operating
expense, a reduction to the remaining net book value of purchased technology of
$893 during the quarter ended July 31, 1997 and recorded reductions to the net
book value of purchased inventory of $1,869, as cost of sales, and purchased
technology of $3,439, as purchased in-process research and development, during
the quarter ended July 31, 1996.
6
<PAGE> 7
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
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 $5,000 less agreed
upon merger expenses of DPI and DPI stock option repurchases. 363,356 shares of
common stock and options granted to employees to acquire 51,064 of the Company's
common stock were issued in this transaction. In addition, a new $3,000 line of
credit with a lender provided funds to repay approximately $1,300 owed to the
previous lender and provide additional working capital. DPI produces and markets
to original equipment manufacturers of printers, 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.
(See Note T).
CRAY COMMUNICATIONS, INC. - Effective June 30, 1996, the Company
acquired, in a transaction accounted for as a purchase, 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 $11,000 in cash plus preferred stock of the Company valued at $2,068.
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 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 in-process research and development of $6,877.
During the quarter ended July 31, 1997, Cray recorded a reduction to the
net book value of purchased technology of $3,750 to reflect the decline in the
net realizable value of this asset as the result of changing market conditions.
This reduction has been recorded as other operating expense.
DISTRIBUTED SYSTEMS INTERNATIONAL, INC. - In November 1996, the Company
acquired Distributed Systems International, Inc. ("DSI") for the Company's
common stock valued at $1,250. DSI produces and markets FDDI workgroup hub
technology (software and hardware) and the Company acquired DSI to start design
of workgroup ethernet switches with a variety of uplink connections including
gigabit ethernet backbone connections. The acquisition is accounted for as a
pooling of interests which requires the inclusion of the results of operations
of DSI for all periods presented herein. (See Note T).
BUILDERS WAREHOUSE ASSOCIATION, INC. - In September 1996, the Company
acquired all of Builder's Warehouse Association, Inc.'s ("BW") subsidiaries and
receivables, which constituted substantially all of its assets, and assumed the
obligations under convertible securities then outstanding, through the issuance
of .94 common shares for each currently outstanding share of BW; this
transaction resulted in the issuance of 4,879,806 shares. All share amounts for
BW transactions have been restated to reflect the .94 share of Osicom received
for each share of BW. The acquisition was an acquisition of a company under
common control accounted for similar to a pooling of interests which requires
the inclusion of the results of operations of BW for all periods presented
herein and required BW to changed its year end to that of the Company. (See Note
T).
Reference to the Company includes BW for the periods presented herein
where the context requires; the below listed acquisitions were completed by BW
prior to the transaction with the Company.
RELIALOGIC TECHNOLOGY CORPORATION - 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
7
<PAGE> 8
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
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.
During the quarter ended July 31, 1997, RTC recorded a reduction to the
net book value of excess cost over net assets acquired of $233 to reflect the
decline in the net realizable value of this asset as the result of changing
market conditions. This reduction has been recorded as other operating expense.
UNI PRECISION INDUSTRIAL LIMITED - On April 1, 1996, the Company
acquired, in a transaction accounted for as a purchase, 100% of the common stock
of Uni Precision Industrial Limited ("FED"), a Hong Kong corporation, for a
purchase price of approximately $6,000 in cash and debt assumed: $500 was paid
at the closing of the transaction and an additional $5,500 was paid upon the
delivery to the Company of audited financial statements as of the acquisition
date. An additional payment of $5,150 was made 12 months from closing based upon
FED having achieved net income after tax of $3,500 during the 12-month period
ending March 31, 1997. In lieu of cash the former shareholders of Uni received
871,538 shares of the Company's common stock with the right to have the Company
redeem these shares for cash during September, 1997. The Company incurred
additional costs in connection with the purchase of FED of $813, of which $809
was paid through the issuance of restricted common shares.
SCITEQ ELECTRONICS, INC. - On May 31, 1996, through a merger with a
newly-formed, wholly-owned subsidiary corporation, Sciteq Communications, Inc.
("Sciteq"), the Company acquired, in a transaction accounted for as a purchase,
100% of Sciteq Electronics, Inc., for $600 in cash, plus stock and below-market
stock options of the Company valued at $2,400. An additional payment of $2,000
was made 12 months from closing based upon Sciteq having achieved pre-tax net
income of $750 during the 12 month period ending December 31, 1996; this
liability was included in other current liabilities at January 31, 1997. The
Company incurred additional costs in connection with the purchase of Sciteq of
$579, of which $532 was paid or will be paid through the issuance of common
shares. As a result of the Sciteq acquisition the Company recorded a one-time
charge to earnings for purchased in-process research and development of $1,798.
The former shareholders of Sciteq and option holders who have exercised
their options had the right to have the Company redeem their shares for cash
during a period of 12 days beginning May 31, 1997. 102,136 shares of the 159,148
shares issued at closing were put to the Company during the notice period; the
$1,994 value assigned to the 159,148 shares issued at closing was reclassified
as redeemable common stock at January 31, 1997.
The aggregate repayment to the former shareholders and option holders of
Sciteq of $3,274 is included in financing activities for the six months ended
July 31, 1997. (See Note K).
PACIFIC DATA PRODUCTS, INC. - On May 24, 1996, the Company, through its
newly-created, wholly owned subsidiary PDP Acquisition Corp. ("PDPA"), acquired
substantially all of the assets of Pacific Data Products, Inc. ("PDP"). The
Company paid $273 in cash and assumed PDP's bank indebtedness of approximately
$2,400 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. The Company incurred additional costs in connection with the
purchase of PDP's assets of $123 of which $121 was paid through the issuance of
common shares. As a result of the asset acquisition by PDPA the Company recorded
a one-time charge to earnings for purchased in-process software development
costs of $1,539.
8
<PAGE> 9
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
During the quarter ended July 31, 1997, PDPA recorded a reduction to the
net book value of its customer list of $812 to reflect the decline in the net
realizable value of this asset as the result of changing market conditions. This
reduction has been recorded as other operating expense.
PDPA entered into an agreement with Coast Business Credit ("Coast") for
a $5,000 credit facility secured by all of PDPA's newly-acquired assets. The
Company provided a $500 infusion of working capital to PDPA, as well as a
limited guarantee of $750 to effectuate the Coast credit facility. In January
1997, the Company issued 1,000 shares of Series B preferred stock in full
satisfaction of the then outstanding loan to PDPA. (See Note J).
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The balance sheets reflect the accounts
and the consolidated statements of operations for the three months and six
months ended July 31, 1997 include the results of Osicom, its wholly-owned
subsidiaries Meret Communications, Inc. ("Meret"), including its RNS division,
DPI, Cray, DSI, BW, RTC, R-Net International, Inc. ("Rnet"), FED, Sciteq, and
PDPA. The consolidated statements of operations for the three and six months
ended July 31, 1996 include the results of operations of Osicom, Meret,
including its RNS division, DPI, DSI, 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).
All significant intercompany transactions and balances have been eliminated in
consolidation. The consolidated group is referred to individually and
collectively as the "Company".
USE OF ESTIMATES - The financial statements are prepared in conformity
with generally accepted accounting principles and the instructions set forth in
the Securities and Exchange Commission regulations which requires management to
make estimates that affect the reported amounts of assets, liabilities, revenues
and expenses, the disclosure of contingent assets and liabilities and the values
of purchased assets and assumed liabilities in acquisitions. Actual results
could differ from these estimates. The results of operations for the three and
six months ended July 31, 1997 are not necessarily indicative of the results to
be expected for the fiscal year ending January 31, 1998.
CASH AND CASH EQUIVALENTS - All cash on hand and in banks, certificates
of deposit and other highly-liquid investments with original maturities of three
months or less, when purchased.
RESTRICTED CASH - Restricted cash represents collateral related to FED's
credit facilities as more fully described in Note E.
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 generally does not require collateral from its customers.
9
<PAGE> 10
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
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. The Company provides a valuation allowance based on
product turnover and competing, emerging technologies.
Inventories at July 31, 1997 consist of:
<TABLE>
<S> <C>
Raw material $ 17,330
Work in process 4,355
Spare parts 627
Finished goods 4,222
---------
26,534
Less: Valuation reserve 5,059
---------
$ 21,475
---------
</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. Except for financial instruments issued in
conjunction with related party transactions management believes that there are
no material differences between the recorded book values of its financial
instruments and their estimated fair value. It is not practicable to estimate
the fair value of related party notes payable or shareholder notes receivable of
the Company due to their related party nature.
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.
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.
SOFTWARE DEVELOPMENT - 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 ("SFAS") 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. Amortization expense
for the three and six months ended July 31, 1997 was $34 and $160, respectively,
over 3 to 7 years. Amortization expense for the three and six months ended July
31, 1996 was $129 and 147, respectively over 3 years. Accumulated amortization
was $88 as of July 31, 1997.
The recoverability of capitalized software costs are reviewed on an
ongoing basis primarily based upon projected discounted cash future operating
cash flows from each software product line. The excess amount, if any, of the
remaining net book value over the calculated amount is fully reserved. During
the quarter ended July 31, 1997, the Company recorded a reduction to the net
book value of its capitalized software development costs of $2,719 to reflect
the decline in the net realizable value of these assets as the result of
changing market conditions. This reduction has been recorded as other operating
expense.
10
<PAGE> 11
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
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 future cash flow from proven technology
and software are capitalized and amortized over their remaining estimated
economic life (7 years) using the straight-line method. Accumulated amortization
was $314 at July 31, 1997. In-process research and development purchased by the
Company is expensed at the date of purchase.
The Company assesses the recoverability of purchased technology
primarily by determining whether the amortization of the net book value of
purchased technology over its remaining life can be recovered through
undiscounted future operating cash flows of the acquired operation. The amount
of the impairment, if any, of the net book value of the excess cost over net
assets acquired is measured primarily based on projected discounted future
operating cash flows using a discount rate commensurate with the Company's cost
of capital. During the quarter ended July 31, 1997, Cray and RNS recorded
reductions to the net book value of purchased technology of $4,643 to reflect
the decline in the net realizable value of these assets as the result of
changing market conditions. This reduction has been recorded as other operating
expense. (See Note A).
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. Excess cost over net assets acquired and accumulated
amortization at July 31, 1997 were $7,235 and $251, respectively; cost includes
the additional payment made to the former shareholders of FED based upon FED's
net income during the 12-month period ending March 31, 1997 (see Note A). The
Company assesses the recoverability of excess of cost over net assets acquired
primarily by determining whether the amortization of the net book value of the
excess of cost over net assets acquired over its remaining life can be recovered
through undiscounted future operating cash flows of the acquired operation. The
amount of net book value of the excess of cost over net assets acquired
impairment, if any, is measured primarily based on projected discounted future
operating cash flows using a discount rate commensurate with the Company's cost
of capital. During the quarter ended July 31, 1997, RTC recorded a reduction to
the net book value of excess cost over net assets acquired of $233 to reflect
the decline in the net realizable value of this asset as the result of changing
market conditions. This reduction has been recorded as other operating expense.
(See Note A).
NEGATIVE GOODWILL - Negative goodwill was amortized on a straight-line
basis over three years. Operating expenses for the three and six months ended
July 31, 1996 includes amortization expense of $87 and $325, respectively.
OTHER INTANGIBLE ASSETS (LOAN COSTS, PURCHASED TRADEMARKS 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. Purchased
trademarks are amortized on a straight-line based over its estimated economic
life (5 years); cost and accumulated amortization at July 31, 1997 were $150 and
$20, respectively. Customer lists (PDPA) are amortized on a straight-line basis
over its estimated economic life (5 years); as a result of changing market
conditions PDPA recorded a reduction to the net book value of its customer list
of $812 to reflect the decline in the net realizable value of this asset and
there is no remaining cost after this reduction. This reduction has been
recorded as other operating expense.
OTHER INVESTMENTS - Other investments (included in other noncurrent
assets) include non-marketable securities held in other companies and an
investment in a joint venture net of an allowance for permanent impairment of
value.
11
<PAGE> 12
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
REVENUE RECOGNITION - The Company generally recognizes product revenue
upon shipment of product. Revenue from service obligations is deferred and
recognized over the lives of the contracts. The Company accrues for warranty
costs, sales returns, and other allowances at the time of shipment.
INCOME TAXES - Income taxes are accounted for in accordance with SFAS
No. 109 "Accounting for Income Taxes." The statement employs an asset and
liability approach for financial accounting and reporting of deferred income
taxes generally allowing for recognition of deferred tax assets in the current
period for future benefit of net operating loss and research credit
carryforwards as well as items for which expenses have been recognized for
financial statement purposes but will be deductible in future periods. A
valuation allowance is recognized, if on the weight of available evidence it is
more likely than not that some portion or all of the deferred tax assets will
not be realized. At July 31, 1997, the deferred taxes and income tax provisions
recorded in the financial statements relate primarily to FED's operations in
Hong Kong. (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.
Convertible securities outstanding and common stock equivalents are not included
in the earnings per share computations for the three and six months ended July
31, 1997 and 1996 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. In addition, SFAS No. 128,
"Earnings Per Share" is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods. SFAS 128 requires
dual presentation of basic and diluted earnings per share ("EPS") on the face of
the income statement. It also requires a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. This statement also requires restatement of all
prior-period EPS data presented. The Company has not determined the effect on
its EPS from the adoption of this statement.
FOREIGN CURRENCY TRANSLATION - Foreign operations of the Company have
been translated into U.S. dollars in accordance with the principles prescribed
in SFAS No. 52, "Foreign Currency Translation". For the three months ended April
30, 1997 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.
STOCK-BASED COMPENSATION - The Company has adopted SFAS No. 123,
"Stock-Based Compensation" as of February 1, 1996. SFAS No. 123 also encourages,
but does not require companies to record compensation cost for stock-based
employee compensation. The Company has chosen to continue to account for
stock-based compensation utilizing the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." Accordingly, compensation cost for stock options issued to employees
is measured as the excess, if any, of the fair market price of the Company's
stock at the date of grant over the amount an employee must pay to acquire the
stock. The Company does not grant options to employees at prices below the then
market value. (See Note L).
12
<PAGE> 13
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
C. OTHER RECEIVABLES
Other receivables at July 31, 1997 consisted of the following:
<TABLE>
<S> <C>
Advance to non-affiliate at prime plus 3% including accrued
interest (see Note K) $ 2,095
8% demand loan due from an employee including accrued
interest (see Note O) 109
8% demand loan due from an entity controlled by a director
including accrued interest (see Note O) 103
Due to Company from former shareholders and option holders
of DPI 360
8% demand loans due from non-affiliates including accrued
interest 226
Other 99
-------
$ 2,992
=======
</TABLE>
D. PROPERTY AND EQUIPMENT
Property and equipment of the Company consisted of the following
components as of July 31, 1997:
<TABLE>
<S> <C>
Manufacturing, engineering and plant equipment and software $ 27,457
Office furniture, fixtures and information systems 4,395
Land and building 5,180
Automobiles 173
Leasehold and building improvements 2,731
--------
Total property and equipment 39,936
Less: Accumulated depreciation (23,830)
--------
Net book value at July 31, 1997 $ 16,106
========
</TABLE>
13
<PAGE> 14
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
E. SHORT TERM DEBT
Short term debt at July 31, 1997 consisted of the following:
<TABLE>
<S> <C>
Floating interest rate loan (2.5% over Coast's prime rate)
secured by all the tangible assets of Meret; weighted average
interest rate for the six months ended July 31, 1997 was 13.2% $ 1,217
Floating interest rate loan (2.5% over Coast's prime rate)
secured by all the tangible assets of Cray; weighted average
interest rate for the six months ended July 31, 1997 was 11.9% 4,430
Floating interest rate loan (2.5% over Coast's prime rate)
secured by all the tangible assets of DPI; weighted average
interest rate for the six months ended July 31, 1997 was 11.3% 2,919
Floating interest rate loans; a portion of the banking facilities
of FED more fully described below; weighted average interest
rate for the six months ended July 31, 1997 was 8.9% 3,579
Floating interest rate loan (1% over bank's base lending rate)
secured by accounts receivable and a director's personal
guarantee; weighted average interest rate for the six months
ended July 31, 1997 was 9.8% 304
--------
$ 12,449
========
</TABLE>
On January 31, 1996, the Company's wholly owned subsidiary, Meret,
increased its then $5,000 line of credit from Coast Business Credit ("Coast"),
an asset based lender, to a maximum of $8,000; 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. This line of credit provides for interest at 2.5% over the bank's
prime rate but not less than 8% (11.0% at July 31, 1997). In addition, the
Company issued to Coast three year warrants to purchase shares of its common
stock at the respective market prices at funding: 10,000 shares of its common
stock at $3.34 per share expiring June 11, 1998 and 40,000 shares of its common
stock at $5.31 per share expiring January 31, 1999. Advances are limited to 80%
of eligible accounts receivable and 25% of eligible raw materials and finished
goods not to exceed the lesser of $1,000 or 75% of then outstanding accounts
receivable loan. The agreement remains in effect until February 1, 1999 and
automatically renews for successive additional terms of one year on a continuous
basis unless terminated by written notice of either party or by default.
Additionally, the agreements provide for term loans more fully described in Note
F. Meret paid Coast a $30 origination fee and the quarterly facility fee was
increased to $4. The interest rate on the Meret line of credit remained
unchanged at 11.0% for the six months ended July 31, 1997. The highest and
average amounts outstanding were $3,070 and $2,187, respectively, during the six
months ended July 31, 1997.
On October 2, 1996, the Company's wholly owned subsidiary, Cray,
obtained a $5,000 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% (11.0% at July 31, 1997). The proceeds of this loan were used, in
part, to repay the line of credit outstanding at the acquisition of Cray. The
highest and average amounts outstanding were $4,430 and $3,336, respectively,
during the six months ended July 31, 1997.
14
<PAGE> 15
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
On October 11, 1996 DPI obtained a $3,000 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% (11.0% at July 31, 1997). The proceeds of this loan
were used, in part, 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. The
highest and average amounts outstanding were $2,919 and $2,283, respectively,
during the six months ended July 31, 1997.
At July 31, 1997, FED's short term bank borrowings consisted of $992
bank overdrafts and $2,587 trust receipt loans. Aggregate banking facilities as
of that date were approximately $8,900 from various banks for overdrafts, loans
and trade financing. Unused facilities as of the same date amounted to
approximately $558 (overdrafts: $495, loan and trade financing: $63). These
facilities are secured by a priority lien on FED's leasehold land and buildings
(see Note D), a pledge of FED's $1,896 fixed bank deposits, liens on FED's
inventories released under trust receipt loans, and personal guarantees by two
former directors of FED. The highest and average amounts outstanding during the
six months ended July 31, 1997 were $3,370 and $2,985, respectively.
At July 31, 1997, the Company had outstanding indebtedness under its
revolving demand loan agreement with Banca di Roma of $304. The agreement
provides for interest at 1% above the bank's base lending rate, which was 9.5%,
at July 31, 1997. The line of credit is collateralized by accounts receivable
and personally guaranteed by a director of the Company. The highest and average
amounts outstanding were $387 and $367, respectively, during the six months
ended July 31, 1997.
The Company was in compliance with its debt covenants at July 31, 1997.
F. LONG TERM DEBT
Long term debt at July 31, 1997 consisted of the following:
<TABLE>
<S> <C>
Variable rate 8 year mortgage (1% over Hong Kong prime rate);
interest rate at July 31, 1997 was 9.75% $ 840
Variable rate 10 year mortgage (1% over Hong Kong prime rate);
interest rate at July 31, 1997 was 9.75% 617
Variable rate 30 year mortgage note payable (5.5% over LIBOR
rate); interest rate at July 31, 1997 was 11.5% 1,322
Floating interest rate term loans (2.5% over Coast's prime rate)
secured by machinery and equipment of Meret; interest rate at
July 31, 1997 was 11.0% 551
Floating interest rate notes payable to shareholder (former
shareholders of DPI) (4% over prime rate); interest rate at
July 31, 1997 was 12.5% 118
5.5% term note payable to shareholder (former shareholder
and present officer of DPI) 364
Debentures payable (See Note G) 410
Obligations under finance leases (See Note H) 654
--------
4,876
Less: Current portion 1,345
--------
$ 3,531
========
</TABLE>
15
<PAGE> 16
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
On March 25, 1996, Meret purchased land and building in San Diego,
California for $1,779 in cash. On April 24, 1996, Meret entered into a mortgage
agreement with a lender in the amount of $1,331 amortized over 30 years with an
adjustable interest rate of 5.5% over the LIBOR rate (adjusted bi-annually),
with an initial rate of 8.95% for the initial six months. The interest rate at
July 31, 1997 was 11.5%.
In addition, Meret has two terms loans outstanding with original amounts
of $915 and $480, on December 4, 1995 and January 31, 1996, respectively, which
are collateralized by machinery and equipment. Combined monthly principal
payments are $39 per month; interest at 2.5% over Coast's prime rate is due
monthly.
DPI has various notes payable to certain of its former shareholders
notes due September 1997 with interest only payable monthly.
Long term debt including capitalized leases at July 31, 1997 is payable
by year as follows:
<TABLE>
<S> <C>
1998 $ 1,345
1999 489
2000 810
2001 194
2002 202
2003 and later 1,836
-------
$ 4,876
=======
</TABLE>
G. DEBENTURES PAYABLE
During the year ended January 31, 1997, the Company received net
proceeds of $16,831 from the private placement of convertible debentures to
unaffiliated parties. The Company issued 2,187,319 shares of its common stock in
conversions of these securities and accrued interest thereon through January 31,
1997. The Company has the right to call the debentures prior to conversion at
90% of face value and has the right to assign this call option. The debentures
bear interest at 8.0% beginning specified periods after date of issue which is
payable in common shares of the Company. The debentures are convertible into
common shares of the Company at a maximum of $18.00 per share or at the average
closing price as reported by Nasdaq for the five preceding business days.
Including the 2.5% commission imputed on these placements the effective
annualized interest rate on these securities for the period they were
outstanding was approximately 13%. At July 31, 1997, $410 of debentures, with a
$550 face amount, were outstanding.
16
<PAGE> 17
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
H. LEASES AND OTHER COMMITMENTS
Rental expense under operating leases was $530 and $516 for the three
months ended July 31, 1997 and 1996, respectively and $1,131 and $901 for the
six months ended July 31, 1997 and 1996, respectively. The table below sets
forth minimum payments under capital and operating leases with remaining terms
in excess of one year, at July 31, 1997:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
<S> <C> <C>
1998 $ 280 $1,308
1999 251 854
2000 222 246
2001 - 84
2002 - -
-- --
----- ------
753 $2,492
======
Less: Amount representing interest (99)
Present value of minimum annual rentals $ 654
=====
</TABLE>
As of July 31, 1997, FED had commitments and contingent liabilities for
open letters of credit, discounted bills and shipping guarantees executed in
favor of various banks totaling approximately $3,921.
The former shareholders of FED have the right to have the Company redeem
the shares they received in lieu of a cash payment of $5,150 during September,
1997.
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 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 July 31, 1997, no liability related to this additional
consideration has been incurred as the target net revenues have not been met.
One officer and former shareholder of Sciteq have three year employment
contracts ending May 31, 1999 under which Sciteq is obligated to make payments
of $110 per year in total. The Company has the right to terminate this contract
for cause.
Two employees and former shareholders of DSI have three year employment
contracts ending October 23, 1999 under which DSI is obligated to make payments
of $180 per year in total; additionally, each employee is entitled to receive a
$50 bonus, payable in cash or stock at the Company's option, on October 31, 1998
if still employed at DSI. The Company has the right to terminate these contracts
for cause.
One employee and former shareholder of DPI has a two year employment
contract ending September 12, 1998 under which DPI is obligated to make payment
of $150 per year; additionally, the employee is entitled to receive a $50 bonus,
payable in cash or stock at the Company's option at the end of the contract if
still employed at DPI. The Company has the right to terminate this contract for
cause.
17
<PAGE> 18
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
I. LITIGATION
BW and certain former officers and former directors, none of whom have
been officers or directors of the Company, are defendants in litigation filed
May 1994 seeking unspecified compensatory damages, costs and attorney fees for
allegedly violating sections 10(b) and 20(a) of the Securities Exchange Act of
1934 and committing common law fraud and deceit through the issuance of positive
statements. The plaintiff, who purports to represent all persons who purchased
stock of BW between May 3, 1993 and April 17, 1994, seeks a declaration that
this action be determined a class under Federal Rules. The Company believes the
matter is without merit as to it, its officers and directors. No provisions for
any loss that may result upon the resolution of this matter were made in the
audited financial statements of BW for the fiscal year ended May 31, 1996, and
the Company did not assume any liabilities of the former officers and directors
in this matter in its acquisition agreement with BW. The matter is currently in
discovery and the Company believes it is premature to evaluate the likelihood of
an unfavorable outcome or the extent of such outcome, if any.
The Company is a party to several lawsuits related to businesses sold in
prior years. The majority of such claims were assumed by the buyers in
conjunction with the sales, and as such the buyers have indemnified the Company
against any loss with respect to those claims. Management believes that any
losses to the Company, if any were to occur, as a result of these lawsuits would
be immaterial.
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, the results of operations or cash flows.
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 ($.01 par value)
1,000 shares of Preferred Stock, Series B ($.01 par value)
10,000 shares of Preferred Stock, Series C ($.01 par value)
3,000 shares of Preferred Stock, Series D ($.01 par value)
10,000 shares of Preferred Stock, Series E ($.01 par value)
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 $ - $ 2,500
Accrued, unpaid dividends 738
Series B 1,000 - 2,366
Series C 2,000 - 2,000
Series D 2,853 - 2,853
Series E 10,153 1 10,153
------ ---- --------
18,506 $ 1 $ 20,610
====== ==== ========
</TABLE>
18
<PAGE> 19
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
The Series A Convertible Preferred stock was issued on August 21, 1992
in exchange for $2,500 of trade debt. The preferred stock was ascribed a value
of $250 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 July
31, 1997, there was $738 of cumulative preferred stock dividends.
In January 1997, the Company issued 1,000 shares of Series B preferred
stock, valued at $1,656, with a $0.01 par value and a $2 liquidation value in
full satisfaction of the then outstanding loan to PDPA. Holders of Series B
preferred stock are not entitled to vote nor receive dividends. Each share of
Series B preferred stock is convertible at the option of the holder into the
number of shares of the Company's common stock having a market value equal to $2
($2,366 in the aggregate). "Market value" is the average of the closing price
for the Company's common stock for the five immediately preceding trading days
as reported by Nasdaq. The Company is not obligated to register the common
shares issuable upon conversion of Series B preferred.
In July 1996, the Company issued 10,000 shares of Series C preferred
stock with a $0.01 par value and a $1,000 liquidation value receiving net
proceeds of $7,525; the Company has the right to call the shares prior to
conversion at 90% of conversion value if the then market value is less than the
call limit price and has the right to assign the call option. Holders of Series
C preferred stock are not entitled to vote. During the fourth quarter of fiscal
1997 the Company issued 6,738 shares of Series C preferred in exchange for
convertible securities previously outstanding. The Series C preferred stock
bears a cumulative 8% annual dividend payable quarterly; such dividend is
payable at the Company's option in either cash or common stock at then market
value. Each share of Series C preferred stock is convertible into common shares
at the lesser of $18.00 or the then market value at (i) the option of the holder
beginning 40 days from issuance or (ii) at the option of the Company beginning
after June 30, 1997. Any shares of Series C preferred stock unconverted as of
December 30, 1999 are subject to mandatory conversion at the then market value
as of that date. In no event shall a conversion result in a holder owning, or
deemed to beneficially own, more than 4.99% of the then issued and outstanding
common stock of the Company. An aggregate of 1,156,633 shares of the Company's
common stock have been issued in conversion of these securities and accrued
dividends thereon of which 463,448 were issued during the six months ended July
31, 1997.
As of June 30, 1996, the Company issued 2,853 shares of Series D
preferred stock, valued at $2,068, with a $.01 par value and a $1 liquidation
value in connection with its acquisition of Cray; the Company has the right to
redeem the shares prior to conversion at 100% of conversion value. Holders of
the Series D preferred stock are not entitled to vote and the shares bear no
dividends. Each share of Series D preferred stock is convertible into common
shares at the then market value. The shares are being held in escrow pending
resolution of acquisition contingencies.
In September 1996 and January 1997, the Company issued 9,248 shares of
Series E preferred stock with a $.01 par value and a $1 liquidation value
receiving net proceeds of $6,732. During the quarter ended April 1997 the
Company issued an additional 8,053 shares of Series E preferred stock receiving
net proceeds of $6,175 including $1,216 from the sale of an assigned call of
previously outstanding Series C preferred stock. In connection with this
placement a then director of the company received a finder's fee of $254. The
Series E preferred stock does not bear dividends, has voting rights on an "as
converted into common share basis", and is not convertible for 180 days from
issuance, is subject to mandatory conversion no later than December 31, 2000,
and the market value for purposes of conversion into common shares is limited to
a maximum of the stated conversion price (varying from $9.25 to $11.25 per
common share) and a minimum of $4.00 per common share. The
19
<PAGE> 20
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
Company has the right to call these shares at 90% of the then outstanding face
amount if the market value at which the shares would convert into common stock
is less than or equal to $10.00 per common share.
An aggregate of 933,378 shares of the Company's common stock have been
issued in conversions of the Series E preferred stock and accrued dividends
thereon of which 393,717 were issued during the six months ended July 31, 1997.
In July 1996, BW issued 215,060 shares of its Series B preferred stock
with a $0.01 par value and a fifty dollar liquidation value receiving net
proceeds of $8,091. The rights of the BW Series B preferred stock are identical
to that of Series C except as regards to: the period from issuance prior to
which the holder may not convert the shares, which varies from 40 to 90 days. In
connection with the acquisition of BW, the Company has assumed the obligations,
including conversions, for the Series B preferred shares. An aggregate of
952,170 shares of the Company's common stock have been issued in conversions of
the Series B preferred stock and accrued dividends thereon of which 127,460 were
issued during the six months ended July 31, 1997. No Series B shares remain
outstanding at July 31, 1997.
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.
PRIVATE PLACEMENTS - During the six months ended July 31, 1997, the
Company issued 824,093 common shares and warrants to acquire 782,888 common
shares at $7.50 per share expiring three years from issue receiving net proceeds
of $5,528. The holders have the right to request additional shares ("reset
shares") to be issued by the Company to the extent that the five day average
trading price of the shares issued in these transactions is below $7.50 per
share at the time of the request; such request may be made only once with
respect to the original shares which have been held continuously by the holder
from the original issue date. In the event a reset is requested the related
warrant exercise price is adjusted to the lesser of $7.50 or 125% of the market
value used for purposes of calculating the reset shares. Holders of 290,760
shares have requested reset shares and an additional 282,017 shares were issued
subsequent to July 31, 1997. The exercise price of warrants to acquire 276,222
common shares were reduced to $4.74 to $4.77 per share.
ABCN INVESTMENT - Effective March 20, 1997, the Company and Asia
Broadcasting Communications Network, Ltd. ("ABCN"), established a strategic
alliance. ABCN, a privately-held media and communications company based in
Bangkok, Thailand, was established to create the first Asia-wide broadband
distribution platform for direct broadcasting services, multi-media and high
speed Internet access and online services. Under the terms of the alliance, ABCN
agrees that the Company shall be the designated supplier of ABCN's network
equipment and technology and of its customers' terminal devices subject to the
satisfaction of certain conditions. As part of the strategic alliance, pursuant
to the terms of a share purchase agreement dated March 20, 1997, the Company
acquired 5,000,000 common shares (1.8%) of ABCN, at a purchase price of $1.45
per share, in exchange for 674,419 shares of the Company's common stock valued
at $7,250 and an option to acquire an additional 5,000,000 shares at $1.45 per
share. The Company is required to issue additional common shares to ABCN to the
extent that the market value of the 674,419 shares on the date the shares were
registered was less than $5,000. The Company incurred $6 costs, paid in cash, in
connection with this investment. Pursuant to a separate loan agreement the
Company advanced $2,000 to ABCN at 3.0% over prime rate due upon demand; accrued
and unpaid interest at July 31, 1997 totaled $95.
20
<PAGE> 21
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
CRAY ACQUISITION - In the acquisition described in Note A, the Company
issued 26,000 shares of common stock valued at $175 in payment of costs incurred
in connection with the transaction
DPI ACQUISITION - In the acquisition described in Note A, the Company
issued 363,356 shares of its common stock to the holders of DPI's outstanding
common stock. In addition, the Company issued 14,000 shares of its common stock
valued at $83 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 in payment of costs
incurred in connection with the transaction.
SCITEQ ACQUISITION - As described in Note A, BW issued 159,148 shares of
common stock to the holders of Sciteq's outstanding common stock and 54,755
shares of common stock in payment of costs incurred in connection with the
transaction. In addition the BW issued options to acquire an additional 56,594
shares of common stock at $5.34 per share. The Company satisfied its $2,000
liability arising from the earn-out contingency to the former shareholders of
Sciteq to issue 137,683 additional shares and 48,960 additional options in cash
and the additional shares were issued in connection with the private placements
of common stock above.
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 will be issued in quarterly installments over two
years. The first four payments resulted in the issuance of 32,411 shares of
common stock of which 14,124 were issued during the six months ended July 31,
1997.
FED ACQUISITION - In connection with the Company's acquisition of FED on
March 31, 1996 BW issued 133,480 shares of its common stock valued at $809 in
payment of costs incurred in connection with the transaction to two former
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 BW issued 16,168 shares of its common stock
valued at $121 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
the Company issued warrants to purchase 96,056 shares at prices ranging from
$8.125 to $14.36 which expire at various dates through May 30, 1998 of which
51,959 expired unexercised during the six months ended July 31, 1997. The value
of these warrants is included in the placement fee recorded as interest expense
during the year ended January 31, 1997.
In connection with the placements of convertible preferred stock the
Company issued warrants to purchase 367,994 shares at prices ranging from $8.00
to $18.00 which expire at various dates through July 15, 1998 of which 166,667
expired unexercised during the six months ended July 31, 1997 and 75,000 shares
at $8.00 which expire March 5, 1999. The value of these warrants is included in
the placement fee recorded as a reduction to the proceeds received in the
placement thereby reducing the increase to additional paid in capital during the
year ended January 31, 1997 and six months ended July 31, 1997.
In addition, warrants to purchase 252,348 shares at prices ranging from
$3.34 to $5.31 are outstanding from bank loan financing agreements and business
acquisitions consummated during the years ended January 31, 1993 through 1997.
100,000 warrants, exercisable at $4.00 per share through December 31, 2002, may
be redeemed by the Company for $1,000. 558,414 warrants exercisable at $5.638
held by entities controlled by an officer and a former director (see Note P),
27,971 warrants exercisable at $5.638 and 50,000 warrants exercisable
21
<PAGE> 22
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
at $4.125 were exercised during May, 1997 in "cashless" transactions. Of the
$2,315 liability representing the difference between the closing price of the
Company's common shares at exercise and the exercise price $1,567 was paid in
cash with the remaining balances applied to amounts due the Company under
indemnification agreements and an outstanding other receivable.
RTC ACQUISITION - Pursuant to an Amended and Restated Stock Purchase
Agreement dated May 31, 1995 BW acquired all the outstanding shares of RTC, a
California corporation, which began business on July 1, 1994 and in which
certain officers and directors had a indirect ownership interest. The agreement
provided that the Company issue 1,095,560 common shares and 4,000 Class A
Preferred shares (convertible into 1,074,420 common shares). Acquisition costs
to the Company in this transaction were $250. The acquisition was recorded as a
"reverse merger". (See Note A).
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 and have terms
varying from 3 to 10 years. 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.
The following table summarizes the activity in the plans:
<TABLE>
<CAPTION>
Weighted Average
Number of Shares Exercise Price
---------------- --------------
<S> <C> <C>
Shares under option at February 1, 1997 2,778,760 $ 6.07
Granted 396,300 $ 9.87
Canceled (62,756) $ 6.76
Exercised (99,465) $ 9.00
----------
Shares under option at July 31, 1997 3,012,839 $ 6.36
==========
</TABLE>
All stock options issued to employees have an exercise price not less
than the fair market value of the Company's common stock on the date of grant,
and in accordance with the accounting for such options utilizing the intrinsic
value method there is no related compensation expense recorded in the Company's
financial statements. Had compensation cost for stock-based compensation been
determined based on the fair value at the grant dates in accordance with the
method delineated in Statement of Accounting Standards No. 123, the Company's
operating expenses would have been greater.
Additional information relating to stock options outstanding and
exercisable at July 31, 1997 summarized by exercise price are as follows:
<TABLE>
<CAPTION>
Outstanding Exercisable
---------------------------------------- ----------------------------
Weighted Average
Exercise Price ----------------------------- Weighted Average
Per Share Shares Life (Years) Exercise Price Shares Exercise Price
- --------------- --------- ------------ -------------- --------- ----------------
<S> <C> <C> <C> <C> <C>
$1.00 - $ 4.99 1,244,809 7.99 $3.39 1,224,809 $ 3.39
$5.00 - $ 7.99 1,124,426 9.05 $7.30 376,518 $ 7.29
$8.00 - $16.50 643,604 6.74 $10.46 214,380 $ 11.23
--------- ---------
$1.00 - $16.50 3,012,839 8.12 $6.36 1,815,707 $ 5.13
========= =========
</TABLE>
22
<PAGE> 23
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
M. INCOME TAXES
The Company's provision for taxes on income consists of:
<TABLE>
<CAPTION>
Three Months Ended July 31 Six Months Ended July 31
-------------------------- ------------------------
1997 1996 1997 1996
----- ----- ----- -----
<S> <C> <C> <C> <C>
Currently payable:
U.S. taxes $ -- $ -- $ -- $ 3
Non-U.S. taxes -- 80 20 80
----- ----- ----- -----
-- 80 20 83
----- ----- ----- -----
Deferred:
U.S. taxes -- -- -- --
Non-U.S. taxes -- -- (4) --
----- ----- ----- -----
-- -- (4) --
----- ----- ----- -----
Total tax provision $ -- $ 80 $ 16 $ 83
===== ===== ===== =====
</TABLE>
Deferred income taxes reflect the impact of temporary differences
between the amount of assets and liabilities recognized for financial reporting
purposes and such amounts recognized for tax purposes. Deferred tax liabilities
are comprised of the following at July 31, 1997:
<TABLE>
<S> <C>
Tax effects of temporary differences for:
Depreciation $ 295
====
</TABLE>
In addition to the tax effects of temporary differences for
depreciation, amortization and valuation allowances from current and prior
periods the Company has other tax attributes arising from acquisitions that
could give rise to the recording of deferred tax assets. In addition, the
Company has recorded a 100% valuation allowance against its deferred tax assets
including net operating loss and research credit carryforwards in accordance
with the provisions of Statement of Financial Accounting Standards No. 109
whereby such allowance is recognized, if on the weight of available evidence, it
is more likely than not that some portion or all of the deferred tax assets will
not be realized.
At July 31, 1997, 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 July 31, 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.
23
<PAGE> 24
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
The reconciliation between income tax expense and a theoretical United
States tax computed by applying a rate of 35% for the three and six months ended
July 31, 1997 and 1996, is as follows:
<TABLE>
<CAPTION>
Three Months Ended July 31 Six Months Ended July 31
---------------------------- ----------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Earnings before income taxes:
United States $ (13,104) $ (19,331) $ (13,111) $ (19,319)
Foreign 351 578 1,291 1,024
----------- ----------- ----------- -----------
$ (12,753) $ (18,753) $ (11,820) $ (18,295)
=========== =========== =========== ===========
Theoretical tax provision
(benefit) at 35% $ (4,463) $ (6,564) $ (4,137) $ (6,403)
Loss for which no benefit was
recorded as there is no assurance
of realization 3,157 1,358 3,564 1,618
Permanent differences 1,015 2,961 919 2,820
Timing differences 373 2,465 (68) 2,267
Adjustment for non-U.S. taxes in
excess of theoretical rate (65) (107) (239) (189)
Utilization of tax loss carryforwards -- (18) -- (18)
Other (17) (15) (23) (12)
----------- ----------- ----------- -----------
$ -- $ 80 $ 16 $ 83
=========== =========== =========== ===========
</TABLE>
United States federal income taxes have not been provided on all of the
unremitted earnings of non-U.S. subsidiaries, since it is management's practice
and intent to reinvest such earnings in the operations of these subsidiaries.
The total amount of the net unremitted earnings of the non-U.S. subsidiaries was
approximately $4,371 at July 31, 1997.
N. EARNINGS PER SHARE CALCULATION
Primary income (loss) per share was calculated by dividing net income
(loss) by the weighted average shares of common stock and common stock
equivalents outstanding during the period. Common stock equivalents of the
Company include options, warrants, shares issuable in business combinations and
reset shares due in connection with private placements of common stock. All
common stock equivalents outstanding during the periods presented were
determined to be anti-dilutive and therefore excluded from the computation of
primary loss per share. The number of shares issuable upon the exercise of
dilutive options and warrants was reduced by the assumed repurchase, at the
average market price during the period, with the proceeds assumed to have been
received on the exercise of these securities in accordance with the mandated
treasury stock method.
<TABLE>
<CAPTION>
Three Months Ended July 31 Six Months Ended July 31
--------------------------- ---------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Shares used in computing primary
earnings (loss) per share:
Weighted average number of
shares outstanding 12,617,961 6,961,179 12,009,474 6,372,734
Common stock equivalents, net: n/a n/a n/a n/a
---------- ---------- ---------- ----------
12,617,961 6,961,179 12,009,474 6,372,734
========== ========== ========== ==========
</TABLE>
24
<PAGE> 25
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
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.
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 July 31, 1997 the amount due FED from Spectra for sales in
the ordinary course of business was $350.
In the ordinary course of business, FED made sales of $984 and paid
marketing research service fees of $382 to companies and made purchases of $3
from companies controlled by a former director and present officer of FED.
On March 11, 1997, the Company made a 8% demand loan in the amount of
$100 to an entity controlled by an outside director. Accrued and unpaid interest
at July 31, 1997 totaled $3.
Dividends payable to a former shareholder and current officer of FED of
$1,256 were declared prior to the acquisition of FED by the Company; the
dividends were paid prior to January 31, 1997.
On February 29, 1996, the Company made a 8% demand loan in the amount of
$100 to an employee. Accrued and unpaid interest at July 31, 1997 totaled $9.
The Company is indemnified by an officer and former director for
declines in value of marketable securities received by it in a private placement
of common shares in February 1995. The liability under this agreement totaling
$310 was offset to the balance due to the officer and former director under a
cashless warrant exercise as more fully described in Note K.
P. SUBSEQUENT EVENTS
In August and September, 1997, the Company issued 2,238,250 shares of
common stock in conversion of $9.0 million face value of Series E preferred
stock.
Q. SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest expense and taxes paid approximated the related expenses for
the three and six months ended July 31, 1997 and 1996.
The stock issued to effect, in part, the FED acquisition valued at
$5,150, the ABCN investment valued at $7,250, and cashless option and warrant
exercises applied to other receivables including interest thereon valued at $726
during the six months ended July 31, 1997 neither provided nor used cash. The
stock issued to effect, in part, the FED acquisition valued at $809 and the
Sciteq acquisition valued at $2,932 during the six months ended July 31, 1996
neither provided nor used cash. Accordingly, the value assigned to such stock
has been excluded from the statements of cash flows.
25
<PAGE> 26
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
Common shares issued on conversion of convertible debentures during the
six months ended July 31, 1996 neither provided nor used cash. Accordingly, the
$8,764 value assigned to such stock for the six months ended July 31, 1996 has
been excluded from the statement of cash flows.
R. CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of temporary cash investments
and trade receivables. As regards the former, the Company places its temporary
cash investments with high credit financial institutions and limits, by policy,
the amount of credit exposure to any one institution. No accounts at a single
bank accounted for more than 10% of current assets.
Concentrations of credit risk with respect to trade receivables are
limited because there is a large number of customers in the Company's customer
base spread across many industries and geographic areas. One customer accounted
for 24.0% of net sales for the six months ended July 31, 1997 and 23.4% of net
sales for the six months ended July 31, 1996. The largest single customer
account receivable at July 31, 1997 was $3,570 which is within credit terms.
S. PROFORMA INFORMATION (PURCHASE ACCOUNTING)
Three months July 31, 1996:
<TABLE>
<CAPTION>
Company Sciteq Cray Pro Forma Pro Forma
Consolidated (i) (ii) Adjustments Notes Consolidated
------------ ---------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 27,477 $ 421 $ 5,174 $ 33,072
Cost of sales 23,172 166 2,930 26,268
---------- ---------- ---------- ----------
Gross Profit 4,305 255 2,244 6,804
Operating expenses 22,318 102 1,636 $ 34 (iii) 24,190
100 (iv)
---------- ---------- ---------- ---------- ----------
Operating income (loss) (18,013) 153 608 (134) (17,386)
Other income (charges) (740) (41) (5) (v) (988)
(202) (xi)
---------- ---------- ---------- ---------- ----------
Income (loss) before
income taxes (18,753) 153 567 (341) (18,374)
Provision for income
Provision for income taxes 80 7 87
---------- ---------- ---------- ---------- ----------
Net income (loss) $ (18,833) $ 153 $ 560 $ (341) $ (18,461)
========== ========== ========== ========== ==========
Weighted average shares
outstanding (000's) 6,961 6,961
Earnings (loss) per share:
Primary $ (2.71) $ (2.66)
</TABLE>
26
<PAGE> 27
Six months July 31, 1996:
<TABLE>
<CAPTION>
Company FED Sciteq Cray Pro Forma Pro Forma
Consolidated (vii) (i) (ii) Adjustments Notes Consolidated
------------ -------- ------- ------- ------------ ----- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 45,631 $ 9,820 $ 1,445 $ 11,751 $ 68,647
Cost of sales 35,296 8,235 661 7,202 51,394
-------- -------- -------- -------- --------
Gross Profit 10,335 1,585 784 4,549 17,253
Operating expenses 27,409 803 494 6,060 $ 138 (iii) 35,166
248 (iv)
14 (viii)
-------- -------- -------- -------- -------- --------
Operating income (loss) (17,074) 782 290 (1,511) (400) (17,913)
Other income (charges) (1,221) (363) (152) (22) (v) (2,372)
(504) (vi)
(110) (ix)
-------- -------- -------- -------- -------- --------
Income (loss) before
income taxes (18,295) 419 290 (1,663) (1,036) (20,285)
Provision for income
Provision for income taxes 83 220 1 7 311
-------- -------- -------- -------- -------- --------
Net income (loss) $(18,378) $ 199 $ 289 $ (1,670) $ (1,036) $(20,596)
======== ======== ======== ======== ======== ========
Weighted average shares
outstanding (000's) 6,373 6,373
Earnings (loss) per share:
Primary $ (2.90) $ (3.24)
</TABLE>
Notes to pro forma financial information:
(i) 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.
(ii) 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.
(iii) To amortize the purchased technology acquired of $2,895 arising from the
Sciteq acquisition, using an estimated 7 year useful life.
(iv) To amortize the purchased technology acquired of $4,165 arising from the
Cray acquisition, using an estimated 7 year useful life.
(v) To recognize interest expense assuming the Company borrowed $600 at 11%
interest per annum to complete the Sciteq acquisition.
(vi) To recognize interest expense assuming the Company borrowed $11,000 at
11% interest per annum to complete the Cray acquisition.
(vii) 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.
(viii) To amortize the excess of cost over net assets acquired of $1,288
arising from the FED acquisition, using an estimated 15 year useful
life.
(ix) To recognize interest expense assuming the Company borrowed $6,000 at
11% interest per annum to complete the FED acquisition.
27
<PAGE> 28
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
T. PROFORMA INFORMATION (POOLINGS OF INTEREST)
The following table shows the historical results of the Company, BW, DPI
and DSI for the periods prior to the consummation of the mergers of the
entities:
<TABLE>
<CAPTION>
Three Months Year Ended
Ended April 30, January 31,
1996 1996
--------------- -----------
<S> <C> <C>
Net sales:
Company $ 6,070 $ 7,733
BW 6,772 7,634
DPI 5,202 18,631
DSI 110 475
----------- -----------
Total $ 18,154 $ 34,473
=========== ===========
Net income (loss):
Company, as previously reported $ 249 $ 626
BW 14 (446)
DPI 202 (1,544)
DSI (10) 47
----------- -----------
Net income as restated $ 455 $ (1,317)
=========== ==========
</TABLE>
U. RECONCILIATION TO PREVIOUSLY REPORTED AMOUNTS
Following is a reconciliation of the Company's fiscal 1997 quarterly net income
(loss) as previously reported in the Company's 10-QSB filings to the revised
amounts listed above. Differences between fiscal 1996 net income (loss) amounts
above and amounts previously reported in the Company's 10-QSB filings are due to
the effect of the pooling transactions consummated by the Company during fiscal
1997.
Amounts in thousands, except per share amounts.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net income (loss) as
previously reported $ 249 $ (8,311) $ 1,332 $ 1,425 $ (5,305)
Effect of pooling transactions 206 (3,914) 12 -- (3,696)
Inventory valuation adjustments -- (3,169) -- -- (3,169)
Purchased technology
valuation adjustment -- (3,439) -- -- (3,439)
---------- ---------- ---------- ---------- ----------
Net income (loss) $ 455 $ (18,833) $ 1,344 $ 1,425 $ (15,609)
========== ========== ========== ========== ==========
</TABLE>
28
<PAGE> 29
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, 1997.
Results of operations for the six months ended July 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 SIX MONTHS ENDED JULY 31, 1997
AND 1996
Net sales of the Company for the quarter ended July 31, 1997 increased by 18.5%
to $32.6 million from $27.5 million for the quarter ended July 31, 1996 and
increased for the six months ended July 31, 1997 by 43.2% to $65.3 million from
$45.6 million due primarily to the businesses acquired during the six months
ended July 31, 1996 as well as increased demand for the Company's products. (See
Footnote A to the Unaudited Consolidated Financial Statements contained in Part
I herein).
Consolidated gross profit increased by 141.9% to $10.4 million for the quarter
ended July 31, 1997 from $4.3 million for the quarter ended July 31, 1996 due to
the increase in net sales related to acquisitions partially offset by
significant inventory valuation adjustments of $3.2 million including $1.9
million for slow-moving and obsolete inventory purchased in connection with RNS.
Excluding these charges the consolidated gross profit of the Company would have
increased 38.7%. For the six months ended July 31, 1997 gross profit increased
by 98.1% to $20.4 million from $10.3 million for the comparable six months in
the prior year; exclusive of the inventory valuation adjustments the increase in
gross profit would have been 51.1%.
Gross margins increased to 31.9% for the quarter ended July 31, 1997 from 27.3%
for the quarter ended July 31, 1996 exclusive of the inventory valuation
adjustments during the quarter ended July 31, 1996. This increase reflects the
impact of the Company's transition in its products mix to higher margin products
and is not reflective of the anticipated operational efficiencies to be achieved
through the integration of the various acquisitions of the Company although such
results are not assured. Similarly gross margins increased to 31.3% for the six
months ended July 31, 1997 from 29.6% for the six months ended July 31, 1996
before the inventory related charges.
Selling and administrative expense totaled $9.9 million, or 30.4% of net sales
for the quarter ended July 31, 1997. This compares to $5.9 million, or 21.5% of
net sales for the quarter ended July 31, 1996. For the six months ended July 31,
1997 selling and administrative expenses totaled $17.0 million, or 26.0% of net
sales as compared to $9.8 million or 21.5% of net sales for the six months ended
July 31, 1996. The increase in the dollar amount of these expenses resulted from
increased marketing efforts including the introduction of new products and
expansion of sales channels, the addition of acquired businesses as well as
non-recurring expenditures related to preserving shareholder value.
The increase in these expenses as a percentage of sales for the quarter and six
months ended July 31, 1997 of 8.9% and 4.5%, respectively, does not reflect the
full impact of the synergies to be achieved by the vertical and horizontal
integration of the past year's acquisitions and management believes that ongoing
programs may further reduce selling and administrative expenses as a percentage
of net sales, however, there can be no assurances that such reductions will be
achieved or that such reductions will not be offset by expanding corporate
activities.
Research, development and engineering expenses were $1.9 million for the quarter
ended July 31, 1997, represented only 5.8% of net sales as compared with $1.5
million for the quarter ended July 31, 1996, or 5.5% of net sales. For the six
months ended July 31, 1997 research, development and engineering expenses were
$3.4 million or 5.2% of net sales as compared to $2.8 million or 6.1% of net
sales for the six months ended July 31, 1996. The higher three month percentage
reflects management's expectation of increasing research, development
29
<PAGE> 30
and engineering expenses to a target level of 10% of net sales. The lower six
month percentage reflects the Company's emphasis on purchasing in-process
research and development and purchased technology in connection with its
acquisitions during the six months ended July 31, 1996.
In-process research and development purchased in connection with the
acquisitions of Sciteq, Cray and PDP was $10.3 million and in accordance with
Statement of Financial Accounting Standards No. 2 this amount was expensed
immediately during the quarter ended July 31, 1996. An additional $3.4 million
representing a reduction to the valuation of purchased software in connection
with RNS was expensed during the quarter ended July 31, 1996 reflecting changing
market conditions. Comparable amounts incurred during the three and six months
ended July 31, 1997 were included in other operating expenses; see following
paragraph.
Other operating expenses of $11.0 million for the quarter ended July 31, 1997
included acquisition-related charges of $6.0 million, software capitalization
valuation adjustments of $2.7 million and $2.3 million related to the horizontal
and vertical integration of the Company's acquisitions during the prior fiscal
year. Acquisition-related charges included amortization of purchased technology,
amortization of excess cost over net book value of assets acquired as well as
valuation adjustments of intangible assets acquired. Integration costs included
the physical relocation of the Santa Barbara, CA manufacturing operations of the
adapter division, consolidation of the broadband division operations, and
personnel reduction costs. Other operating expenses for the six months ended
July 31, 1997 included $467,000 of amortization of purchased technology and
excess cost over net book value of assets acquired. Other operating expenses for
the quarter and six months ended July 31, 1996 included acquisition-related
charges of $1.3 million and $1.2 million, respectively. These amounts included
amortization of purchased technology, excess cost over net book value of assets
acquired, and negative goodwill as well as the costs associated with
acquisitions accounted for as poolings of interests during the quarter ended
July 31, 1996. (See Note A to the Unaudited Consolidated Financial Statements
contained in Part I herein).
The operating loss for the quarter ended July 31, 1997 was $12.4 reflecting the
charges for other operating expenses above of $11 million and significant and
non-recurring expenditures of $2 million. The operating loss for the quarter
ended July 31, 1996 was $18 million reflecting the charges for other operating
expenses above of $1.3 million, in-process research and development of $13.7 and
one-time inventory valuation adjustments of $3.2 million. The operating loss for
the six months ended July 31, 1997 was $11.5 million reflecting the charges for
other operating expenses above of $11.5 million and significant and
non-recurring expenditures of $2 million. The operating loss for the six months
ended July 31, 1996 was $17.1 million reflecting the charges for other operating
expenses above of $1.2 million, in-process research and development of $13.7 and
inventory valuation adjustments of $3.2 million.
Investment income was $153,000 and $253,000 for the quarter and six months ended
July 31, 1997, respectively, as compared to $289,000 and $137,000 for the
quarter and six months ended July 31, 1996, respectively. These fluctuations are
the result of the investment by the Company of its surplus cash prior to
utilization in the operations of and acquisitions by the Company.
Interest expense was $530,000 or 1.6% of net sales for the quarter ended July
31, 1997 compared to $1.1 million or 4.0% of net sales for the quarter ended
July 31, 1996. Interest expense for the quarter ended July 31, 1996 included a
commission recorded as interest expense of $582,000 incurred in connection with
the placement of convertible debentures (see Note G to the Unaudited
Consolidated Financial Statements contained in Part I herein); absent this
amount interest expense would have approximately the same. For the six months
ended July 31, 1997 interest expense was $964,000 or 1.5% of net sales as
compared to $1.4 million or 3.1% of net sales for the six months ended July 31,
1996. Absent the commission on the convertible debentures recorded as interest
expense, interest expense for the six months ended July 31, 1996 would have
increased $146,000 as a result of expanded borrowing for continuing and newly
acquired businesses.
Provision for income taxes for the six months ended July 31, 1997 was $16,000
and no provision was required for the quarter ended July 31, 1997. Provision for
income taxes for the quarter and six months ended July 31, 1996 was $80,000 and
$82,000, respectively. The provision for taxes relates predominantly from the
profitable operations of the Company's newly-acquired Far East Division. The
decline in the provision is the result of over-
30
<PAGE> 31
accruals in prior periods. The Company has carryforwards of domestic federal net
operating losses which may be available, in part, to reduce future taxable
income in the United States. However, due to potential adjustments to the net
operating loss carryforwards as provided by the Internal Revenue Code with
respect to future ownership changes, future availability of these tax benefits
is not assured. In addition, the Company provides a valuation allowance for a
deferred tax asset when in management's opinion it is more likely than not that
some portion or all of the asset will not be realized. (See Note M to the
Unaudited Consolidated Financial Statements contained in Part I herein).
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 1997, the Company had net worth of $43.7 million, with total assets
of $89.3 million. Of these assets, current assets totaled $52 million including
$4.5 million of cash and cash equivalents, $21.6 million of accounts receivable
and $21.5 million of inventory. The Company's working capital at July 31, 1997
was $10.2 million.
The Company's operations incurred a cash flow deficit of $247,000 during the six
months ended July 31, 1997, as compared an operating cash flow deficit of $4.9
million during the six months ended July 31, 1996. This decline in net operating
cash flow outlays is reflective of the net cash outflow from operations after
adjustment for non-cash income and expense of $2.7 million reduced by the net
decline in current assets and increase in current liabilities during the six
months ended July 31, 1997. During the six months ended July 31, 1996 net cash
outflow from operations after adjustment for non-cash income and expense was
$3.9 million.
Investing activities during the six months ended July 31, 1997 consisted of
purchased of property and equipment of $4.3 million, expenditures for software
development costs capitalized of $2.4 million, and other receivables of $2.5
million (including interest bearing advances to ABCN of $2.0 million), net of
proceeds from the disposition of fixed assets. During the six months ended July
31, 1996 investing activities included purchases of property, plant and
equipment (including the San Diego and FED facilities) of $4.6 million,
expenditures for software development costs capitalized of $928,000, net cash
outlays of $4.6 million in connection with acquisition activities of the Company
and other receivables of $488,000.
The financing activities of the Company during the six months ended July 31,
1997 provided net cash inflows of $7.4 million as compared with $27.6 million
during the six months ended July 31, 1996. This $20.2 million decrease is
primarily the result of declines in private placements of the Company's common
stock, convertible preferred stock and debentures net of redemptions ($14.4
million), declines in proceeds from long term debt ($3.0 million), repayments of
acquisition related liabilities ($3.3 million) and repayment of liabilities due
on cashless warrant exercises ($1.6 million) net of net proceeds from short term
debt as compared with net repayments ($1.7 million). The increase in the
outstanding balance of Cray's line of credit and corresponding decrease in
Meret's line of credit is reflective of the Company's ongoing operational
integration program.
The Company finances its operations and acquisitions from debt issuances, bank
lines of credit and security placements.
The Company through private placements of its common stock and convertible
preferred stock raised net proceeds of $11.7 million during the six months ended
July 31, 1997. Warrants to purchase 75,000 shares of common stock at $8.00 and
callable warrants to purchase 782,888 shares of common stock at $7.50 per share
were also issued in these placements. (See Notes J and K to the Unaudited
Consolidated Financial Statements contained in Part I herein).
The Company through private placements of its convertible preferred stock and
its 8% callable, convertible debentures raised net proceeds of $32.4 million
during the six months ended July 31, 1996. Warrants to purchase 342,021 shares
of common stock at prices from $8.13 to $18.00 were also issued in these
placements. (See Note J to the Unaudited Consolidated Financial Statements
contained in Part I herein).
31
<PAGE> 32
At July 31, 1997 the Company had $14.5 million of convertible preferred stock
outstanding that was convertible as of September 1, 1997 of which $9.0 million
face value was converted prior to September 8, 1997. The Company issued
2,238,250 common shares in these conversions.
If not previously converted by the holder or called by the Company the remaining
$550,000 face amount of convertible debentures outstanding at July 31, 1997 will
be due during 1999. (See Note G to the Unaudited Consolidated Financial
Statements contained in Part I herein).
The Company's customers generally remit payments within the terms of sale. The
Company is currently able to meet its obligations as they become due.
Management believes that the Company has sufficient working capital to meet its
planned level of operations. Management has completed the realignment of its
various acquired businesses along product and functional lines and 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 plans to grow
both internally as well as through acquisitions. The capital needed to
accomplish this will have to be raised to the extent funds are not then
available. The Company cannot give any assurances that sufficient capital will
be available when needed.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standards No. 128, "Earnings per Share" is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods. This pronouncement requires dual presentation
of basic and diluted earnings per share ("EPS") on the face of the income
statement. It also requires a reconciliation of the numerator and denominator of
the basic EPS computation to the numerator and denominator of the diluted EPS
computation. This statement also requires restatement of all prior-period EPS
data presented after the effective date. The Company has not determined the
effect on its EPS from the adoption of this statement.
OTHER MATTERS
See Part II, Item 1 "Legal Proceedings" contained herein.
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.
FORWARD-LOOKING STATEMENTS - CAUTIONARY STATEMENT
When used anywhere in this Form 10-QSB, in future filings by the Company with
the Securities and Exchange Commission, in the Company's press releases and in
oral statements made with the approval of an authorized executive officer of the
Company, the words or phrases, "will likely result," "will continue," "are
expected to," "is anticipated," "estimated," "project," or "outlook" or similar
expressions (including confirmations by an authorized executive officer of the
Company of any such expressions made by a third party with respect to the
Company) are intended to identify "forward-looking statements" within the
meaning of the Private Securities Litigation Reform
32
<PAGE> 33
Act of 1995. Such forward-looking statements include the Company's plans to
introduce wireless enabled network strategy, Gigabit Ethernet, ATM switches for
workgroups and enterprise markets, scaleable routers with broad practical
support and aggregation possibilities, and the Company's plans to develop new
products, expand its sales force, expand its customer base, make acquisitions,
establish strategic relationships and expand within international markets. Such
forward-looking statements also include the Company's expectations concerning
factors affecting the markets for its products, such as demand for increased
bandwidth, the migration from private to public networks, growth in corporate
networks, deregulation and increased competition, the introduction of a wide
range of new communication services and technologies and growth in the domestic
and international market for network access solutions.
The Company wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. Such
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from historical earnings and those presently
anticipated or projected. These risks and uncertainties are described above. The
Company specifically declines any obligation to publicly release the result of
any revisions which may be made to any forward-looking statements to reflect
anticipated or unanticipated events or circumstances occurring after the date of
such statements.
33
<PAGE> 34
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, 1997 and Note I to the
Unaudited 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
A. Exhibits
20 Consolidated Financial Statements for the Quarter and
Six Months Ended July 31, 1997 (included in Part I,
Item 1)
27 Financial Data Schedule
B. Reports on Form 8-K
None
34
<PAGE> 35
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: September 12, 1997
-------------------------------
Christopher E. Sue,
Vice President of Finance
35
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
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IN ITS ENTIRETY BY REFERENCE TO SUCH UNAUDITED FINANCIAL STATEMENTS.
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<PERIOD-START> FEB-01-1997
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<RECEIVABLES> 22,708,000
<ALLOWANCES> 1,059,000
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<CURRENT-ASSETS> 51,967,000
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<CURRENT-LIABILITIES> 41,763,000
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<COMMON> 1,435,000
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<SALES> 65,281,000
<TOTAL-REVENUES> 65,281,000
<CGS> 44,868,000
<TOTAL-COSTS> 44,868,000
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