<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(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, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File number: 0-15810
OSICOM TECHNOLOGIES, INC.
(Exact name of Registrant as specified in charter)
<TABLE>
<S> <C>
New Jersey 22-2367234
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
</TABLE>
2800 28th Avenue, Suite 100
Santa Monica, California
90405
(Address of principal executive offices)
(Zip Code)
(310) 581-4030
(Registrantis 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, $.30 par value per share, Outstanding: 9,515,425 shares
at September 13, 1999.
This Form 10-Q, 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>
TABLE OF CONTENTS
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<CAPTION>
Page
----
<S> <C> <C>
PART I: FINANCIAL INFORMATION
ITEM 1: CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Consolidated Balance Sheet at July 31, 1999 and
Consolidated Balance Sheet at January 31, 1999 3
Unaudited Consolidated Statements of Operations for the Three
And Six Months ended July 31, 1999 and 1998 4
Unaudited Consolidated Statements of Cash Flows for the Six
Months ended July 31, 1999 and 1998 5
Notes to Consolidated Financial Statements 6-12
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, 1999 and 1998 13
Liquidity and Capital Resources 16
Impact of Recent Accounting Pronouncements 18
Other Matters 18
Fluctuations in Revenue and Operating Results 18
Forward-Looking Statements - Cautionary Statement 18
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK 19
PART II: OTHER INFORMATION 20
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 21
</TABLE>
2
<PAGE>
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
=================================================================================================================
Unaudited
July 31, 1999 January 31, 1999
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and equivalents $ 1,358 $ 3,480
Accounts receivable, net 17,930 17,164
Inventory, net 16,172 14,465
Prepaid expenses and other current assets 1,693 2,480
- -----------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 37,153 37,589
- -----------------------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT, NET 7,242 6,715
- -----------------------------------------------------------------------------------------------------------------
OTHER ASSETS
Purchased technology, net 1,581 1,766
Capitalized software, net 4,994 5,105
Other assets 891 803
Net assets of discontinued operations 19,713 14,818
- -----------------------------------------------------------------------------------------------------------------
TOTAL OTHER ASSETS 27,179 22,492
- -----------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 71,574 $ 66,796
=================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Short-term debt $ 14,513 $ 10,678
Current maturities of long term debt 565 284
Accounts payable 11,547 9,022
Due to affiliates 46 724
Accrued liabilities 6,704 4,551
Other current liabilities 576 931
- -----------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 33,951 26,190
- -----------------------------------------------------------------------------------------------------------------
Long-term debt and capital lease obligations 2,354 1,748
- -----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 36,305 27,938
- -----------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; cumulative dividends; liquidation
preference $12,172 including accumulated dividends 1 1
Common stock, $.30 par value; 16,667 shares authorized; 9,229 shares
issued and 9,150 shares outstanding at July 31, 1999; 8,924 shares
issued and 8,844 shares outstanding at January 31, 1999 2,769 2,677
Additional paid-in capital 86,717 85,183
Accumulated deficit (53,707) (48,479)
Treasury stock, at cost; 79 shares and 80 shares at July 31, 1999 and
January 31, 1999, respectively (511) (524)
- -----------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 35,269 38,858
- -----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 71,574 $ 66,796
=================================================================================================================
</TABLE>
3
<PAGE>
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
------------------- -----------------
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES $ 17,206 $ 15,101 $ 36,335 $ 29,889
COST OF SALES 9,086 8,360 19,337 15,917
- ------------------------------------------------------------------------------------------------------------
GROSS PROFIT 8,120 6,741 16,998 13,972
- ------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Selling and marketing 4,523 4,206 8,630 8,385
Engineering, research and development 2,526 2,695 4,763 4,929
General and administrative 2,892 2,863 5,925 5,680
Other operating expenses 93 93 186 186
- ------------------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 10,034 9,857 19,504 19,180
- ------------------------------------------------------------------------------------------------------------
OPERATING LOSS FROM CONTINUING OPERATIONS (1,914) (3,116) (2,506) (5,208)
- ------------------------------------------------------------------------------------------------------------
OTHER INCOME (CHARGES)
Investment income 15 96 32 156
Interest expense (594) (303) (1,064) (652)
Other income (charges) -- -- 2 45
- ------------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME (CHARGES) (579) (207) (1,030) (451)
- ------------------------------------------------------------------------------------------------------------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES (2,493) (3,323) (3,536) (5,659)
Provision for Income Taxes - - - -
- ------------------------------------------------------------------------------------------------------------
LOSS FROM CONTINUING OPERATIONS (2,493) (3,323) (3,536) (5,659)
LOSS FROM DISCONTINUED OPERATIONS
(NET OF INCOME TAX OF $-O- AND $-0-) (120) (1,142) (1,349) (1,484)
NET LOSS $ (2,613) $ (4,465) $ (4,885) $ (7,143)
=============================================================================================================
INCOME (LOSS) PER COMMON SHARE:
PREFERRED STOCK DIVIDENDS 147 1,302 485 1,339
NET INCOME (LOSS) APPLICABLE TO COMMON SHARES $ (2,760) $ (5,767) $ (5,370) $ (8,482)
============================================================================================================
BASIC
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (RESTATED, IN THOUSANDS) 9,041 7,235 8,962 7,087
NET INCOME (LOSS) PER COMMON SHARE:
Continuing Operations $ (0.29) $ (0.64) $ (0.45) $ (0.99)
Discontinued Operations (0.01) (0.16) (0.15) (0.21)
- ------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) PER COMMON SHARE $ (0.30) $ (0.80) $ (0.60) $ (1.20)
============================================================================================================
DILUTED
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (RESTATED, IN THOUSANDS) 9,041 7,235 8,962 7,087
NET INCOME (LOSS) PER COMMON SHARE:
Continuing Operations $ (0.29) $ (0.64) $ (0.45) $ (0.99)
Discontinued Operations (0.01) (0.16) (0.15) (0.21)
- ------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) PER COMMON SHARE $ (0.30) $ (0.80) $ (0.60) $ (1.20)
============================================================================================================
</TABLE>
4
<PAGE>
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In Thousands)
<TABLE>
<CAPTION>
====================================================================================================================
Six Months Ended
July 31
--------------------------
1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss from continuing operations $ (3,536) $ (5,659)
- --------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 1,942 1,649
Accounts receivable and inventory reserves 725 851
Expenses paid through issuances of securities - 253
Changes in assets and liabilities net of effects of business entity acquisitions:
(Increase) decrease in accounts receivable (1,379) 629
Increase in inventories (1,820) (2,895)
(Increase) decrease in other current assets 61 (648)
(Increase) decrease in accounts payable 2,525 (200)
(Increase) decrease in net amounts due from affiliate (678) (489)
Increase in accrued expenses 2,153 560
Decrease in other current liabilities (355) (115)
- --------------------------------------------------------------------------------------------------------------------
NET CASH USED IN CONTINUING OPERATING ACTIVITIES (362) (6,064)
NET CASH USED IN DISCONTINUED OPERATING ACTIVITIES (925) (607)
- --------------------------------------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (1,287) (6,671)
- --------------------------------------------------------------------------------------------------------------------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of property and equipment (1,130) (1,153)
Capitalized software development costs (809) (1,127)
Other assets (289) 1
Investing activities of discontinued operations (330) (365)
- --------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (2,558) (2,644)
- --------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of convertible preferred stock - 7,420
Proceeds from issuance of common stock - 1,989
Proceeds from issuance of short-term debt, net of repayments 3,835 (441)
Proceeds from long-term debt 907 52
Repayment of long-term debt (21) (30)
Proceeds from stock option exercises 1,613 -
Preferred stock dividends (240) -
Purchase of treasury stock - (490)
Other (73) (150)
Financing activities of discontinued operations (4,298) 977
- --------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,723 9,327
- --------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,122) 12
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 3,480 1,422
- --------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 1,358 $ 1,434
====================================================================================================================
</TABLE>
5
<PAGE>
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
Osicom Technologies, Inc. (the "Company," "We," "Our," or "Us") through its
subsidiaries designs, manufactures and markets integrated networking and
bandwidth aggregation products for enhancing the performance of data and
telecommunications networks. Our products are deployed in telephone companies,
Internet Service Providers, governmental bodies and the corporate/campus
networks that make up the "enterprise" segment of the networking marketplace. We
have facilities in Annapolis Junction, Maryland, Waltham, Massachusetts, and
San Diego, California. Our discontinued operation has facilities in China. We
market and sell our products and services through and to a broad array of
channels including worldwide distributors, value added resellers, original
equipment manufacturers ("OEM's"), local and long distance carriers and
governmental agencies.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying financial data as of July 31, 1999 and January 31, 1999,
for the three and six months ended July 31, 1999 and 1998, have been prepared by
us, without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. The January 31, 1999 balance sheet was derived from audited
financial statements, but does not include all disclosures required by generally
accepted accounting principles. However, we believe that the disclosures are
adequate to make the information presented not misleading. These consolidated
financial statements should be read in conjunction with the financial statements
and the notes thereto included in our Annual Report on Form 10-K for the year
ended January 31, 1999.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates that affect
the reported amounts of assets, liabilities, revenues and expenses, 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, all adjustments (which include
only normal recurring adjustments) necessary to present fairly the financial
position, results of operations and cash flows as of July 31, 1999 and for the
three and six months ended July 31, 1999, have been made. The results of
operations for the three and six months ended July 31, 1999 are not necessarily
indicative of the operating results for the full year.
DISCONTINUED OPERATIONS
Our Far East-based Wireless Products business unit has been accounted for
as a discontinued operation pursuant to our plan to sell the division. No gain
or loss is anticipated on the disposition of this business segment. Balances due
from and to the Wireless Products division are shown net "due to affiliate" in
the accompanying balance sheets.
EARNINGS PER SHARE
We adopted Statement of Financial Accounting Standards ("SFAS") No. 128
which requires dual presentation of basic and diluted earnings per share
("EPS") on the face of the income statement. SFAS No. 128 also requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS computation. Basic net income
and loss per common share is computed by dividing net income or loss available
to common shareholders by the weighted average number of common shares
outstanding during each period presented. Diluted EPS is based on the weighted
average number of common shares outstanding as well as dilutive potential common
shares, which in our case consist of convertible securities outstanding, shares
issuable pursuant to contracts that may be settled in stock, shares issuable
under stock benefit
6
<PAGE>
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
plans, and shares issuable pursuant to warrants. In computing diluted EPS, net
income or loss available to common shareholders is adjusted for the after-tax
amount of interest expense recognized in the period associated with convertible
debt. Potential common shares are not included in the diluted loss per share
computation for the three and six months ended July 31, 1999 and 1998 as they
would be anti-dilutive.
All references in the financial statements to common shares and per share
data give effect to the one for three stock split effective July 24, 1998.
RECENT ACCOUNTING PRONOUNCEMENTS
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," is effective for financial statements with fiscal quarters
beginning after June 15, 1999. The statement established standards for
accounting for derivatives and hedging instruments. We do not currently have any
of these instruments. The adoption of SFAS 133 had no impact on our results of
operations, financial position or cash flows.
SFAS No. 134, "Accounting for Mortgage-Backed Securities Retained After the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise," is effective for financial statements with fiscal quarters
beginning after December 31, 1998. The adoption of SFAS No. 134 had no effect on
our financial position or results of operations.
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," is effective for financial
statements with years beginning after December 15, 1998. The SOP provides
guidance on accounting for the costs of computer software developed or purchased
for internal use. The SOP requires that we continue to capitalize certain costs
of software developed for internal use once certain criteria are met. The
adoption of SOP 98-1 had no effect on our financial position or results of
operations.
SOP 98-5, "Reporting on the Costs of Start-up Activities," is effective for
financial statements for fiscal years beginning after December 31, 1998. The SOP
provides guidance and examples of the types of expenses associated with one-time
(start-up) activities which, under this SOP, must be expensed as incurred. The
adoption of SOP 98-5 had no effect on our financial position or results of
operations.
SFAS 135, "Rescission of FASB Statement No. 75 and Technical Corrections,"
is effective for financial statements issued for fiscal years ending after
February 15, 1999. The adoption of SFAS No. 135 had no effect on our financial
position or results of operations.
BALANCE SHEET DETAIL
Inventories at July 31, 1999 and January 31, 1999 consist of:
<TABLE>
<CAPTION>
July 31, 1999 January 31, 1999
<S> <C> <C>
Raw material $ 11,403 $ 9,547
Work in process 5,026 5,430
Spare parts 219 190
Finished goods 3,126 2,787
-------- --------
19,774 17,954
Less: Valuation reserve 3,602 3,489
-------- --------
$ 16,172 $ 14,465
======== ========
</TABLE>
7
<PAGE>
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
SHORT-TERM DEBT
The company's promissory note dated March 26, 1999 was extended to
August 31, 1999 and September 30, 1999. Principal of $500 and the loan fee of
$250 was repaid on August 31, 1999. The remaining balance due of $2,000
is due September 30, 1999. The holders may elect to convert all or a portion of
the remaining balance due on September 30, 1999 into unregistered shares of
common stock at $8.80 per common share.
STOCKHOLDERS' EQUITY
We are authorized to issue the following shares of stock:
16,666,667 shares of Common Stock ($.30 par value)
2,000,000 shares of Preferred Stock ($.01 par value) of which the
following series have been designated:
2,500 shares of Preferred Stock, Series A
1,000 shares of Preferred Stock, Series B
100,000 shares of Preferred Stock, Series C
3,000 shares of Preferred Stock, Series D
1,000,000 shares of Preferred Stock, Series E
We have outstanding the following shares of preferred stock:
<TABLE>
<CAPTION>
Shares Par Liquidation
Outstanding Value Preference
----------- ----- -----------
<S> <C> <C> <C>
Series A 2,500 $ 1 $ 2,500
Accrued, unpaid dividends 1,037
Series C 5,715 - 5,715
Accrued, unpaid dividends 67
Series D 2,853 - 2,853
------ --- -------
11,068 $ 1 $12,172
====== === =======
</TABLE>
Preferred stock dividends during the three and six months ended July 31,
1999 and 1998 consist of:
<TABLE>
<CAPTION>
Three Months Ended July 31, Six Months Ended July 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Accrued, unpaid dividends (Series A) $ 38 $ 38 $ 75 $ 75
Accrued, unpaid dividends (Series C) 67 - 67 -
Deemed dividends (Series C) 42 1,264 103 1,264
Dividends paid (Series C) - - 240 -
----- ------- ----- -------
Net loss available to common
shareholders used in basic EPS $ 147 $ 1,302 $ 485 $ 1,339
===== ======= ===== =======
</TABLE>
8
<PAGE>
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
OTHER CAPITAL STOCK TRANSACTIONS
In July 1998, approval was granted for a one for three stock split
effective July 24, 1998. The effect of this change was reflected in the
financial statements retroactively as if the reverse stock split occurred at the
beginning of the earliest period reported.
During the quarter ended July 31, 1999, 144,578 shares of our common stock
was issued upon conversion of 840 shares of Series C preferred stock.
STOCK OPTION PLANS
We have three stock options plans in effect: The 1988 Stock Option Plan,
the 1997 Incentive and Non-Qualified Stock Option Plan and the 1997 Director
Stock Option Plan. The stock options have been made available to certain
employees and consultants. All options are 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 our officers, directors,
employees and consultants to maximize their contribution towards our success. At
July 31, 1999 there were 2,499,445 shares under option at prices varying from
$3.00 to $45.00 per share.
EARNINGS PER SHARE CALCULATION
The following data show the amounts used in computing basic earnings per
share for the quarters and six months ended July 31, 1999 and 1998.
<TABLE>
<CAPTION>
Three Months Ended July 31, Six Months Ended July 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net loss $ (2,613) $ (4,465) $ (4,885) $ (7,143)
Less: preferred dividends ( 147) (1,302) ( 485) (1,339)
-------- -------- -------- --------
Net loss available to common
shareholders used in basic EPS $ (2,760) $ (5,767) $ (5,370) $ (8,482)
======== ======== ======== ========
Average number of common shares
used in basic EPS 9,041,465 7,235,336 8,962,470 7,087,216
========= ========= ========= =========
</TABLE>
We had a net loss for the quarters and six months ended July 31, 1999 and
1998. Accordingly, the effect of dilutive securities including convertible
debentures, convertible preferred stock, vested and nonvested stock options and
warrants to acquire common stock are not included in the calculation of EPS
because their effect would be antidilutive. The following data shows the effect
on income and the weighted average number of shares of dilutive potential common
stock.
9
<PAGE>
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended July 31, Six Months Ended July 31,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net loss available to common
shareholders used in basic EPS $ (2,760) $ (5,767) $ (5,370) $ (8,482)
Interest on convertible debt (net of tax) - 11 - 22
-------- -------- -------- --------
Net loss available to common
shareholders used in basic EPS $ (2,760) $ (5,756) $ (5,370) $ (8,460)
======== ======== ======== ========
Average number of common shares
used in basic EPS 9,041,465 7,235,336 8,962,470 7,087,216
Effect of dilutive securities:
Shares issuable pursuant to
contracts that may be settled in
stock - 172,039 - 86,020
Convertible preferred stock 635,440 157,249 666,703 162,316
Convertible debentures - 59,059 - 48,987
Stock benefit plans 582,006 47,329 793,722 100,818
Warrant exercises 118,105 - 168,372 5,125
---------- --------- ---------- ---------
Average number of common shares
and dilutive potential common
stock used in diluted EPS 10,377,016 7,671,012 10,591,267 7,490,482
========== ========= ========== =========
</TABLE>
The shares issuable upon exercise of options and warrants represents the
quarterly average of the shares issuable at exercise net of the shares assumed
to have been purchased, at the average market price for the period, with the
assumed exercise proceeds. Accordingly, options and warrants with exercise
prices in excess of the average market price for the period are excluded because
their effect would be antidilutive.
10
<PAGE>
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
SEGMENT INFORMATION
<TABLE>
<CAPTION>
Network Optical
Access NETsilicon Networking Other Total
------ ---------- ---------- ----- -----
<S> <C> <C> <C> <C> <C>
Three months ended July 31, 1999:
Revenues from external customers $ 6,585 $ 7,516 $ 3,105 $ - $ 17,206
Intersegment revenues - - - - -
------- ------- ------- ------- --------
Total revenues 6,585 7,516 3,105 - 17,206
------- ------- ------- ------- --------
Operating income (loss) from
continuing operations 16 483 (1,587) (826) (1,914)
Depreciation & amortization expense 494 350 238 - 1,082
Valuation allowance additions
(reductions) 282 609 (130) - 761
Capital asset additions, net 123 408 231 - 762
Total assets 19,473 9,591 21,650 20,860 71,574
Three months ended July 31, 1998:
Revenues from external customers $ 8,513 $ 3,199 $ 3,389 $ - $ 15,101
Intersegment revenues - - - - -
------- ------- ------- ------- --------
Total revenues 8,513 3,199 3,389 - 15,101
------- ------- ------- ------- --------
Operating income (loss) from
continuing operations (1,996) 51 (437) (734) (3,116)
Depreciation & amortization expense 596 202 184 1 983
Valuation allowance additions
(reductions) 406 (86) 682 - 1,002
Capital asset additions, net 99 266 209 - 574
Total assets 17,677 10,121 16,361 27,398 71,557
</TABLE>
11
<PAGE>
OSICOM TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
SEGMENT INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
Network Optical
Access NETsilicon Networking Other Total
------ ---------- ---------- ----- -----
<S> <C> <C> <C> <C> <C>
Six months ended July 31, 1999:
Revenues from external customers $ 13,004 $ 13,330 $ 10,001 $ - $ 36,335
Intersegment revenues - - - - -
-------- -------- -------- ------- --------
Total revenues 13,004 13,330 10,001 - 36,335
-------- -------- -------- ------- --------
Operating income (loss) from
continuing operations (534) 737 (800) (1,909) (2,506)
Depreciation & amortization expense 989 496 457 - 1,942
Valuation allowance additions
(reductions) 73 674 (22) - 725
Capital asset additions, net 243 470 417 - 1,130
Total assets 19,473 9,591 21,650 20,860 71,574
Six months ended July 31, 1998:
Revenues from external customers $ 16,509 $ 5,384 $ 7,996 $ - $ 29,889
Intersegment revenues - - - - -
-------- ------- ------- ------- --------
Total revenues 16,509 5,384 7,996 - 29,889
-------- -------- -------- ------- --------
Operating income (loss) from
continuing operations (3,586) (389) 519 (1,752) (5,208)
Depreciation & amortization expense 1,030 255 363 1 1,649
Valuation allowance additions
(reductions) 815 (76) 112 - 851
Capital asset additions, net 310 232 611 - 1,153
Total assets 17,677 10,121 16,361 27,398 71,557
</TABLE>
12
<PAGE>
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 our Form 10-K for the year ended January 31, 1999.
RESULTS OF OPERATIONS/COMPARISON OF THE QUARTER ENDED AND SIX MONTHS ENDED
JULY 31, 1999 AND 1998
Consolidated net sales from our continuing operations were $17.2 for the quarter
ended July 31, 1999 compared to $15.1 million for the same quarter ended July
31, 1998, an increase of 13.9%. For the six months ended July 31, 1999, our
consolidated net sales from continuing operations increased to $36.3 million
from $29.9 million from the same period ended July 31, 1998, an increase of
21.5%. Our NETsilicon business unit net sales increased by 134.9% during the
quarter ended July 31, 1999 over the quarter ended July 31, 1998. Net sales for
our Network Access business unit and Optical Networking business unit decreased
by 22.6% and 8.4% respectively for the quarter ended July 31, 1999 from the
comparable quarter last year. For the six months ended July 31, 1999, net sales
in our NETsilicon and Optical Networking business units increased by $7.9
million and $2.0 million respectively from the comparable six months last year.
Net sales for our Network Access business unit decreased by 21.2% for the six
months ended July 31, 1999 from the comparable period last year. Our backlog
from continuing operations increased to $21.7 million as of July 31, 1999 from
$9.7 million as of July 31, 1998.
Consolidated gross margins from our continuing operations increased to 47.2% for
the quarter ended July 31, 1999 from 44.6% for the same quarter ended July 31,
1998. Gross margins in our NETsilicon and Optical Networking business units
increased during the quarter, while our Network Access business unit reported a
decrease in gross margins from the same quarter ended a year ago. Our gross
margins for the six months ended July 31, 1999 remained unchanged from the gross
margins reported for the six months ended July 31, 1998.
Our consolidated selling and marketing expenses increased slightly to $4.5
million for the quarter ended July 31, 1999 from $4.2 million for the same
quarter last year. As a percentage of net sales, selling and marketing expenses
decreased to 26.2% of net sales for the quarter ended July 31, 1999 from 27.9%
for the quarter ended July 31, 1998. Our selling and marketing expenses
increased by $245,000 or 2.9% for the six months ended July 31, 1999 from the
comparable six-month period last year. As a percentage of net sales, selling and
marketing expenses decreased to 23.8% of net sales from 28.1% for the six months
ended July 31, 1998.
Our consolidated engineering, research and development expenses decreased by
$169,000 to $2.5 million for the quarter ended July 31, 1999 from the comparable
quarter last year and decreased the same amount for the six months ended July
31, 1999 from the comparable six-month period last year. Our research,
engineering and development costs as a percentage of net sales decreased to
14.7% and 13.1% for the quarter and six months ended July 31, 1999,
respectively, from 17.8% and 16.5% for the same comparable periods ended July
31, 1998.
Our consolidated general and administrative expenses remained unchanged at $2.9
million for the quarters ended July 31, 1999 and 1998. As a percentage of net
sales, however, our general and administrative expenses decreased to 16.8% of
net sales from 19.0% for the comparable quarter last year. Our general and
administrative expenses for the six months ended July 31, 1999 increased
$245,000 to $5.9 million, a 4.3% increase over the six months ended July 31,
1998. As a percentage of net sales, however, our general and administrative
expenses decreased to 16.3% of net sales from 19% for the comparable six-month
period last year.
Other operating expenses of $93,000 and $186,000 from continuing operations
remained unchanged during the quarter and six months ended July 31, 1999
compared to the same quarter and six month periods ended July 31, 1998. These
charges represent amortization of purchased technology costs related to
acquisitions.
Net other expenses of continuing operations increased to $579,000 and $1.0
million for the three and six-month periods ended July 31, 1999. These increases
reflect the interest expense incurred on increased borrowings on our
13
<PAGE>
lines of credit, short term borrowing facilities and long term debt which
increased by $4.7 million during the six months ended July 31, 1999.
There was no provision for income taxes for the quarters and six months ended
July 31, 1999 and 1998. We have carry forwards 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
carry forwards as provided by the Internal Revenue Code with respect to future
ownership changes, future availability of the tax benefits is not assured. In
addition, we provide 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
assets will not be realized.
The loss from discontinued operations, our Wireless Products business unit,
decreased to $120,000 for the quarter ended July 31, 1999 from $1.1 million for
the same quarter ended July 31, 1998. The decreased loss is the result of a 49%
increase in net sales.
OPTICAL NETWORKING
Net sales in our Optical Networking business unit were $3.1 million for the
quarter ended July 31, 1999 compared to $3.4 million for the quarter ended July
31, 1998. Net sales increased to $10.0 million for the six months ended July 31,
1999 from $8.0 million for the comparable six-month period last year. Higher
sales of our GigaMux product family were the primary reasons for this increase.
Our gross margins increased to 44.8% for the quarter ended July 31, 1999 from
34.7% for the quarter ended July 31, 1998. Our gross margins increased to 50.5%
for the six months ended July 31, 1999 from 43.8% for the six months ended July
31, 1998. The higher gross margins are directly related to the increased sales
of our GigaMux product family.
Our selling and marketing expenses were $1.5 million for the quarter ended July
31, 1999 compared to $535,000 for the quarter ended July 31, 1998. For the six
months ended July 31, 1999 our selling and marketing expenses increased to $3.1
million from $1.0 million for the comparable six-month period a year ago. During
the current quarter and six-month period, we increased our selling and marketing
efforts to support continued growth of our GigaMux product family. Our increases
in spending includes the expansion of our sales force, participation in trade
shows and travel expenditures, and sales commissions for external sales
representatives, primarily in support of our GigaMux products.
Our engineering expenses were $672,000 during the quarter ended July 31, 1999
compared to $460,000 for the same quarter ended one year ago. We spent
approximately $200,000 in product development costs during the quarter ended
July 31, 1999 compared to $25,000 for the quarter ended July 31, 1998. During
the six months ended July 31, 1999, our engineering, research and development
spending increased to $1.2 million from $833,000 for the six months ended July
31, 1998. As a percentage to net sales, our engineering, research and
development expenses increased during the quarter to 21.6% from 13.6% from the
same period a year ago, but remained relatively constant at 11.6% for the six
months ended July 31, 1999 compared to 10.4% for the same period a year ago. We
continue to invest our efforts in the research and development in our GigaMux
product family as well as other new products.
Our general and administrative expenses increased to $739,000 from $526,000 for
the quarter ended July 31, 1999 compared to the quarter ended July 31, 1998. Our
general and administrative expenses increased to $1.4 million for the six months
ended July 31, 1999 from $947,000 for the six months ended July 31, 1998. These
increases reflect our strengthening of the infrastructure to provide sufficient
administrative support towards the planned growth of our GigaMux business both
domestically and internationally.
14
<PAGE>
Other operating expenses of $93,000 and $186,000 for the quarter and six months
ended July 31, 1999 remained unchanged compared to the same periods ended July
31, 1998. These costs represent the amortization of purchased technology related
to prior acquisitions.
NETWORK ACCESS
Net sales were $6.6 million for our Network Access business unit for the quarter
ended July 31, 1999 compared to $8.5 million for the comparable quarter ended
July 31, 1998. Our net sales were $13.0 million for the six months ended July
31, 1999 compared to $16.5 million for the same period last year. Lower sales in
our Remote Access and LAN-adapter product categories were the primary reasons
for the decline. Our net sales decline during the quarter and for the six months
corresponds directly to a shift towards our new generation of products, and the
planned phase out of our legacy products.
Our gross margins decreased to 44.5% for the quarter ended July 31, 1999
compared to 45.4% for the same ended July 31, 1998. For the six months ended
July 31, 1999, our gross margins decreased to 41.9% from 46.2% for the six-month
period ended July 31, 1998. The impact of increased costs of raw materials used
in our LAN product group was reflected in the quarter and six months ended July
31, 1999, resulting in the lower gross margins.
Our selling and marketing expenses decreased to $1.3 million or 20% of net sales
for the quarter ended July 31, 1999 from $3.0 million or 35.8% of net sales for
the quarter ended July 31, 1998. Our selling and marketing expenses decreased to
$2.5 million for the six months ended July 31, 1999 from $6.1 million for the
six months ended July 31, 1998. Selling and marketing expenses as a percentage
of net sales decreased to 18.9% for the six months ended July 31,1999 compared
to 37% for the comparable six month period last year. During the past fiscal
year, we completed a realignment of our sales organization, which resulted in a
net personnel reduction of 24. Employee related costs were reduced by $936,000
for the six months ended July 31, 1999.
Our engineering, research and development expenses decreased to $1.1 million for
the quarter ended July 31, 1999 from $1.7 million for the quarter ended July 31,
1998. Our engineering, research and development expenses decreased to $2.3
million for the six months ended July 31, 1999 from $3.2 million for the six
months ended July 31, 1998. These expenses as a percentage of net sales was
17.7% for the six months ended July 31, 1999, down from 19.1% for the six months
ended July 31, 1998. This decline for the quarter and six months ended July 31,
1999 is the result of cost savings achieved by the consolidation of our
facilities partially offset by increased amortization of capitalized software
costs.
Our general and administrative expenses decreased to $542,000 for the quarter
ended July 31, 1999 from $1.1 million for the quarter ended July 31, 1998.
Our general and administrative expenses for the six months ended July 31, 1999,
decreased by $579,000 from the same six months ended July 31, 1998. This
decrease is the result of cost savings achieved in the integration of the print
server product line transferred from NETsilicon to the Network Access business
unit.
NETsilicon
Our net sales increased to $7.5 million for the three months ended July 31, 1999
from $3.2 million for the three months ended July 31, 1998, representing an
increase of 134.9%. For the six months ended July 31, 1999, our net sales
increased to $13.3 million from $5.4 million for the comparable six-month period
ended July 31, 1998, an increase of 147.6%. This increase in net sales was the
result of the increase in the number of OEM customers to which we shipped
product to 30 customers in the six months ended July 31, 1999 from 14 customers
in the six months ended July 31, 1998.
Our gross profit increased to $3.8 million, or 50.6% of net sales, for the three
months ended July 31, 1999 from $1.7 million, or 53.2% of net sales, in the
three months ended July 31, 1998, representing an increase of 123.3%. Our gross
profit increased to $6.5 million from $2.8 million for the six months ended July
31, 1999 compared to the same six month period ended a year ago. Our gross
margin decline in the three and six month periods ended July 31, 1999 was due
primarily to a decline in our average sales prices.
Our selling and marketing expenses increased to $1.7 million, or 23% of net
sales, for the three months ended July 31, 1999 from $626,000, or 19.6% of net
sales, in the three months ended July 31, 1998. Our selling and marketing
15
<PAGE>
expenses for the six months ended July 31, 1999 increased to $3.1 million from
$1.3 million for the same six-month period ended July 31, 1998. This increase
was the result of expenses incurred due to increased sales volume such as a
$627,000 increase in commissions. We also incurred $384,000 in additional
personnel costs and $240,000 attributable to the opening of our European sales
office.
Engineering, research and development expenses increased to $802,000, or 10.7%
of net sales, for the three months ended July 31, 1999 from $502,000, or 15.7%
of net sales in the three months ended July 31, 1998. Our engineering, research
and development expenses increased to $1.3 million or 9.8% of net sales compared
to $950,000 or 17.7% for the same six month period ended July 31, 1998. This
increase was due to the increased expenditures associated with the development
of our NET+Works family of products. Software development costs of $509,000 and
$192,000 in the six months ended July 31, 1999 and 1998, respectively, were
capitalized and are being amortized over the products' useful lives estimated at
three years. Amortization expenses related to capitalized software development
costs for the six months ended July 31, 1999 and 1998 were $290,000 and $59,000,
respectively.
General and administrative expenses increased to $788,000 or 10.5% of net sales,
for the three months ended July 31, 1999 from $405,000 or 12.7% of net sales,
for the three months ended July 31, 1998. Our general and administrative
expenses increased to $1.4 million from $758,000 for the six months ended July
31, 1999, compared with the comparable six-month period last year. The increase
in these expenses was attributable to a newly formed information systems group
as well as other expenses needed to support increased sales.
LIQUIDITY AND CAPITAL RESOURCES
We finance our operations through a combination of debt and equity financing. At
July 31, 1999, our working capital was $3.2 million including $1.4 million in
cash and cash equivalents.
Our continuing operating activities used cash flows of $362,000 and discontinued
operating activities used cash of $925,000 during the six months ended July 31,
1999. During the same period last year, we incurred a $6.1 million cash flow
deficit from continuing operations and a $607,000 net cash flow deficit from
discontinued operations. The decrease in cash flows used by operations reflects
a substantial decline in our net loss as well as increases in accounts payable
and accrued liabilities, partially offset by increases in accounts receivable
and inventories.
Investing activities of continuing operations during the six months ended July
31, 1999 consisted primarily of purchases of property and equipment of $1.1
million and expenditures for software development costs capitalized of $809,000.
During the six-month period ended July 31, 1998 our investing activities
included $1.2 million in purchases of property and equipment, and $1.1 million
in expenditures for capitalized software development costs.
Our continuing operations financing activities during the six-month period ended
July 31, 1999 provided net cash flows of $6.0 million and the financing
activities of discontinued operations used cash of $4.3 million. The net cash
provided by the financing activities of continuing operations included $3.8
million from net proceeds from short-term borrowings, $1.6 million from stock
option exercises, $886,000 from long-term debt offset by $240,000 of dividends
paid to our preferred shareholders.
At July 31, 1999, our continuing operations had various lines of credit and
short term borrowing facilities totaling $22.5 million. Our outstanding
short-term borrowings against these credit facilities was $15.8 million at July
31, 1999. These credit facilities include $20 million provided by Coast Business
Credit, a division of Southern Pacific Bank, an asset based lender. During the
six months ended July 31, 1999, the credit facilities were increased from $18
million to $20 million. The credit lines are collateralized by accounts
receivable, inventory and equipment. Discontinued operations have additional
credit facilities of $7.4 million provided by various institutions in the Far
East which are collateralized by our Wireless segment's leasehold land and
buildings, fixed bank deposits and inventories.
16
<PAGE>
Year 2000 Compliance
The Year 2000 issue refers generally to the problems that some software may have
in determining the correct century for the year. For example, software with
date-sensitive functions that is not Year 2000 compliant may not be able to
distinguish whether `00' means 1900 or 2000, which may result in failures or the
creation of erroneous results. During fiscal 1998 we commenced taking steps to
address potential Year 2000 problems, including (i) identifying the computer
systems and products affected; (ii) contacting vendors and customers; (iii)
determining the Year 2000 compliance status of each of its systems and products;
and (iv) implementing any necessary changes. Although we do not currently expect
the Year 2000 issue will be material to our systems or products, we could
discover (or fail to discover) Year 2000 issues in the course of our evaluation
process that would have a material adverse effect on our business, results of
operations or financial condition if not properly addressed.
We have completed a review of our products and have ascertained that our
products are Year 2000 compliant. We have tested software obtained from third
parties that is incorporated into our products, and we are seeking assurances
from our vendors that their licensed software is Year 2000 compliant.
Furthermore, we are surveying all vendors requesting information concerning
exposure to Year 2000 problems and the results are not complete. We expect to
complete this process by September 1999. We have received representation from
certain vendors, including some of our sole source vendors, as to the Year 2000
compliance of their systems and products. Despite our testing and our current
and potential customers, and assurances from the vendors of the software and
hardware incorporated into the products, our products may contain undetected
errors or defects associated with Year 2000 date functions. Known or unknown
errors or defects in such products could severely disrupt our operations and
have a material adverse effect on our business, financial condition, cash
flows and results of operations.
Our internal systems include both information technology ("IT") and non-IT
systems. We have completed an assessment of its material internal IT and non-IT
systems, including software and hardware technology. To the extent we cannot
test the technology, we seek assurances from such vendors that their systems are
Year 2000 compliant. We are not aware of any material operational issues or
costs associated with preparing our internal IT and non-IT systems for the Year
2000; however, we may experience material unanticipated problems and costs
caused by undetected errors or defects in the technology used in our internal IT
and non-IT systems. We intend to complete the remediation of any non-Year 2000
compliant technology by October 1999.
We are surveying our customers requesting information concerning exposure to
Year 2000 problems and the results are not complete. Our current and potential
customers may incur significant expense to achieve Year 2000 compliance. If such
customers are not Year 2000 compliant, they may incur material costs to remedy
problems or face litigation costs. As a result, such customers and potential
customers could reduce or eliminate plans that they have to purchase our
products or services. Such events could have a material effect on our business,
financial condition, cash flows and results of operations.
The efforts to address the Year 2000 issue has been funded from available cash
and has not separately accounted for these costs in its financial statements.
The costs of addressing this issue is currently estimated to be approximately
$400,000 but the final cost has not yet been determined; all costs, excluding
third party vendor software upgrades costing $200,000 have been expensed as
incurred.
We do not believe the risks of Year 2000 compliance are material, therefore we
have not yet established a contingency plan in the event that we or our
customers or vendors cannot correct the Year 2000 problem. In the event that we
or our customers or vendors cannot correct the Year 2000 problem we will
allocate the appropriate resources at that time. However, we are subject to
external forces that may affect industry and commerce generally, such as utility
or transportation company Year 2000 compliance failures and related service
interruptions.
We believe we have sufficient working capital to meet its planned level of
operations for fiscal 2000. However, there can be no assurance that our working
capital requirements for fiscal 2000 will not exceed our ability to generate
sufficient cash internally to support its requirements and the needed capital
will have to be obtained from external sources. We cannot give any assurances
that sufficient capital, at terms acceptable to us, will be available when
needed.
17
<PAGE>
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board has issued several SFAS effective in
the current and future periods including SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities," SFAS No. 134 "Accounting for
Mortgage-Backed Securities Retained After the Securitization of Mortgage Loans
Held for Sale by a Mortgage Banking Enterprise," and SFAS No. 135 "Rescission of
FASB Statement No. 75 and Technical Corrections". The Accounting Standards
Executive Committee issued SOP 98-1 "Accounting for the Costs Computer Software
Developed or Obtained for Internal Use" and SOP 98-5 "Reporting on the Costs of
Start-up Activities" effective in the current or future periods. The adoption of
these standards has had no material effects, if any, on our financial position
or results of operations.
OTHER MATTERS
Several purported securities class action lawsuits have been filed against us,
our CEO, our President and our former Chief Financial Officer. See Part II, Item
1, "Other Information - Legal Proceedings".
FLUCTUATIONS IN REVENUE AND OPERATING RESULTS
The networking and bandwidth aggregation industry is subject to fluctuation and
the declines and increases recently experienced by us are not necessarily
indicative of the operating results for any future periods. Our 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; availability of parts; 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-Q, in our future filings with the Securities
and Exchange Commission, in our press releases and in oral statements made with
the approval of an authorized executive officer, 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 any such expressions made by
a third party with respect to us) are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. Such forward-looking statements include our plans to introduce network
management, all optical networking equipment, Gigabit Ethernet, scaleable remote
access servers with broad practical support and aggregation possibilities, and
our plans to develop new products, expand our sales force, expand our customer
base, make acquisitions, establish strategic relationships and expand within
international markets. Such forward-looking statements also include our
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 use of the Internet, expansion of switches between LANs,
remote access for 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. Further reference should be made to the "Risk Factors" section
contain in Part I, Item 1 of our Annual Report on Form 10-K for the year ended
January 31, 1999.
We wish 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 more fully
in our Annual Report on Form 10-K. We specifically decline 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, or to update the
reasons why actual results could differ from those projected in the
forward-looking statements.
18
<PAGE>
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to financial market risks, including changes in interest rates
and foreign exchange current exchange rates. We believe that the relatively
moderate rate of inflation in the United States over the past few years and the
relatively stable interest rates incurred on short term financing have not had a
significant impact on our sales, operating results or prices of raw materials.
There can be no assurance, however, that inflation or an upward trend in short
term interest rates will not have a material adverse effect on our operating
results in the future.
A substantial majority of our revenues, expenses and capital purchasing
activities are transacted in U.S. dollars and to date we have not been
significantly affected by currency fluctuations. However, we conduct business in
several different countries and fluctuations in currency exchange rates could
cause our products to become relatively more expensive in particular countries,
leading to a reduction in sales in that country.
19
<PAGE>
PART II
OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
The nine purported shareholder class action cases filed in the United
States District Court for the Central District of California against
the Company and certain present and former officers and directors
have been consolidated by the court into a single case, and a
consolidated complaint was filed on August 20, 1999. The consolidated
complaint generally alleges that, during the purported class period,
the defendants made false or misleading public statements related to
a contract entered into by our Wireless Products division with a
Japanese customer which caused the price of our common stock to be
artificially inflated. The consolidated complaint asserts that
the defendants' conduct violated Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934, and SEC Rule 10b-5 promulgated
thereunder. The consolidated complaint does not specify an amount of
damages. We intend to defend the consolidated complaint and any other
similar lawsuits vigorously. An unfavorable outcome in such litigation
could have a material adverse affect on our financial condition and
results of operations.
From time to time we are involved in various legal proceedings
incidental to the conduct of its business. We believe that none of
these proceedings will have a material adverse impact on our financial
condition or results of operations.
ITEM 2: CHANGES IN SECURITIES
None
ITEM 3: DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4: SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS
Not Applicable
ITEM 5: OTHER INFORMATION
Not Applicable
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<S> <C> <C>
A. Exhibits
20 Consolidated Financial Statements for the Quarter
and Six Months Ended July 31, 1999 (included in
Part I, Item 1)
27 Financial Data Schedule
B. Reports on Form 8-K
None
</TABLE>
20
<PAGE>
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 14, 1999
---------------------------------
Christopher E. Sue,
Vice President Finance
Principal Accounting Officer
21
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