<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1 TO FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 1999.
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____ to ____.
Commission file number: 0-17972
DIGI INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
Delaware 41-1532464
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
11001 Bren Road East
Minnetonka, Minnesota 55343
(Address of principal executive offices) (Zip Code)
(612) 912-3444
(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 ___
On April 22, 1999, there were 14,604,312 shares of the registrant's $.01 par
value Common Stock outstanding.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
INDEX
Page
RESTATEMENT OF FINANCIAL STATEMENTS.......................................3
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Statement of Operations
for the three months and six months ended
March 31, 1999 and 1998.................................4
Condensed Consolidated Balance Sheet as of
March 31, 1999 and September 30, 1998...................5
Condensed Consolidated Statement of Cash Flows
for the six months ended March 31, 1999 and 1998........6
Notes to Condensed Consolidated Financial
Statements..............................................7
Review Report of Independent Accountants...............14
ITEM 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition..........15
Forward-looking Statements.............................21
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings......................................22
ITEM 6. Exhibits and Reports on Form 8-K.......................24
2
<PAGE>
RESTATEMENT OF FINANCIAL STATEMENTS AND
CHANGES TO CERTAIN INFORMATION
The Registrant previously announced that it would revise the accounting
treatment of its July 1998 acquisitions of ITK International, Inc. and Central
Data Corporation in response to comments received from the Securities and
Exchange Commission. Accordingly, this Quarterly Report on Form 10-Q/A is being
filed as Amendment No. 1 to the Registrant's Quarterly Report on Form 10-Q filed
with the Securities and Exchange Commission on May 17, 1999 for the purpose of
restating financial information and related disclosures for the three and six
month periods ended March 31, 1999. See Note 1 to the Condensed Consolidated
Financial Statements.
3
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DIGI INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended March 31 Six months ended March 31
---------------------------------- --------------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
(As Restated) (As Restated)
Net sales $ 42,631,488 $ 45,058,973 $ 94,026,510 $ 87,649,032
Cost of sales 24,153,615 21,993,344 49,057,929 43,214,657
------------ ------------ ------------ -------------
Gross margin 18,477,873 23,065,629 44,968,581 44,434,375
------------ ------------ ------------ ------------
Operating expenses:
Sales and marketing 10,972,993 9,007,379 22,947,075 17,266,872
Research and development 5,887,729 3,948,109 12,363,946 7,759,010
General and administrative 6,770,104 3,445,691 13,184,589 7,055,815
Restructuring 1,452,909 - 1,452,909 --
------------ ------------ ------------ ------------
Total operating expenses 25,083,735 16,401,179 49,948,519 32,081,697
------------ ------------ ------------ ------------
Operating (loss) income (6,605,862) 6,664,450 (4,979,938) 12,352,678
Other (expense) income, principally
interest (35,517) 548,470 (245,302) 817,355
------------ ------------ ------------ ------------
(Loss) income before income taxes (6,641,379) 7,212,920 (5,225,240) 13,170,033
(Benefit) provision for income taxes (4,390,253) 2,547,584 (3,448,658) 4,662,359
------------ ------------ ------------ ------------
Net (loss) income $ (2,251,126) $ 4,665,336 $ (1,776,582) $ 8,507,674
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net (loss) income per common share,
basic $ (0.15) $ 0.35 $ (0.12) $ 0.63
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net (loss) income per common share,
assuming dilution $ (0.15) $ 0.33 $ (0.12) $ 0.60
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average common shares, basic 14,590,771 13,508,084 14,581,396 13,494,509
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Weighted average common shares,
assuming dilution 14,590,771 14,265,107 14,581,396 14,149,319
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
4
<PAGE>
DIGI INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 31 September 30
1999 1998
------------- ------------
(As Restated) (As Restated)
(unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 11,260,148 $ 10,355,368
Accounts receivable, net 32,803,190 48,549,145
Inventories, net 28,474,757 27,365,924
Other 5,563,774 6,139,941
------------- ------------
Total current assets 78,101,869 92,410,378
Property, equipment and improvements, net 31,409,183 33,990,923
Intangible assets, net 57,141,579 63,602,435
Other 2,281,518 2,978,883
------------- ------------
Total assets $ 168,934,149 $ 192,982,619
------------- ------------
------------- ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings under line of credit agreements $ 4,909,407 $ 10,707,000
Current portion of long-term debt 38,415 264,025
Accounts payable 10,612,010 15,255,175
Income taxes payable 155,760 3,797,588
Accrued expenses:
Advertising 2,282,076 2,651,742
Compensation 4,229,741 6,776,292
Other 7,579,988 9,808,835
Restructuring accruals 4,521,226 5,254,000
------------- ------------
Total current liabilities 34,328,623 54,514,657
Long-term debt 9,596,916 11,124,446
Net deferred income taxes 4,624,533 5,817,933
Other - 275,000
------------- ------------
Total liabilities 48,550,072 71,732,036
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; 2,000,000 shares
authorized; none outstanding
Common stock, $.01 par value; 60,000,000 shares
authorized; 15,885,079 and 15,790,975 shares issued 158,851 157,910
Additional paid-in capital 69,882,481 70,461,123
Retained earnings 73,266,224 75,042,806
Cumulative other comprehensive loss (262,314) (815,809)
------------- ------------
143,045,242 144,846,030
Unearned stock compensation (493,277) (1,700,635)
Treasury stock, at cost, 1,321,368 and 1,247,094
shares (22,167,888) (21,894,812)
------------- ------------
Total stockholders' equity 120,384,077 121,250,583
------------- -----------
Total liabilities and stockholders' equity $ 168,934,149 $ 192,982,619
------------- ------------
------------- ------------
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
<PAGE>
DIGI INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
------------- ------------
(As Restated)
<S> <C> <C>
Operating activities:
Net (loss) income $ (1,776,582) $ 8,507,674
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Restructuring $ 1,172,672 $ -
Depreciation and amortization 8,886,709 3,380,308
Provision for losses on accounts receivable 285,000 707,992
Provision for inventory obsolescence 2,895,399 3,084,569
(Gain) loss on sale of fixed assets (5,227) 122,421
Stock compensation 459,023 531,827
Changes in operating assets and liabilities (2,043,917) 340,760
----------- -----------
Total adjustments 11,649,659 8,167,877
----------- -----------
Net cash provided by operating activities 9,873,077 16,675,551
----------- -----------
Investing activities:
Purchase of property, equipment and
improvements, and intangibles (3,052,230) (3,469,771)
Proceeds from the sale of property, equipment and
improvements 857,622 12,713
Investment in AetherWorks Corporation - (2,000,000)
----------- -----------
Net cash used in investing activities (2,194,608) (5,457,058)
----------- -----------
Financing activities:
Principal payments on borrowings (5,979,904) -
Treasury stock purchase (815,000) -
Proceeds from exercise of stock options and
employee stock purchases 712,728 563,718
------------ ------------
Net cash (used in) provided by financing activities (6,082,176) 563,718
------------ ------------
Effect of exchange rate changes on cash and cash equivalents (691,513) -
Net increase in cash and cash equivalents 904,780 11,782,211
Cash and cash equivalents, beginning of period 10,355,368 31,329,666
------------ ------------
Cash and cash equivalents, end of period $ 11,260,148 $ 43,111,877
------------ ------------
------------ ------------
</TABLE>
6
<PAGE>
DIGI INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The interim condensed consolidated financial statements included in this Form
10-Q have been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC). 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. These condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and related notes thereto included in the Company's 1998
Annual Report and Form 10-K/A.
The condensed consolidated financial statements presented herein as of March 31,
1999, and for the three months and six months ended March 31, 1999, and 1998,
reflect, in the opinion of management, all adjustments (which, other than the
second quarter 1999 restructuring charges, consist only of normal, recurring
adjustments) necessary for a fair presentation of the consolidated financial
position and the consolidated results of operations and cash flows for the
periods presented. The consolidated results of operations for any interim period
are not necessarily indicative of results for the full year.
After discussion with the staff of the Securities and Exchange Commission (the
SEC) the condensed consolidated financial statements as of September 30, 1998,
December 31, 1998, and March 31, 1999 and for the year ended September 30, 1998
and the three month period ended December 31, 1998 and the three and six month
periods ended March 31, 1999 have been restated to reflect a change in the
measurement and allocations of the purchase prices related to the July 1998
acquisitions of ITK and CDC.
The Company allocated amounts to IPR&D and intangible assets in the fourth
quarter of 1998 in a manner consistent with widely recognized appraisal
practices at the date of the acquisitions of ITK and CDC. Subsequent to the
acquisitions, the SEC staff expressed broad views that took issue with certain
appraisal practices generally employed by many public companies in determining
the fair value of IPR&D. As a result of these developments, the Company has
modified its valuation of IPR&D using the alternative income valuation approach.
In addition, in response to questions raised by the SEC about the Company's
measurement of the fair value of common stock and common stock options issued in
the ITK and CDC acquisitions, the Company has modified its valuation of this
portion of the purchase prices.
7
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BASIS OF PRESENTATION (CONTINUED)
As a result of valuing IPR&D using the alternative income valuation approach and
adjusting the measurement of the purchase prices, the Company, in consultation
with their independent accountants, has revised its measurement and allocations
of the purchase prices, including the amounts allocated to IPR&D. The effect of
these adjustments was to; reduce the aggregate amount originally allocated to
IPR&D from $39.2 million to $16.1 million; increase the aggregate amount
allocated to current technologies from $15.0 to $29.1 million; increase the
amount of net deferred tax liabilities from $0 to $6.3 million; increase
goodwill from $8.2 million to $27.4 million; increase additional paid in-capital
from $68.7 million to $70.5 million; and reduce unearned stock compensation from
$3.8 million to $1.7 million. These adjustments will also result in additional,
annual amortization expense, related to identifiable intangibles and goodwill of
approximately $5.0 million (assuming there are no future adjustments to reflect
impairments of such intangibles and goodwill).
The restatement does not affect previously reported net cash flows for the
periods presented. The effect of this restatement on previously reported
condensed consolidated financial statements as of and for the three and six
month periods ended March 31, 1999 is as follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1999
(Unaudited)
As Previously
Statements of Operations Data: Reported As Restated
----------- -----------
<S> <C> <C>
General and administrative expenses $5,527,153 $6,770,104
Total operating expenses 23,840,784 25,083,735
Operating loss (5,362,911) (6,605,862)
Loss before income taxes (5,398,428) (6,641,379)
Income tax benefit (2,890,040) (4,390,253)
Net loss $(2,508,388) $(2,251,126)
Net loss per share, basic $(0.17) $(0.15)
Net loss per share, assuming dilution $(0.17) $(0.15)
</TABLE>
8
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BASIS OF PRESENTATION (CONTINUED)
<TABLE>
<CAPTION>
Six Months Ended: March 31, 1999
(Unaudited)
As Previously
Reported As Restated
----------- -----------
<S> <C> <C>
Statements of Operations Data:
General and administrative expenses $10,679,442 $13,184,589
Total operating expenses 47,443,372 49,948,519
Operating loss (2,474,791) (4,979,938)
Loss before income taxes (2,720,093) (5,225,240)
Income tax benefit (1,577,655) (3,448,658)
Net loss $(1,142,438) $(1,776,582)
Net loss per share, basic $(0.08) $(0.12)
Net loss per share, assuming dilution $(0.08) $(0.12)
</TABLE>
<TABLE>
<CAPTION>
March 31, 1999 September 30, 1998
(Unaudited)
As Previously As Previously
Reported As Restated Reported As Restated
-------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
Balance Sheet Data
Intangible assets, net $31,240,847 $57,141,579 $31,354,483 $63,602,435
Total assets 143,033,417 168,934,149 160,734,667 192,982,619
Income taxes payable 833,194 155,760 3,797,588 3,979,588
Total current liabilities 35,066,055 34,328,623 54,514,657 54,514,657
Deferred income taxes - 4,624,533 - 5,817,933
Total liabilities 44,602,971 48,550,072 65,914,103 71,732,036
Additional paid-in capital 69,882,481 69,882,481 68,695,448 70,461,123
Retained earnings 51,312,593 73,266,224 52,455,031 75,042,806
Unearned stock compensation (493,277) (493,277) (3,777,204) (1,700,635)
Total stockholders' equity $98,430,446 $120,384,077 $94,820,564 $121,250,583
</TABLE>
9
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. RESTRUCTURING
In July 1998, the Company's Board of Directors approved a restructuring plan
related to the consolidation of its offices in Germany and England. The
restructuring plan relates to the closure of existing leased facilities rendered
redundant by the acquisition of ITK. The charge of $1,020,000 ($647,000 net of
tax benefits), consisted of $61,483 of noncancellable rent commitments the
Company expects to incur following closure of the Cologne, Germany facility,
$100,100 of contractual payment obligations for office furniture and other
equipment the Company expects to incur following the closure of the Cologne,
Germany facility, $202,039 related to the write-off of leasehold improvements in
connection with the closure of the Cologne, Germany facility and $656,368 of
termination payments associated with the elimination of six positions in
Cologne, Germany and Bagshot, England. The Company closed the Cologne facility
in December of fiscal 1999. As of March 31, 1999, $165,111 of termination
payments have been made relating to one employee in Bagshot, England, and
$33,278 of payments have been made relating to contractual obligations for idle
office equipment in Cologne, Germany. The Company expects to complete these
restructuring activities by June 1999. A summary of payments and adjustments is
included in the table below.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Balance at Change in Balance at
September 30, Estimate March 31,
Description 1998 Payments Adjustments 1999
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Severance and termination $ 656,368 $ (165,111) $ - $ 491,257
costs
Rent commitments
61,483 - - 61,483
Contractual payments for
office equipment 100,110 (33,278) - 66,832
Write-offs of leasehold
improvements 202,039 - - 202,039
--------------------------------------------------------------------
TOTAL $ 1,020,000 $ (198,389) $ - $ 821,611
--------------------------------------------------------------------
--------------------------------------------------------------------
</TABLE>
10
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. RESTRUCTURING (CONTINUED)
In connection with the Company's acquisition of ITK, the Company has formulated
a plan of reorganization and accordingly, has recognized a $3,484,000
restructuring liability which the Company has included as a component of total
liabilities assumed in the acquisition. Components of this estimated liability
include $1,844,000 of termination payments associated with 10 employees the
Company expects to eliminate at the Chelmsford, Massachusetts ITK location and
20 employees the Company expects to eliminate at the Dortmund, Germany location
and $1,640,000 of noncancellable rent obligations for facilities the Company
expects to incur following closure of facilities in Chelmsford, Massachusetts
and Bristol and Newbury, England. The Company plans to vacate the Chelmsford,
Bristol, and Newbury facilities in March 1999, October 1998 and May 1999,
respectively. As of March 31, 1999, $1,298,959 of payments have been made
relating to termination costs in Dortmund and $225,118 of payments have been
made related to rent commitments for vacant facilities in Bristol, England and
Chelmsford, Massachusetts. The Company expects to complete these restructuring
activities by June 1999. A summary of payments and adjustments is included in
the table below.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Description Balance at Change in Balance at
September 30 Estimate March 31,
1998 Payments Adjustments 1999
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Severance and termination costs $ 1,844,000 $ (1,298,959) $ - $ 545,041
Rent commitments 1,640,000 (225,118) - 1,414,882
--------------------------------------------------------------
TOTAL $ 3,484,000 $ (1,524,077) $ - $ 1,959,923
--------------------------------------------------------------
--------------------------------------------------------------
</TABLE>
In connection with the Company's acquisition of CDC, the Company has formulated
a plan of reorganization and accordingly, the Company has recognized a $750,000
restructuring liability which the Company has included as a component of total
liabilities assumed in the acquisition. Components of this estimated liability
include $675,000 of termination payments, associated with 22 employees the
Company expects to eliminate when it closes the Champaign, Illinois facility in
January 1999 and $75,000 related to facility closure costs the Company expects
to incur following closure and sale of the Champaign, Illinois facility. As of
March 31, 1999, $152,552 of payments have been made relating to termination
costs. The CDC facility was sold in January 1999. The Company expects to
complete these restructuring activities by June 1999. A summary of payments and
adjustments is included in the table below.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Description Balance at Change in Balance at
September 30 Estimate March 31,
1998 Payments Adjustments 1999
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Severance and termination costs $ 675,000 $ (152,552) $ - $ 522,448
Facility closure 75,000 - - 75,000
----------------------------------------------------------------
TOTAL $ 750,000 $ (152,552) $ - $ 597,448
----------------------------------------------------------------
----------------------------------------------------------------
</TABLE>
11
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. RESTRUCTURING (CONTINUED)
As a result of changes in management in fiscal 1999, the Company has not
completed the execution of the aforementioned restructuring plans. New
management of the Company is in the process of completing the execution of these
restructuring plans.
In March 1999, the Company's Board of Directors approved a restructuring plan
related to the reorganization of sales and marketing functions in Germany,
England and the United States, by consolidating worldwide sales and marketing
resources into strategic locations. The related charge of $1,452,909
($610,222 net of tax benefits) consists of $151,038 of existing commitments
for rent on facilities vacated by the Company in Hamburg, Nurnberg, and
Frankfurt Germany and $1,301,871 of termination payments associated with the
elimination of 44 positions in Dortmund Germany, Bagshot, England, Sunnyvale,
California, and Minneapolis Minnesota. As of March 31, 1999, $300,343 of
payments have been made related to termination costs for seven employees in
Dortmund, Germany, Sunnyvale, California, and Minneapolis, Minnesota. The
Company expects to complete these restructuring activities by December 31,
1999. A summary of payments and adjustments is included in the table below.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Change in
Beginning Estimate Balance at
Description Balance Payments Adjustments March 31, 1999
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Severance and
termination costs $ 1,301,871 $ (300,343) $ 1,001,528
Rent commitments 151,038 151,038
- ------------------------------------------------------------------------------------------
TOTAL $ 1,452,909 $ (300,343) $ - $ 1,152,566
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
</TABLE>
3. INVENTORIES
Inventories, net are stated at the lower of cost or market, with cost
determined on the first-in, first-out method. Inventories at March 31, 1999
and September 30, 1998 consisted of the following:
<TABLE>
<CAPTION>
March 31, 1999 September 30, 1998
-------------- ------------------
<S> <C> <C>
Raw materials $16,722,050 $13,707,999
Work in process 2,804,595 2,922,442
Finished goods 8,948,112 10,735,483
----------- -----------
$28,474,757 $27,365,924
----------- -----------
----------- -----------
</TABLE>
12
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. COMPREHENSIVE (LOSS) INCOME
Effective October 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income." The statement
establishes standards for the reporting and display of comprehensive (loss)
income and its components. Comprehensive (loss) income is defined as the
change in equity of a business enterprise during a period from transactions
and other events and circumstances from non-owner sources. It includes all
changes in equity during a period except those resulting from investments by
owners and distributions to owners. For the Company, comprehensive (loss)
income includes net (loss) income and foreign currency translation
adjustments that are charged or credited to stockholders' equity.
Comprehensive (loss) income for the three months and six months ended March
31, 1999 and 1998 was as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
March 31 March 31
------------------------- ------------------------
1999 1998 1999 1998
---- ---- ---- ----
(As Restated) (As Restated)
<S> <C> <C> <C> <C>
Net (loss) income $(2,251,126) $4,665,336 $(1,776,582) $8,507,674
Foreign currency
translation adjustments 72,409 - 553,495 -
------------ ---------- ------------ ----------
Comprehensive (loss)
income $(2,178,717) $4,665,336 $(1,223,087) $8,507,674
------------ ---------- ------------ ----------
------------ ---------- ------------ ----------
</TABLE>
5. NET (LOSS) INCOME PER SHARE
Basic net (loss) income per share is calculated based on only the weighted
average of common shares outstanding during the period. Net income per share,
assuming dilution, is computed by dividing net income by the weighted average
number of common and common equivalent shares outstanding during each period.
The Company's only common stock equivalents are those that result from
dilutive common stock options. Such common stock equivalents were excluded in
determining the weighted average common and common stock equivalents for the
three and six months ended March 31, 1999, because their effect was
anti-dilutive. The calculation of dilutive earnings per share excludes the
268,311 and 276,223 equivalent shares of the Company for the three months and
six months ended March 31, 1999, attributable to the common stock options
issued by the Company because their effect was anti-dilutive.
6. LEGAL PROCEEDINGS
Discussion of legal matters is incorporated by reference from Part II, Item I
of this Form 10-Q "Legal Proceedings" and should be considered an integral
part of these Consolidated Condensed Financial Statements and Accompanying
Notes.
13
<PAGE>
REVIEW REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
Digi International Inc.:
We have reviewed the accompanying condensed consolidated balance sheet of
Digi International Inc. and subsidiaries as of March 31, 1999, and the
related condensed consolidated statements of operations for the three and six
month periods ended March 31, 1999 and 19998, and cash flows for the six
month periods ended March 31, 1999, and 1998. These condensed consolidated
financial statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the condensed consolidated financial statements referred to
above for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of September 30, 1998, and the
related consolidated statements of operations and cash flows for the year
then ended (not presented herein); and in our report dated December 11, 1998,
except as to Notes 2 and 3, for which the date is July 23, 1999, we expressed
an unqualified opinion on those consolidated financial statements. Such
financial statements have been restated as described in the following
paragraph. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of September 30, 1998, is fairly
stated in all material respects in relation to the consolidated balance sheet
from which it has been derived.
As more fully described in Note 1 to the accompanying condensed consolidated
financial statements and Note 2 of the Company's consolidated financial
statements as of and for the year ended September 30, 1998, the Company and
the staff of the Securities and Exchange Commission have had discussions
regarding the accounting treatment related to the July 1998 acquisitions of
ITK International, Inc. and Central Data Corporation. As a result of these
discussions, the Company has changed the method used to allocate the purchase
price to in-process technologies. In connection with this modification, the
Company has adjusted the measurement and allocations of the purchase prices
recorded for the aforementioned acquisitions. Accordingly, the consolidated
financial statements as of and for the year ended September 30, 1998 and as
of and for the three and six months ended March 31, 1999, have been restated.
/s/ PricewaterhouseCoopers LLP
Minneapolis, Minnesota
April 16, 1999, except for the information in Note 1 as to which the date is
July 23, 1999
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
OVERVIEW
The Company previously announced it would revise the accounting treatment of
its July 1998 acquisitions of ITK and CDC in response to comments received
from the Securities and Exchange Commission. The following discussion
includes all changes that have been made related to the restatement. See Note
1 to the Condensed Consolidated Financial Statements.
CONSOLIDATED RESULTS OF OPERATIONS
The following table sets forth selected information derived from the
Company's interim condensed consolidated statements of operations expressed
as percentages of sales:
<TABLE>
<CAPTION>
Three months % Six months %
ended Increase ended Increase
March 31 (decrease) March 31 (decrease)
------------------------------ -------------------------------
1999 1998 1999 1998
---- ---- ---- ----
(As Restated) (As Restated)
<S> <C> <C> <C> <C> <C> <C>
Net sales 100.0 100.0 (5.4) 100.0% 100.0% 7.3%
Cost of sales 56.7 48.8 9.8 52.2 49.3 13.5
----- ----- ------ ----- ----- ------
Gross margin 43.3 51.2 (19.9) 47.8 50.7 1.2
----- ----- ------ ----- ----- ------
Operating expenses:
Sales and marketing 25.7 20.0 21.8 24.4 19.7 32.9
Research and development 13.8 8.8 49.1 13.2 8.9 59.3
General and administrative 15.9 7.6 96.5 14.0 8.1 86.9
Restructuring 3.4 0.0 - 1.5 0.0 -
----- ----- ------ ----- ----- ------
Total operating expenses 58.8 36.4 52.9 53.1 36.6 55.7
----- ----- ------ ----- ----- ------
Operating income (15.5) 14.8 (199.1) (5.3) 14.1 (140.3)
Other (expense) income, net (0.1) 1.2 (106.5) (0.3) 0.9 (130.0)
----- ----- ------ ----- ----- ------
Income before income taxes (15.6) 16.0 (192.1) (5.6) 15.0 (139.7)
Provision for income taxes (10.3) 5.7 (272.3) (3.7) 5.3 (174.0)
----- ----- ------ ----- ----- ------
Net income (5.3) 10.4 (148.3) (1.9)% 9.7% (120.9)%
----- ----- ------ ----- ----- ------
----- ----- ------ ----- ----- ------
</TABLE>
NET SALES
Net sales for the three months ended March 31, 1999, were lower than net
sales for the corresponding three months ended March 31, 1998, by $2,427,485
or a 5.4 % decrease; net sales for the six months ended March 31, 1999 were
higher than net sales for the corresponding six months ended March 31, 1998,
by $6,377,478 or a 7.3% increase. The sales of the products added in
connection with the acquisitions of ITK and CDC in July 1998 generated
revenues of $9,677,760 and $23,329,269 for the three months and six months
ended March 31, 1999. These revenue increases were mitigated by a decrease in
demand for the Company's physical layer products resulting in a decrease in
related revenues of $4,364,700 and $10,504,100 for the three and six months
ended March 31, 1999 relative to comparable periods of 1998. During second
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONTINUED)
CONSOLIDATED RESULTS OF OPERATIONS (CONTINUED)
NET SALES (CONTINUED)
quarter of fiscal 1999, the Company implemented a channel inventory
management program that discontinued the practice of extending special
incentives to its distributors to increase demand. The result of this change
in practice was to reduce revenue and to reduce days of inventory in the
distribution channel.
The following table sets forth revenue by principal product group expressed
as a percentage of net sales:
<TABLE>
<CAPTION>
Three months Six months
Ended March 31 Ended March 31
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Server Based 64.8% 69.0% 62.8% 60.9%
Physical Layer 8.4% 11.2% 8.7% 15.6%
OEM 26.8% 19.8% 28.5% 23.5%
Total 100.0% 100.0% 100.0% 100.0%
</TABLE>
GROSS MARGIN
Gross margin for the three months and six months ended March 31, 1999 was
43.3% and 47.8%, as compared to 51.2% and 50.7% for the three months and six
months ended March 31, 1998. Gross margin for the three months and six months
ended March 31, 1999, was impacted by the increased proportion of sales from
lower gross margin OEM sales. Gross margin was also impacted by reduced
margin from ITK operations which accounted for 15% of total sales for the
quarter ended March 31, 1999 and 16% of total sales for the six-month period
ended March 31, 1999. Included in ITK results was the impact of the
discontinued sale of Telebit modem products purchased as part of the ITK
acquisition in which remaining inventory was sold at a deep discount during
the quarter. In addition, margins generated from physical layer LAN products
have declined in fiscal 1999 due to market-driven reductions in selling
prices.
OPERATING EXPENSES
Operating expenses for the three months ended March 31, 1999, increased
approximately $7.5 million (excluding second quarter restructuring charges of
$1.5 million) or 45.9% as compared to operating expenses for the three months
ended March 31, 1998. The operations of ITK, which was acquired in the fourth
quarter of fiscal 1998, accounted for approximately $5.3 million or a 32.3%
increase in operating expenses. CDC, which was acquired in the fourth quarter
of fiscal 1998, accounted for approximately $930,000 of operating expense for
first quarter and has been fully integrated into the Company's existing
operations during second quarter of fiscal 1999. In addition, during the
three months ended March 31, 1999, the Company recorded a one-time
restructuring charge of $1.5 million due to reorganization of the sales and
marketing functions in
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONTINUED)
CONSOLIDATED RESULTS OF OPERATIONS (CONTINUED)
OPERATING EXPENSES (CONTINUED)
Germany, England and the United States. General and administrative expense
also increased due to approximately $2.5 million increase in amortization
expense resulting from identifiable intangible assets and goodwill acquired
in the ITK and CDC transactions.
Operating expenses for the six months ended March 31, 1999 increased by
approximately $16.4 million (excluding second quarter restructuring charges)
or 51.2% as compared to operating expenses for the six months ended March 31,
1998. The operations of ITK accounted for approximately $10.9 million.
Research and Development and Sales and Marketing costs have increased for the
six months ended March 31, 1999, due to development of new products and
preparation for new product launch. General and administrative expenses also
increased due to the approximately $5.0 million increase in amortization
expense resulting from identifiable intangible assets and goodwill acquired
in the ITK and CDC transactions.
The Company anticipated annual cost savings of approximately $5.2 million
relating to restructuring plans implemented by the Company (see Footnote 2 of
the condensed consolidated financial statements). These cost savings will
principally reduce future selling, general and administrative expenses and
were expected to begin during first quarter of fiscal 1999. As a result of
changes in management during fiscal 1999, the execution of restructuring
plans was delayed. The Company expects to begin to realize the full effect of
the aforementioned cost savings by December of 1999.
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT
During July, 1998 the Company acquired ITK and CDC. These transactions was
accounted for using the purchase method of accounting. The purchase prices
were allocated to the net assets acquired based on their estimated fair
market values at the date of acquisitions.
After discussion with the staff of the Securities and Exchange Commission
(the SEC) the condensed consolidated financial statements as of September 30,
1998 and March 31, 1999 and for the three and six month periods ended March
31, 1999 have been restated to reflect a change in the measurement and
allocations of the purchase prices related to the July 1998 acquisitions of
ITK and CDC.
The Company allocated amounts to IPR&D and intangible assets in the fourth
quarter of 1998 in a manner consistent with widely recognized appraisal
practices at the date of the acquisitions of ITK and CDC. Subsequent to the
acquisitions, the SEC staff expressed broad views that took issue with
certain appraisal practices generally employed by many public companies in
determining the fair value of IPR&D. As a result of these developments, the
Company has modified its valuation of IPR&D using the alternative income
valuation approach.
17
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONTINUED)
CONSOLIDATED RESULTS OF OPERATIONS (CONTINUED)
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT (CONTINUED)
As a result of valuing IPR&D using the alternative income valuation approach
and adjusting the measurement of the purchase prices, the Company, in
consultation with their independent accountants, has revised its measurement
and allocations of the purchase prices, including the amounts allocated to
IPR&D. The effect of these adjustments was to; reduce the aggregate amount
originally allocated to IPR&D from $39.2 million to $16.1 million; increase
the aggregate amount allocated to current technologies from $15.0 to $29.1
million; increase the amount of net deferred tax liabilities from $0 to $6.3
million; increase goodwill from $8.2 million to $27.4 million; increase
additional paid in-capital from $68.7 million to $70.5 million; and reduce
unearned stock compensation from $3.8 million to $1.7 million.
The value assigned to purchased in-process technology was related to research
projects for which technological feasibility had not been established,
Internet Protocol (VoIP) technology ($11.3 million) and Universal Serial Bus
(USB) technology ($4.8 million).
The Company is continuing development of the acquired in-process VoIP
technology and, as of June 30, 1999 believes that its development efforts are
on schedule to meet the product release schedule referred to in the Company's
Annual Report on Form 10-K/A without any significant changes in its research
and development costs. However, these expectations are subject to change,
given the uncertainties of the development process and changes in market
expectations.
The Company is continuing development of the acquired in-process USB research
and development and has developed and released USB products, with initial
product revenues generated during November 1998. Completion of the in-process
USB research and development was achieved without any significant changes in
the estimated research and development costs.
OTHER (EXPENSE) INCOME
Other expense, principally interest expense for the three months and six
months ended March 31, 1999, results from debt assumed in the acquisition of
ITK, net of interest earned on cash and cash equivalents. Other income for
the three months and six months ended March 31, 1998 resulted from interest
earned on cash and cash equivalent balances.
INCOME TAXES
Income taxes have been provided for at an estimated annual effective rate of
66% for the six months ended March 31, 1999. This effective tax rate exceeds
the U.S. statutory income tax rate and the effective tax rate of 35.4% in the
six months ended March 31, 1998 primarily due to additional $10.0 million of
annual amortization expense related to the Company's acquisitions of ITK and
CDC which is not deductible for income tax reporting purposes.
18
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONTINUED)
CONSOLIDATED RESULTS OF OPERATIONS (CONTINUED)
FINANCIAL CONDITION
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations principally with funds generated from
operations. Investing activities for the six months ended March 31, 1999,
consisted primarily of purchases of equipment and capital improvements
totaling approximately $3.1 million. Financing activities for the six months
ended March 31, 1999, consisted primarily of payments on line of credit and
debt obligations totaling approximately $6.0 million. At March 31, 1999, the
Company had working capital of approximately $43.8 million. During the
quarter, the Company reduced its unsecured line of credit from $15 million to
$5 million. The Company is negotiating to extend the unsecured line of credit
which expires May 31, 1999. The Company has no borrowings outstanding on this
line of credit.
The Company's management believes that current financial resources, cash
generated from operations and the Company's potential capacity for debt
and/or equity financing will be sufficient to fund current and future
business operations.
During the quarter ended March 31, 1999, the Company used $815,000 of cash to
purchase 105,000 shares of the Company's stock at an average price of $7.76
per share for use in the Company's benefit plans.
FOREIGN CURRENCY
Effective January 1, 1999, eleven countries of the European Union converted
to a common currency called the "Euro." This action will cause some of the
Company's European transactions to be negotiated, invoiced and paid in
"Euros." The conversion will most likely add currency exchange costs and
risks, although such costs and risks are not quantifiable at this time.
For the six months ended March 31, 1999, the Company had foreign transactions
that were negotiated and invoiced amounting to approximately $31.0 million,
of which $19.5 million were in U.S. dollars and $11.5 million were
Deutschemark-denominated sales through the newly acquired subsidiary ITK. In
future periods, a significant portion of sales made through ITK will be made
in Deutschemarks until full integration of the "Euro" is achieved. The
Company has not implemented a hedging strategy to reduce the risk of foreign
currency translation exposures, which management does not believe to be
significant based on the scope of the Company's foreign operations as of
March 31, 1999.
19
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONTINUED)
CONSOLIDATED RESULTS OF OPERATIONS (CONTINUED)
YEAR 2000 ISSUES
The Company began a comprehensive project in 1996 to prepare its products and
its internal computer systems for the year 2000. Most of the Company's
products are year 2000 compliant because there is very little or no date
processing involved. Certain products, including end-of-life versions, do
require customer action such as a patch or version upgrade to be compliant.
These products are being identified, and the Company is in the process of
notifying impacted customers.
The Company believes its implementation of a new enterprise-wide information
management system, principally installed to improve operating efficiency,
will address the Company's internal year 2000 compliance issues. Because of
the acquisitions of ITK and CDC, the worldwide rollout of this system will
not be completed until the late summer of calendar 1999. If necessary
conversions are not completed on a timely basis, the effects of being unable
to adequately process year 2000 dated transactions could have a material
adverse effect on the Company's operations. Overall, management believes the
year 2000 will not have a significant impact on operations. The Company plans
to continue with remediation and testing efforts with both its products and
internal systems to further mitigate any risks associated with the year 2000.
The costs associated with the year 2000 project are minimal and are not
incremental to the Company, but include temporary reallocation of existing
resources. Although the Company believes that the remaining cost of year 2000
modifications for both internal-use systems and the Company's products is not
material, there can be no assurances that various factors relating to the
year 2000 compliance issues, including litigation, will not have a material
adverse effect on the Company's business, operating results, or financial
position.
20
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONTINUED)
CONSOLIDATED RESULTS OF OPERATIONS (CONTINUED)
INFLATION
Management believes inflation has not had a material effect on the Company's
operations or on its financial position.
FORWARD LOOKING STATEMENTS
Certain statements made above, which are summarized below, are
forward-looking statements that involve risks and uncertainties, and actual
results may be materially different. Factors that could cause actual results
to differ include those identified below:
THE EXPECTATION THAT VARIOUS RESTRUCTURING ACTIVITIES IN CONNECTION WITH THE
ACQUISITIONS OF ITK AND CDC WILL BE COMPLETED ACCORDING TO SCHEDULE AND WILL
RESULT IN EXPECTED BENEFITS - This expectation may be impacted by presently
unanticipated delays or expenses.
THE EXPECTATION THAT RESTRUCTURING ACTIVITIES IN CONNECTION REORGANIZATION OF
THE SALES AND MARKETING FUNCTIONS IN GERMANY, ENGLAND AND THE UNITED STATES
WILL BE COMPLETED ACCORDING TO SCHEDULE - This expectation may be impacted by
presently unanticipated delays or expenses.
THE EXPECTATION THAT THE COMPANY'S 1999 EFFECTIVE TAX RATE WILL BE 66 PERCENT
- -This expectation may be impacted by the changes in the Company's level of
profitability.
THE BELIEF THAT THE COMPANY'S CURRENT FINANCIAL RESOURCES, CASH GENERATED
FROM OPERATIONS AND THE COMPANY'S POTENTIAL CAPACITY FOR DEBT AND/OR EQUITY
FINANCING WILL BE SUFFICIENT TO FUND CURRENT AND ANTICIPATED BUSINESS
OPERATIONS - Changes in anticipated operating results, credit availability
and equity market conditions may further enhance or inhibit the Company's
ability to maintain or raise appropriate levels of cash.
THE BELIEF THAT IMPLEMENTATION OF A NEW ENTERPRISE-WIDE INFORMATION
MANAGEMENT SYSTEM WILL ADDRESS THE COMPANY'S INTERNAL YEAR 2000 COMPLIANCE
ISSUES AND THE BELIEF THAT THE YEAR 2000 WILL NOT HAVE A SIGNIFICANT IMPACT
ON OPERATIONS -These beliefs may be impacted by presently unanticipated
delays in assessment or remediation, unanticipated increases in costs or
non-compliance by third parties.
21
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Between January 3, 1997 and March 7, 1997, the Company and certain of its
previous officers were named as defendants in five putative securities class
action lawsuits filed in the United States District Court for the District of
Minnesota on behalf of an alleged class of purchasers for its common stock
during the period January 25, 1996, through December 23, 1996. The five
putative class actions were thereafter consolidated, and on May 12, 1997, a
consolidated amended class action complaint (the "Consolidated Amended
Complaint") was filed in the actions, which are captioned IN RE DIGI
INTERNATIONAL INC. SECURITIES LITIGATION (Master File No. 97-5 DWF/RLE). The
Consolidated Amended Complaint alleges that the Company and its previous
officers Ervin F. Kamm, Jr., Gerald A. Wall and Gary L. Deaner violated the
federal securities laws by, among other things, misrepresenting and/or
omitting material information concerning the Company's operations and
financial results. The Consolidated Amended Complaint seeks compensatory
damages in an unspecified amount plus interest against all defendants,
jointly and severally, and an award of attorneys' fees, experts' fees and
costs.
On February 25, 1997, the Company and certain of its previous officers also
were named as defendants in a securities lawsuit filed in the United States
District Court for the District of Minnesota by the Louisiana State Employees
Retirement System, which is captioned LOUISIANA STATE EMPLOYEES RETIREMENT
SYSTEM V. DIGI INTERNATIONAL INC., GARY L. DEANER, ERVIN F. KAMM, JR., GERALD
A. WALL AND "JOHN DOE" AND "RICHARD ROE", DEFENDANTS (Civil File No. 97-440,
Master File No. 97-5 DWF/RLE). On June 3, 1997, the Louisiana State Employees
Retirement System filed an Amended Complaint (the "Louisiana Amended
Complaint"). The Louisiana Amended Complaint alleges that the Company and its
previous officers Ervin F. Kamm, Jr., Gerald A. Wall and Gary L. Deaner
violated federal securities laws and state common law by, among other things,
misrepresenting and/or omitting material information concerning the Company's
operations and financial results. The Louisiana Amended Complaint seeks
compensatory damages in the amount of $718,404.70 plus interest against all
defendants, jointly and severally, and an award of attorneys' fees,
disbursements and costs.
In a decision issued on May 22, 1998, the United States District Court for
the District of Minnesota granted in part and denied in part defendants'
motions to dismiss the Consolidated Amended Complaint and the Louisiana
Amended Complaint. The Court dismissed without leave to replead all claims
asserted in both cases, except for certain federal securities law claims
based upon alleged misrepresentations and/or omissions relating to the
accounting treatment applied to the Company's AetherWorks investment. The
Court also limited the claims asserted in the Louisiana Amended Complaint to
the 11,000 shares of the Company's stock held subsequent to November 14,
1996, for which the Louisiana Amended Complaint claims damages of
$184,276.40. The claims in the two actions remain pending against the Company
and its former officers Ervin F. Kamm, Jr. and Gerald A. Wall.
Plaintiffs in the consolidated putative class actions have moved for class
certification; the Company and its former officers have not yet responded to
the motion but intend to oppose it. No date has been set for a hearing on the
class certification motion. Discovery in the actions is proceeding.
22
<PAGE>
PART II. OTHER INFORMATION (CONTINUED)
LEGAL PROCEEDINGS (CONTINUED)
Because the lawsuits are in preliminary stages, the ultimate outcomes cannot
be determined at this time, and no potential assessment of their effect, if
any, on the Company's financial position, liquidity or future operations can
be made.
23
<PAGE>
PART II. OTHER INFORMATION (CONTINUED)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit No. Description
3(a) Restated Certificate of Incorporation of the Registrant, As
Amended*
3(b) Amended and Restated By-Laws of the Registrant**
4(a) Form of Rights Agreement, dated as of June 10, 1998 between
Digi International Inc. and Norwest Bank Minnesota, National
Association, as Rights Agent***
4(b) Amendment dated January 26, 1998, to Share Rights Agreement,
dated as of June 10, 1998 between Digi International Inc. and
Norwest Bank Minnesota, National Association, as Rights
Agent****
10(h)(i) Amendment to Employment Agreement between the Company and
Douglas J. Glader dated February 1, 1999*****
10(k) Severance Agreement between the Company and Subramanian
Krishnan dated March 26, 1999
15 Letter Re: Unaudited Interim Financial Information
27 Financial Data Schedule
(b) Reports on Form 8-K:
None.
- ------------------------------------------------
*Incorporated by reference to the corresponding exhibit number to the
Company's Form 10-K for the year ended September 30, 1992 (File No. 0-17972)
**Incorporated by reference to the corresponding exhibit number to the
Company's Registration Statement on Form S-1 (File No. 33-42384)
***Incorporated by reference to Exhibit 1 to the Company's Registration
Statement on Form 8-A dated June 24, 1998 (File No. 0-17972)
****Incorporated by reference to Exhibit 1 to Amendment No. 1 to the
Company's Registration Statement on Form 8-A dated February 5, 1999 (File No.
0-17972)
*****Incorporated by reference to the corresponding exhibit number to the
Company's Form 10-Q for the quarter ended December 31, 1998 (File No. 0-17972)
24
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
DIGI INTERNATIONAL INC.
Date: August 16, 1999 By: /s/ S. Krishnan
------------------------------
S. Krishnan
Chief Financial Officer
(duly authorized officer and
Principal Financial Officer)
25
<PAGE>
EXHIBIT 15
UNAUDITED INTERIM FINANCIAL INFORMATION LETTER
<PAGE>
EXHIBIT 15
Securities and Exchange Commission
450 Fifth Street N.W.
Washington, D.C. 20549
Commissioners:
We are aware that our report dated April 16, 1999, except for the information
in Note 1 as to which the date is July 23, 1999, on our reviews of interim
condensed consolidated financial information of Digi International Inc. and
subsidiaries (the Company) for the three month and six month periods ended
March 31, 1999 and 1998, and included in the Company's Form 10-Q/A for the
quarter ended March 31, 1999, is incorporated by reference in the Company's
registration statements on Form S-8 (Registration Nos. 33-32956, 33-38898,
333-99, 333-1821, 333-23857 and 333-57869).
PRICEWATERHOUSECOOPERS LLP
Minneapolis, Minnesota
August 16, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 11,260,148
<SECURITIES> 0
<RECEIVABLES> 32,803,190
<ALLOWANCES> 0
<INVENTORY> 28,474,757
<CURRENT-ASSETS> 78,101,869
<PP&E> 31,409,183
<DEPRECIATION> 0
<TOTAL-ASSETS> 168,934,149
<CURRENT-LIABILITIES> 34,328,623
<BONDS> 0
0
0
<COMMON> 158,851
<OTHER-SE> 120,225,226
<TOTAL-LIABILITY-AND-EQUITY> 168,934,149
<SALES> 0
<TOTAL-REVENUES> 94,026,510
<CGS> 49,057,929
<TOTAL-COSTS> 49,948,519
<OTHER-EXPENSES> 245,302
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (5,225,240)
<INCOME-TAX> (3,448,658)
<INCOME-CONTINUING> (1,776,582)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,776,582)
<EPS-BASIC> (.12)
<EPS-DILUTED> (.12)
</TABLE>
