<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGES COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE THIRD QUARTER ENDED SEPTEMBER 30, 1994
COMMISSION FILE NUMBER 0-22202
PAIRGAIN TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 33-0282809
- ------------------------------- ------------------
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OF ORGANIZATION) IDENTIFICATION NO.)
14402 FRANKLIN AVENUE, TUSTIN, CALIFORNIA 92680-7013
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(714) 832-9922
(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 NO
--------- ---------
THERE WERE 12,591,309 SHARES OF THE REGISTRANT'S COMMON STOCK, PAR VALUE OF
$.001 PER SHARE OUTSTANDING ON SEPTEMBER 30, 1994.
<PAGE> 2
PAIRGAIN TECHNOLOGIES, INC.
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets at
September 30, 1994 and December 31, 1993 3
Condensed Consolidated Statements of Income for the quarters
and nine months ended September 30, 1994 and 1993 4
Condensed Consolidated Statements of Cash Flows for
the nine months ended September 30, 1994 and 1993 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations 10
Part II. Other Information
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
</TABLE>
2
<PAGE> 3
PART I: ITEM 1
FINANCIAL INFORMATION
PAIRGAIN TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1994 1993
------------- ------------
(UNAUDITED)
(RESTATED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $14,026 $13,650
Short-term investments 28,496 36,270
Accounts receivable 6,917 5,049
Inventories 13,376 10,499
Other current assets and deferred taxes 692 440
------- -------
Total current assets 63,507 65,908
Property and equipment, net 2,937 2,265
Other assets 50 30
------- -------
Total assets $66,494 $68,203
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and other current liabilities $ 6,735 $ 2,967
------- -------
Total current liabilities 6,735 2,967
Stockholders' equity:
Preferred stock, $.001 par value:
Authorized shares - 2,000,000;
Issued and outstanding shares - None -- --
Common stock, $.001 par value:
Authorized shares - 30,000,000; Issued and outstanding
shares - 12,591,309 and 12,337,610 at September 30, 1994
and December 31, 1993 respectively 13 12
Additional paid-in capital 68,468 68,348
Deferred compensation (192) (257)
Accumulated deficit (8,530) (2,867)
------- -------
Total stockholders' equity 59,759 65,236
------- -------
Total liabilities and stockholders' equity $66,494 $68,203
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
PAIRGAIN TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ---------------------------
1994 1993 1994 1993
------- ------- -------- --------
(RESTATED) (RESTATED)
<S> <C> <C> <C> <C>
Revenues $15,246 $ 9,757 $ 41,391 $25,168
Cost revenues 8,431 4,065 23,250 11,640
------- ------- -------- -------
Gross profit 6,815 5,692 18,141 13,528
Operating expenses:
Research and development 1,523 969 4,172 2,701
Selling and marketing 1,392 991 4,010 2,561
General and administrative 1,051 618 2,787 1,950
------- ------- -------- -------
Total operating expenses 3,966 2,578 10,969 7,212
------- ------- -------- -------
Operating income 2,849 3,114 7,172 6,316
Interest income (expense), net 285 (60) 983 (204)
Loss on investments (1,237) -- (10,665) --
------- ------- -------- -------
Income (loss) before income taxes 1,897 3,054 (2,510) 6,112
Provision for income taxes 1,126 571 3,154 907
------- ------- -------- -------
Net income (loss) $ 771 $ 2,483 $ (5,664) $ 5,205
======= ======= ======== =======
PER SHARE DATA:
Earnings (loss) per share $ 0.05 $ 0.20 $ (0.45) $ 0.44
======= ======= ======== =======
Weighted average number of common and
common equivalent shares 15,319 12,382 12,490 11,920
======= ======= ======== =======
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
PAIRGAIN TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
--------------------------------
1994 1993
---------- -------
(RESTATED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income $(5,664) $ 5,205
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation and amortization 1,195 452
Losses on sales of investments 10,665 --
Change in operating assets and liabilities:
Accounts receivable (1,868) (582)
Inventories (2,877) (7,058)
Other current assets (252) (73)
Other assets (20) 1
Accounts payable and other current liabilities 3,768 3,008
------- -------
Net cash provided by operating activities 4,947 953
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Net purchases of investments (3,423) --
Purchase of property and equipment (1,269) (1,045)
------- -------
Net cash (used in) investing activities (4,692) (1,045)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on bank line of credit -- (985)
Payments on capital lease -- (29)
Proceeds from issuance of common stock 121 53,639
------- -------
Net cash provided by financing activities 121 52,625
------- -------
Increase in cash and cash equivalents 376 52,533
Cash and cash equivalents at beginning of period 13,650 3,302
------- -------
Cash and cash equivalents at end of period $14,026 $55,835
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 8 $ 250
======= =======
Income tax paid $ 3,058 $ 173
======= =======
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
PAIRGAIN TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. RESTATEMENT OF PREVIOUSLY REPORTED QUARTERLY FINANCIAL STATEMENTS
In 1993 and 1994, the Company invested a portion of its excess cash
with Capital Insight, Inc. ("Capital Insight"), a financial advisor and broker
based in Beverly Hills, California. The Company had no funds invested with
Capital Insight at either December 31, 1993 or December 31, 1994, as all such
invested funds were returned to the Company prior to the end of each of those
years.
In early 1995, the Company again invested a portion of its excess cash
with Capital Insight, with instructions that the funds be invested solely in
U.S. Treasury securities with maturities of one year or less. These
instructions were consistent with the investment guidelines which had been
approved by the Company's Board of Directors in October 1994. However, these
instructions were violated and the funds were used to engage in unauthorized
trading in options and futures. In November 1995, the Company confirmed that it
had incurred non- recurring losses of $15.8 million resulting from these
inappropriate and unauthorized trading activities.
The Company's outside directors retained independent legal counsel and
forensic accountants to determine the facts and circumstances surrounding this
matter. This investigation revealed no improper involvement by any Company
director, officer or employee in the unauthorized trading. Additionally, the
investigation found that the Company was provided with fictitious statements by
Capital Insight, and the Company had actually incurred substantial losses in
the second quarter of 1995. During the third and fourth quarters of 1995, the
unauthorized trading generated significant gains resulting in net trading
losses of $15.8 million for the year. Furthermore, it was determined that the
1994 statements provided by this advisor and relied upon by the Company for its
quarterly reporting were also incorrect. Although total financial results for
1994 were not impacted by these false statements, previously reported 1994
quarterly financial statements did not reflect the proper periods in which the
trading gains and losses occurred. Based on the results of the investigation,
the Company has amended its quarterly statements for both 1994 and 1995 to
reflect the proper reporting of the trading gains and losses. The effect on
net income and net income per share for the three and nine months ended
September 30, 1994 was as follows:
6
<PAGE> 7
PAIRGAIN TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(continued)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
------------ -----------
SEPTEMBER 30, 1994
-------------------------------
(IN THOUSANDS EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C>
Net income as previously reported $ 2,239 $ 5,624
======= ========
Net income before adjustment for investment losses $ 2,239 $ 5,624
Adjustments to properly reflect investment losses:
Investment losses (1,579) (11,637)
Provision for income taxes 111 349
------- --------
Net income (loss) after adjustment for investment losses $ 771 $ (5,664)
======= ========
Net income (loss) per share $ 0.05 $ (0.45)
======= ========
Weighted average shares outstanding used to compute
net income (loss) per share 15,319 12,490
======= ========
Net income per share, as previously reported $ 0.15 $ 0.37
======= ========
Weighted average shares outstanding used to compute
net income per share, as previously reported 15,319 15,366
======= ========
</TABLE>
In January 1996, the Company received a copy of a complaint, filed
derivatively by a Company stockholder on behalf of the Company, naming as
defendants the Company's directors and certain officers, as well as Capital
Insight and Mr. S. Jay Goldinger, its president. The derivative complaint
states causes of action for breach of fiduciary duty, abuse of control,
constructive fraud and gross mismanagement and waste of corporate assets. The
suit seeks an award in the amount of all damages sustained by the Company
including the losses of $15.8 million and legal fees and expenses.
In January 1996, the Company filed suit, in Los Angeles federal court,
against Mr. S. Jay Goldinger and Capital Insight, charging unauthorized
trading, fraudulent misrepresentation, violation of federal securities laws and
breach of fiduciary duties. The suit seeks $15.8 million in damages by reason
of the losses incurred by the Company, as well as punitive damages and legal
fees.
The Company does not maintain Directors and Officers liability
insurance. However, under the terms of its articles of incorporation, the
Company indemnifies its directors and officers for damages and legal fees
arising from litigation matters. The ultimate outcome of these complaints can
not presently be determined and, accordingly, no provision for any loss or
recovery that may result has been made in the Company's financial statements.
7
<PAGE> 8
PAIRGAIN TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(continued)
2. INTERIM PERIOD ACCOUNTING POLICIES
In the opinion of the Company's management, the accompanying unaudited
condensed consolidated financial statements contain all normal recurring
adjustments necessary to present fairly the financial position as of September
30, 1994, and consolidated results of operations for the three and nine months
ended September 30, 1994, and September 30, 1993, and cash flows for the nine
month periods ended September 30, 1994, and September 30, 1993. Results of
operations for the three and nine months ended September 30, 1994, are not
necessarily indicative of results to be expected for the full year ending
December 31, 1994.
Although the Company believes that the disclosures in the financial
statements are adequate to make the information presented not misleading,
certain information and footnote information normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, these financial statements
should be read in conjunction with the Company's audited consolidated
financial statements included in the Company's Form 10-K for the year ended
December 31, 1993.
Certain prior year amounts have been reclassified to conform with the
current period's presentation.
3. PRINCIPLES OF CONSOLIDATION
The accompanying condensed consolidated financial statements include
the accounts of the Company, PairGain Technologies, Inc., and its wholly owned
subsidiaries, PairGain Canada, Inc., and PairGain Services Group, Inc. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
4. SHORT-TERM INVESTMENTS
The Company adopted the provision of Statement of Financial Accounting
Standards No. 115, Accounting for Certain Investments in Debt and Equity
Securities ("Statement 115") on January 1, 1994. Pursuant to Statement 115, the
Company's short-term investments have been classified as either trading or
available for sale at the time of purchase. Trading securities are carried at
fair value with unrealized gains and losses included in the Company's results
of operations. Securities classified as available for sale are carried at fair
value with unrealized gains and losses reported in a separate component of
stockholders' equity. There were no unrealized loss related to available for
sale securities and included in stockholders' equity at September 30, 1994.
8
<PAGE> 9
PAIRGAIN TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(continued)
5. INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market and consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1994 1993
------------ -----------
(IN THOUSANDS)
<S> <C> <C>
Raw materials $ 3,532 $ 3,697
Work in process 7,611 4,442
Finished goods 2,233 2,360
------- -------
$13,376 $10,499
======= =======
</TABLE>
6. INCOME TAXES
Income taxes are provided at the rate expected to be in effect for the
entire year.
7. PER SHARE DATA
Net income per share is computed using the weighted average number of
common shares and common share equivalents outstanding during the periods
presented. Common share equivalents result from outstanding options and
warrants to purchase common stock. Pursuant to the requirements of the
Securities and Exchange Commission, common and preferred shares issued by the
Company during the twelve months immediately preceding the initial public
offering, plus the number of shares issuable upon exercise of stock options
granted during this period, have been included in the calculation of the shares
used in computing net income per share as if they were outstanding for all
periods presented (using the treasury stock method and the public offering
price in calculating equivalent shares).
9
<PAGE> 10
PART I: ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PAIRGAIN TECHNOLOGIES, INC.
RESULTS OF OPERATIONS (quarter and nine months ended September 30, 1994,
compared to quarter and nine months ended September 30, 1993)
REVENUES
Revenues for the three months and nine months ended September 30, 1994,
increased $5.9 million or 56% and $16.2 million or 64%, respectively, as
compared with the same periods in the prior year. Of this increase in revenue,
product revenue increased $5.5 million and $16.7 million, respectively, royalty
income increased $15,000 and $866,000, respectively, and technology fees
decreased $1.4 million for the nine months ended September 30, 1994, as
compared with the same period in the prior year. There were no technology fees
for either three month period ended September 30. The increase in product
revenue was primarily due to unit volume increases in all product lines that
have offset a decline in the average selling price of the Company's HiGain
product. The increase in royalty income was primarily due to fees paid by
Alcatel for the use of the Company's HDSL technology in products sold by
Alcatel. The technology licensing fees paid during the first nine months of
1993 were paid by Alcatel and ADC in connection with technology licensing
agreements signed during this period. Although the Company receives royalties
from these agreements, no new technology licensing fees have been generated in
1994.
GROSS PROFIT
For the three months ended September 30, 1994, as compared with the
same period in 1993, gross product margins decreased to 45% from 58%. For the
nine months ended September 30, 1994, as compared with the same period in 1993,
gross product margins decreased to 44% from 54%. Although the Company's gross
profit margins decreased in these periods actual gross profit increased. Gross
profit increased $1.4 million and $3.8 million, respectively, for the three and
nine month periods ended September 30, 1994, as compared with the same periods
in the prior year. This growth in gross profits was attributable principally
to the increase in the Company's revenues. In addition, the decline in average
sales price was somewhat offset by a reduction in the per unit cost of the
Company's HiGain product. This reduction in per unit cost was a result of
continuing engineering design changes, reduced prices for components from
vendors and reduced manufacturing overhead rates achieved through increases in
volume.
10
<PAGE> 11
PRODUCT MARGIN
For the three months ended September 30, 1994, as compared with the
same period in 1993, product margins decreased to 43% from 56%. For the nine
months ended September 30, 1994, as compared with the same period in 1993,
product margins decreased to 42% from 50%. These decreases in product margin
were due to the reduction in average selling price at a rate greater than
product cost reductions. However, the ongoing per unit cost reduction effort is
expected to offset the negative margin effect of sales price erosion, although
the Company expects to continue to reduce prices in order to maintain market
share.
OPERATING EXPENSES
In order to support the growth of its business, the Company has
expanded significantly its levels of operations in all areas resulting in
increased operating expenses. Operating expenses increased $1.4 million or 54%
and $3.8 million or 52%, respectively, for the three and nine month periods
ended September 30, 1994, as compared with the same periods in the prior year.
Of these increases, approximately half were due to the addition of personnel.
Research and development expense increased $554,000 or 57% and $1.5
million or 54%, respectively, for the three and nine month periods ended
September 30, 1994, as compared with the same periods in the prior year. These
increases were primarily due to the addition of personnel, depreciation on
additional capital equipment and prototype expenditures as new products were
tested in the lab and payments to outside consultants.
Selling and marketing expense increased $401,000 or 40% and $1.4
million or 57%, respectively, for the three and nine month periods ended
September 30, 1994, as compared with the same periods in the prior year. These
increases were primarily due to growing levels of sales and marketing support
personnel, commissions related to higher revenue levels, advertising and travel
costs.
General and administrative expense increased $433,000 or 70% and
$837,000 or 43%, respectively, or the three and nine month periods ended
September 30, 1994, as compared with the same periods in the prior year. These
increases were due to the addition of an incentive compensation plan for 1994,
personnel expenses, supplies and equipment, sales tax, travel costs and
investor relations expenses. These increases were somewhat offset by a decrease
in the provision for doubtful accounts.
OPERATING INCOME
As a result of the above, operating income for the quarter ended
September 30, 1994 was $2.8 million, compared to $3.1 million for the 1993
quarter. Operating income for the nine months ended September 30, 1994
increased 14% to $7.2 million, compared to $6.3 million for the 1993 period.
LOSS ON INVESTMENTS
In 1993 and 1994, the Company invested a portion of its excess cash
with Capital Insight, Inc. ("Capital Insight"), a financial advisor and broker
based in Beverly Hills, California. The Company had no funds invested with
Capital Insight at either December 31, 1993 or December 31, 1994, as all such
invested funds were returned to the Company prior to the end of each of those
years.
In early 1995, the Company again invested a portion of its excess cash
with Capital Insight, with instructions that the funds be invested solely in
U.S. Treasury securities with maturities of one year or less. These
instructions were consistent with the investment guidelines which had been
approved by the
11
<PAGE> 12
Company's Board of Directors in October 1994. However, these instructions were
violated and the funds were used to engage in unauthorized trading in options
and futures. In November 1995, the Company confirmed that it had incurred
non-recurring losses of $15.8 million resulting from these inappropriate and
unauthorized trading activities.
The Company's outside directors retained independent legal counsel and
forensic accountants to determine the facts and circumstances surrounding this
matter. This investigation revealed no improper involvement by any Company
director, officer or employee in the unauthorized trading. Additionally, the
investigation found that the Company was provided with fictitious statements by
Capital Insight, and the Company had actually incurred substantial losses in
the second quarter of 1995. During the third and fourth quarters of 1995, the
unauthorized trading generated significant gains resulting in net trading
losses of $15.8 million for the year. Furthermore, it was determined that the
1994 statements provided by this advisor and relied upon by the Company for its
quarterly reporting were also incorrect. Although total financial results for
1994 were not impacted by these false statements, previously reported 1994
quarterly financial statements did not reflect the proper periods in which the
trading gains and losses occurred. Based on the results of the investigation,
the Company has amended its quarterly statements for both 1994 and 1995 to
reflect the proper reporting of the trading gains and losses. The effect on
net income and net income per share for the three and nine months ended
September 30, 1994 was as follows:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
------------ -----------
SEPTEMBER 30, 1994
---------------------------
(IN THOUSANDS EXCEPT PER
SHARE AMOUNTS)
<S> <C> <C>
Net income as previously reported $ 2,239 $ 5,624
======= ========
Net income before adjustment for investment losses $ 2,239 $ 5,624
Adjustments to properly reflect investment losses:
Investment losses (1,579) (11,637)
Provision for income taxes 111 349
------- --------
Net income (loss) after adjustment for investment losses $ 771 $ (5,664)
======= ========
Net income (loss) per share $ 0.05 $ (0.45)
======= ========
Weighted average shares outstanding used to compute
net income (loss) per share 15,319 12,490
======= ========
Net income per share, as previously reported $ 0.15 $ 0.37
======= ========
Weighted average shares outstanding used to compute
net income per share, as previously reported 15,319 15,366
======= ========
</TABLE>
12
<PAGE> 13
In January 1996, the Company received a copy of a complaint, filed
derivatively by a Company stockholder on behalf of the Company, naming as
defendants the Company's directors and certain officers, as well as Capital
Insight and Mr. S. Jay Goldinger, its president. The derivative complaint
states causes of action for breach of fiduciary duty, abuse of control,
constructive fraud and gross mismanagement and waste of corporate assets. The
suit seeks an award in the amount of all damages sustained by the Company
including the losses of $15.8 million and legal fees and expenses.
In January 1996, the Company filed suit, in Los Angeles federal court,
against Mr. S. Jay Goldinger and Capital Insight, charging unauthorized
trading, fraudulent misrepresentation, violation of federal securities laws and
breach of fiduciary duties. The suit seeks $15.8 million in damages by reason
of the losses incurred by the Company, as well as punitive damages and legal
fees.
The Company does not maintain Directors and Officers liability
insurance. However, under the terms of its articles of incorporation, the
Company indemnifies its directors and officers for damages and legal fees
arising from litigation matters. The ultimate outcome of these complaints can
not presently be determined and, accordingly, no provision for any loss or
recovery that may result has been made in the Company's financial statements.
INTEREST INCOME (EXPENSE), NET
Net interest income increased to $285,000 and $983,000, respectively,
for the three and nine months ended September 30, 1994, from net interest
expense of $60,000 and $204,000, respectively, for the three and nine months
ended September 30, 1993. These changes were due to interest earned on cash and
short-term investments and a decrease in interest expense due to the repayment
of amounts owed under the Company's line of credit and borrowings of $3.0
million from Alcatel.
PROVISION FOR INCOME TAXES
The provision for income taxes for the three and nine months ended
September 30, 1994, was $1.1 million and $3.2 million, respectively, as the
Company did not record any tax benefit from its investment losses in excess of
its investment gains. The provision for income taxes for the three and nine
months ended September 30, 1993, was $571,000 and $907,000, respectively,
primarily due to the use of net operating loss carryforwards in 1993. All of
the Company's net operating loss carryforwards were used in 1993.
NET INCOME (LOSS) AND EARNINGS (LOSS) PER SHARE
As a result of the above, the net income for the three months ended
September 30, 1994 was $771,000 or $0.05 per share, compared to $2.5 million or
$0.20 per share in 1993. The weighted average number of common and common
equivalent shares outstanding was 15.3 million and 12.4 million for the three
months ended September 30, 1994 and 1993, respectively.
The net loss for the first nine months of 1994 was $5.7 million or
$0.45 per share, compared to income of $5.2 million or $0.44 per share in 1993.
The weighted average number of common and common equivalent shares outstanding
was 12.5 million and 11.9 million for the nine months ended September 30, 1994
and 1993, respectively.
13
<PAGE> 14
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 1994, cash and cash equivalents
increased $376,000 compared to an increase of $52.5 million in the nine months
ended September 30, 1993. The increase in cash and cash equivalents in 1993
resulted from the Company's September 1993 initial public offering. Working
capital decreased $6.2 million during the nine months ended September 30, 1994,
primarily due to the loss on investments offset by increased sales levels.
The Company has a Loan and Security Agreement with its bank which
provides for a revolving unsecured credit facility of $10.0 million, subject to
sublimits for amounts utilized for term loans, letters of credit and exchange
contracts. At September 30, 1994, there was no outstanding balance.
Capital expenditures relating primarily to the purchase of computer
equipment, test equipment and software amounted to $1.3 million and $1.0
million for the nine months ended September 30, 1994, and 1993, respectively.
The Company had no material capital commitments as of September 30, 1994, and
presently believes that its cash and short-term investments together with
internally generated cash flow will be sufficient to meet its working capital
requirements, capital expenditure needs and strategic business demands through
the end of its next fiscal year.
14
<PAGE> 15
PART II. OTHER INFORMATION
PAIRGAIN TECHNOLOGIES, INC.
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities
None.
Item 3. Defaults upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits:
11.1 Computation of Per Share Earnings
(B) Reports filed on Form 8-K during the period:
None.
15
<PAGE> 16
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.
PairGain Technologies, Inc.
-------------------------------------
(Registrant)
Date: March 28, 1996 /S/ CHARLES W. McBRAYER
-------------------------------------
Charles W. McBrayer
Vice President, Finance
and Administration
Chief Financial Officer
(Duly Authorized Officer)
Date: March 28, 1996 /S/ ROBERT R. PRICE
-------------------------------------
Robert R. Price
Corporate Controller
(Chief Accounting Officer)
16
<PAGE> 1
PAIRGAIN TECHNOLOGIES, INC.
EXHIBIT 11.1--COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- -------------------------
PRIMARY EARNINGS PER SHARE 1994 1993 1994 1993
------- ------- ------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net income (loss) $ 771 $ 2,483 $(5,664) $ 5,205
======= ======= ======= =======
Calculation of shares outstanding for computing
income (loss) per share
Weighted average common and common stock
equivalents shares outstanding used in calculating
net income (loss) per share in accordance with
generally accepted accounting principles 15,523 10,386 12,490 9,924
Adjustment to reflect requirements of the SEC:
Effects of SAB 83 -- 1,996 -- 1,996
Adjustment to reflect the effects of tax
benefit repurchase (204) -- -- --
------- -------- ------- --------
Shares used in computing net income (loss)
per share 15,319 12,382 12,490 11,920
======= ======== ======= =======
Net income (loss) per share $ 0.05 $ 0.20 $ (0.45) $ 0.44
======= ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- -------------------------
FULLY DILUTIVE EARNINGS PER SHARE 1994 1993 1994 1993
-------- -------- -------- -------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net income (loss) $ 771 $ 2,483 $(5,664) $ 5,205
======= ======== ======= =======
Calculation of shares outstanding for computing
income (loss) per share
Weighted average common and common stock
equivalents shares outstanding used in calculating
net income (loss) per share in accordance with
generally accepted accounting principles 15,523 10,386 12,490 9,924
Adjustment to reflect requirements of the SEC:
Effects of SAB 83 -- 1,996 -- 1,996
Adjustment to reflect the effects of tax
benefit repurchase (204) -- -- --
------- -------- ------- -------
Shares used in computing net income (loss)
per share 15,319 12,382 12,490 11,920
======= ======== ======= =======
Net income (loss) per share $ 0.05 $ 0.20 $ (0.45) $ 0.44
======= ======== ======= =======
</TABLE>
17
