<PAGE>
SECURITES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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 August 1, 1999
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ___________ to ___________
Commission File No. 0-22598
ORTEL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-3494360
(State or Other Jurisdiction of (I.R.S.Employer
Incorporation or Organization) Identification No.)
2015 West Chestnut Street, Alhambra, California 91803-1542
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (626) 281-3636
not applicable
-----------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
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 ____
----
As of August 1, 1999, there were 12,002,296 shares of the registrant's $.001
par value Common Stock outstanding.
Page 1 of 17 Pages
Exhibit Index on Page 16
<PAGE>
ORTEL CORPORATION
INDEX
<TABLE>
<CAPTION>
PART I FINANCIAL INFORMATION Page(s)
-------
Item 1. Financial Statements
<S> <C> <C>
Condensed Consolidated Balance Sheets as of August 1, 1999 and
April 30, 1999................................................................ 3
Condensed Consolidated Statements of Operations for the fiscal quarter
ended August 1, 1999 and July 31, 1998........................................ 4
Condensed Consolidated Statements of Cash Flows for the fiscal
quarter ended August 1, 1999 and July 31, 1998................................ 5
Notes to Condensed Consolidated Financial Statements.......................... 6-9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................ 10-13
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................................................. 14
Signatures.................................................................................. 15
Index to Exhibits........................................................................... 16-17
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ORTEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
August 1, April 30,
1999(1) 1999(1)
ASSETS (unaudited) (unaudited)
---------------------------
<S> <C> <C>
Current assets:
Cash and equivalents......................................................................... $ 10,307 $ 13,115
Short term investments....................................................................... 14,600 11,066
Total receivables less allowance for doubtful accounts of $1,356 and $973 at
August 1, 1999 and April 30, 1999, respectively.......................................... 10,796 13,404
Inventories.................................................................................. 9,708 9,716
Income taxes receivable...................................................................... 3,589 2,900
Deferred tax assets.......................................................................... 2,080 2,080
Prepaid expenses and other current assets.................................................... 577 990
Current assets of discontinued operations.................................................... 5,067 5,692
------- -------
Total current assets............................................................... 56,724 58,963
Property, equipment and improvements (net)........................................................ 16,977 17,704
Intangible assets, net............................................................................ 927 1,352
Other assets...................................................................................... 10,147 9,717
Long-term assets of discontinued operations....................................................... - 1,492
------- -------
Total assets....................................................................... $ 84,775 $ 89,228
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................................................................. $ 6,469 $ 6,800
Accrued costs................................................................................ 6,678 3,618
Liabilities related to discontinued operations............................................... 2,984 2,356
Income taxes payable......................................................................... 175 188
------- -------
Total current liabilities.......................................................... 16,306 12,962
Deferred income taxes............................................................................. 496 512
Long-term liabilities of discontinued operations.................................................. - 305
------- -------
Total liabilities.................................................................. 16,802 13,779
Minority interest in subsidiaries................................................................. 275 261
Stockholders' equity.............................................................................. 67,698 75,188
------- -------
Total liabilities and stockholders' equity......................................... $ 84,775 $ 89,228
======= =======
</TABLE>
(1) Certain amounts related to discontinued operations have been reclassified
to conform to current year presentation.
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
ORTEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------
August 1, July 31,
1999(1) 1998 (1)
(unaudited) (unaudited)
------------------- ------------------
<S> <C> <C>
Revenues.......................................................... $ 17,661 $ 16,489
Cost of revenues.................................................. 11,330 9,136
--------- ---------
Gross profit................................................. 6,331 7,353
Operating expenses:
Research and development..................................... 3,633 2,649
Sales and marketing.......................................... 2,762 2,298
General and administrative................................... 3,701 1,331
Write-off facility architectural fees........................ 745 -
--------- ---------
Total operating expenses................................. 10,841 6,278
--------- ---------
Operating income (loss)..................................... (4,510) 1,075
Interest and other income, net..................................... 163 296
--------- ---------
Income (loss) from continuing operations before income taxes...... (4,347) 1,371
Provision (credit) for income taxes............................... (1,133) 281
--------- ---------
Income (loss) from continuing operations before cumulative effect
of accounting change........................................ (3,214) 1,090
Cumulative effect of accounting change (Note 8)................... (989) -
Discontinued operations (Note 7):
Loss from discontinued operations, net of tax benefits of
$186 in 1999 and $220 in 1998............................ (558) (884)
Loss from disposal of discontinued operations, net of
income tax benefit of $1,094......................... (3,280) -
--------- ---------
Net income (loss)................................................. $ (8,041) $ 206
========= =========
Income (loss) per common share - Basic
Income (loss ) from continuing operations.................... $ (.27) $ .09
Cumulative effect of accounting change....................... (.08) -
Discontinued operations...................................... (.33) (.07)
--------- ---------
Net income (loss) per share - Basic.......................... $ (.68) $ .02
========= =========
Income (loss) per common share - Diluted (2)
Income (loss ) from continuing operations.................... $ (.27) $ .09
Cumulative effect of accounting change....................... (.08) -
Discontinued operations...................................... (.33) (.07)
--------- ---------
Net income (loss) per share - Diluted........................ $ (.68) $ .02
========= =========
Shares used in per share computation:
Basic........................................................ 11,877 11,751
Diluted...................................................... 11,877 12,629
</TABLE>
(1) Certain amounts related to discontinued operations have been reclassified
to conform to current year presentation.
(2) Options to purchase 1,449,808 shares at or below the average price of the
common shares were outstanding at August 1, 1999, but were excluded from
the computation of diluted earnings per share as the Company reported a
loss position and the effect would be antidilutive.
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ORTEL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Quarter Ended
----------------------------
August 1, July 31,
1999(1) 1998(1)
Cash flows from operating activities: (unaudited) (unaudited)
------------- -------------
<S> <C> <C>
Net income (loss)...................................................................... $ (8,041) $ 206
Adjustments to reconcile net income (loss) to net cash provided by (used in)
operating activities:
Loss from discontinued operations, net of income taxes.............................. 558 ---
Loss from disposal of discontinued operations, net of income taxes.................. 3,280 ---
Stock-based compensation ........................................................... 199 27
Depreciation and amortization....................................................... 1,591 1,395
Increase (decrease) in minority interest in subsidiaries............................ 13 32
Gain/loss on disposal of equipment.................................................. 9 12
Write-off of architectural fees..................................................... 745 ---
Cumulative effect of accounting change for start-up costs........................... 989 ---
Other............................................................................... (163) ---
Change in assets and liabilities:
Receivables and billed contract costs and fees...................................... 2,105 (2,933)
Inventories......................................................................... 8 (874)
Income tax receivable............................................................... 591 (336)
Prepaid expenses and other assets................................................... 902 631
Intangible assets................................................................... (678) ---
Accounts payable.................................................................... (330) 1,377
Accrued payroll and related costs................................................... 1,000 (689)
Liabilities related to discontinued operations...................................... (2,342) ---
Net of assets and liabilities of discontinued operations............................ 3,444 330
Other accrued liabilities........................................................... 2,059 19
Deferred income taxes............................................................... --- (15)
Income taxes payable................................................................ (27) (153)
------- -------
Net cash (used by) provided by continuing operating activities................. 5,912 (971)
Net cash used by discontinued operating activities............................. (3,278) ---
------- -------
Net cash (used by) provided by operating activities................................ 2,634 (971)
Cash flows from investing activities:
Capital expenditures.................................................................... (1,464) (784)
Investment in subsidiaries and affiliates (net of cash acquired)........................ (960) ---
Short term investments.................................................................. (3,533) 1,648
------- -------
Net cash (used in) provided by investing activities................................. (5,957) 864
------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock, net............................................ 245 1,357
Proceeds from repayment of shareholder loans........................................... 270 106
------- -------
Net cash provided by financing activities.......................................... 515 1,463
Effect of exchange rate changes on cash and cash equivalents................................. --- (49)
------- -------
Net increase (decrease) in cash and equivalents.................................... (2,808) 1,307
Cash and equivalents at beginning of period.................................................. 13,115 12,591
------- -------
Cash and equivalents at end of period........................................................ $ 10,307 $ 13,898
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period by continuing operations for:
Interest paid........................................................................... $ 2 $ 2
Income taxes paid (refunded), net Income taxes paid $ (467) $ 222
Supplemental disclosure of non-cash financing activities:
Loans to related parties for stock option exercises....................................... --- $ 17
</TABLE>
(1) Certain amounts related to discontinued operations have been reclassified
to conform to current year presentation.
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ORTEL CORPORATION
Notes to Condensed Consolidated Financial Statements
1. Basis of Presentation
---------------------
The accompanying unaudited condensed consolidated financial statements have
been prepared by the Company without audit (except for the balance sheet
information as of April 30, 1999 which was derived from audited consolidated
financial statements) and, in the opinion of management, contain all adjustments
necessary to present fairly the condensed consolidated financial position at
August 1, 1999, and the condensed consolidated results of operations for the
quarters ended August 1, 1999 and July 31, 1998, and the condensed consolidated
cash flows for the quarters ended August 1, 1999, and July 31, 1998 in
accordance with generally accepted accounting principles. Certain information
and footnote disclosures normally included in financial statements have been
condensed or omitted pursuant to rules and regulations of the Securities and
Exchange Commission, although the Company believes that the disclosures in the
condensed consolidated financial statements are adequate to ensure the
information presented is not misleading.
The Company changed its fiscal quarter to a thirteen-week period ending on
the Sunday nearest to the end of each quarter. All references herein to "Quarter
Ended August 1, 1999" represent the thirteen-week fiscal quarter ended August 1,
1999. All references herein to "Quarter Ended July 31, 1998" represent the three
months ended July 31, 1998. The Company's fiscal year end will remain April 30.
This change did not have a significant impact on the comparability of the
Company's operating results between periods.
The results of operations for the quarter ended August 1, 1999 are not
necessarily indicative of the results to be expected for the entire fiscal year
and should be read in conjunction with a discussion of risk factors in the
Company's annual report for the fiscal year ended April 30, 1999.
2. Per Share Information
---------------------
Net income (loss) per share is based on the weighted average common and
common equivalent shares outstanding for each period including common shares
issuable upon the exercise of stock options. Common equivalent shares are
excluded from the computation if the effect is antidilutive. (in thousands)
<TABLE>
<CAPTION>
Quarter Ended
------------------------------------------
August 1, July 31,
1999 1998
------------------------------------------
<S> <C> <C>
Weighted average shares outstanding........................................... 11,877 11,751
Effect of dilutive securities - stock options (1)............................. --- 878
------ ------
Shares used for diluted per share computations................................ 11,877 12,629
====== ======
</TABLE>
/(1)/ Options to purchase 1,449,808 shares at or below the average price of the
common shares were outstanding at August 1, 1999, but were excluded from
the computation of diluted earnings per share as the Company reported a
loss position and the effect would be antidilutive.
3. Income Taxes
------------
Income taxes for the respective periods were computed using the effective
tax rate estimated to be applicable for the fiscal year, which is subject to
ongoing review and evaluation by management.
6
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ORTEL CORPORATION
Notes to Condensed Consolidated Financial Statements (continued)
4. Inventories
-----------
Inventories are shown below and are stated at the lower of cost (first-in,
first-out method) or market and for continuing operations are summarized below.
Prior years amounts have been reclassified to conform to current year
presentation. (in thousands)
<TABLE>
<CAPTION>
August 1, 1999 April 30, 1999
-------------------- ---------------------
(unaudited) (audited)
<S> <C> <C>
Raw materials...................................... $ 5,379 $ 5,275
Work-in-process.................................... 2,838 3,141
Finished goods..................................... 1,491 1,300
------ ------
Total inventories............................. $ 9,708 $ 9,716
====== ======
</TABLE>
5. Cash Equivalents
----------------
Cash equivalents (defined as marketable securities with original maturities
of 90 days or less which can be liquidated in a manner that is equivalent to
cash) were $5.7 million and $10.3 million as of August 1, 1999 and April 30,
1999, respectively. Short-term investments (marketable securities with
maturities of more than 90 days) were $14.1 million and $11.1 million as of
August 1, 1999, and April 30, 1999, respectively.
Short-term investments consist of interest bearing securities with
maturities greater than 90 days. The Company adopted the provisions of
Statement of Financial Accounting Standard No. 115, "Accounting for Certain
Investments in Debt and Equity Securities (SFAS 115)" at May 1, 1994. Under
SFAS 115, the Company has classified its short-term investments as available-
for-sale. At August 1, 1999, the Company's marketable investment securities
consisted principally of highly liquid investments in tax free municipal
obligations with various maturity dates through February 1, 2002. The
difference between market value and cost of these securities at August 1, 1999,
was immaterial.
6. Other Comprehensive Income
--------------------------
In fiscal 1999, the Company adopted SFAS No. 130, Reporting Comprehensive
Income. Accumulated other comprehensive income of the Company consists of net
unrealized gains (losses) on available for sale investment and cumulative effect
of foreign currency translation. The change in the components of other
accumulated comprehensive income (losses) are shown below. Current period
activity as shown includes the reclassification of $432,000 in foreign currency
translation gains and losses related to discontinued operations. (in thousands)
<TABLE>
<CAPTION>
Cumulative
Unrealized Effect of Accumulated Accumulated
Gain (Loss) on Foreign Other Other
Available for Currency Comprehensive Comprehensive
Sale Translation Income/(Loss) Income/(Loss)
Investments Gain (Loss) Before Tax Net of Tax
------------------ --------------- ------------------ -------------------
<S> <C> <C> <C> <C>
Balance at April 30, 1999............. $ (37) $ (566) $ (603) $(453)
Activity for the current quarter...... (48) 447 399 300
---- ----- ---- -----
Balance at August 1, 1999............. $ (85) $ (119) $ (204) $(153)
==== ===== ===== =====
</TABLE>
7
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ORTEL CORPORATION
Notes to Condensed Consolidated Financial Statements (continued)
7. Discontinued Operations
-----------------------
During the first quarter of fiscal year 2000, the Company implemented
its plan to sell the U.S. and international wireless operations, which detracted
from the Company's focus on fiberoptic markets. In addition to the operating
losses incurred during the first quarter, the Company expected to incur costs
directly related to the sale as well as losses on the sale of the businesses at
prices potentially below net book value. In the first quarter of fiscal 2000,
the Company recorded a loss of $4.4 million, before income tax benefit of $1.1
million, from the disposal of assets related to the discontinued wireless
businesses. Significant costs related to the sale of the business included
brokers fees, severance and expected product warranty costs.
By August 30, 1999, the wireless businesses were sold in two separate
transactions. Losses on the sale and costs associated with the transactions
were commensurate with the $4.4 million estimated. Domestic wireless operations
were sold for cash to an unrelated party. The Company agreed to provide certain
services on a temporary basis to facilitate the operation of the business by the
new owner, CI Wireless, Incorporated, of Fort Worth, Texas. These services
include subletting a portion of a building at the Company's Alhambra facility
and agreeing to sell certain key components which incorporate technology not
included in the sale of the business. The Company's stock in Avitec AB, the
wireless operations headquartered in Sweden, was sold to one of Avitec's
founders. The Company has no continuing obligations with regard to the Avitec
wireless operations but may continue to sell to Avitec certain of the Company's
products, which have been incorporated into Avitec systems designs.
These operations have been separately reported as discontinued operations
in the accompanying condensed consolidated financial statements for all periods
presented. Summarized results of operations of the discontinued wireless
businesses (excluding losses on disposal) are shown below. (in thousands)
<TABLE>
<CAPTION>
Quarter ended
August 1, 1999
-------------------
<S> <C>
Revenues.............................................................. $1,109
Loss before income taxes.............................................. (744)
Income tax benefit.................................................... (186)
------
Loss after tax benefit............................................... $ (558)
======
</TABLE>
Liabilities related to discontinued operations are summarized below.
(in thousands)
<TABLE>
<CAPTION>
August 1, 1999
--------------
<S> <C>
Warranty................................................ $ 980
Severance............................................... 525
Professional fees....................................... 675
All other............................................... 804
------
Total liabilites related to discontinued operations......... $ 2,984
======
</TABLE>
8
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
ORTEL CORPORATION
Notes to Condensed Consolidated Financial Statements (continued)
8. Change in Accounting for Start-up Costs
---------------------------------------
The Company adopted Statement of Position No. 98-5, Reporting on the Costs
of Start-up Activities, effective May 1, 1999. SOP 98-5 provides guidance on
the financial reporting of start-up costs and organization costs. It requires
costs of start-up activities and organization costs to be expensed as incurred.
The Company recognized a charge to results of operations of $989,000 ($.08 per
diluted share), as the cumulative effect of a change in accounting in the first
quarter of fiscal year 2000. For tax purposes, this item is non-deductible.
9
<PAGE>
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following is management's discussion and analysis of certain significant
factors which have affected the Company's financial position and operating
results during the periods included in the unaudited condensed consolidated
financial statements included herein. The discussion in this section contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results could differ materially from those discussed herein. Factors
that could cause or contribute to such differences include, but are not limited
to, those discussed in the Company's annual report for the year ended April 30,
1999.
Results of Operations
Overview
The Company is in the process of refocusing its resources in order that it
may leverage the strengths of its core fiberoptic technology in niche broadband,
data and telecom markets. It is concentrating its energies on aggressively
developing and introducing leapfrog, best of breed technology solutions in these
niche markets. As part of this strategy the Company sold its wireless
businesses in August 1999. Accordingly, the Company recorded a special charge
of $9.3 million, or $7.3 million after tax, in its first fiscal quarter ended
August 1, 1999. Included in this charge are amounts related to the sale of the
Company's wireless businesses, recent management changes and required accounting
policy changes. These costs are summarized as follows: (in thousands)
First Quarter Special Charges
<TABLE>
<CAPTION>
Quarter Ended Costs Paid
August 1, 1999 Through
Special Charge Cost Classification Estimated Sept.
Charge 10, 1999
- ---------------------------------------------------- ------------------------------ ------------------- ---------------
<S> <C> <C> <C>
Loss on sale of discontinued operations Discontinued operations $4,374 $ 3,390
Changes in management and severance Cost of Sales 71 70
Research Development 341 140
Sales & Marketing 124 90
General & Administrative 2,129 1,480
------ ------
Total Mgmt Changes 2,665 1,780
Inventory Write-off, Model Phase-Out Cost of Sales 500 500
Write-off Architectural Fees Other Operating Expense 745 745
Change in accounting for start-up costs Cumulative Effect of
Accounting Change 989 989
------ ------
Total Special Charges $9,273 $7,404
====== ======
</TABLE>
10
<PAGE>
PART I FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Company completed the sale of the assets of its U.S. wireless business
to CI Wireless, a Fort Worth, Texas company, on August 16, 1999. In this
transaction CI Wireless purchased inventory and fixed assets and will assume
contract and other liabilities. The Company completed the sale of its European
wireless subsidiary, Avitec AB to one of the original founders, Hakan
Samuelsson on August 30, 1999. Part of the charge relates to losses from the
sale of the wireless businesses and also expected operating losses in the second
quarter through the completion dates for each sale. This total charge was
approximately $4.4 million.
There were a number of management changes at the Company in the first
fiscal quarter ended August 1, 1999. Wim Selders, President and Chief Executive
Officer retired from the Company in June and Steve Rizzone joined the Company as
its new Chairman, Chief Executive Officer and President. Additionally George
Pontiakos joined the Company in June as senior VP Operations and Sandra Caraveo
joined as VP Human Resources in July. The aggregate charge for these management
changes is approximately $2.7 million principally severance and charges related
to stock options.
The Company booked a $500,000 inventory reserve related to the phase out of
certain low sales volume and low-margin models that it has identified in its
fiber optics product offering.
In accordance with the change in accounting practices, the Company expensed
the remaining $989,000 of unamortized startup costs relating primarily to its
joint venture agreement with Photon.
The Company owns land in Alhambra, California that it had planned for its
new headquarters facility. The Company recently determined that it will not now
build on this site and accordingly wrote off $745,000 in architecture fees and
plans previously capitalized.
Continuing Operations
First Quarter ended August 1, 1999
The discussion that follows is based on continuing operations and is based
on the reclassified Condensed Consolidated Balance Sheets and Condensed
Consolidated Statements of Operations presented in this report.
Revenues
Revenues of $17.7 million for the first quarter ended August 1, 1999,
increased by 7% over revenues of $16.5 million in the first quarter last year.
This increase was due primarily to strong U.S. demand for the Company's flagship
1310nm broadband products. Sales to international customers totaled $4.2 million
or 24% of revenue for the first quarter of fiscal 2000 compared to $4.7 million
or 29% of revenues for the comparable quarter last year. The 11% decrease in
sales to international customers was primarily due to softness in the European
markets.
11
<PAGE>
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Gross Profit
Gross profit of $6.3 million in the first quarter ended August 1, 1999 was
36% of revenues compared to 45% in the prior year period. Excluding first
quarter special charges of $571,000, primarily related to the write down of
certain inventory that is being phased out, the gross margin is 39% in the first
quarter of fiscal 2000. The Company is continuing to hone the focus of the
Company and has elected to discontinue the sale of certain low-volume, low-
margin models that are not strategically important to the Company's future.
Overall, margins were lower year to year due to price erosion on certain of the
Company's key products and a change in revenue mix to lower margin products.
Research and Development
R&D increased from $2.6 million, or 16% of revenues, in the first quarter
last year, to $3.6 million, or 21% of revenues, in the first quarter ended
August 1, 1999. Included in this increase is a first quarter special charge of
$341,000 related to R&D management and other changes. The balance of the
increase reflects the Company's ongoing commitment to increase its investment in
its core fiberoptics business.
Sales and Marketing
Sales and Marketing expense of $2.8 million, or 16% of revenues, in the
first quarter ended August 1, 1999 increased 20% from $2.3 million or 14% of
revenues from the first quarter last year. The increase is due primarily to a
first quarter special charge of $124,000 and the addition of sales personnel in
the U.S. and Asia.
General and Administrative
General and Administrative expense of $3.7 million, or 21% of revenues, in
the first quarter ended August 1, 1999, increased by $2.4 million from $1.3
million, or 8% of revenues, in the prior year period. The increase was due
primarily to first quarter special charges related to certain management
changes. Excluding the special charge, General and Administrative expense would
have been 9% of revenues.
Write-off of Facility Architectural Fees
The first quarter ended August 1, 1999 includes a special charge of
$745,000 related to the Company's recent decision not to build a new
headquarters facility on land that it owns. The charge relates to the write off
of previously capitalized architectural fees.
Operating Income (Loss)
The Operating Loss from continuing operations, in the first quarter ended
August 1, 1999, was $4.5 million, compared to an Operating Income of $1.1
million in the first quarter last year. Excluding first quarter special charges
of $5.0 million, the Company recorded an operating loss of $500,000 from
continuing operations in the first quarter of fiscal 2000.
12
<PAGE>
PART I FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Interest and Other Income
Interest and Other Income in the first fiscal quarter of 2000 was $163,000
compared to Interest and Other Income of $296,000 in the same period last year.
Net Income (Loss) From Continuing Operations Before Cumulative Effect of
Accounting Change
The Net Loss from continuing operations in the first quarter ended August
1, 1999 was $3.2 million compared to net income of $1.1 million in the first
quarter last year. Excluding after-tax first quarter special charges of $3
million the net loss from continuing operations in the first fiscal quarter of
fiscal 2000 is $206,000.
Liquidity and Capital Resources
Cash and cash equivalents decreased $2.8 million from $13.1 million at
April 30, 1999, to $10.3 million at August 1, 1999. In the first fiscal quarter,
the Company generated $2.6 million of cash in its operating activities for both
its continuing and discontinued operations, primarily from a reduction in
accounts receivable. The Company utilized $2.4 million in investing activities
during the first fiscal quarter. This was due to capital equipment purchases of
$1.5 million and a further investment in the Tellium joint venture of $960,000.
During the first fiscal quarter $3.5 million was reinvested to short-term
investments. The exercise of stock options and repayment of employee stockholder
loans generated $515,000 in cash in the first fiscal quarter ended August 1,
1999.
As of August 1, 1999, the Company's principal sources of liquidity included
cash and short-term investments of $24.9 million. The Company believes that
cash, short-term investments and funds generated from operations will be
sufficient to satisfy its projected working capital and capital expenditure
requirements during this fiscal year.
Year 2000
State of Readiness
The Company's Y2K initiatives are focusing primarily on four areas of
potential impact: internal information technology (IT) systems; internal non-IT
systems and processes, including services and embedded chips (controllers); the
Company's products and services, and the readiness of significant third parties
with whom the Company has material business relationships. The Company's newly
introduced products are Y2K compliant and most of the Company's existing
products do not contain any reference to a date nor do they access or manipulate
a date. The Company successfully targeted its efforts to ensure that its
critical IT applications had achieved Y2K compliance by June 30, 1999. To date,
the Company has received formal responses from all of its critical suppliers.
Most of them have responded that they expect to address all their significant
Y2K issues on a timely basis. Remediation related to third-parties is currently
on schedule with an expected completion date of September 30, 1999.
13
<PAGE>
PART I FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Costs
The costs associated with the Company's readiness actions are a combination
of incremental external spending and use of existing internal resources. The
Company estimates that over the life of its readiness effort, it will have spent
a total of approximately $300,000 since the project began.
Risks
The Company is working to identify and analyze the most reasonably likely
worst-case scenarios for third-party relationships affected by Y2K. The Company
is developing contingency plans to address most issues under its control.
Contingency Plans
The development of business contingency plans is currently ongoing and on
schedule, with a scheduled completion date of September 30, 1999.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits.
Reference is hereby made to the Exhibit Index commencing on page 16.
14
<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.
DATE: September 14, 1999 ORTEL CORPORATION
(Registrant)
By: /s/ Stephen R. Rizzone
--------------------------
Stephen R. Rizzone,
Chairman, President and
Chief Executive Officer
By: /s/ Roger Hay
--------------------------
Roger Hay
Vice President, Finance and
Chief Financial Officer
15
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Document Description Page No.
- ---------- -------------------- --------
<S> <C> <C>
3.1 Certificate of Incorporation. (Note 1)
3.2 Bylaws of Ortel Corporation. (Note 1)
4.1 Rights Agreement between Ortel Corporation and First Interstate Bank of (Note 2)
California dated March 3, 1995
10.1 Employment Agreement, dated September 14, 1990, between Ortel Corporation and (Note 1)
Israel Ury.
10.2 Employment Agreement, dated September 14, 1990, between Ortel Corporation and (Note 1)
Nadav Bar-Chaim.
10.3 1990 Stock Option Plan of Ortel Corporation. (Note 1)
10.4 Form of Indemnification Agreement. (Note 1)
10.5 Key Shareholders Agreement, dated as of March 26, 1990, among Wim H.J. Selders, (Note 1)
Dr. Ury, Dr. Yariv, Dr. Bar-Chaim, Sumitomo Cement Co., Ltd., The Ury Family
Trust and Ortel Corporation.
10.6 Agreement Concerning Certain Financial and Business Arrangements, dated as of (Note 1)
March 26, 1990 between Sumitomo Cement Co., Ltd. and Ortel Corporation.
10.7 1994 Equity Participation Plan of Ortel Corporation. (Note 1)
10.8 Loan Agreement, dated June 2, 1995 between Ortel Corporation and Bank of America. (Note 4)
10.9 Amendment No. 2 dated September 9, 1997 to Loan Agreement dated June 2, 1995 (Note 5)
between Ortel Corporation and Bank of America.
10.10 Severance Agreement, dated December 1, 1997, between Ortel Corporation and (Note 6)
Douglas H. Morais.
10.11 Amendment No. 3 dated August 20, 1998, to Loan Agreement dated June 2, 1995, (Note 8)
between Ortel Corporation and Bank of America NT & SA
10.12 Severance Agreement dated November 6, 1998, between Ortel Corporation and (Note 8)
William J. Moore.
10.13 Severance Agreement, dated November 9, 1998, between Ortel Corporation and (Note 8)
George B. Holmes.
10.14 Severance Agreement dated March 5, 1999, between Ortel Corporation and Roger Hay. (Note 9)
10.15 Amendment No. 1 dated September 19, 1997, and Amendment No. 2 to the 1994 Equity (Note 10)
Participation Plan of Ortel Corporation
10.16 Severance Agreement dated March 2, 1999, between Ortel Corporation and Stephen (Note 10)
K. Workman
10.17 Employment Agreement dated June 18, 1999, between Ortel Corporation and Stephen (Note 10)
R. Rizzone
10.18 Severance Agreement dated June 19, 1999, between Ortel Corporation and George (Note 10)
Pontiakos
10.19 Agreement dated June 25, 1999, between Ortel Corporation and Wim J. H. Selders (Note 10)
10.20 Severance Agreement dated July 30, 1999, between Ortel Corporation and Lyle B. As filed
Boarts
21.1 Subsidiaries of Ortel Corporation. (Note 10)
23.1 Consent of KPMG (Note 10)
27.0 Financial Data Schedule
</TABLE>
16
<PAGE>
EXHIBIT INDEX--Continued
<TABLE>
<S> <C>
Note 1 Previously filed by the Registrant in Registration No.
33-79188 and incorporated by reference herein pursuant to
Rule 12b-32 of the Exchange Act.
Note 2 Previously filed by the Registrant in its 10-Q filing for
the quarter ended January 21, 1995.
Note 3 Previously filed by the Registrant in its 8K filing dated
March 26, 1996.
Note 4 Previously filed by the Registrant in its 10-K filing for
the year ended April 30, 1996.
Note 5 Previously filed by the Registrant in its 10-Q filing for
the quarter ended October 31, 1997.
Note 6 Previously filed by the Registrant in its 10-Q filing for
the quarter ended January 31, 1998.
Note 7 Previously filed by the Registrant in its 10-K filing for
the year ended April 30, 1998.
Note 8 Previously filed by the Registrant in its 10-Q filing for
the quarter ended October 31, 1998.
Note 9 Previously filed by the Registrant in its 10-Q filing for
the quarter ended January 31, 1999.
Note 10 Previously filed by the Registrant in its 10-K filing for
the year ended April 30, 1999.
</TABLE>
17
<PAGE>
EXHIBIT 10.20
CONFIDENTIAL SEPARATION AGREEMENT AND RELEASE
THIS SEPARATION AGREEMENT AND RELEASE ("Agreement") is entered into as of
this 30th day of July 1999 ("Agreement Date") by and between Ortel Corporation
(the "Company") and Lyle B. Boarts (the "Employee").
WHEREAS, the employment relationship between the Company and Employee is
being terminated;
WHEREAS, Employee and the Company desire to specify the terms of the
separation.
For and in consideration of the foregoing recitals and the mutual covenants
and agreements set forth herein, the Company and the Employee agree as follows:
Employment Status. Employee hereby resigns from his employment with the
------------------
Company and any affiliates effective July 30, 1999. Employee acknowledges that
he has been paid all wages due through July 30, 1999 including any accrued,
unused vacation pay. Employee understands and agrees that he has given up any
right to future wages or benefits from the Company except as specifically set
forth herein.
Return of Company Property. Employee shall return to the Company, all
---------------------------
files, records, reports, data, correspondence, memoranda and other documents
(including handwritten notes regarding, and drafts of same), computer equipment,
pager, keys and all other physical or personal property which Employee received
from the Company and which are the property of the Company.
Payment to Employee. In consideration of the release of all claims, the
--------------------
Company agrees to provide Employee with the following additional payment and
benefits:
The Company shall pay Employee severance in the amount of $64,917 (less
applicable withholding) payable in equal bi-weekly installments over a six-month
period following the Agreement Date. Payments will be made bi-weekly in
accordance with the Company's normal payroll schedule.
In accordance with the various stock option agreements between the Company
and Employee, the Employee has a period of 90 days following termination, i.e.,
on or before October 29, 1999, in which to exercise all vested options. Options
vested as of July 30, 1999 and available for purchase total 20,398 at various
prices ranging from $9.625 to $12.87 per share (Exhibit A). All unvested options
will be cancelled as of the Agreement Date.
As further consideration, the Company shall continue Employee's health care
benefits to include the Executive level benefits for a period of six months,
commencing August 1, 1999. Employee's entitlement benefits from the Company, and
eligibility to participate in the Company's benefits plans, ceased effective
January 31, 2000, except to the extent Employee elects to and is eligible to
continue his medical benefits at his sole expense pursuant to COBRA.
The foregoing represents the Company's sole financial obligation to
Employee under this Agreement or otherwise.
1
<PAGE>
Release of the Company by Employee.
- -----------------------------------
General Release. Employee hereby releases and forever discharges the
------------------
Company, its parents, subsidiaries, predecessors, successors and each of it
their associates, owners, stockholders, members, assigns, employees, agents,
directors, officers, partners, representatives, lawyers, donors or contributors
and all persons acting by, through, under, or in concert with them, or any of
them, (collectively the "Releases") of and from any and all manner of action or
actions, causes or causes of action, in law or in equity, suits, debts, liens,
contracts, agreements, promises, liabilities, claims, demands, damages, losses,
costs or expenses, of any nature whatsoever, known or unknown, fixed or
contingent (hereinafter called "Claims"), which they now have or may hereafter
have against the Releases by reason of any and all acts, omissions, events or
facts occurring or existing prior to the date hereof, except as expressly
provided herein. The Claims released hereunder include, without limitation, any
alleged breach of any employment agreement; any alleged breach of any covenant
of good faith and fair dealing, express or implied; any alleged torts or other
alleged legal restrictions relating to the Employee's employment and the
termination thereof; and any alleged violation of any federal, state or local
statute or ordinance including, without limitation, Title VII of the Civil
Rights Act of 1964, as amended, the Federal Age Discrimination in Employment
Act, the Americans With Disabilities Act, and the California Fair Employment and
Housing Act. This Release shall not apply to Employee's right to receive the
benefits provided for in the Agreement, or to retirement and/or employee welfare
benefits that have vested and accrued prior to Employee's separation from
employment with the Company.
Release of Unknown Claims.
- --------------------------
EMPLOYEE ACKNOWLEDGES THAT HE IS FAMILIAR WITH THE PROVISIONS OF CALIFORNIA
CIVIL CODE SECTION 1542, WHICH PROVIDES AS FOLLOWS:
"A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS
WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT
TO EXIST IN HIS FAVOR AT THE TIME OF
EXECUTING THE RELEASE, WHICH, IF KNOWN BY HIM
MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT
WITH THE DEBTOR."
EMPLOYEE BEING AWARE OF SAID CODE SECTION, HEREBY EXPRESSLY WAIVES ANY
RIGHTS HE MAY HAVE THEREUNDER, AS WELL AS UNDER ANY OTHER STATUTES OR COMMON LAW
PRINCIPLES OF SIMILAR EFFECT.
Release of Age Discrimination Claims.
- --------------------------------------
Employee agrees and expressly acknowledges that this General Release
includes a waiver and release of all claims which Employee has or may have under
the Age Discrimination in Employment Act of 1967, as amended, 29 U.S.C. (S) 621,
et seq. ("ADEA"). The following terms and conditions apply to and are part of
the waiver and release of the ADEA claims under this Agreement:
That this paragraph and this General Release are written in a manner
calculated to be understood by Employee.
The waiver and release of claims under the ADEA contained in this General
Release do not cover rights or claims that may arise after the date on which
Employee signs this General Release.
This General Release provides for consideration in addition to anything of
value to which Employee is already entitled.
Employee is advised to consult an attorney before signing this General
Release.
Employee is granted twenty-one (21) days after Employee is presented with
this General Release to decide whether or not to sign this General Release. If
Employee executes this General Release prior to the
2
<PAGE>
expiration of such period, Employee does so voluntarily and after having had the
opportunity to consult with an attorney.
Employee will have the right to revoke this General Release under the ADEA
within seven (7) days of signing this Release. In the event this Release is
revoked, the General Release and the Separation Agreement executed concurrently
herewith will be null and void in their entirety.
Manner of Revocation. In the event that Employee elects to revoke this
--------------------
Mutual General Release, he shall deliver within the time period prescribed above
to the Chairperson of the Compensation Committee of the Company's Board of
Directors, a writing stating that he is revoking this Mutual General Release and
subscribed by the Employee.
Consequences of Revocation. In the event that Employee should elect to
---------------------------
revoke this Mutual General Release as described in the paragraph above, this
Agreement shall be null and void in its entirety.
No Assignment of Claims. Employee represents and warrants to the Releases
------------------------
that there has been no assignment or other transfer of any interest in any Claim
which Employee may have against the Releases, or any of them, and Employee
agrees to indemnify and hold the Releases harmless from any liability, claims,
demands, damages, costs, expenses and attorneys' fees incurred as a result of
any person asserting any such assignment or transfer of any rights or Claims
under any such assignment or transfer from such Party.
No Suits or Actions. Employee agrees that if he hereafter commences, joins
--------------------
in, or in any manner seeks relief through any suit arising out of, based upon,
or relating to any of the Claims released hereunder or in any manner asserts
against the Releases any of the Claims released hereunder, then he will pay to
the Releases against whom such claim(s) is asserted, in addition to any other
damages caused thereby, all attorneys' fees incurred by such Releases in
defending or otherwise responding to said suit or Claim.
No Admission. The Parties further understand and agree that neither the
-------------
payment of money nor the execution of this Release shall constitute or be
construed as an admission of any liability whatsoever by the Releases.
Confidential Information and Trade secrets/Non-solicitation
- -----------------------------------------------------------
Non-competition. Employee acknowledges that he has had access to and
----------------
actual knowledge of confidential trade secret information, which was entrusted
to him in his fiduciary capacity as an employee or officer of the Company, and
that he has a duty not to disclose or use, for his or any other person's
benefit, such information. Employee agrees that such information includes,
without limitation, the identity of the Company's actual and targeted customers,
suppliers, business partners, and contacts; the business plans and finances of
the Company; technical processes and information developed by the Company; and
business processes developed by the Company.
Non-solicitation.
- -----------------
No Solicitation of Customers. To ensure that no trade secret information
----------------------------
is misused, for a period of one (1) year from the date of execution of this
Agreement, Employee shall not directly or indirectly, either individually or
acting in concert, call upon or solicit any significant customer of the Company
or its subsidiaries with whom the Company or its subsidiaries has or have had
any dealings during the five-year period prior to the date hereof or may have
any dealings at any time during such period for the purpose of soliciting
business to sell or otherwise provide to such customer or any other customer of
the Company or its subsidiaries any product or service included in the
[alternative long distance carrier business], except for the benefit of or on
behalf of the Company and, in furtherance thereof, Employee, individually or
acting in concert, shall not attempt in any manner to solicit and/or otherwise
persuade or induce any such customer of the Company or its subsidiaries to cease
to do business, reduce the amount of business which any such customer has
customarily done or contemplated doing or refrain from increasing the amount of
business with the Company or its subsidiaries.
No Solicitation of Distributor, Supplier and Employees. To ensure that no
------------------------------------------------------
trade secret is misused, for a period of one (1) year from the date of execution
of this Agreement, Employee shall not directly or indirectly, either
individually or acting in concert, (i) request, induce or attempt to influence
any distributor or supplier of
3
<PAGE>
goods or services to the Company or its subsidiaries to curtail, cancel or
refrain from maintaining or increasing the amount or type of business such
distributor or supplier of goods or services is then transacting with the
Company or its subsidiaries; (ii) solicit for employment or retention or hire,
employ or retain any individual who is an employee, agent or representative of
the Company or its subsidiaries as of the date hereof, or (iii) influence or
attempt to influence any employee, agent or representative of the Company or its
subsidiaries to terminate his or her employment or relationship with the
Company.
In the event of a breach of Paragraph 6 by Employee, the Company shall be
entitled to injunctive relief, as well as to damages sustained and the recovery
of reasonable attorneys' fees. Employee represents that he has complied with the
terms of Paragraph 5 prior to the execution of this Agreement & Release.
Confidentiality of Terms; No Disparagement.
- -------------------------------------------
Employee expressly acknowledges that this Agreement and all matters
relating to or leading up to the negotiation and effectuation of this Agreement,
are confidential and shall be accorded the utmost confidentiality and shall not
be disclosed to any third party except to Employee's wife, his legal, actuarial,
pension, accounting and tax advisors to the extent necessary to perform services
or as required by law, rule or regulation. In addition, Employee may disclose
the provisions of paragraph 6 to any prospective employer. Employee agrees that
if any disclosure is made as permitted under this paragraph, then such persons
or entities shall be cautioned about the confidentiality obligations imposed by
this Agreement and required to abide by the terms of this confidential
undertaking.
Employee agrees that he will conduct himself in a professional manner and
not make any disparaging, negative or other statements regarding the Company,
its affiliates or any of the Company's or its affiliates' officers, directors or
employees which could reasonably be believed in any way to have an adverse
effect on the business or affairs of the Company or its affiliates or otherwise
be injurious to or not be in the best interests of the Company, its affiliates
or any such other persons. The Company agrees that will not make any
disparaging, negative or other unfavorable statements regarding the Employee.
The Company does not provide references. If the Human Resources Department of
the Company is contacted concerning Employee's employment, it will follow its
usual practice and confirm dates of employment, salary and position held if
requested to do so.
Advice of Counsel. Employee represents and warrants that he has read this
------------------
Agreement, that he has had adequate time to consider it, that he had been
advised by the Company to consult with an attorney and has consulted with an
attorney prior to executing this Agreement, that he understands the meaning and
application of this Agreement and that he has signed this Agreement knowingly,
voluntarily and of his own free will with the intent of being bound by it
Severability; Modification of Agreement. If any provision of this
---------------------------------------
Agreement shall be found invalid or unenforceable in whole or in part, then such
provisions shall be deemed to be modified or restricted to the extent and in the
manner necessary to render the same valid and enforceable or shall be deemed
excised from this Agreement as such circumstances may require, and this
Agreement shall be construed and enforced to the maximum extent permitted by law
as if such provision had been originally incorporated herein as so modified or
restricted or as if such provision had not been originally incorporated herein,
as the case may be.
Termination of Change in Control Agreement. Employee acknowledges and
---------------------------------------------
agrees that the Change in Control Agreement dated March 6, 1998 and the First
Amended Change in Control Agreement dated November 9, 1998 between Employee and
the Company are terminated as of the Agreement Date, and no rights or benefits
of Employee have accrued therein.
Arbitration. Except for claims for emergency equitable or injunctive
-----------
relief which cannot be timely addressed through arbitration, the parties hereby
agree to submit any claim or dispute arising out of the terms of this Agreement
(including exhibits) and/or any dispute arising out of or relating to Employee's
employment with the Company in any way, to private and confidential arbitration
by a single neutral arbitrator through JAMS/Endispute. Subject to the terms of
this paragraph, the arbitration proceedings shall be governed by the then
current JAMS/Endispute rules governing employment disputes, and shall take place
in Los Angeles, California. The decision of the arbitrator shall be final and
binding on all parties to this Agreement, and judgment thereon may be entered in
any court having jurisdiction. The Parties shall share equally the arbitrator's
fee and all costs of services provided by the arbitrator and arbitration
organization; however, all costs of the arbitration proceeding
4
<PAGE>
or litigation to enforce this Agreement, including attorneys' fees and witness
expenses, shall be paid as the arbitrator or court awards in accordance with
applicable law. Except for claims for emergency equitable or injunctive relief
which cannot be timely addressed through arbitration, this arbitration procedure
is intended to be the exclusive method of resolving any claim relating to the
obligations set forth in this Agreement.
Successors and Assigns. This Agreement shall be binding upon and inure to
----------------------
the benefit of and be enforceable by the parties hereto and their respective
successors and assigns. Notwithstanding the foregoing, neither this Agreement
nor any rights hereunder may be assigned to any party by the Company or Employee
without the prior written consent of the other party hereto.
Miscellaneous. Employee agrees not to aid in, assist in, or encourage the
--------------
pursuit of, litigation against the Company by any other person or entity.
Entire Agreement. Employee and the Company each represent and warrant that
----------------
no promise or inducement has been offered or made except as set forth herein and
that the consideration stated herein is the sole consideration for this
Agreement, provided, however, that (1)any agreements relating to the
confidentiality of trade-secret information and inventions and assignment of
trade-secret information and inventions are not superseded by this Agreement.
and (2) the Option Agreements are not superseded or discharged by this
Agreement. The parties agree that this Agreement shall be construed and
enforced in accordance with the laws of the State of California.
Lyle B. Boarts Ortel Corporation
/s/ Lyle B. Boarts
- ---------------------
Date: July 30, 1999 By: /s/ Stephen R. Rizzone
---------------------------------------
Stephen R. Rizzone, President, Chief
Executive Officer, Chairman of the Board
Date: July 30, 1999
5
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-2000
<PERIOD-START> MAY-01-1999
<PERIOD-END> AUG-01-1999
<CASH> 24,907
<SECURITIES> 0
<RECEIVABLES> 12,612
<ALLOWANCES> 1,356
<INVENTORY> 9,708
<CURRENT-ASSETS> 56,724
<PP&E> 42,649
<DEPRECIATION> 25,672
<TOTAL-ASSETS> 84,775
<CURRENT-LIABILITIES> 16,306
<BONDS> 0
0
0
<COMMON> 54,885
<OTHER-SE> 67,698
<TOTAL-LIABILITY-AND-EQUITY> 84,775
<SALES> 17,661
<TOTAL-REVENUES> 17,661
<CGS> 11,330
<TOTAL-COSTS> 11,330
<OTHER-EXPENSES> 3,633<F1>
<LOSS-PROVISION> 75<F2>
<INTEREST-EXPENSE> 12
<INCOME-PRETAX> (4,347)
<INCOME-TAX> (1,133)
<INCOME-CONTINUING> (3,214)
<DISCONTINUED> (3,838)
<EXTRAORDINARY> 0
<CHANGES> (989)<F3>
<NET-INCOME> (8,041)
<EPS-BASIC> (.68)
<EPS-DILUTED> (.68)
<FN>
<F1>Research and development
<F2>Provision for bad debt
<F3>Cummulative effect of accounting change
</FN>
</TABLE>
