-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NI18QbMkXdbZ0s+dgY/GAyw37RtL2aALpf39SkONxoAiMogwor6xGvh+W0gQ7llI tfpA4FvRrAq8QPs4dyac0A== 0000892569-96-000311.txt : 19960401 0000892569-96-000311.hdr.sgml : 19960401 ACCESSION NUMBER: 0000892569-96-000311 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19960329 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PAIRGAIN TECHNOLOGIES INC /CA/ CENTRAL INDEX KEY: 0000910032 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 330282809 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-22202 FILM NUMBER: 96540586 BUSINESS ADDRESS: STREET 1: 14402 FRANKLIN AVE CITY: TUSTIN STATE: CA ZIP: 92680 BUSINESS PHONE: 7148329922 MAIL ADDRESS: STREET 1: 14402 FRANKLIN AVE CITY: TUSTIN STATE: CA ZIP: 92680-7013 10-Q/A 1 FORM 10-Q/A FOR QUARTER ENDED SEPTEMBER 30, 1994 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. 2 PAIRGAIN TECHNOLOGIES, INC. INDEX
Page ---- 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
2 3 PART I: ITEM 1 FINANCIAL INFORMATION PAIRGAIN TECHNOLOGIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31, 1994 1993 ------------- ------------ (UNAUDITED) (RESTATED) 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 ======= =======
See notes to condensed consolidated financial statements. 3 4 PAIRGAIN TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
QUARTER ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------ --------------------------- 1994 1993 1994 1993 ------- ------- -------- -------- (RESTATED) (RESTATED) 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 ======= ======= ======== =======
See notes to condensed consolidated financial statements. 4 5 PAIRGAIN TECHNOLOGIES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, -------------------------------- 1994 1993 ---------- ------- (RESTATED) 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 ======= =======
See notes to condensed consolidated financial statements. 5 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 7 PAIRGAIN TECHNOLOGIES, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (continued)
THREE MONTHS NINE MONTHS ENDED ENDED ------------ ----------- SEPTEMBER 30, 1994 ------------------------------- (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 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 ======= ========
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 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 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:
SEPTEMBER 30, DECEMBER 31, 1994 1993 ------------ ----------- (IN THOUSANDS) Raw materials $ 3,532 $ 3,697 Work in process 7,611 4,442 Finished goods 2,233 2,360 ------- ------- $13,376 $10,499 ======= =======
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 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 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 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:
THREE MONTHS NINE MONTHS ENDED ENDED ------------ ----------- SEPTEMBER 30, 1994 --------------------------- (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 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 ======= ========
12 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 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 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 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 EX-11.1 2 COMPUTATION OF PER SHARE EARNINGS 1 PAIRGAIN TECHNOLOGIES, INC. EXHIBIT 11.1--COMPUTATION OF EARNINGS PER SHARE
QUARTER ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ----------------------- ------------------------- PRIMARY EARNINGS PER SHARE 1994 1993 1994 1993 ------- ------- ------- -------- (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 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 ======= ======== ======= =======
QUARTER ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------- ------------------------- FULLY DILUTIVE EARNINGS PER SHARE 1994 1993 1994 1993 -------- -------- -------- ------- (IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 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 ======= ======== ======= =======
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