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Thursday July 23, 8:28 am Eastern Time
Company Press Release
SOURCE: Applied Innovation Inc.
Applied Innovation Inc. Announces Second Quarter Results
DUBLIN, Ohio, July 23 /PRNewswire/ -- Applied Innovation Inc. (Nasdaq: AINN - news) today announced operating results for
the second quarter and six months ended June 30, 1998.
Net sales for the second quarter ended June 30, 1998 increased 21% to $14,783,826, from $12,233,673 for the second quarter of
the prior year. Net sales for the six months ended June 30, 1998 were $26,301,575, compared to $20,643,526 for the prior year, or
an increase of 27%. The second quarter results include the first shipment of the AI4800 product offering designed by the
Company's Access Products Group. Sales in the Data Communications Network (''DCN'') Products Group accounted for 97% of
the second quarter sales with 3% of the sales from the Access Products Group.
Gross profit for the second quarter of 1998 was $8,271,423, or 56% of net sales, compared to $6,720,075, or 55% of net sales, for
the same period of the prior year. Gross profit for the six months ended June 30, 1998 was $14,924,805, or 57% of net sales,
compared to $11,490,970, or 56% of net sales, for the same period of the prior year. The improvement in gross profit for the six
months ended June 30, 1998 over the prior year same period was a result of higher production volumes.
Research and development (''R&D'') expenses increased in the second quarter of 1998 primarily as a result of the Company's
continued commitment to develop new products within the Access Products Group. These products are being designed to provide
a solution to the escalating problem of network congestion caused by Internet data traffic on the traditional voice network. R&D
expenses for the second quarter ended June 30, 1998 were $3,948,475, or 27% of net sales, compared to $2,678,750, or 22% of
net sales, for the prior year second quarter. The R&D expenditures for the Access Products Group were $2,531,468 for the
second quarter of 1998, an increase of 79% over the $1,412,331 expended during the second quarter of the prior year. The R&D
expenditures for the DCN Products Group were $1,417,007 for the second quarter of 1998 as compared to $1,266,419 for the
second quarter of 1997. R&D expenses for the six months ended June 30, 1998 were $7,287,485, or 28% of net sales, compared
to $5,837,724, or 28% of net sales, for the same period of the prior year. The R&D expenditures for the Access Products Group
were $4,630,372 for the six month period ended June 30, 1998, an increase of 84% over the $2,515,882 expended during the same
period of the prior year. The R&D expenditures for the DCN Products Group were $2,657,113 for the six month period ended
June 30, 1998 as compared to $3,321,842 for the same period of the prior year.
Selling, general, and administrative expenses for the second quarter ended June 30, 1998 were $4,053,012, or 27% of net sales,
compared to $3,930,685, or 32% of net sales, for the second quarter ended June 30, 1997. Selling, general and administrative
expenses for the six months ended June 3O, 1998 were $7,651,797, or 29% of net sales, compared to $6,547,481, or 32% of net
sales, for the same period of the prior year.
Net income for the second quarter of 1998 was $286,289, or $0.02 diluted earnings per share, as compared to net income of
$152,885, or $0.01 diluted earnings per share, for the prior year second quarter. Net income for the six months ended June 30,
1998 was $169,823, or $0.01 diluted earnings per share, versus a net loss of $375,735, or $0.02 diluted loss per share, for the same
period of the prior year. The effective tax rate for 1998 was 34% as compared to 37% for the prior year.
Gerard B. Moersdorf, Jr., Chairman and Chief Executive Officer, commented, ''We are pleased with the overall results produced
in the second quarter of 1998. Sales in our DCN Group were up 17% in the second quarter which exceeded our plan. Our full
year expectations for DCN sales growth remains in the range of 10% to 15%. Our DCN business continued to perform above
plan and generated good operating margins.'' Mr. Moersdorf added, ''The Access Products Group sold its first product in the
second quarter. The AI4800, which is the first in a series of DSAM (Data Services Access Multiplexer) products, is being utilized
in an expanded field trial by one of our customers. We continue the R&D development effort on the DSAM products and our
previously announced search for a strategic partner. To assist the Company with the search effort we have retained the
investment banking firm of Dain Rauscher Wessels, a division of Dain Rauscher Incorporated.''
With the exception of historical information, the matters discussed in this press release in the fourth and seventh paragraphs
concerning the DCN Products Group future sales outlook and the Access Products Group future sales outlook, product
development activities and the need to find a strategic partner are forward-looking statements that involve risks and uncertainties
including, but not limited to, the Company's ability to develop its Internet Access products as planned and on budget, the ability to
hire technical staff for the Internet Access product line, market acceptance of the Company's Internet Access product line,
competitive products and related pricing, the Company's ability to find a strategic partner, technological changes, and other risks
detailed from time to time in the Company's Securities and Exchange Commission filings, including the Company's Annual Report
on Form 10- K for the year ended December 31, 1997, all of which factors and risks may cause actual results to differ materially
from management's current expectations.
Applied Innovation is the leading provider of mediation products, which enable communications between network elements and
operational support systems for the management of telecommunication carriers' networks. The Company, with headquarters in
Dublin, Ohio, is also developing products which will assist telecommunication service providers in handling the rapidly increasing
Internet traffic. See financial highlights for the second quarter ended June 30, 1998. Applied Innovation can be reached on the
World Wide Web at aiinet.com.
Applied Innovation Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
June 30, December 31,
Assets 1998 1997
Current assets:
Cash $11,036,955 $8,195,156
Accounts receivable 9,697,808 11,944,692
Inventory 3,358,669 3,176,299
Prepaid expenses 103,539 298,362
Deferred income taxes 1,220,000 1,145,000
Total current assets 25,416,971 24,759,509
Property, plant and equipment - net 12,034,360 12,833,943
Other assets 122,418 114,096
Total Assets $37,573,749 $37,707,548
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $2,700,845 $3,365,815
Accrued expenses 2,573,755 2,583,426
Accrued warranty expenses 2,585,606 2,155,325
Total current liabilities 7,860,206 8,104,566
Deferred income taxes 120,000 200,000
Stockholders' equity 29,593,543 29,402,982
Total Liabilities and
Stockholders' Equity $37,573,749 $37,707,548
Applied Innovation Inc.
Consolidated Statements of Operations (Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
1998 1997 1998 1997
Net Sales $14,783,826 $12,233,673 $26,301,575 $20,643,526
Cost of Sales 6,512,403 5,513,598 11,376,770 9,152,556
Gross Profit 8,271,423 6,720,075 14,924,805 11,490,970
Research &
Development
Expenses 3,948,475 2,678,750 7,287,485 5,837,724
Selling, General
& Administrative
Expenses 4,053,012 3,930,685 7,651,797 6,547,481
Income (Loss) from
Operations 269,936 110,640 (14,477) (894,235)
Investment Income 164,353 133,008 272,300 296,652
Income (Loss) Before
Income Taxes 434,289 243,648 257,823 (597,583)
Income Taxes 148,000 90,763 88,000 (221,848)
Net Income (Loss) $286,289 $152,885 $169,823 $(375,735)
Net Income (Loss)
Per Share
- Diluted $0.02 $0.01 $0.01 $(0.02)
Weighted Average
Number of Shares
Outstanding
- Diluted 16,212,409 15,874,173 16,038,542 15,78l,832
SOURCE: Applied Innovation Inc.
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