U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For Quarter Ended: December 31, 2002
Commission File Number: 0-22991
ONSPAN NETWORKING, INC.
-----------------------
(Exact name of small business issuer as specified in its charter)
NEVADA 87-0460247
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(State of Incorporation) (IRS Employer ID No)
6413 CONGRESS AVENUE, SUITE 230, BOCA RATON, FL 33487
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(Address of principal executive office)
(561) 988-2334
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(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ].
The number of shares outstanding of registrant's common stock, par value $.012
per share, as of December 31, 2002 was 968,677.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X].
ONSPAN NETWORKING, INC. AND SUBSIDIARY
INDEX
Page
No.
----
Part I. Unaudited Financial Information
Item 1. Condensed Consolidated:
Balance Sheet - December 31, 2002 .............................. 3
Statements of Operations -
Three Months Ended December 31, 2002 and 2001 .................. 4
Statement of Stockholders' Equity -
Three Months Ended December 31, 2002 ........................... 5
Statements of Cash Flows -
Three Months Ended December 31, 2002 and 2001 ................ 6-7
Notes to Financial Statements -
Three Months Ended December 31, 2002 and 2001 ............... 8-13
Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations ........................ 14-17
Part II. Other Information
Item 1. Legal Proceedings ............................................. 18
Item 5. Other Information ............................................. 19
Item 6. Exhibits and Reports Form 8-K .............................. 19-20
Certifications ........................................................... 22-23
Exhibit Index ............................................................... 24
2
PART I - UNAUDITED FINANCIAL INFORMATION
ONSPAN NETWORKING, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 2002
(UNAUDITED)
ASSETS
Current assets
Cash and cash equivalents .................................... $ 1,018,891
Marketable equity securities ................................. 61,000
-----------
Total current assets ........................................... 1,079,891
Property and equipment, net .................................... 2,049
-----------
$ 1,081,940
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable ............................................. $ 5,161
Accrued dividend ............................................. 30,946
Amounts due to purchasers of discontinued operations ......... 55,929
-----------
Total current liabilities ...................................... 92,036
Stockholders' equity
Preferred stock; $.001 par value; authorized 12,500
shares; issued and outstanding 2,713 shares;
liquidation preference $271,300 ............................ 2
Common stock, $.012 par value. Authorized 8,333,333
shares; issued and outstanding 968,677 shares ............... 11,624
Paid-in capital .............................................. 7,773,134
Accumulated deficit .......................................... (6,794,856)
-----------
Total stockholders' equity ..................................... 989,904
-----------
$ 1,081,940
===========
See accompanying notes to condensed consolidated financial statements.
3
ONSPAN NETWORKING, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 2002 AND 2001
(UNAUDITED)
Three Months Ended
December 31,
----------------------
2002 2001
--------- ---------
Costs and expenses:
Salaries and wages ................................. 39,000 15,000
Other selling, general and
administrative expenses .......................... 33,665 86,847
--------- ---------
72,665 101,847
--------- ---------
Earnings (loss) from operations ...................... (72,665) (101,847)
Other income (expense):
Interest income .................................... 4,113 7,884
Unrealized (loss) on
marketable equity securities ..................... (19,000) (308,000)
Other expense ...................................... (30,000) -
--------- ---------
Total other income (expense) ..................... (44,887) (300,116)
--------- ---------
Earnings (loss) before income taxes and .............. (117,552) (401,963)
discontinued operations
Income tax (befefit) expense ......................... - (178,094)
--------- ---------
Earnings (loss) from continuing operations ........... (117,552) (223,869)
Income from discontinued operations .................. - 31,521
--------- ---------
Net earnings (loss) .................................. (117,552) (192,348)
Dividends on preferred shares ........................ - -
--------- ---------
Net earnings (loss) applicable to
common shares ...................................... $(117,552) $(192,348)
========= =========
Basic and diluted net earnings (loss) per share
Continued operations ............................... $ (0.12) $ (0.23)
========= =========
Discontinued operations ............................ $ - $ 0.03
========= =========
Total ............................................ $ (0.12) $ (0.20)
========= =========
Weighted average shares outstanding
Basic .............................................. 968,677 967,735
========= =========
Diluted ............................................ 968,677 967,735
========= =========
See accompanying notes to condensed consolidated financial statements.
4
ONSPAN NETWORKING, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
THREE MONTHS ENDED DECEMBER 31, 2002
(UNAUDITED)
Preferred Stock Common Stock Paid-in Retained
Shares Par Value Shares Par Value Capital Earnings Total
------ --------- ------ --------- ------- -------- -----
Balance, September 30, 2002 .. 2,713 $2 968,677 $11,624 $7,773,134 $(6,677,304) $1,107,456
Net (loss) ................... - - - - - (117,552) (117,552)
------ -- ------- ------- ---------- ----------- ----------
Balance, December 31, 2002 ... 2,713 $2 968,677 $11,624 $7,773,134 $(6,794,856) $ 989,904
====== == ======= ======= ========== =========== ==========
See accompanying notes to condensed consolidated financial statements.
5
ONSPAN NETWORKING, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 31, 2002 AND 2001
(UNAUDITED)
2002 2001
---- ----
Cash flows from operating activities
Net income ......................................... $ (117,552) $ (192,348)
Less: Earnings from discontinued operations, net ... $ - $ 31,521
----------- -----------
(Loss) from continuing opertions ................... $ (117,552) $ (223,869)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization .................... 230 208
Deferred income taxes ............................ - (152,413)
Unrealized loss from marketable securities ....... 19,000 308,000
Change in assets and liabilities (excluding
effects of acquisitions):
Accounts receivable ............................ - -
Income tax receivable .......................... 45,147 (25,681)
Prepaid expenses ............................... 11,833 (7,753)
Accounts payable ............................... (378) 30,450
Accrued expenses ............................... 30,000 -
----------- -----------
Net cash used in operating activities .............. (11,720) (71,058)
----------- -----------
Cash flows from investing activities
Capital expenditures ............................. - (773)
----------- -----------
Net cash (used in) provided by investing activities - (773)
----------- -----------
Cash flows from financing activities
Payment of notes payable ......................... - (6,781)
Payment to purchasers of discontinued operations . - (25,095)
----------- -----------
Net cash used in financing activities .............. - (31,876)
----------- -----------
Net decrease in cash and cash equivalents
from continuing operations ....................... (11,720) (103,707)
Net cash used in (provided by)
discontinued operations .......................... - 8,000
Net (decrease) increase in cash and cash equivalents (11,720) (95,707)
Cash and cash equivalents, beginning of period
from continuing operations ....................... 1,030,611 1,283,673
----------- -----------
Cash and cash equivalents, end of period ........... $ 1,018,891 $ 1,187,966
=========== ===========
Continued
See accompanying notes to condensed consolidated financial statements.
6
ONSPAN NETWORKING, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 31, 2002 AND 2001
(UNAUDITED)
(CONTINUED)
2002 2001
---- ----
Supplemental Cash Flow Information
Cash paid for interest and income taxes are
as follows:
Interest ....................................... $ - $ -
Income taxes ................................... $ - $ -
Financed insurance premiums ........................ $ - $57,000
See accompanying notes to condensed consolidated financial statements.
7
ONSPAN NETWORKING, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED DECEMBER 31, 2002 AND 2001
(UNAUDITED)
A. ORGANIZATION
Onspan Networking, Inc. (the "Company" or "Onspan"), a Nevada corporation, is a
holding company. The financial statements include the accounts of the Company
and the discontinued operations of InterLAN Communications, Inc. ("InterLAN")
(http://www.interlancom.com). Onspan changed its name from Network Systems
International, Inc. effective February 10, 2001.
Originally incorporated in 1985, as Network Information Services, Inc., Network
Systems International, Inc. ("NESI"), a Nevada corporation, was the surviving
corporation of a reverse merger completed in April 1996. The Company became a
publicly traded entity in connection with the re-organization.
On July 10, 1998, the Company's stock was officially approved for listing on the
NASDAQ small cap market and the Company's common stock began trading on NASDAQ
Small Cap under the symbol NESI. As of April 2, 2002, the securities were
de-listed from the Nasdaq SmallCap market and now trade on the Over-The-Counter
Bulletin Board under the symbol ONSP.
On November 10, 2000, Onspan completed the acquisition of 100% of the issued and
outstanding common stock of InterLAN, a Virginia corporation.
On August 5, 2002, the Company sold and transferred the stock of its
wholly-owned subsidiary, InterLAN Communications, Inc. to G. Anthony Munno,
Martin Sainsbury Carter and Brian Ianniello, who were executives and employees
of InterLAN. In exchange for the assignment of the InterLAN stock, Messrs.
Munno, Carter and Ianniello transferred 21,168 shares of Onspan common shares,
and Onspan was relieved of substantially all obligations and guarantees provided
to third parties. Onspan also retained the right to a certain tax refund in
amount of $45,147 owing to InterLAN. These individuals also resigned in all
capacities as directors, officers and/or employees of Onspan. Onspan retained
the following assets of the corporation in cash of $1,078,883, the marketable
securities, the prepaid expenses, the entire income tax receivable, and $2,611
in property. The liabilities Onspan retained include the dividend payable amount
due to purchasers of discontinued operations, and the balance of the note
payable.
8
The financial statements included in this report have been prepared by the
Company pursuant to the rules and regulations of the Securities and Exchange
Commission for interim reporting and include all adjustments (consisting only of
normal recurring adjustments) that are, in the opinion of management, necessary
for a fair presentation. These financial statements have not been audited.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations for
interim reporting. The Company believes that the disclosures contained herein
are adequate to make the information presented not misleading. However, these
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Company's Annual Report for the year ended
September 30, 2002, which is included in the Company's Form 10-KSB for the year
ended September 30, 2002. The financial data for the interim periods presented
may not necessarily reflect the results to be anticipated for the complete year.
B. ACCOUNTING POLICIES
BASIS OF PREPARATION The financial statements at December 31, 2002 and 2001,
include the accounts of the Company and the discontinued operations of InterLAN
Communications, Inc.
CASH AND CASH EQUIVALENTS - The Company considers all highly liquid debt
instruments purchased with a maturity of three months or less to be cash
equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying values of cash and cash
equivalents, accounts receivable, marketable equity securities, notes
receivable, income taxes receivable, accounts payable, amounts due to purchasers
of discontinued operations and note payable approximate fair value as of
December 31, 2002, because of the short maturity of these instruments.
INVESTMENT SECURITIES - Investments are classified into three categories as
follows:
o Trading securities reported at fair value with unrealized gains and
losses included in earnings;
o Securities available-for-sale reported at fair value with unrealized
gains and losses reported in other comprehensive income;
o Held-to-maturity securities reported at amortized cost.
9
PREFERRED STOCK - At December 31, 2002, the Company had 2,713 shares outstanding
of its Series A Convertible Preferred Stock ("Series A"). This issue has a
stated liquidation preference value of $100 per share redeemable at the
Company's option, has no voting rights, and each preferred share is convertible
into 4 shares of the Company's common stock as adjusted for the 1 for 12 reverse
stock split. Dividends on the Series A were to be paid monthly in cash at a rate
of 12% of the original issue. The Company's Board of Directors, elected for the
payment of cash dividends on its Series A to be suspended. This decision was
made in light of the general economic conditions. In particular, the Board took
such actions as necessary to preserve the Company's working capital in order to
ensure the continued viability of the Company. The Board of Directors is unable
at this time to predict if the Company will resume the payment of cash dividends
on its Series A 12% Cumulative Convertible Preferred Stock. However, the Company
has accrued dividends on these shares in the amount of $30,946 at December 31,
2002.
INCOME TAXES - The Company accounts for income taxes under the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). Under SFAS 109, the liability method is used in accounting
for income taxes and deferred tax assets and liabilities are determined based on
differences between the financial reporting and tax bases of assets and
liabilities. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
STOCK OPTION PLAN - The Company applies the intrinsic value-based method of
accounting prescribed by Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations, in
accounting for its stock option plan. As such, compensation expense would be
recorded on the date of grant only if the current market price of the underlying
stock exceeded the exercise price.
EARNINGS PER SHARE - The financial statements are presented in accordance with
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per
Share". Basic earnings per share is computed using the weighted average number
of common shares outstanding during the period. Diluted earnings per share
reflect the potential dilution from the exercise or conversion of securities
into common stock.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from these estimates.
10
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost. Expenditures
for significant renewals and improvements are capitalized. Repairs and
maintenance are charged to expense as incurred. Depreciation is computed using
an accelerated method for both financial and tax purposes based upon the useful
lives of the assets.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with current year
presentation.
C. MARKETABLE EQUITY SECURITIES
The cost of investment securities as shown in the accompanying balance sheet and
their estimated market value at December 31, 2002 is as follows:
2002
----
Trading securities:
Cost ............. $ 504,000
Unrealized loss .. (443,000)
---------
$ 61,000
=========
The Company included unrealized losses in the amount of $19,000 and $308,000 in
earnings for the three months ended December 31, 2002 and 2001, respectively.
Unrealized gains and losses are recognized based on changes in the fair value of
the securities as quoted on national and inter-dealer stock exchanges.
D. PROPERTY AND EQUIPMENT
Property and equipment, which are reflected at cost, consist of the following at
December 31, 2002:
Computer equipment ....................... $ 3,689
--------
Total property and equipment ............. $ 3,689
Less: accumulated depreciation ........... ( 1,640)
--------
Property and equipment, net .............. $ 2,049
========
Depreciation expense for the three months ended December 31, 2002 and
2001 is $230 and $208, respectively.
11
E. DISCONTINUED OPERATIONS
2002 2001
---- ----
Net Sales - Interlan ..................... $ - $912,060
Income from discontinued operations ...... $ - $ 31,521
==== ========
Net income per common share
Basic ................................ - .03
Diluted .............................. - .03
F. EARNINGS PER SHARE
Basic earning (loss) per share is computed by dividing earnings available to
common stockholders by the weighted average number of common shares outstanding
during the period. Diluted earnings per share reflect per share amounts that
would have resulted if dilutive potential common stock had been converted to
common stock. The following reconciles amounts reported in the financial
statements:
2002 2001
---- ----
Loss from continuing operations ........................ $(117,552) $(223,869)
Income from discontinued operations .................... - 31,521
--------- ---------
Net loss ............................................... $(117,552) $(192,348)
========= =========
Denominator for basic earnings per share -
Weighted average shares ................................ 968,677 967,735
Effect of dilutive securities - stock options .......... - -
--------- ---------
Denominator for diluted earnings per share -
Weighted average shares adjusted for dilutive securities 968,677 967,735
========= =========
Basic and diluted earnings (loss) per common share:
Loss from continuing operations ........................ $ (.12) $ (.23)
Earnings from discontinued operations .................. - .03
--------- ---------
Net earnings (loss) .................................... $ (.12) $ (.20)
--------- ---------
12
G. LEGAL PROCEEDINGS
1. Network Systems International of North Carolina, Inc. v Network Systems
International, Inc. and Onspan Networking, Inc. (02-CvS-10154)
(Complaint filed September 13, 2002).
This action asserts a claim for beach of contract against the Company,
seeking certain tax refunds obtained by the Company. The plaintiff, a
former subsidiary of the Company, claims that these tax refunds belong
to the plaintiff. The Company has not yet filed an answer to the
Complaint. The Company disputes the amounts claimed and intends to seek
reimbursement for certain expenses incurred by the Company on behalf of
the plaintiff. The Company has made a settlement offer.
2. Soles Brower Smith & Company v. Network Systems International Inc. and
Network Systems International of North Carolina, Inc. 02-CvS-7103
(Complaint filed June 11, 2002)
This action was brought by a business broker that formerly represented
the Company in attempts to sell Vercom Software, Inc. a former
subsidiary of the company. The Complaint seeks relief for breach of
contract.
The Company has asserted a defense based on the fact that it
transferred its shares of Vercom and had no involvement in the sale of
Vercom, which forms the basis of Plaintiff's complaint. In addition,
the Company has asserted a crossclaim against Network Systems
International of North Carolina, Inc. for indemnification. The Company
intends to oppose plaintiff's claims vigorously and will seek early
dismissal of the action. Given the early stage of this action, we are
unable to assess the likely outcome of this action or the magnitude of
loss if any were to occur.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS CRITICAL ACCOUNTING POLICIES
The Company has identified the policies outlined below as critical to its
business operations and an understanding of its results of operations. The
listing is not intended to be a comprehensive list of all of the Company's
accounting policies. In many cases, the accounting treatment of a particular
transaction is specifically dictated by accounting principles generally accepted
in the United States, with no need for management's judgment in their
application. The impact and any associated risks related to these policies on
the Company's business operations is discussed throughout Management's
Discussion and Analysis or plan of operations where such policies affect the
Company's reported and expected financial results. For a detailed discussion on
the application of these and other accounting policies, see the Notes to
Consolidated Financial Statements. The Company's preparation of the financial
statements requires it to make estimates and assumptions that affect the
reported amount of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the Company's financial statements, and the reported
amounts of revenue and expenses during the reporting period. There can be no
assurance that actual results will not differ from those estimates.
PLAN OF OPERATION
Prior to August 5, 2002, the Company, a Nevada corporation, was a holding
company, that through its wholly owned subsidiary, InterLAN Communications, Inc.
("InterLAN"), developed data communications and networking infrastructure
solutions for business, government and education. Following August 5, 2002, the
Company, announced a change in its strategy and subsequently sold its operating
division InterLAN. As a result, currently we no longer have any meaningful,
operations or sources of revenue. The Company's operations since then include a
current plan to seek, investigate, and if warranted, merge or acquire one or
more properties or businesses, and to pursue other related activities intended
to enhance shareholder value. Although we have reviewed a number of
opportunities, we have not yet completed a transaction. A limiting factor has
been the pending litigation brought against the Company, as included in Note G
to the financial statements.
14
DEFERRED TAX ASSET
The Company records a valuation allowance to reduce the carrying value of its
deferred tax assets to an amount that is more likely than not to be realized.
While the Company has considered future taxable income and prudent and feasible
tax planning strategies in assessing the need for the valuation allowance,
should the Company determine that it would not be able to realize all or part of
its net deferred tax assets in the future, an adjustment to the carrying value
of the deferred tax assets would be charged to income in the period in which
such determination was made. As of December 31, 2002, a 100% valuation allowance
has been established and no deferred tax asset recognized.
INVESTMENTS
Investments are classified as either available-for-sale or trading securities
and are held for resale in anticipation of short-term market movements or until
such securities are registered or are otherwise unrestricted. At December 31,
2002, investments consisted entirely of common stock held for resale. Trading
account assets, consisting of marketable equity securities, are stated at fair
value. Unrealized gains or losses on trading securities are recognized in the
statement of operations on a monthly basis based on changes in the fair value of
the security as quoted on national or inter-dealer stock exchanges. Net
unrealized losses related to investments held for trading as of December 31,
2002, aggregated ($443,000).
Available-for-sale assets, which are also required to be reported at fair value,
with unrealized gains and losses excluded from earnings are reported as a
separate component of stockholders' equity (net of the effect of income taxes).
As of December 31, 2002, the Company held no available-for-sale securities.
HISTORY OF BUSINESS
Originally incorporated in 1985, as Network Information Services, Inc., Network
Systems International, Inc. ("NESI"), a Nevada corporation, was the surviving
corporation of a reverse merger completed in April 1996. The Company became a
publicly traded entity in connection with the re-organization. On July 10, 1998,
the Company's stock was officially approved for listing on the NASDAQ small cap
market and the Company's common stock began trading on NASDAQ Small Cap under
the symbol NESI. As of April 2, 2002, the securities were de-listed from the
Nasdaq SmallCap market and now trade on the Over-The-Counter Bulletin Board(R)
under the symbol ONSP.
Effective February 10, 2001 the Company changed its name from Network Systems
International, Inc., to Onspan Networking, Inc. (the "Company" or "Onspan"). On
October 9, 2001, the Company affected a 1 for 12 reverse stock split of its
issued and outstanding common stock.
15
Prior to August 5, 2002, the Company, a Nevada corporation, was a holding
company, that through its wholly owned subsidiary, InterLAN Communications, Inc.
("InterLAN"), developed data communications and networking infrastructure
solutions for business, government and education. On August 5, 2002, the Company
completed the sale of its operating division InterLAN and announced a change in
its strategy of business as discussed under Discontinued Operations below.
DISCONTINUED OPERATIONS
On August 5, 2002, the Company sold and transferred the stock of its
wholly-owned subsidiary, InterLAN Communications, Inc. to G. Anthony Munno,
Martin Sainsbury Carter and Brian Ianniello, who were executives and employees
of InterLAN. In exchange for the assignment of the InterLAN stock, Messrs.
Munno, Carter and Ianniello transferred 21,168 shares of Onspan common shares,
and Onspan was relieved of substantially all obligations and guarantees provided
to third parties. Onspan also retained the right to a certain tax refund in
amount of $45,147 owing to InterLAN. These individuals also resigned in all
capacities as directors, officers and/or employees of Onspan. Onspan retained
the following assets of the corporation - cash of $1,078,883, the marketable
securities, the prepaid expenses, the entire income tax receivable, and $2,611
in property. The liabilities retained include the dividend payable, amount due
to purchasers of discontinued operations, and the balance of the note payable.
FORWARD LOOKING STATEMENTS
From time to time, the Company may publish forward-looking statements relative
to such matters as anticipated financial performance, business prospects,
technological developments and similar matters. The Private Securities
Litigation Reform Act of 1995 provides a safe harbor for forward-looking
statements. All statements other than statements of historical fact included in
this section or elsewhere in this report are, or may be deemed to be,
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Exchange Act of 1934. Important factors that
could cause actual results to differ materially from those discussed in such
forward-looking statements include: 1. General economic factors including, but
not limited to, changes in interest rates and trends in disposable income; 2.
Information and technological advances; 3. Cost of products sold; 4.
Competition; and 5. Success of marketing, advertising and promotional campaigns.
Effective August 5, 2002 the Company completed the sale of its operating line of
business (InterLAN) as discussed under Discontinued Operations in Item 1,
accordingly, the following discussion will deal with the Company's Plan of
Operation. The operations of InterLAN, for the three month period ended December
31, 2001 have been reclassified as loss from discontinued operations.
16
A. LIQUIDITY AND CAPITAL RESOURCES
During the three months ended December 31, 2002, working capital decreased
$117,322 to $987,855 from $1,105,177. During this same period, stockholders'
equity decreased $117,552 to $989,904 from $1,107,456. The decrease in
stockholders' equity is entirely due to the net loss for the period. The Company
has not budgeted any significant capital expenditures for the current fiscal
year for its current operations. The Company has adequate cash resources to meet
its current needs
B. RESULTS OF OPERATIONS
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE - The Company's selling, general and
administrative expenses, including salaries and wages amounted to $72,665 during
the three months ended December 31, 2002 as compared to $101,847 during the
three months ended December 31, 2001. The decrease of $29,182 includes a
increase of $24,000 for salaries, off set by a decreases of ($26,000) for
accounting fees ($7,250) in costs related to annual shareholder meeting,
($5,000) in stock transfer fees related to the reverse split, ($13,000) in legal
fees due to the reverse split , and ($4,000) in filing fees due to being not
listed on the Nasdaq .
INCOME TAXES - The Company recorded $43,655 in deferred income tax expense for
the three-month period ended December 31, 2002, a 100% valuation allowance was
taken against this amount as of December 31, 2002. The Company recorded $178,094
in deferred income tax benefit for the three-month period ended December 31,
2001.
MARKETABLE EQUITY SECURITIES - As of December 31, 2002, the Company held 100,000
shares of eResource Capital Group (AMEX:RCG)("eResource") with a cost basis of
$504,000 $5.04 per share. For the three months ended December 31, 2002, the
Company recorded an unrealized loss from trading securities of ($19,000) on the
Company's stock and had a quoted market value of $61,000 or $0.61 (sixty one
cents) per share.
17
PART II - OTHER INFORMATION
ITEM 1
LEGAL PROCEEDINGS
1. Network Systems International of North Carolina, Inc. v Network Systems
International, Inc. and Onspan Networking, Inc. (02-CvS-10154)
(Complaint filed September 13, 2002).
This action asserts a claim for beach of contract against the Company,
seeking certain tax refunds obtained by the Company. The plaintiff, a
former subsidiary of the Company, claims that these tax refunds belong
to the plaintiff. The Company has not yet filed an answer to the
Complaint. The Company disputes the amounts claimed and intends to seek
reimbursement for certain expenses incurred by the Company on behalf of
the plaintiff. The Company has made a settlement offer.
2. Soles Brower Smith & Company v. Network Systems International Inc. and
Network Systems International of North Carolina, Inc. 02-CvS-7103
(Complaint filed June 11, 2002)
This action was brought by a business broker that formerly represented
the Company in attempts to sell Vercom Software, Inc. a former
subsidiary of the company. The Complaint seeks relief for breach of
contract.
The Company has asserted a defense based on the fact that it
transferred its shares of Vercom and had no involvement in the sale of
Vercom, which forms the basis of Plaintiff's complaint. In addition,
the Company has asserted a crossclaim against Network Systems
International of North Carolina, Inc. for indemnification. The Company
intends to oppose plaintiff's claims vigorously and will seek early
dismissal of the action. Given the early stage of this action, we are
unable to assess the likely outcome of this action or the magnitude of
loss if any were to occur.
18
ITEM 5.
OTHER INFORMATION
There is no immediate family relationship between or among any of the Directors
and Executive Officers, except Ms. Dermer who is the sister-in-law of Mr. Tabin.
Evaluation of disclosure controls and procedures
Within the 90 days prior to the filing date of this report, the Company carried
out an evaluation of the effectiveness of the design and operation of its
disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. This
evaluation was done under the supervision and with the participation of the
Company's President and Chief Financial Officer. Based upon that evaluation,
they concluded that the Company's disclosure controls and procedures are
effective in gathering, analyzing and disclosing information needed to satisfy
the Company's disclosure obligations under the Exchange Act.
Changes in internal controls
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect those controls since the most recent
evaluation of such controls.
ITEM 6.
EXHIBITS AND REPORTS ON FORM 8-K
1. Form 8-K filed with the Securities and Exchange Commission October 16,
2001 announcing the Onspan Networking, Inc. (the "Company"), filed a
Certificate pursuant to Section 78.207 of the Nevada Statutes whereby
the Company decreasing the number of issued and outstanding shares of
common stock, par value $.012, at a rate of one for twelve (1:12), and
proportionately decreasing the number of authorized shares of common
stock at a rate of one for twelve (1:12). As a result, the Company's
authorized common stock has been reduced from 100,000,000 shares to
8,333,333 shares, and the number of issued and outstanding shares of
common stock were reduced from 11,574,619 to approximately 964,552
shares.
2. Form 8-K filed with the Securities and Exchange Commission August 8,
2002 announcing on August 5, 2002, the Company sold and transferred the
stock of its wholly-owned subsidiary, InterLAN Communications, Inc. to
G. Anthony Munno, Martin Sainsbury Carter and Brian Ianniello, who were
executives and employees of InterLAN. In exchange for the assignment of
the InterLAN stock, Messrs. Munno, Carter and Ianniello transferred
21,168 shares of Onspan common shares, and Onspan was relieved of
substantially all obligations and guarantees provided to third parties.
19
Onspan also retained the right to a certain tax refund owing to
InterLAN. These individuals also resigned in all capacities as
directors, officers and/or employees of Onspan. InterLAN provides data
communications and network solutions and consulting services.
Exhibit Description
------- -----------
4.0 Long Term Incentive Stock Options Plan (1)
----------
(1) Incorporated by reference to the company's report on form S-8 dated July 27,
2001
20
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ONSPAN NETWORKING, INC.
Date: February 12, 2003 By: /s/ Herbert Tabin
-----------------
Herbert Tabin, President
Date: February 12, 2003 By: /s/ Marissa Dermer
------------------
Marissa Dermer, Chief Financial
and Principal Accounting Officer
21
CERTIFICATION OF PRESIDENT
I, Herbert Tabin, President of Onspan Networking, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Onspan Networking,
Inc.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors: (or persons performing the equivalent
functions)
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls, and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: February 12, 2003 By: /s/ Herbert Tabin
-----------------
Herbert Tabin,
President
22
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Marissa Dermer, Chief Financial Officer of Onspan Networking, Inc., certify
that:
1 I have reviewed this quarterly report on Form 10-KSB of Onspan Networking,
Inc.
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report.
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a. designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b. evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c. presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures based on our evaluation as of the
Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors: (or persons performing the equivalent
functions)
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls, and
b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: February 12, 2003 By: /s/ Marissa Dermer
------------------
Marissa Dermer,
Chief Financial Officer
23
EXHIBIT INDEX
Exhibit # Description
--------- -----------
99.1 Certification of President Relating to a Periodic Report
containing Financial Statements
99.2 Certification of Chief Financial Officer Relating to a
Periodic Report containing Financial Statements
24