Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED January 31, 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 number ___________0-8174________
Conolog Corporation
(Exact name of registrant as specified in its charter)
Delaware 52-0853566
(State or other jurisdiction of (I. R. S. Employer
organization) Identification No.)
5 Columbia Road, Somerville, NJ 08876
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (908) 722-8081
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 report(s), and (2) has
been subject to such filing requirement for the past 90 days.
YES X NO
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PROCEEDING FIVE YEARS.
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13, or 15 (d) of the
Securities Exchange Act of 1934 subsequently to the distribution of
securities under a plan confirmed by a court.
YES ______ NO ________
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, par value $1.00 per share; 4,257,773 shares outstanding
as of March 8, 1999 (inclusive of Treasury Stock).
Conolog Corporation
BALANCE SHEETS
January 31, 1999 July 31, 1998
ASSETS (Unaudited) (Audited)
Current Assets:
Cash $ 969,185 $1,108,581
Accounts Receivable, less
allowances of $6,000 338,151 44,477
Inventories 3,331,752 3,210,268
Other Current Assets 43,776 36,347
------------ ----------
Total Current Assets $ 4,682,864 $4,399,673
Property, Plant and Equipment 94,932 409,988
less accumulated depreciation
of $1,581,003 and $1,944,822
respectively
Goodwill 148,018 0
Other Assets 8,545 9,803
------------ -----------
Total Assets $ 4,934,359 $4,819,464
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable 35,232 60,845
Accrued Payroll 85,815 30,950
Other Accrued Expenses 64,419 115,337
------------ ----------
Total Current Liabilities $ 185,466 $ 207,132
------------ ----------
CONOLOG CORPORATION
BALANCE SHEETS
January 31, 1999 July 31, 1998
Stockholders' Equity
Preferred Stock, par value $.50;
Series A; 4% cumulative; 162,000
shares authorized;155,000 shares
issued and outstanding 77,500 77,500
Preferred Stock, par value $.50;
Series B; $.90 cumulative; 50,000
shares authorized issued and
outstanding 1,197 shares 597 597
Common Stock; par value $1.00;
20,000,000 shares authorized;
issued 4,257,773 shares, including
8,776 shares held in Treasury 4,257,773 3,724,773
Contributed Capital 9,478,743 9,643,215
Retained Earnings (Deficit) (8,933,986) (8,702,019)
Treasury Shares at Cost (131,734) (131,734)
------------ -----------
Total Stockholders' Equity $ 4,748,893 $ 4,612,332
Total Liabilities and
Stockholders' Equity $ 4,934,359 $ 4,819,464
=========== ===========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
CONOLOG CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JANUARY 31, JANUARY 31,
1999 1998 1999 1998
REVENUES $589,328 $240,290 $ 908,677 $353,617
COSTS OF GOODS SOLD 594,284 51,169 876,432 164,696
--------- --------- ---------- ---------
GROSS MARGIN (4,956) 189,121 32,245 188,921
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES 503,742 200,009 672,905 358,516
--------- --------- ---------- ---------
OPERATING INCOME
/(LOSS) (508,698) (10,888) (640,660) (169,595)
OTHER INCOME-GAIN ON
SALE OF BLDG. 0 0 413,789 0
INTEREST EXPENSE 0 9,097 0 22,447
--------- --------- ---------- ---------
INCOME/(LOSS) BEFORE
TAXES (508,698) (19,985) (226,871) (192,042)
PROVISION FOR TAXES 1,640 1,119 2,960 2,260
--------- --------- ---------- ---------
NET INCOME/(LOSS) $(510,338) $(21,104) $(229,831) $(194,302)
========= ========== ========== =========
EARNINGS/(LOSS) PER SHARE $(.12) $ .00 $(.05) $(.06)
========= ========= ========== =========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
CONOLOG CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS
ENDED JANUARY 31,
1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ (229,831) $(194,302)
Adjustments to Net Income to Reconcile to
Net Cash Provided by Operating Activities:
Depreciation and amortization 14,907 28,576
Gain on Sale of Building (413,789) 0
(Increase)/Decrease in Accounts Receivable (293,674) (7,028)
(Increase)/Decrease in Inventories (121,484) (287,938)
(Increase)/Decrease in Other Current Assets
(6,171) (7,940)
(Increase)/Decrease in Deferred Offering
Costs 0 113,813
Increase/(Decrease) in Accounts Payable (25,613) (115,159)
Increase/(Decrease) in Accrued Expenses
and other liabilities 3,947 (85,755)
--------- ---------
Net Cash Provided/(Used) in Operating
Activities (1,071,708) (555,733)
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Equipment (7,286) (26,824)
Sale of Property & Plant 720,060 0
Purchase of Assets of Atlas Design (146,900) 0
----------- ---------
Net Cash Provided/(Used) in Investing
Activities 565,874 (26,824)
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in Capital Lease Obligations 0 (3,802)
Issuance of Common Stock 533,000 0
Contributed Capital (164,472) 2,014,660
Dividends (2,090) (2,090)
----------- ---------
Net Cash Provided/(Used) by Financing
Activities 366,438 1,615,533
---------- ---------
NET INCREASE/(DECREASE) IN CASH $(139,396) $1,032,976
CASH AT BEGINNING OF YEAR 1,108,581 503,217
---------- -----------
CASH AT END OF PERIOD $969,185 $1,536,193
========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 0 $ 22,447
Income Taxes 2,960 2,260
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
CONOLOG CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS
NOTE 1 - Computation of Earnings Per Share:
For the Six Months Ended
January 31,
1999 1998
Weighted Average Number of Shares
Outstanding: 4,257,773 2,892,577
COMMON STOCK
Reserve for Conversion:
Series A Preferred Stock* 155,000
Series B Preferred Stock (1 to 20
conversion factor) 0 0
Common Stock Equivalents
(Warrants)** 5,135,750 5,135,750
--------- ---------
Total 9,393,523 8,028,327
Gain/(Loss) Per Share:
Total Gain/(Loss) $(229,831) $(194,302)
Pro-rata Dividends on Preferred
Stock Series A & B 2,090 2,090
---------- ----------
Net Gain/(Loss) available for
Common Stock $(231,921) $(196,392)
---------- ----------
Average Number of Shares of Common Stock 4,257,773 2,892,577
========== ==========
Primary Gain/(Loss) Per Share $ (.05) $ (.06)
========== ==========
*Each share of Series A Preferred Stock may be exchanged for one share
of Common Stock upon surrender of the Preferred Stock and payment of
$1200 per share. In view of the large difference between the current
market value of the stock and the conversion rate, these shares have
not been added to the total common shares used in computing the net
earnings per share.
**Each Warrant may be exchanged for one share of Common Stock at an
exercise price of $6.00 per share. In view of the large difference
between the current market value of the stock and the exercise price,
these shares have not been added to the total common shares used in
computing net earnings per share.
Fully diluted earnings per share, assuming conversion of Series A and
Series B Preferred Stock, has not been reflected, as the effect would
be either anti-dilutive or not material.
NOTE 2 - Sale/Leaseback of Building
In September 1998, the Company completed a sale/leaseback of its
manufacturing facility. This enabled the Company to significantly
reduce operating costs and increases the working capital. This
resulted in $717,000 net proceeds to the Company. The transaction
also provided for a three-year rent-free lease to the Company of
approximately 38% of the total space.
NOTE 3 - Purchase of Atlas Design
In September 1998, the Company completed the acquisition of the assets
of Atlas Design, Inc. for $145,000 in cash. Atlas Design provides short
and long term qualified engineering and technical staff to the country's
leading companies as well as human resource consulting. Atlas Design's
integration with the Company will provide a pool of project engineering
leaders and software designers in support of the Company's longer term
contracts including the GE PTR-1500 series.
Both the sale of the building and the acquisition of Atlas Design, Inc.
is in line with the Company's expansion plan through acquisitions, mergers
and GE software support.
NOTE 4 - Taxes
At January 31, 1999 the Company has a net operating loss carry forward
of approximately $4,710,000 for tax purposes which is available to
offset future Federal taxable income. For Federal purposes, $253,276
of the carry forward expires in 2008, $1,232,010 expires in 2009,
$957,538 expires in 2010, $550,752 expires in 2012 and $1,716,424 in
2013. For state purposes the carry forward is approximately $3,863,000;
$706,241 expires in 2001, $897,997 expires in 2002, $542,540 in 2004 and
$1,716,222 in 2005. Also, at January 31, 1999 the Company has unused tax
credits of approximately $103,300 of which $12,100 expires in 2000, $26,300
in 2001 and $64,900 in 2002.
The above net operating loss created a deferred tax asset that has been
fully reserved. The amount is approximately $2,000,000.
At January 31, 1999 no deferred income taxes have been provided for per
SFAS No. 109 - Accounting for Income Taxes since management estimated
that temporary differences due to operating losses and tax credit carry
forwards will not be absorbed by future taxable income.
RECENT DEVELOPMENTS
On December 22, 1998, the Company entered into an Option Agreement
with CLOG Corporation. Under the Option Agreement the Company granted
CLOG an option to purchase the Company's convertible debentures having
an aggregate amount of up to $2,000,000.
Each convertible debenture will carry interest at a rate of 8% per
annum and become due 12 months from the date of such note. At maturity,
the Company has the option to pay each Debenture, together with all accrued
interest thereon, or by issuing shares of a new Series C Preferred Stock
(the "Series C Preferred") having a value of $5.00 per share for purposes
of such repayment.
Holders of shares of Series C Preferred Stock shall have the right to
convert their shares of Series C Preferred Stock into shares of the Common
Stock of the Corporation at the rate of one share of common stock for each
share of Series C Preferred.
The Series C Preferred will be non-voting and carry cumulative dividends
of 8% per annum and would be payable by the issuance of shares of Common
Stock valued at $5.00 per share up to a maximum of 2,000,000 shares. The
Series C Preferred will be convertible into common stock at the rate of one
share of common stock for each share of Series C Preferred and a liquidating
preference of $5.00 per share.
The Company will use its best efforts to file a registration statement
with the Securities and Exchange Commission (the "Commission") covering the
2,857,143 shares of common stock into which the Convertible Debentures are
convertible. The Company will use its best efforts to have such registration
statement declared effective as soon as possible after the filing thereof,
and to keep such registration statement current and effective for a period of
one year or until such earlier date as all of the Conversion Shares
registered pursuant to such registration statement shall have been sold or
otherwise transferred.
Potential Acquisition
In February 1999, the Company began negotiations to acquire another
placement services business for a total purchase price of $1,625,000, of
which $700,000 is payable at the closing and the balance is payable over
2 1/2 years. The transaction is subject to a number of conditions,
including completion of due diligence review and the execution of a
definitive agreement, which have not yet been satisfied.
Shares of Stock issued to Employees and Consultants
In November 1998, the Company issued 468,000 shares as a bonus to its
officers and key employees, of which $81,125 is included in cost of sales
and $240,625 in selling, general and administrative expenses.
In December 1998, the Company issued 65,000 shares to various consultants
for the performance of various services in the amount of $44,688, which
was expensed to selling, general and administrative.
The Company has registered such shares with the SEC.
Amendment to Employment Agreement
During the quarter, an amendment was made to the Employment Agreement
between the Company and Robert Benou dated June 1, 1997. The Company
will pay Mr. Benou a bonus equal to the amount he would have received
had his salary been $190,000 as of June 1, 1998 and will increase
annually as provided in the original Employment Agreement.
Potential Litigation
In December 1998, the Company was named in two related litigations
pending, one in the United States District Court for the Southern
District of New York and the other in Superior Court of New Jersey.
The first of the pending litigations was commenced in 1993. The
litigations relate to a dispute concerning real property acquired
in 1984. While the property is near real property formerly owned
by Conolog, Conolog was not a party to that transaction. The claim
made against Conolog alleges that Conolog contributed to environmental
contamination of the property acquired in 1984. The litigation is
in its early stages, insofar as Conolog is concerned. However,
the Company believes that it has no liability and intends to vigorously
defend itself.
ITEM 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
A summary of income, costs and expenses for the current quarter and
corresponding quarter of the previous year follows:
For the three months For the six months
Ended January 31, Ended January 31,
1999 1998 1999 1998
Revenues $ 589,328 $ 240,290 $908,677 $353,617
Costs and Expenses (1,099,666) (261,394) (1,552,297) (547,919)
Other Income 0 0 413,789 0
---------- --------- --------- -------
Net Income/(Loss)
after Taxes, before $ (510,338) $ ( 21,104) $(229,831) $(194,302)
extraordinary item =========== =========== ========== ==========
QUARTER ENDED JANUARY 31, 1999
Revenues for the quarter ended January 31, 1999 totaled $589,328,
representing an increase of 245% or $349,038 from $240,290 reported
for the same quarter a year ago. Revenues increased largely due to
the inclusion of Atlas Design, a human resource company the assets
of which were purchased in September 1998.
Gross margin for the quarter totaled $(4,956) representing 0% of revenues
as compared to $189,121 or 78% of revenues for the quarter ended January
31, 1998. The decrease in gross margin is mostly due to less costs being
capitalized towards the PTR1500 project and $81,125 of stock bonus to
certain employees.
Selling, general and administrative expenses increased from $200,009 to
$503,742 for the quarter, representing an increase of $303,733 as compared to
1998. This increase is attributable to the addition of a Director of
Acquisitions and Mergers in March 1998, as well as increased consulting fees
attributable to the purchase of Atlas Design. Also, $240,625 of stock
bonuses were issued to certain employees during the quarter.
Interest expense decreased from $9,097 to $0 for the quarter ended January
31, 1999 over the same period of 1998 due to the repayment of debts of the
Company.
As a result of the foregoing, the Company reported a net loss of $510,338, or
$(.12) per share for the quarter compared to a net loss of $(21,104) or $0.00
per share.
SIX MONTHS ENDED JANUARY 31, 1999
Revenues for the six months ended January 31, 1999 totaled $908,677,
representing an increase of 256% or $555,060 from $353,617 reported
for the same period a year ago. Revenues increased largely due to the
inclusion of Atlas Design, a human resource company, the assets of which
were purchased in September 1998.
Gross margin for the six months totaled $32,245 representing 3% of
revenues as compared to $188,921 or 53% of revenues for the six
months ended January 31, 1998. The decrease in gross margin is mostly
due to less costs being capitalized towards the PTR1500 project and
the issuance of stock to certain employees.
Selling, general and administrative expenses increased from $358,516
to $672,905 for the six months, representing an increase of $314,389
as compared to 1998. This increase in attributable to compensation
that was paid to certain consultants in connection with the acquisition
of Atlas Design and stock bonuses paid to employees and consultants.
Interest expense decreased from $22,447 to $0 for the six months ended
January 31, 1999 over the same period of 1998 due to the repayment of
debts of the Company.
The sale of the building contributed a net gain of $413,789 as other income.
As a result of the foregoing, the Company reported a net loss of $229,831, or
$(.05) per share for the six months compared to a net loss of $194,302 or
$(.06) per share.
LIQUIDITY AND FINANCIAL CONDITION
Inventories increased $121,484 from July 31, 1998 attributable to the
PTR-1500 Series product.
Accounts Receivable increased $293,674 to $338,151 reflecting higher sales
for the period.
Working Capital at January 31, 1999 was $4,497,398 compared to $4,192,541
at July 31, 1998. This is primarily attributed to the sale of the
Company's building.
The Company plans to use the additional funds from the sale of the
building to complete the PTR1500 for the General Electric Co., to
improve its financial condition and prepare for an anticipated
increase in business in fiscal 1999. The Company anticipates
additional backlog releases from the Bonneville Power Administration
and the US Government as well as other key customers. This should
generate additional sales and resulting cash flow to support an
expanded operating level in fiscal 1999 versus fiscal 1998.
The Company also plans to use the funds for future expansion through
mergers and acquisitions.
The Company presently meets its cash requirements through existing cash
balances and cash generated from operations.
MANAGEMENT REPRESENTATION
The information furnished reflects all adjustments which management
considers necessary for a fair statement of the results of the period.
As of January 31, 1999 the Registrant's backlog of orders stands at
$1.4 million, a mix of military and commercial telecommunication products.
The Company anticipates its commercial shipments to grow as a percentage
of total sales for the foreseeable future.
In February 1999, the Company completed tests of its first production
units for non-GE frequencies. The successful completion of the Company's
PTR1500 tone protection testing, for the standard frequencies, permits
the Company to introduce the first production units to US and Canadian
West Coast utilities ahead of schedule. The Company plans to introduce
the PTR1500 to other utilities across the US and Canada.
STATEMENT REGARDING PRESENT OPERATIONS
There was no material change in the nature of the operations of Registrant
during the three months ended January 31, 1999 from the information contained
in the Registrant's annual report of Form 10-K for the fiscal year ended July
31, 1998.
FORWARD LOOKING STATEMENTS
The foregoing contains certain forward-looking statements. Due to the
uncertainties associated with doing business with governmental entities and
the release of backlog orders and competition in a business characterized by
rapid technologic changes and advances, actual results may differ materially
from any such forward looking statements.
Part II - Other Information
CONOLOG CORPORATION
1. Legal Proceedings - See Recent Developments
2. Changes in Securities - See Management Discussion
3. Defaults upon Senior Securities - None
4. Submission of Matters to a Vote of Security Holders - None
5. Other Materially Important Events - See Management's
Discussion
6. No reports or Exhibits on Form 8-K have been filed during the
quarter.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended
the Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form 10-Q and has duly caused
this Report to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Somerville, State of New Jersey, on this 12th
day of March, 1999.
CONOLOG CORPORATION
By /s/ Robert S. Benou
Robert S Benou
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this 10-Q has been signed below by the following persons in the capacities
and on the dates indicated.
Date: March 12, 1999 /s/ Robert S. Benou
Robert S. Benou
President,
Chief Executive Officer
and Director
Date: March 12, 1999 /s/ Arpad J. Havasy
Arpad J. Havasy
Executive Vice President,
Secretary, Treasurer and
Director
Date: March 12, 1999 /s/ Marc R. Benou
Marc R. Benou
Vice President, Assistant
Secretary and Director
Date: March 12, 1999 /s/ Louis S. Massad
Louis S. Massad
Director
Date: March 12, 1999 /s/ Edward J. Rielly
Edward J. Rielly
Director
1
13
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<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> JUL-31-1999 JUL-31-1999
<PERIOD-END> JAN-31-1999 JAN-31-1999
<CASH> 969,185 969,185
<SECURITIES> 0 0
<RECEIVABLES> 344,154 344,154
<ALLOWANCES> (6,000) (6,000)
<INVENTORY> 3,331,752 3,331,752
<CURRENT-ASSETS> 4,682,864 4,682,684
<PP&E> 1,675,935 1,675,935
<DEPRECIATION> (1,581,003) (1,581,003)
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<CURRENT-LIABILITIES> 185,466 185,466
<BONDS> 0 0
77,500 77,500
597 597
<COMMON> 4,257,773 4,257,773
<OTHER-SE> 413,023 413,023
<TOTAL-LIABILITY-AND-EQUITY> 4,934,359 4,934,359
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<CGS> 594,284 876,432
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<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (508,698) (226,871)
<INCOME-TAX> 1,640 2,960
<INCOME-CONTINUING> (510,338) (229,831)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (510,338) (229,831)
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