UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the quarterly period ended: OCTOBER 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
COMMISSION FILE NUMBER: 0-20688
-------------------------------
GLASGAL COMMUNICATIONS, INC.
----------------------------
(Exact name of Registrant as specified in its charter)
DELAWARE 94-2914253
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
151 VETERANS DRIVE NORTHVALE, NJ 07647
- ------------------------------- ----------
(Address of principal executive (Zip Code)
offices)
(201) 768-8082
--------------------------------------------------
Registrant's telephone number, including area code
Check whether the Registrant (1) has filed all reports required to be filed by
Section 12 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the Registrant was required to file such
reports) and (2) has been subjected to such filing requirements for the past 90
days. Yes X No .
The number of shares of Registrant's Common Stock outstanding on October 31,
1996 was 20,552,768.
1
<PAGE>
GLASGAL COMMUNICATIONS, INC.
FORM 10-Q
THREE MONTHS ENDED OCTOBER 31, 1996
INDEX
PART I: FINANCIAL INFORMATION
PAGE
Item 1: Consolidated Financial Statements
Balance Sheets at October 31, 1996 and
April 30, 1996 3
Statements of Operations for the three months ended
October 31, 1996 and 1995 4
Statements of Operations for the six months ended
October 31, 1996 and 1995. 5
Statements of Cash Flows for the six months ended
October 31, 1996 and 1995 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II: OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders 12
Item 6: Exhibits and Reports of Form 8-K 13
2
<PAGE>
GLASGAL COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
APRIL 30, 1996 OCTOBER 31, 1996
-------------- ----------------
<S> <C> <C>
ASSETS
- ------------------------------------------------
CURRENT ASSETS:
Cash $ 2,219,564 $ 3,166,754
Accounts receivable, net 15,571,675 19,492,946
Inventory 6,039,863 5,498,081
Prepaid expenses and other 1,092,751 2,037,266
------------ ------------
Total current assets 24,923,853 30,195,047
PROPERTY AND EQUIPMENT, NET 7,006,862 6,972,048
OTHER ASSETS 3,003,267 2,679,045
------------ ------------
Total assets $ 34,933,982 $ 39,846,140
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
- ------------------------------------------------
CURRENT LIABILITIES:
Short-term borrowings $ 11,232,130 $ 11,049,423
Current portion of long-term
obligations 2,685,328 2,107,833
Accounts payable 13,617,917 14,411,506
Accrued liabilities 7,611,488 6,536,545
------------ ------------
Total current liabilities 35,146,863 34,105,307
------------ ------------
LONG-TERM OBLIGATIONS 3,595,247 3,215,109
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT):
Common Stock 20,261 20,552
Preferred Stock -- 350
Additional paid-in capital 11,978,404 8,461,087
Accumulated deficit (15,559,326) (5,629,643)
Cumulative translation adjustment (247,467) (326,622)
------------ ------------
Total shareholders' equity (deficit) (3,808,128) 2,525,724
------------ ------------
Total liabilities and shareholders' equity (deficit) $ 34,933,982 $ 39,846,140
============ ============
</TABLE>
The accompanying notes to unaudited consolidated financial statements
are an integral part of these balance sheets.
3
<PAGE>
GLASGAL COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED OCTOBER 31,
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
$ 32,169,541 $ 25,234,263
SALES
Operating Costs:
Cost of Sales 20,896,776 16,975,990
Selling, general and administrative 10,161,617 7,349,964
Acquisition Costs -- 405,350
------------ ------------
TOTAL OPERATING EXPENSES 31,058,393 24,731,304
------------ ------------
OPERATING INCOME 1,111,148 502,959
INTEREST EXPENSE, NET 607,410 390,244
------------ ------------
INCOME BEFORE TAXES 503,738 112,715
INCOME TAXES 59,188 80,673
------------ ------------
INCOME BEFORE EXTRAORDINARY ITEM 444,550 32,042
EXTRAORDINARY ITEM 223,000 --
------------ ------------
NET INCOME $ 221,550 $ 32,042
============ ============
INCOME PER SHARE
Income before extraordinary item $ .02 $ --
Extraordinary item (.01) --
------------ ------------
NET INCOME $ . 01 $ --
============ ============
AVERAGE OUTSTANDING COMMON
AND EQUIVALENT SHARES 21,142,840 25,744,827
------------ ------------
</TABLE>
The accompanying notes to unaudited consolidated financial statements
are an integral part of these statements.
4
<PAGE>
GLASGAL COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED OCTOBER 31,
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
$ 62,953,754 $ 52,610,486
SALES
Operating Costs:
Cost of Sales 40,449,906 34,529,004
Selling, general and administrative 19,946,551 15,026,552
Acquisition Costs -- 502,350
------------ ------------
TOTAL OPERATING EXPENSES 60,396,457 50,057,906
------------ ------------
OPERATING INCOME 2,557,297 2,552,580
INTEREST EXPENSE, NET 1,143,043 800,161
------------ ------------
INCOME BEFORE TAXES 1,414,254 1,752,419
INCOME TAXES 58,976 326,142
------------ ------------
INCOME BEFORE EXTRAORDINARY ITEM 1,355,278 1,426,277
EXTRAORDINARY ITEM 223,000 --
------------ ------------
NET INCOME $ 1,132,278 $ 1,426,277
============ ============
INCOME PER SHARE
Income before extraordinary item $ .07 $ .06
Extraordinary item (.01) --
------------ ------------
NET INCOME $ .06 $ .06
============ ============
WEIGHTED AVERAGE OUTSTANDING COMMON
AND EQUIVALENT SHARES 20,563,344 25,744,827
------------ ------------
</TABLE>
The accompanying notes to unaudited consolidated financial statements
are an integral part of these statements.
5
<PAGE>
GLASGAL COMMUNICATIONS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED OCTOBER 31,
(UNAUDITED)
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 1,132,278 $ 1,426,277
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization 683,966 852,792
Provision for doubtful accounts 234,421 234,416
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (5,189,362) (4,155,687)
(Increase) decrease in inventory (752,573) 541,782
(Increase) decrease in prepaid expenses and other assets (2,516,646) (732,378)
Increase (decrease) in accounts payable,
accrued and other liabilities (2,306,518) (249,400)
----------- -----------
Net cash provided by (used in) operating activities (8,714,434) (2,082,198)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (592,968) (705,893)
----------- -----------
Net cash provided by (used in) investing
activities (592,968) (705,893)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term borrowings, net 1,974,251 (182,707)
Payments of indebtedness (26,261) (957,633)
Proceeds from exercise of stock options
Proceeds from stock/warrant issuance's 7,132,194 5,541,789
Distribution to stockholders (239,399) (587,013)
----------- -----------
Net cash provided by financing activities 8,840,785 3,814,436
----------- -----------
Net effect of translation on cash 65,680 (79,155)
----------- -----------
Net increase (decrease) in cash (400,937) 947,190
CASH AT BEGINNING OF PERIOD 265,540 2,219,564
----------- -----------
CASH AT END OF PERIOD $ (135,397) $ 3,166,754
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Interest paid $ 983,272 $ 706,794
Income taxes paid $ 14,202 --
</TABLE>
6
<PAGE>
Glasgal Communications, Inc.
Notes to Unaudited Consoliated Financial Statements
(1) Business
Glasgal Communications, Inc. ("Glasgal") and its wholly owned
subsidiaries Signatel, Ltd. ("Signatel"), HH Communications, Inc. ("HH"), and
Datatec Industries, Inc. ("Datatec") (see Note 3) provide a full range of
services from designing customer networking systems, deploying and installing
such systems, supporting such systems and requisitioning the hardware and
operating software used in such systems. Glasgal's 80% owned subsidiary,
Computer-Aided Software Integration, Inc. ("CASI") develops and markets a suite
of software products known as the "Integrators' Workbench Product Series", which
automates the configuration and integration processes.
(2) Basis of Presentation
The consolidated financial statements include the accounts of
Glasgal, Signatel, HH, Datatec and CASI (the "Company"). All intercompany
accounts and transactions have been eliminated.
The accompanying unaudited consolidated financial statements have
been prepared in conformity with generally accepted accounting principles
consistent with those applied in, and should be read in conjunction with, the
audited financial statements for the year ended April 30, 1996. The interim
financial information is unaudited, but reflects all normal recurring
adjustments that are, in the opinion of management, necessary for a fair
statement of results for the interim periods presented. The results for the
three and six months ended October 31, 1996 are not necessarily indicative of
results expected for the full fiscal year.
Through October 31, 1996, Datatec filed its Federal income tax as an
S Corporation. As a result, Datatec's taxable income was includable directly in
the Federal income tax return of the shareholders and no provision was made for
Federal income taxes. Provision was made for those states in which Datatec
operates which do not recognize such an election or in which Datatec has not
made such election. Effective October 31, 1996, Datatec terminated its S
Corporation status and became subject to Federal income taxes. In conjunction
with the conversion from an S Corporation to a C Corporation, the accumulated
deficit of Datatec was reclassified from accumulated deficit to additional
paid-in capital.
7
<PAGE>
(3) Acquisitions
HH COMMUNICATIONS, INC.
On July 31, 1996, the Company acquired all of the outstanding shares
of HH Communications, Inc. in exchange for 1,500,000 shares of common stock of
Glasgal Communications, Inc. The transaction has been accounted for as a pooling
of interests. Presented below are the individual company and combined annual net
sales and net income.
<TABLE>
<CAPTION>
GLASGAL HH COMBINED
------------- --------------- --------------
<S> <C> <C> <C>
For the year ended
December 31,1993
- ----------------
Net Sales $ 36,391,174 $ 897,295 $ 37,288,469
Net Income (147,333) 43,863 (103,470)
For the four months ended
April 30, 1994
- --------------
Net Sales 11,154,560 519,554 11,674,114
Net Income (2,145,578) 156,206 (1,989,372)
For the year ended
April 30,1995
- -------------
Net Sales 35,161,298 3,095,316 38,256,614
Net Income (1,642,789) (92,519) (1,735,308)
For the year ended
April 30, 1996
- --------------
Net Sales 41,780,821 6,307,776 48,088,597
Net Income (1,180,157) (288,587) (1,468,744)
</TABLE>
The combined results are not necessarily indicative of what actually would have
occurred if the acquisition had been in effect for all periods presented. In
addition, they are not intended to be a projection of future results and do not
reflect any synergy's that might be achieved from combined operations.
DATATEC INDUSTRIES, INC.
On October 31, 1996, the Company acquired 98.5% of the outstanding
shares of Datatec Industries, Inc. in exchange for 4,000,000 shares of common
stock of Glasgal Communications, Inc. The transaction has been accounted for as
a pooling of interests. Presented below are the individual company and combined
annual net sales and net income.
8
<PAGE>
<TABLE>
<CAPTION>
GLASGAL DATATEC COMBINED
------------- --------------- --------------
<S> <C> <C> <C>
For the year ended
December 31,1993
- ----------------
Net Sales $ 37,288,469 $ 46,372,821 $ 83,661,290
Net Income (103,470) 6,449,991 6,346,521
For the four months ended
April 30, 1994
- --------------
Net Sales 11,674,114 14,080,866 25,754,980
Net Income (1,989,372) (1,638,350) (3,627,722)
For the year ended
April 30,1995
- -------------
Net Sales 38,256,614 64,848,900 103,105,514
Net Income (1,735,308) (656,667) (2,391,975)
For the year ended
April 30, 1996
- --------------
Net Sales 48,088,597 68,800,265 116,888,862
Net Income (1,468,744) (11,949,725) (13,418,469)
</TABLE>
Included in the amounts above for Datatec are net sales and net income of $0 and
$0 for the year ended December 31, 1993, $0 and $0 for the four months ended
April 30, 1994, $12,224,845 and $227,344 for the year ended April 30, 1995, and
$14,684,948 and ($3,858,647) for the year ended April 30, 1996, that relate to a
Datatec subsidiary that was sold in September 1996.
The combined results are not necessarily indicative of what actually
would have occurred if the acquisition had been in effect for all periods
presented. In addition, they are not intended to be a projection of future
results and do not reflect any synergy's that might be achieved from combined
operations.
(4) Preferred Stock
On September 30, 1996, October 29, 1996 and November 15, 1996, the
Company issued 250,000 shares, 25,000 shares and 75,000 shares of convertible
preferred stock, respectively. The net proceeds from these issuances were
$6,590,000, of which $5,205,000 was received prior to October 31, 1996. The
preferred stock is convertible into common stock at the lesser of (i) the
average closing bid price of a share of common stock for the five trading days
prior to the issuance of the preferred stock or (ii) an average of 77% of the
average closing bid price per share of common stock for the five trading days
immediately preceding the conversion date. Dividends on preferred stock accrue
at 6% per annum.
9
<PAGE>
GLASGAL COMMUNICATIONS, INC.
PART I - FINANCIAL INFORMATION
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - FOR THE THREE AND SIX MONTHS ENDED OCTOBER 31, 1996
Net sales for the three and six months ended October 31, 1996 were
$25,234,000 and $52,610,000 compared to $32,170,000 and $62,954,000 for the
three and six months ended October 31, 1995. This represented a decrease of
21.6% and 16.4% respectively. This reduction can be attributed to the sale of
Datatec's French subsidiary, the close of three branch offices, as well as
changes made by Glasgal's FES division to its strategic alliances with the
federal government. In the three and six months ended October 31, 1996, these
reductions in sales were $8,712,000 and $11,248,000, respectively. The Company
also believes that sales were adversely affected by the lack of working capital
of its subsidiary Datatec and by the effort and focus on the acquisition and
merger of Datatec.
Gross profits for the three and six months ended October 31, 1996
were $8,258,000 and $18,081,000 compared to $11,273,000 and $22,504,000 in the
three and six months ended October 31, 1995. Gross profits as a percentage of
net sales were 33% and 34% for the three and six months ended October 31, 1996
compared to 35% and 36% for the three and six months ended October 31, 1995.
Selling, general and administrative expenses for the three months
ended October 31, 1996 were $7,755,000 compared to $10,162,000 for the three
months ended October 31, 1995. Selling, general and administrative expenses for
the six months ended October 31, 1996 were $15,529,000 compared to $19,947,000
for the six months ended October 31, 1995. The decrease in selling, general and
administrative expenses is the result of continuous efforts on the part of the
Company to reduce costs and expenses, including $1,558,000 and $3,221,000
relating to expenses of Datatec's French subsidiary. Particularly the Company
has reduced the number of facilities and the square footage within the
facilities it leases. The Company also instituted a workforce reduction program
in late April 1996 that has contributed significantly to a reduction in costs.
Interest expense for the three months ended October 31, 1996 was
$390,000 compared to $607,000 for the three months ended October 31, 1995.
Interest expense for the six months ended October 31, 1996 was $800,000 compared
to $1,143,000 for the six months ended October 31, 1995.
The Company's net income for the three months ended October 31, 1996
was $32,000 compared to $222,000 for the three months ended October 31, 1995.
Included in the three months ended October 31, 1996 were approximately $405,000
of
10
<PAGE>
costs relating to the acquisition of Datatec. Net income for the six months
ended October 31, 1996 was $1,426,000 compared to $1,132,000 for the six months
ended October 31, 1995. Included in the six months ended October 31, 1996 were
$502,000 of costs relating to the acquisition.
FINANCIAL POSITION
The Company's working capital deficiency as of October 31, 1996 was
$3,910,000 compared to $10,223,000 as of April 30, 1996.
The Company has credit facilities with several banks that provide
for maximum borrowing of $12,250,000. The maturity of the company's primary
credit facility is March 31, 1997. The Company utilizes its credit facilities to
fund working capital needs. As of October 31, 1996 the Company had approximately
$11,049,000 outstanding under these credit facilities.
11
<PAGE>
GLASGAL COMMUNICATIONS, INC.
FORM 10-Q
PART II - OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
12
<PAGE>
GLASGAL COMMUNICATIONS, INC.
FORM 10-Q
PART II - OTHER INFORMATION - CONTINUED
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2 Stock Purchase Agreement dated as of October 31, 1996
by and among Datatec Industries, Inc., those stockholders
listed on Schedule 1.1 thereto and Glasgal Communications,
Inc. (incorporated by reference from the Company's
report on Form 8-K filed on November 8, 1996.)
27 Financial Data Schedule
(b) Reports on Form 8-K
On November 8, 1996, the registrant filed a
report regarding the acquisition of
Datatec Industries, Inc., a provider of data
communications equipment and service.
On November 27, 1996, the registrant filed a report
relating to the issuance of preferred stock to
Southbrook International Investments, Ltd.
13
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
GLASGAL COMMUNICATIONS, INC.
Registrant
Date: December 23, 1996 By: JAMES M. CACI
-------------------------------
James M. Caci
Chief Financial Officer and Duly
Authorized Officer
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Form 10-Q for the quarter ended October 31, 1996 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> OCT-31-1996
<CASH> 3,166,754
<SECURITIES> 0
<RECEIVABLES> 19,492,946
<ALLOWANCES> 0
<INVENTORY> 5,498,081
<CURRENT-ASSETS> 30,195,047
<PP&E> 6,972,048
<DEPRECIATION> 0
<TOTAL-ASSETS> 39,846,140
<CURRENT-LIABILITIES> 34,105,307
<BONDS> 0
0
350
<COMMON> 20,552
<OTHER-SE> 2,504,822
<TOTAL-LIABILITY-AND-EQUITY> 39,846,140
<SALES> 52,610,486
<TOTAL-REVENUES> 52,610,486
<CGS> 34,529,004
<TOTAL-COSTS> 50,057,906
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 800,161
<INCOME-PRETAX> 1,752,419
<INCOME-TAX> 326,142
<INCOME-CONTINUING> 1,426,277
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,426,277
<EPS-PRIMARY> .06
<EPS-DILUTED> 0
</TABLE>
