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: JULY 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 July 31, 1996
was 16,341,162.
1
<PAGE>
GLASGAL COMMUNICATIONS, INC.
FORM 10-Q
THREE MONTHS ENDED JULY 31, 1996
INDEX
PART I: FINANCIAL INFORMATION
PAGE
Item 1: Consolidated Financial Statements
Balance Sheets at July 31, 1996 and
April 30, 1995 3
Statements of Operations for the three months ended
July 31, 1996 and 1995 4
Statements of Cash Flows for the three months ended
July 31, 1996 and 1995 5
Notes to Unaudited Financial Statements 6
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II: OTHER INFORMATION 10
Item 4: Submission of Matters to a Vote of Security Holders
Item 6: Exhibits and Reports of Form 8-K
2
<PAGE>
GLASGAL COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
APRIL 30,1996 JULY 31, 1996
------------------ ------------------
ASSETS
- --------------------------------------------
CURRENTS ASSETS:
<S> <C> <C>
Cash $ 764,474 $ 29,457
Accounts Receivable, net 8,101,741 9,140,790
Inventory 2,802,164 2,667,528
Prepaid Expenses and other 930,875 914,813
-------------- ---------------
Total current assets 12,599,254 12,752,588
PROPERTY AND EQUIPMENT, NET 3,708,506 3,683,232
OTHER ASSETS 2,146,777 2,053,051
-------------- ---------------
Total assets $ 18,454,537 $ 18,488,871
============== ===============
LIABILITIES AND
SHAREHOLDERS' EQUITY
- --------------------------------------------
CURRENT LIABILITIES:
Short-term borrowings $ 1,915,467 $ 2,696,663
Current portion of long-term obligations 131,253 166,576
Accounts payable 5,916,474 5,406,769
Accrued liabilities 1,780,461 1,575,001
Other current liabilities 622,377 495,776
-------------- ---------------
Total current liabilities 10,366,032 10,340,785
-------------- ---------------
LONG-TERM OBLIGATIONS 1,257,167 988,835
-------------- ---------------
COMMITMENTS
AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Common stock 15,891 17,624
Additional paid-in capital 11,693,354 11,970,987
Accumulated deficit (4,757,777) (4,701,159)
Cumulative translation adjustment (120,130) (128,201)
-------------- ---------------
Total shareholders' equity 6,831,338 7,159,251
-------------- ---------------
Total liabilities and shareholders' equity $ 18,454,537 $ 18,488,871
============== ===============
</TABLE>
The accompanying notes to unaudited financial statements are an integral part of
these balance sheets.
3
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GLASGAL COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JULY 31,
(unaudited)
1995 1996
-------------- -------------
SALES $ 11,375,638 $ 13,110,144
OPERATING COSTS:
Cost of sales $ 7,848,983 8,980,187
Selling general and administration $ 3,111,296 3,741,762
-------------- -------------
TOTAL OPERATING EXPENSES 10,960,279 12,721,949
-------------- -------------
OPERATING INCOME 415,359 388,195
INTEREST EXPENSE, NET 279,758 129,799
-------------- -------------
INCOME BEFORE TAXES 135,601 258,396
INCOME TAXES (BENEFIT) - 201,778
-------------- -------------
NET INCOME $ 135,601 $ 56,618
============== =============
NET INCOME PER
COMMON SHARE $ 0.01 $ 0.00
============== =============
AVERAGE OUTSTANDING COMMON
AND EQUIVALENT SHARES 12,296,244 18,766,244
============== =============
The accompanying notes to unaudited financial statements are an integral part of
these statements.
4
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GLASGAL COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIOD ENDED JULY 31,
(Unaudited)
<TABLE>
<CAPTION>
1995 1996
------------ -----------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
NET INCOME $ 135,601 $ 56,618
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation 197,539 126,989
Provision for doubtful accounts 75,000 116,250
Changes in operating assets and liabilities -
(Increase) decrease in accounts receivable (1,565,869) (1,140,049)
(Increase) decrease in inventory (221,215) 93,386
(Increase) decrease in prepaid expenses
and other assets (420,139) 109,789
Decrease in accounts payable,
accrued and other liabilities (542,794) (540,377)
------------ ------------
Net cash used in operating activities (2,341,877) (1,151,394)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (89,136) (126,989)
------------ ------------
Net cash used in investing activities (89,136) (126,989)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of (increase in) short term borrowings, net 1,924,525 781,196
Payments of indebtedness 32,550 (233,009)
Proceeds from exercise of stock options - 3,250
Proceeds from stock/warrant issuances 475,000 -
------------ ------------
Net cash provided by financing activities 2,432,075 551,437
Net effect of translation on cash (1,062) (8,071)
------------ ------------
Net increase/decrease in cash - (735,017)
CASH AT THE BEGINNING OF PERIOD - 764474
------------ ------------
CASH AT THE END OF PERIOD $ - $ 29,457
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Interest paid $ 114,203 $ 124,352
============ ============
</TABLE>
The accompanying notes to unaudited financial statements are an integral part of
these statements.
5
<PAGE>
GLASGAL COMMUNICATIONS, INC.
Notes to Unaudited Financial Statements
(1) Business
Glasgal Communications, Inc. ("Glasgal") and its wholly owned
subsidiaries Signatel, Ltd. ("Signatel") and HH Communications, Inc. (HH)
distribute data communications equipment and services, as well as design,
install and service local and wide area network systems that connect a broad
range of networking and communication products which allow for the high speed
transmission of data, voice, fax and video. 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 integration process.
(2) Basis of Presentation
The consolidated financial statements include the accounts of
Glasgal, Signatel and HH for all periods presented and CASI from April 24, 1996
forward, the date of acquisition. Throughout this document Glasgal, Signatel, HH
and CASI are referred to collectively as 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 months ended July 31, 1996 are not necessarily indicative of results
expected for the full fiscal year.
(3) Acquisitions
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.
6
<PAGE>
<TABLE>
<CAPTION>
GLASGAL HH COMBINED
---------------- ------------ ----------------
For the year ended December 31,1993
----------------------------------------------
<S> <C> <C> <C>
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>
(4) Subsequent Events
In August 1996 the Company signed a non-binding letter of intent to
acquire all of the outstanding shares of common stock of Datatec Industries,
Inc. (Datatec) for 4,000,000 shares of common stock of the Company. It is
intended that the acquisition will be accounted for as a pooling of interests.
Datatec has a fiscal year end of April 30. Presented below are Datatec's sales
and net income for the two years ended April 30, 1995. Sales and net income for
the period ended April 30, 1996 are not available as of the date of this report.
SALES NET INCOME
---------------- -------------
1994 $ 47,399,000 $ 4,219,000
1995 64,849,000 (657,000)
7
<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 MONTHS ENDED JULY 31, 1996
Net sales for the three months ended July 31, 1996 were $13,110,000
compared to $11,376,000 for the three months ended July 31, 1995. This
represented an increase of approximately 15%.
Gross profits for the three months ended July 31, 1996 were $4,130,000
compared to $3,527,000 in the three months ended July 31, 1995. Gross profits as
a percentage of net sales were 31% for the three months ended July 31, 1996
compared to 31% for the three months ended July 31, 1995. Despite continuing
pressure on margins on the Company's traditional distribution business, the
Company has been able to maintain its margins by focusing on providing cutting
edge technology solutions as a systems integrator to Corporate America.
Selling, general and administrative expenses for the three months ended
July 31, 1996 were $3,742,000 compared to $3,111,000 for the three months ended
July 31, 1995. The increase in expenses is primarily attributable to expenses
incurred by the company's subsidiary CASI, which was acquired in April 1996 and
has been included in the Company's results of operations since that time. The
Company views these expenses as an investment in furthering its software
development and marketing. The Company's accounting policy for software
development costs is to expense such costs as incurred.
Interest expense for the three months ended July 31, 1996 was $130,000
compared to $280,000 for the three months ended July 31, 1995.
The Company's net income for the three months ended July 31, 1996 was
approximately $57,000 compared to net income of $136,000 for the three months
ended July 31, 1995.
FINANCIAL POSITION
The Company's working capital position as of July 31, 1996 was
$2,412,000 compared to $2,233,000 as of April 30, 1996.
The Company has a credit facility with a bank that provides for maximum
borrowing of $3,250,000. The maturity of the credit facility is September 30,
1996. The Company utlilizes this facility to fund working capital needs. As of
July 31, 1996 the Company had approximately $1,160,000 outstanding under the
credit facility. On August 2, 1996 the Company received a commitment from a
finance company to provide the
8
<PAGE>
Company with a $4,000,000 revolving line of credit. The revolving line of credit
is expected to bear interest at the prime rate plus 1.75%. Allowable borrowings
under the revolving line of credit will be based on a percentage of receivables
and inventory. Although the Company intends to enter into this commitment, there
can be no assurances that the Company will consumate a transaction with this
company.
9
<PAGE>
GLASGAL COMMUNICATIONS, INC.
FORM 10-Q
PART II - OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
10
<PAGE>
GLASGAL COMMUNICATIONS, INC.
FORM 10-Q
PART II - OTHER INFORMATION - CONTINUED
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K PAGE #
(a) Exhibits
2 Stock Purchase Agreement dated as of July 31, 1996
by and among Glasgal Communications, Inc., Francis
J. Frazel, Steven M. Grubner, Mark Herzog, George
Terlizzi and HH Communications, Inc. (previously
filed on this Report on Form 8-K). *
27 Financial Data Schedule
(b) Reports on Form 8-K
On August 15, 1996 the registrant filed a
report regarding the acquisition of HH
Communications, Inc., a provider of data
communications equipment and service.
*Incorporated by reference from the Company's report on Form 8-K filed on August
15, 1996.
11
<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: September 23, 1996 By:/s/ James M. Caci
-----------------------------
James M. Caci
Chief Financial Officer and Duly
Authorized Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Form 10-Q for the quarter ended July 31, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> JUL-31-1996
<CASH> 29,457
<SECURITIES> 0
<RECEIVABLES> 9,140,790
<ALLOWANCES> 0
<INVENTORY> 2,667,528
<CURRENT-ASSETS> 12,752,588
<PP&E> 3,683,232
<DEPRECIATION> 0
<TOTAL-ASSETS> 18,488,871
<CURRENT-LIABILITIES> 10,340,785
<BONDS> 0
0
0
<COMMON> 17,624
<OTHER-SE> 7,141,627
<TOTAL-LIABILITY-AND-EQUITY> 18,488,871
<SALES> 13,110,144
<TOTAL-REVENUES> 13,110,144
<CGS> 8,980,187
<TOTAL-COSTS> 12,721,949
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 129,799
<INCOME-PRETAX> 258,396
<INCOME-TAX> 201,778
<INCOME-CONTINUING> 56,618
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 56,618
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
