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: JANUARY 31, 1997
/ / 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.)
23 Madison Road, Fairfield, NJ 07004
- ------------------------------ ------------------
(Address of principal executive (Zip Code)
offices)
(201) 808-4000
--------------
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 January 31,
1997 was 21,772,559.
<PAGE>
GLASGAL COMMUNICATIONS, INC.
FORM 10-Q
NINE MONTHS ENDED JANUARY 31, 1997
INDEX
PART I: FINANCIAL INFORMATION
PAGE
Item 1: Consolidated Financial Statements
Balance Sheets at January 31, 1997 and
April 30, 1996 3
Statements of Operations for the three months ended
January 31, 1997 and 1996 4
Statements of Operations for the nine months ended
January 31, 1997 and 1996 5
Statements of Cash Flows for the nine months ended
January 31, 1997 and 1996 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II: OTHER INFORMATION 13
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, January 31,
1996 1997
---- ----
ASSETS
- ----------------------------------------------
CURRENT ASSETS:
<S> <C> <C>
Cash $ 2,219,564 $ 556,028
Accounts receivable, net 15,571,675 16,760,891
Inventory 6,039,863 5,580,788
Prepaid expenses and other 1,092,751 1,477,198
------------ -----------
Total current assets 24,923,853 24,374,905
PROPERTY AND EQUIPMENT, NET 7,006,862 7,379,334
OTHER ASSETS 3,003,267 2,942,669
------------ -----------
Total assets $ 34,933,982 $34,696,908
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
- ----------------------------------------------
CURRENT LIABILITIES:
Short-term borrowings $ 11,232,130 $ 6,912,192
Current portion of long-term
obligations 2,685,328 637,999
Accounts payable 13,617,917 13,644,748
Accrued liabilities 7,611,488 7,282,700
------------ -----------
Total current liabilities 35,146,863 28,477,639
------------ -----------
LONG-TERM OBLIGATIONS 3,595,247 4,582,868
------------ -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT):
Common Stock 20,261 20,752
Preferred Stock -- 150
Additional paid-in capital 11,978,404 9,844,141
Accumulated deficit (15,559,326) (7,904,544)
Cumulative translation adjustment (247,467) (324,098)
------------- ------------
Total shareholders' equity (deficit) (3,808,128) 1,636,401
------------- -----------
Total liabilities and shareholders' equity (deficit) $ 34,933,982 $ 34,696,908
============ ===============
</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 JANUARY 31,
(UNAUDITED)
1996 1997
---- ----
$26,097,418 $ 21,354,627
SALES
Operating Costs:
Cost of Sales 17,732,477 15,329,131
Selling, general and administrative 10,239,545 8,041,595
----------- ----------------
TOTAL OPERATING EXPENSES 27,972,022 23,370,726
----------- ----------------
OPERATING INCOME(LOSS) (1,874,604) (2,016,099)
INTEREST EXPENSE, NET 419,330 267,050
----------- ----------------
INCOME(LOSS) BEFORE TAXES (2,293,934) (2,283,149)
INCOME TAXES 2,014 (12,455)
----------- -----------------
NET LOSS $(2,295,948) $ (2,270,694)
============ =================
NET INCOME(LOSS) PER COMMON SHARE $ (.12) $ (.11)
============= =================
AVERAGE OUTSTANDING COMMON
AND EQUIVALENT SHARES 19,853,872 21,031,012
----------- ---------------
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 NINE MONTHS ENDED JANUARY 31,
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
$89,055,451 $73,965,113
SALES
Operating Costs:
Cost of Sales 58,182,876 49,858,135
Selling, general and administrative 30,186,873 23,073,497
Acquisition Costs -- 497,000
----------- -----------
TOTAL OPERATING EXPENSES 88,369,749 73,428,632
----------- -----------
OPERATING INCOME 685,702 536,481
INTEREST EXPENSE, NET 1,562,357 1,067,211
----------- -----------
INCOME(LOSS) BEFORE TAXES (876,655) (530,730)
INCOME TAXES 65,990 313,687
----------- -----------
LOSS BEFORE EXTRAORDINARY ITEM (942,645) (844,417)
EXTRAORDINARY ITEM 223,066 --
----------- -----------
NET LOSS $(1,165,711) $ (844,417)
============ ============
INCOME(LOSS) PER SHARE
Income(Loss) before extraordinary item $ (.06) $ (.04)
Extraordinary item (.01)
--
NET INCOME(LOSS) PER COMMON SHARE $ (. 07) $ (.04)
============= -----------
WEIGHTED AVERAGE OUTSTANDING COMMON
AND EQUIVALENT SHARES 17,187,725 20,738,233
---------- -----------
</TABLE>
The accompanying notes to unaudited consolidated financial statements
are an integral part of these statements.
5
<PAGE>
GLASGAL COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED JANUARY 31,
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Loss $(1,165,711) $ (844,417)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 1,250,041 1,332,587
Provision for doubtful accounts 374,726 355,439
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (2,972,439) (1,544,655)
(Increase) decrease in inventory (983,923) 459,075
(Increase) decrease in prepaid expenses and
other assets
(508,753) (491,444)
Increase (decrease) in accounts payable,
accrued and other liabilities 551,491 (274,200)
----------- ----------
Net cash provided by (used in) operating activities (3,454,568) (1,007,615)
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (2,254,409) (1,537,464)
----------- -----------
Net cash provided by (used in) investing
activities (2,254,409) (1,537,464)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term borrowings, net
(2,465,036) (4,319,938)
Increase in (payments of) indebtedness 898,289 (1,059,708)
Proceeds from stock/warrant issuances 7,204,313 6,924,833
Distribution to stockholders -- (587,013)
------------- --------------
Net cash provided by financing activities 5,637,566 958,174
------------- --------------
Net effect of translation on cash (164,950) (76,631)
------------ --------------
Net increase (decrease) in cash (236,361) (1,663,536)
CASH AT BEGINNING OF PERIOD 265,540 2,219,564
------------ -------------
CASH AT END OF PERIOD $ 29,179 $ 556,028
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Interest paid $ 1,171,144 $ 977,719
Income taxes paid $ 17,202 984
</TABLE>
6
<PAGE>
GLASGAL COMMUNICATIONS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) Business
Glasgal Communications, Inc. ("Glasgal") and its subsidiaries Signatel,
Ltd. ("Signatel"), HH Communications, Inc. ("HH") (see Note 3), 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 nine months ended
January 31, 1997 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
--------------- ----------- ----------------
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>
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
-------------- -------------- --------------
For the year ended December 31,1993
----------------------------------------------
<S> <C> <C> <C>
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 $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) Debt
In January 1997, and pursuant to a prior agreement between Glasgal,
Datatec, Datatec's lender and an affiliated company of the majority shareholder
of Datatec, prior to the acquisition of Datatec by Glasgal, the affiliated
company loaned the Company approximately $1,660,000. The loan bears interest at
12.5% per annum with interest payable monthly. The principal balance of the loan
is due in January 1999.
In February 1997, the Company entered into two convertible loans each
for $1 million. The loans are convertible into common stock at 80% of the
average closing bid price per share of common stock for the five trading days
immediately preceding the conversion date. The loans bear interest at 10%.
Interest is due at the time of conversion. If not previously converted the loans
mature in February 1999.
9
<PAGE>
In March 1997, the Company entered into a senior credit facility
consisting of a $15 million revolving line of credit and a $2 million term loan.
The available borrowings under the revolving credit facility are based on
eligible accounts receivable and inventory, as defined. The revolving line of
credit bears interest at prime plus three-quarters of one percent (3/4%). The
term loan bears interest at prime plus on and one-half percent (1 1/2%). The new
$15 million revolving line of credit replaced two existing revolving lines of
credit which allowed for maximum combined borrowings of approximately $11
million.
(5) 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. 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.
As of January 31,1997 150,000 shares of convertible preferred stock
remain outstanding. As a result of the conversion of preferred stock into common
stock, 1,048,246 shares of common stock were issued during the three months
ended January 31, 1997.
10
<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 NINE MONTHS ENDED JANUARY 31, 1997
Net sales for the three and nine months ended January 31, 1997 were
$21,355,000 and $73,965,000, respectively compared to $26,097,000 and
$89,055,000, respectively for the three and nine months ended January 31, 1996.
This represents a decrease of 18.2% and 16.9% for the three and nine months
ended January 31, 1997, respectively. This decrease in sales is attributable to
three factors, the sale of the Company's French subsidiary in September 1996, a
decrease in sales to government contractors and temporary post merger
disruptions. The Company recorded sales from its French subsidiary for the three
and nine months ended January 31, 1996 of $3,055,000 and $11,970,000,
respectively compared to no sales for the three months ended January 31, 1997
and $1,303,000 for the nine months ended January 31, 1997. During the nine
months ended January 31, 1997 the Company significantly restricted the credit it
extended to a significant customer who acted as a prime contractor to the
federal government. Although management believes these restrictions to have been
prudent, they did contribute to a reduction of sales to this contractor of
$4,637,000 for the nine months ended January 31, 1997. Although not
quantifiable, sales have been negatively impacted during the quarter as the
merged entity spent weeks training and refocusing its combined sales force. The
Company believes such efforts will significantly contribute to its future
success.
Gross profits for the three and nine months ended January 31, 1997 were
$6,025,000 and $24,107,000, respectively, compared to $8,365,000 and $30,873,000
in the three and nine months ended January 31, 1996. Gross profits as a
percentage of net sales were 28.2% and 32.6% for the three and nine months ended
January 31, 1997 compared to 32.1% and 34.7% for the three and nine months ended
January 31, 1996. The Company believes the decrease in gross margin during the
three months ended January 31, 1997 is a function of product mix and several
sizable low margin deals. The Company does not believe this to be representative
of future gross margin percentages.
Selling, general and administrative expenses for the three and nine
months ended January 31, 1997 were $8,042,000 and $23,570,000 compared to
$10,240,000 and $30,187,000 for the three and nine months ended January 31,
1996. Approximately $1,250,000 and $3,700,000 of this reduction for the three
and nine months, respectively, is attributable to the French subsidiary, which
was sold in September 1996.
Interest expense for the three and nine months ended January 31, 1997
was $267,000 and $1,067,000, respectively, compared to $419,000 and $1,562,000
for the three and nine months ended January 31, 1996. These decreases are
attributable to lower
11
<PAGE>
average borrowing under the Company's credit facilities for the three and nine
months ended January 31, 1997.
The Company's net loss for the three and nine months ended January 31,
1997 was $2,271,000 and $844,000 respectively, compared to a net loss of
$2,296,000 and $1,166,000 for the three and nine months ended January 31, 1996.
FINANCIAL POSITION
In March 1997, the Company entered into a $17,000,000 senior credit
facility to replace two of its existing credit facilities. The senior credit
facility consists of a $15,000,000 revolving line of credit and a $2,000,000
term loan. The senior credit facility is supported by accounts receivable and
inventory as well as other assets of the Company, has a term of three years and
bears interest at prime plus three quarters of one percent(3/4%) and prime plus
one and one-half percent (1 1/2%) on the line of credit and term loan,
respectively. Availability under the revolving line of credit is calculated
using a formula of 85% of eligible accounts receivable and 50% of eligible
inventory. The 15,000,000 revolving line of credit represents an increase of
approximately $4,000,000 over the revolving line of credit it replaces. The
Company believes the increase will be sufficient to meet its projected growth.
The Company's shareholders equity as of January 31, 1997 increased by
approximately $5,445,000 to $1,636,000, compared to a deficit of $3,808,000 as
of April 30, 1996.
The Company's working capital improved from a deficiency of $10,223,000
at the beginning of the year to a deficiency of $4,103,000 at the end of the
quarter under review.
12
<PAGE>
GLASGAL COMMUNICATIONS, INC.
FORM 10-Q
PART II - OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
13
<PAGE>
GLASGAL COMMUNICATIONS, INC.
FORM 10-Q
PART II - OTHER INFORMATION - CONTINUED
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
None
14
<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: March 24, 1997 By: /s/ James M. Caci
----------------------
James M. Caci
Chief Financial Officer and Duly
Authorized Officer
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Form 10-Q for the quarter ended January 31, 1997 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-1997
<PERIOD-END> JAN-31-1997
<CASH> 556,028
<SECURITIES> 0
<RECEIVABLES> 16,760,891
<ALLOWANCES> 0
<INVENTORY> 5,580,788
<CURRENT-ASSETS> 24,374,905
<PP&E> 7,379,334
<DEPRECIATION> 0
<TOTAL-ASSETS> 34,696,908
<CURRENT-LIABILITIES> 28,477,639
<BONDS> 0
0
150
<COMMON> 20,752
<OTHER-SE> 1,615,499
<TOTAL-LIABILITY-AND-EQUITY> 34,696,908
<SALES> 73,965,113
<TOTAL-REVENUES> 73,965,113
<CGS> 49,858,135
<TOTAL-COSTS> 73,428,632
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,067,211
<INCOME-PRETAX> (530,730)
<INCOME-TAX> 313,687
<INCOME-CONTINUING> (844,417)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (844,417)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> 0
</TABLE>
