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, 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.)
20C COMMERCE WAY, TOTOWA, NJ 07512
- ------------------------------- -------------------
(Address of principal executive (Zip Code)
offices)
(201) 890-4800
--------------------------------------------------
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,
1997 was 28,386,963.
<PAGE>
GLASGAL COMMUNICATIONS, INC.
FORM 10-Q
THREE MONTHS ENDED OCTOBER 31, 1997
INDEX
PART I: FINANCIAL INFORMATION
PAGE
----
Item 1: Consolidated Financial Statements
Balance Sheets at April 30, 1997 and
October 31, 1997 3
Statements of Operations for the three months ended
October 31, 1996 and 1997 4
Statements of Operations for the six months ended
October 31, 1996 and 1997 5
Statements of Cash Flows for the six months ended
October 31, 1996 and 1997 6
Notes to Unaudited Consolidated Financial Statements 7
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II: OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders 11
Item 6: Exhibits and Reports of Form 8-K 12
<PAGE>
GLASGAL COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
April 30, October 31,
1997 1997
---- ----
(unaudited)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 1,135 $ 255
Accounts receivable, net 11,289 13,617
Inventory 2,134 2,977
Prepaid expenses and other current assets 1,446 3,708
Net assets from discontinued operations 4,816 3,457
------- --------
Total current assets 20,820 24,014
PROPERTY AND EQUIPMENT, net 3,634 3,497
GOODWILL 1,680 1,587
OTHER ASSETS 1,670 1,846
------- --------
Total assets $27,804 $ 30,944
======= --------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Short-term borrowings $11,675 $ 1,168
Current portion of long-term
obligations 850 3,333
Accounts payable 5,415 7,838
Accrued liabilities 5,331 3,213
Other current liabilities 506 201
------- -------
Total current liabilities 23,777 15,753
------- -------
DUE TO RELATED PARTIES 1,026 1,001
------- -------
LONG-TERM OBLIGATIONS 5,001 1,200
------- -------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT):
Preferred Stock -- --
Common Stock 24 28
Additional paid-in capital 10,341 25,284
Accumulated deficit (12,080) (12,019)
Cumulative translation adjustment (285) (303)
------- -------
Total shareholders' equity (deficit) (2,000) 12,990
-------- -------
Total liabilities and shareholders' equity (deficit) $ 27,804 $30,944
=========== =======
</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,
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1997
---- ----
(unaudited)
<S> <C> <C>
Net Sales $ 16,359 $ 19,523
Cost of Sales 10,139 12,085
----------- -----------
Gross Profit 6,220 7,438
Selling, general and administrative expenses 4,670 6,855
----------- -----------
Operating income 1,550 583
Interest expense, net 314 550
----------- -----------
Income before taxes 1,236 33
Provision for income taxes 81 --
----------- -----------
Income from continuing operations 1,155 33
Discontinued operations (1,124) --
----------- -----------
Net income $ 31 $ 33
---======== ===========
Income per share:
Continuing operations $ 4.5 $ 0
Discontinued operations $ (4.5) --
----------- -----------
Net income per share $ 0 $ 0
-----====== -----------
Average outstanding common
and equivalent shares 25,745,000 30,223,000
=========== ===========
</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,
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
1996 1997
---- ----
(unaudited)
<S> <C> <C>
Net Sales $ 32,189 $ 38,124
Cost of Sales 19,199 23,362
----------- ------------
Gross Profit 12,990 14,762
Selling, general and administrative expenses 9,219 13,698
----------- ------------
Operating income 3,771 1,064
Interest expense, net 594 1,005
-----------
Income before taxes 3,177 59
Provisions for income taxes 125 --
----------- -----------
Income from continuing operations 3,052 59
Discontinued operations (1,627) --
-----------
Net income $ 1,425 $ 59
-========== -----------
Income per share:
Continuing operations $ .12$ 0
Discontinued operations (.06) --
----------- -----------
Net income $ .06 $ 0
=========== ====--====-
Weighted average outstanding common
And equivalent shares 25,745,000 29,068.000
========== ===========
</TABLE>
The accompanying notes to unaudited consolidated financialstatements
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,
(IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997
---- ----
(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Income $ 1,426 $ 59
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 793 998
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (4,126) (2,328)
(Increase) decrease in inventory 616 (843)
(Increase) decrease in prepaid expenses and other assets (1,048) (2,602)
(Increase) decrease in assets held for sale or disposition (2,674) 1,109
Increase (decrease) in accounts payable,
accrued and other liabilities 449 44
--------- ----------
Net cash used in operating activities (4,564) (3,563)
--------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (824) (354)
---------- -----------
Net cash used in investing activities (824) (354)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term borrowings, net
1,063 (10,507)
Net proceeds (payments) of indebtedness 282 (543)
Proceeds from issuance of stock 5,658 14,105
Distribution to stockholders (587) --
--------- --------
Net cash provided by financing activities 6,416 3,055
---------
Net effect of foreign currency translation (80) (18)
---------
Net increase (decrease) in cash 948 (880)
Cash at beginning of period 2,219 1,135
--------- -------
CASH AT END OF PERIOD $ 3,167 $ 255
=========
</TABLE>
The accompanying notes to unaudited consolidated financial statements
are an integral part of these statements.
6
<PAGE>
Glasgal Communications, Inc.
Notes to Unaudited Consolidated Financial Statements
(in thousands, except share and per share data)
(1) Business
Glasgal Communications, Inc. (the "Company" or "Glasgal"), and its
subsidiaries are in the business of providing configuration, integration and
rapid deployment services for the implementation of complex computer networking
and connectivity systems.
(2) Basis of Presentation
The consolidated financial statements include the accounts of the
Company and its subsidiaries. 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, 1997. 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, 1997 are not necessarily indicative of results expected for the full
fiscal year.
(3) Earnings Per Share
Earnings per share is computed based upon the weighted average number
of common shares and common equivalent shares outstanding during each period.
Common equivalent shares have not been included, if antidilutive.
In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" which
makes certain changes to the manner in which earnings per share is reported. The
Company is required to adopt this standard for the year ending April 30, 1998.
If the Company had adopted the new standard for the three and six
months ended October 31, 1997, basic earnings (loss) per common share from
continuing operations, discontinued operations and net income per common share
would have been $0, based on 27,711,000 and 27,096,000 basic weighted average
shares for the three and six months, respectively. Diluted earnings per share
would have been the same as basic earnings per share.
7
<PAGE>
(4) Debt
The Company's credit facility requires the Company to comply with
certain financial and non-financial convenants. As of October 31, 1997, the
Company was not in compliance with certain covenants and is in the process of
obtaining waivers. As there can be no assurances that such waivers will be
obtained, certain long-term debt, approximately $2.6 million, has been
classified as current.
(5) Equity
In June and July 1997, the Company, through private placement equity
offerings, issued 855,000 shares of common stock for approximately $3.1 million.
In August 1997, the Company issued 237,000 shares of common stock upon
the conversion of $0.8 million aggregate principal plus accrued interest of the
Company's convertible notes.
In October 1997, holders of redeemable warrants purchased approximately
2,743,000 shares of common stock at a price of $3.75 per share. As of October
31, 1997 approximately $0.7 million is included in other current assets as it
was received in November 1997.
Public Offering
On November 12, 1997 the Company filed a Registration Statement on Form
S-1 with the Securities and Exchange Commission for the sale of 4,000,000 shares
of Common Stock. The net proceeds to the Company from this offering are intended
to be used for the repayment of outstanding debt, working capital, capital
equipment and potential acquisitions.
Supplemental Disclosure of Cash Flows
1996 1997
Interest Paid $ 707 $ 828
Supplemental disclosures of non-cash investing and financing activities
In August 1997, holders of convertible notes converted $0.8 million of principal
plus accrued and unpaid interest into 237,000 shares of common stock.
8
<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, 1997
NET SALES. Net sales for the three and six months ended October 31, 1997 were
$19.5 million and $38.1 million compared to $16.4 million and $32.2 million for
the three and six months ended October 31, 1996, representing an increase of
19.3% and 18.4% for the three and six months respectively. A significant portion
of the increase for the three and six months ended October 31, 1997 was the
result of the Company's focus on and an increase in sales to indirect customers.
Included in net sales for the six months ended October 31, 1997 was software
license revenue of $1.1 million. While the Company does not typically market its
software, the Company may license such software in the future as strategic or
other business opportunities arise.
GROSS PROFITS. Gross profits for the three and six months ended October 31, 1997
were $7.4 million and $14.8 million compared to $6.2 million and $13.0 million
for the three and six months ended October 31, 1996. Gross profits as a
percentage of net sales for the three and six months ended October 31, 1997 were
38.1% and 38.7% compared to 38.0% and 40.4% for the three and six months ended
October 31, 1996.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for the three and six months ended October 31, 1997 were
$6.9 million and $13.7 million compared to $4.7 million and $9.2 million for the
three and six months ended October 31, 1996. As a percentage of sales, selling,
general and administrative expenses represented 35.1% and 35.9% for the three
and six months ended October 31, 1997 compared to 28.6% and 28.6% for the three
and six months ended October 31, 1996. The increase in selling, general and
administrative is partly attributable to an increase in infrastructure costs,
including personnel to support the Company's migration to the more complex
service business. During the three months ended October 31, 1997 the Company
revised its estimate of a potential liability established in a prior period
which resulted in a reduction in selling, general and administrative expenses of
$600,000.
INTEREST EXPENSE. Interest expense for the three and six months ended October
31, 1997 was $550,000 and $1,005,000 compared to $314,000 and $594,000 for the
three and six months ended October 31, 1996. This increase in interest expense
is primarily attributable to an increase in the average debt outstanding for the
period.
FINANCIAL POSITION
The Company's working capital as of October 31, 1997 was $8.3 million
compared to a working capital deficiency of $3.0 million as of April 30, 1997.
9
<PAGE>
The Company has a credit facility with a bank that provides for maximum
borrowing of $17 million. The credit facility consists of a term loan that began
on March 19, 1997 at $2.0 million with principal and interest due monthly. In
addition, the credit facility provides for a $15.0 million revolving credit
facility, with allowable borrowing under the facility based on a formula of
receivables and inventory. Outstanding borrowings under the term loan and
revolving credit facility as of October 31, 1997 were $1.8 million and $1.2
million, respectively.
The Company's credit facility requires the Company to comply with
certain financial and nonfinancial covenants. As of October 31, 1997 the Company
was not in compliance with certain convenants and is in the process of obtaining
waivers. As there can be no assurance that such waivers will be obtained,
certain long-term debt has been classified as current.
In June 1997 and July 1997 the Company issued an aggregate of 855,000
shares of Common Stock in private equity placements, and received net proceeds
of approximately $3.1 million.
In October 1997, holders of redeemable warrants purchased approximately
2,743,000 shares of common stock at a price of $3.75 per share, aggregate net
proceeds of $9.8 million.
On November 12, 1997, the Company filed a Registration Statement on
Form S-1 with the Securities and Exchange Commission for the sale of 4,000,000
shares of Common Stock. The net proceeds to the Company from this offering are
intended to be used for the repayment of outstanding debt, working capital,
capital equipment and potential acquisitions.
10
<PAGE>
GLASGAL COMMUNICATIONS, INC.
FORM 10-Q
PART II - OTHER INFORMATION
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
11
<PAGE>
GLASGAL COMMUNICATIONS, INC.
FORM 10-Q
PART II - OTHER INFORMATION - CONTINUED
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 Statement of Per Share Earnings
27 Financial Data Schedule
(b) Reports on Form 8-K
On September 24, 1997 and October 20, 1997, the Registrant
filed two reports on Form 8-K relating to the redemption of
its publicly traded redeemable warrants.
12
<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 15, 1997 By: JAMES M. CACI
-------------------
James M. Caci
Chief Financial Officer and Duly
Authorized Officer
GLASGAL COMMUNICATIONS, INC.
COMPUTATION OF EARNINGS (LOSS) PER SHARE
FOR THE SIX MONTHS ENDED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
October 31,1997 October 31, 1996
--------------- ----------------
Earnings (loss) per share
<S> <C> <C>
Income (loss) from continuing $ 59 $ 3,052
operations
Discontinued operations -- (1,627)
--------- ---------
Net income $ 59 $ 1,425
--------- -------
Weighted average number of shares 27,096 23,420
outstanding
Assumed issuances under exercise of 1,972 2,325
--------- -------
stock options and warrants
Weighted average and common stock 29,068 25,745
--------- -------
equivalents
Income (loss) from continuing 0.00 $0.12
operations
Discontinued operations per share 0.00 (0.06)
Net income (loss) per share $ 0.00 $ 0.06
</TABLE>
<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, 1997 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-31-1997
<CASH> 225
<SECURITIES> 0
<RECEIVABLES> 14,119
<ALLOWANCES> (502)
<INVENTORY> 2,977
<CURRENT-ASSETS> 24,014
<PP&E> 6,846
<DEPRECIATION> (3,349)
<TOTAL-ASSETS> 30,944
<CURRENT-LIABILITIES> 15,753
<BONDS> 0
28
0
<COMMON> 0
<OTHER-SE> 12,962
<TOTAL-LIABILITY-AND-EQUITY> 30,944
<SALES> 38,124
<TOTAL-REVENUES> 38,124
<CGS> 23,362
<TOTAL-COSTS> 23,362
<OTHER-EXPENSES> 13,678
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,015
<INCOME-PRETAX> 59
<INCOME-TAX> 0
<INCOME-CONTINUING> 59
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 59
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
