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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended APRIL 30, 1997
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the Transition period from ________ to ________
Commission File No. 0-20688
GLASGAL COMMUNICATIONS, INC.
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(Exact name of Registrant as specified in its charter)
DELAWARE 94-2914253
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(State of Incorporation) (I.R.S. Employer Identification No.)
20C COMMERCE WAY, TOTOWA, NJ 07512-1154
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 890-4800
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Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
- ------------------- ------------------------------------------
Common Stock, $.001 par value Boston Stock Exchange
Common Stock Purchase Warrants
Securities registered pursuant to Section 12(g) of the Act:
None
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 reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Registrant's voting stock held by
non-affiliates at July 31, 1997 was approximately $59,903,000. For purposes of
computing such market value, the Registrant has deemed as affiliates only
executive officers, directors and their affiliates.
The total number of shares of Common Stock of the Registrant outstanding at
July 31, 1997 was 23,708,689.
TABLE OF CONTENTS
PART I PAGE #
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Item 1. Business 3
Item 2. Properties 16
Item 3. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of Security Holders 16
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 17
Item 6. Selected Financial Data 20
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 22
Item 8. Financial Statements and Supplementary Data 26
Item 9. Change in and Disagreements with Accountants on Accounting
and Financial Disclosure 52
PART III
Item 10. Directors and Executive Officers of the Registrant 53
Item 11. Executive Compensation 57
Item 12. Security Ownership of Certain Beneficial Owners
and Management 61
Item 13. Certain Relationships and Related Transactions 64
PART IV
Item 14. Exhibits, Financial Statements Schedules and Reports
on Form 8-K 65
2
FORWARD LOOKING STATEMENTS
IN ADDITION TO HISTORICAL INFORMATION, THIS ANNUAL REPORT CONTAINS
FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S
ACTUAL RESULT COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE
FORWARD-LOOKING STATEMENTS. FACTORS THAT MAY CAUSE SUCH DIFFERENCES INCLUDE, BUT
ARE NOT LIMITED TO, COMPETITION, TECHNOLOGICAL ADVANCES AND AVAILABILITY OF
MANAGERIAL PERSONNEL. READERS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON THESE
FORWARD-LOOKING STATEMENTS, WHICH REFLECT MANAGEMENT'S ANALYSIS ONLY AS OF THE
DATE HEREOF. GLASGAL COMMUNICATIONS, INC. UNDERTAKES NO OBLIGATION TO PUBLICLY
REVISE THESE FORWARD-LOOKING STATEMENTS, TO REFLECT EVENTS OR CIRCUMSTANCES THAT
ARISE AFTER THE DATE HEREOF.
PART I
ITEM 1. BUSINESS
The Company is in the business of providing software-enabled technical
configuration, integration and implementation services to Fortune 2,000
customers in the United States and Canada. What this translates into is a unique
capability to provide implementation services to large organizations to enable
them to rapidly deploy new networking technologies with minimal risk of failure
at very competitive prices.
The Company's market advantages include:
o A proprietary software tool, THE INTEGRATOR'S WORKBENCH PRODUCT
SERIES(TM)(IWPS), that significantly reduces the risk and time and,
therefore, labor costs of providing what are highly labor-intensive
services.
o A nationwide deployment team capable of delivering complex technologies
to any North American organization including any manner of computing
platform, cabling or electrical issues.
o A nationwide salesforce focused exclusively on the sale of
configuration, integration and deployment services to direct end users
and the indirect channel (OEMs, VARs, systems integrators and
telecommunications suppliers).
This unique combination of software-enabled configuration services
coupled with nationwide deployment provides Glasgal with a strong proprietary
position in the market.
The Company was incorporated in California in 1983 under the name
Sellectek Incorporated. The Company changed its name to Glasgal Communications
in May 1994 after merging with Glasgal Communications, Inc., a New Jersey
corporation (the "Predecessor"). The Company reincorporated in the state of
Delaware in January 1996. Unless the context otherwise requires, the "Company"
or "Glasgal" refers to Glasgal Communications, Inc., its predecessors and its
subsidiaries which include Signatel, Ltd. ("Signatel"), HH Communications, Inc.,
Computer-Aided Software Integration, Inc. ("CASI") and Datatec Industries, Inc.
The Company maintains its executive offices at 20C Commerce Way, Totowa, New
Jersey 07512. Its telephone number is (201) 890-4800.
3
BACKGROUND
Over the past five years the Company has repositioned itself from
selling network devices to providing customers with networking solutions with a
focus on Information Technology (IT) services. This shift was required to
buttress the continuing fall in gross margins from hardware sales. As the
Company moved increasingly into IT services its margins improved but so did the
need to increase the engineering staff. Despite standard gross margins from
services being some twenty-five to thirty percentage points higher than those
from hardware sales, there is still a direct linear relationship between
increased service revenues and their attendant labor costs. Unlike hardware
margins, however, service margins can be positively impacted through increased
efficiencies. As a result, the Company's thrust into services was coupled with a
move towards increased efficiencies. Through the development of THE INTEGRATOR'S
WORKBENCH PRODUCT SERIES (TM)(IWPS), the Company created the base engine to
dramatically increase efficiencies and drive up service margins well beyond
industry standards.
In June 1997, the Company decided to no longer resell hardware and
concentrate entirely on providing only integration, configuration and deployment
services. Today customers take title to their products and have them shipped to
one of the Company's five STAGING & CONFIGURATION CENTERS for implementation. In
this way, the Company's limited resources can be applied to business that
historically generates 35% to 40% margins rather than 10% or less. By being
non-aligned to any particular manufacturer or vendor the company can work
independently and in a non-threatening manner with all manufacturers, VARs,
systems integrators and software developers/vendors.
STRATEGY
The Company's objective is to be the premier provider for the
configuration, integration service and deployment of complex networking
solutions. To achieve this objective the Company is pursuing the following
strategies:
o Developing automated tools and methodologies to maintain a competitive
edge in the Company's chosen market niche.
o Creating, through the Datatec Relationship Cycle, close and long-term
relationships with its customers thereby providing a source for
repeatable business and as a result of high satisfaction ratios, a
source of business referrals.
o Focusing the Company's direct marketing efforts on seven vertical
markets comprising of Retail, Financial, Hospitality, Health Care,
Travel, Insurance and Entertainment. Each of these verticals was
selected for comprising of industries that are commonly multi-sited
with large internetworking environments.
o Leveraging the Company's indirect intra sales channel to create strong
strategic partnerships with OEMs, systems integrators, software
developers/distributors, VARs, and telecommunications carriers. Through
these relationships the Company leverages its clients sales force by
presenting joint solutions to its clients customers. Because the
Company is no longer aligned with manufacturers or reselling products,
its indirect partners are much more willing to introduce the Company's
sales professionals into their own opportunities. In return, the
indirect partners get the benefit of the Company's flexible process and
aggressive pricing that these companies can rarely compete with.
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o The Company intends to pursue strategic acquisitions to expand within
existing markets, address new markets, and acquire technical expertise
and technology to leverage its existing technology.
THE MARKET
Today the vast majority of PCs sold to businesses are attached to a
network. The proliferation of PC users and information residing on networks has
created an explosive demand for not only PCs and Servers but for networking
products like routers, hubs and switches. These products, which allow for the
orderly flow of information over networks, are constantly being improved to meet
the ever-increasing traffic and speed with which data travels along networks.
Before a workstation, server, router, hub or switch can work effectively on a
network, it needs to be properly configured and customized to be compatible with
each of the unique features and parameters of a clients network. In addition,
great care must be taken to ensure that each of these new devices works in
concert with existing or legacy equipment on that same network.
The Company knows of no independent research company that has focused
on the market size for configuration and deployment services. However, the
Yankee Group recently stated that the IT sector as a whole is growing by
approximately 17% per annum and will be worth $231 billion by the end of the
decade. Glasgal's management estimates that configuration, integration and
deployment services probably account for approximately 10% of the total IT
market.
The dynamics creating strong demand for Glasgal's new software assisted
service offerings include the following:
o Due to shorter product life cycles, hardware manufacturers and software
vendors alike must find ways to rapidly bring their products to market or
face losing market share.
o In order to maintain a competitive edge in the market, corporations are
constantly looking to become more efficient and technology has become a
major source of competitive advantage.
o Technologies are becoming increasingly complex, which makes them extremely
difficult and costly to implement, especially without tools and
methodologies. Given the downsizing of many MIS departments and their
preoccupation with their core operations, companies are increasingly
looking to outsource the deployment of new technologies.
GLASGAL'S SOLUTIONS
Glasgal is uniquely positioned to address the burgeoning demand for
configuring, integrating and deploying workstations, servers, routers, hubs and
switches onto networks through its software-enabled orientation. Through proper
utilization of its INTEGRATOR'S WORKBENCH tools developed by Glasgal's CASI
subsidiary and the Company's proprietary documented processes, many labor
intensive configuration, integration, and deployment services provided by the
Company are being automated and increasing the Company's effective yield and
profitability.
The benefits that accrue to the Company by software-enabling its
implementation processes are:
o REDUCTIONIN LABOR COSTS AND SIGNIFICANTLY HIGHER PRODUCTIVITY PER
PERSON. Typical time reductions achieved by using Glasgal's
software-enabled process range between 40% and 90%. For example, the
typical router that takes between forty-five minutes and one hour to
configure and document manually using a highly skilled engineer is
reduced to five minutes using the Company's software-enabled process.
o THE ABILITY TO LEVERAGE TECHNICAL SKILLS. Leveraging the Company's
software-enabled process, technical staffers with lower skill sets can
implement highly complex technical solutions. In addition, the market's
demand for experienced engineering resources continues to grow causing
many IT companies to face a "revolving door" syndrome in finding and
keeping their high priced, highly skilled engineers. Given the fact
that
5
Glasgal has software-enabled its methodologies, its knowledge base does
not go out of the door with engineers.
o A HIGHER DEGREE OF ACCURACY IN THE CONFIGURATION AND INTEGRATION
PROCESS LEADS TO VIRTUAL "PLUG AND PLAY" INSTALLATIONS. The automated
process eliminates the risk of input mistakes which account for almost
50% of all errors. As a result, highly complex and fully customized
devices convert into "plug and play" products for Glasgal's deployment
teams. In this way the Company not only saves significant time during
the configuration and integration process but also during the
installation process. Time spent on rework, normally at the Company's
expense, is also reduced to insignificant levels.
The benefits that accrue to our clients by software-enabling the
implementation process are:
o HIGHLY COMPETITIVE PRICING. Because of the automation and increased
productivity provided by the Company's software-enabled process for
what are highly labor-intensive tasks, Glasgal can afford to be
significantly more price competitive without compromising margins.
o FAST, ACCURATE, FIXED TIME/FIXED PRICE QUOTATIONS. Clients are
understandably resentful of cost overruns when deploying new
technologies. Cost overruns occur as a result of IT companies providing
clients with an hourly rate and the estimated hours it will take to
implement new systems. Inevitably, however, the tasks are rarely
completed on time. Using the software-enabled process, projecting task
times becomes significantly more accurate as these tasks become less
dependent on human intervention and increasingly automated. As a
result, Glasgal eliminates the risk of cost overruns for its clients.
o DIRECT RAPID DEPLOYMENT. The Company's services are particularly well
suited to organizations with multiple sites across the United States
and Canada who require a high level of technical assistance. The
Company's 450 plus field engineering staff are fully equipped to
address any computing, cabling or electrical tasks associated with a
technology deployment. As a result, it usually takes only one visit to
a site to complete the installation. In addition, because of the
methodologies employed at our configuration centers, products arrive at
our customer's site in a "plug and play" state.
o ERROR ELIMINATION AND RISK REDUCTION - Most configuration and
integration tasks are extremely precise and detailed in nature as well
as manually intensive. This environment is, therefore, prone to error.
Clearly, the software-enabled process results in a significant
reduction in errors and risks of failure.
GLASGAL'S SOFTWARE-ENABLED SERVICES
One of the Company's true competitive advantages is the
software-enabled process. Glasgal's software-enabled methodology and tools
result in significant advantages in securing highly distributed and complex
customer engagements and improves the Company's yield on delivered services
while reducing overall costs and defect rates. In conjunction with our existing
infrastructures and geographically dispersed national field force, Glasgal has
leveraged its proprietary software and methodologies into creating several
branded solutions to meet the configuration and implementation concerns of our
customers.
CLIENT-SERVER DEPLOYMENT SOLUTIONS (CSD). The rise in popularity of new
high performance platforms and 32-bit applications/technologies such as
Microsoft's Windows NT Server and Novell's Network Directory Services
architecture are driving organizations to consider and install a variety of
complex solutions to meet their computing needs and increase their overall
competitiveness. While most modern development efforts are meeting the demand
for improved functionality and product usability, much of the frustration end
users have in installing these solutions is the lack of a highly defined and
easy to use means of implementing these new solutions. Companies require access
to their new systems and applications in the shortest period of time to allow
their users to reach critical information sources. These frustrations are
equally mirrored by all of the Original Equipment Manufacturers (OEMs),
Independent Software Vendors (ISVs) and Value-Added Resellers (VARs) who develop
and package these new technologies into customer solutions. In order to meet
business demands and capital market expectations, both groups are incentivized
to deliver their wares and services as quickly and profitably as possible.
6
To meet these growing demands, Glasgal has introduced its Client Server
Deployment solutions, branded as APPWORKS (application and ISV deployment),
TECREFRESH (migration and technology upgrades) and NETWORKS (workstation and
server deployment) to provide the high levels of service to its corporate
customers as well as VARs, Systems Integrators and OEM accounts. These branded
service offerings combine superior design skills, process automation, "as built"
deliverables and enhanced implementation and support tools into a single
packaged solution that far exceeds that of the Company's competition. Finally,
Glasgal is able to deliver any of its software- enabled services across North
America on time and within tight budgetary constraints.
PRODUCT COMPONENTS
1. APPWORKS
The Company's APPWORKS service package for application or ISV deployments
provides for the distribution and installation of new software or software
upgrades. Deployments may be for software only, or may include system upgrades
or complete turn-key installation.
2. TECHREFRESH
System and network migration, and technology upgrade projects are supported by
the Company's TECHREFRESH service package. Once a target or "end-state" system
environment has been selected and tested, the Company will take complete
ownership for deployment from planning through turn-up and certification.
NETWORKS
NETWORKS is the Company's service package for the deployment of workstations and
servers. Service begins with understanding the target environment, and
developing a comprehensive plan for deployment. The Company then takes ownership
of the entire process from data collection and gap analysis, for environments
that are to be upgraded, through configuration, deployment, installation and
certification testing.
NETWORK DEVICE DEPLOYMENT SOLUTIONS (NDD). The proliferation of
networking technologies and the rise in popularity of such technologies as
groupware, remote access and the Internet are driving organizations to consider
and install a variety of complex solutions to meet their computing needs and
increase their overall competitiveness. While networking device manufacturers
continue to set the pace with ever-improved products and technology
enhancements, their frustrations in delivering and deploying these solutions to
an eager marketplace are much the same as their client-server counterparts.
Companies require access to their new systems and applications in the shortest
period of time to allow their users to reach critical information sources.
This sense of frustration is also shared by the Original Equipment
Manufacturers (OEMs) who create the devices and the Systems
Integrators/Value-Added Resellers (VARs) who develop and package these devices
into customer solutions. In order to meet business demands and capital market
expectations, both groups are incentivized to deliver their wares and services
as quickly and profitably as possible.
To meet these growing demands, Glasgal introduced two Network Device
Deployment solutions, branded as ROUTER CENTRAL, for the design and
implementation of routers and switches into business locations, and HOMEWORKS,
designed to deliver the remote access solutions that support the "work at home"
initiatives of major corporations. These branded service offering combines
superior design skills, process automation, "as built" deliverables and enhanced
implementation and support tools into a single packaged solution that far
exceeds that of our competition.
7
PRODUCT COMPONENTS
The Company's NDD set of service packages provides for the deployment of network
devices such as routers, hubs, switches, ISDN terminal adapters, remote access
devices, etc. These deployments may be at central sites, remote branches, small
or home offices (SOHO), or private residences. Each service package is built
from the following set of components:
o Deployment Process Definition
o Data Collection with IWPS
o GAP Analysis
o Asset Management
o Hardware Procurement, Receive and Stage
o Order, Confirm and Test Circuit
o Configuration using the IWPS technologies
o As Built Documentation (includes IWPS Object Base)
o On-site Installation of Hardware and Software
o Documentation as Installed
o Test
INDUSTRY-SPECIFIC DEPLOYMENT SOLUTIONS. To ensure customer satisfaction and
increase our added value, Glasgal often develops innovative solutions that
combine many of the methods and processes from our CSD and NDD solutions into
new service offerings that meet the unique objectives of our customers. These
solutions are developed in close cooperation with our strategic customers and
truly leverage the collective experience and personnel from both organizations.
Due to enhanced levels of customer intimacy and gained institutional knowledge,
Customer-Specific Deployment solutions provide long term benefits to both
Glasgal and its customers.
PRODUCT SPECIFICS
The Company's customers span numerous industry segments, including retail, fast
food, hospitality, financial services, healthcare, and transportation. We offer
service packages specific to certain environments within and across these
vertical industry segments.
OFFICELINK
The Company's OFFICELINK service provides for the deployment and installation of
technology, from simple upgrades to comprehensive new systems and networks,
within the remote or branch office, or SOHO environment. Typical deployments may
be for property management or office management systems tied back to a central
site. The Company can provide rapid and efficient deployment with minimal
disruption to the existing environment, with off-hours installations if
required.
RAPIDRESTAURANT
For the fast food, or traditional restaurant chain, the Company's
RAPIDRESTAURANT service package delivers turn-key deployment and installation of
point-of-sale, communications and associated technologies.
PRACTICECENTRAL
The Company's PRACTICECENTRAL service package for practice management systems
for physicians, dentists, attorneys, brokers and accountants provides for the
specific needs of the professional office environment.
8
SALES AND MARKETING
The Company has two sales forces comprising of approximately 50
national account managers. The direct sales division is dedicated to bringing
solutions to end users while the indirect division provides solutions to OEMs
and Software Vendors and other Systems Integrators. Both sales teams follow a
rigorous methodology called "The Datatec Relationship Cycle" (DRC) which has
been instrumental in creating long-term relationships with the Company's
customers and providing a recurring revenue stream for the Company. The DRC goes
through five stages of Initiation, Definition, Testing, Rollout, and Feedback.
This process has not only led to repeatable business (the vast majority of
Glasgal's revenues are from existing customers) but also to achieving a 97%
satisfaction rating with our customers.
There is significant interaction between the various departments in the
Company to bring optimal solutions to its customers. The Company's sales
functions work as a team with Glasgal's Professional Services division who, in
turn, work closely with the CASI development staff to provide the most cost
effective solutions to our customers. The chart below shows how the process
works within the organization of bringing optimal solutions to its customers.
[GRAPHIC OMITTED]
PROVIDING SOLUTIONS TO CUSTOMERS
The Company's marketing efforts are focused toward Glasgal's target
customers who are those organizations requiring more complex solutions from a
technical and/or geographic dispersion and/or time sensitive point of view. In
this segment the competition appears sparse and the Company's closing ratios are
comparatively high.
CUSTOMERS
The Company performs configuration and deployment services for a
variety of customers across a broad range of industries. Glasgal's customers in
fiscal 1997 included:
- American International Group, Inc. - Ross Stores, Inc.
- Bell Atlantic Network Integration - Bristol Myers-Squibb/Zimmer
- Beneficial Corporation - Starbucks Coffee Company
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- Blockbuster Entertainment Corporation - TDK Corp of America
- Coca-Cola (Canada) - Toys "R" Us, Inc.
- Federated Department Stores/FSG - Trans Canada Pipelines
- US Dept of Justice/INS - Walgreens
- Lowe's Companies, Inc.
- Merrill Lynch
The Company's customers represent a variety of industries, with one
industry, retail representing 57%. Two customers, Federated Department Stores,
Inc. and Lowes Companies, Inc., each accounted for more than 10% of net sales in
the fiscal year ended April 30, 1997, with such customers accounting for
approximately 12% and 10% of net sales, respectively.
COMPETITION
The Company believes that it has properly positioned itself to increase
its market share within the stated sections of its business focus as shown
below:
[GRAPHIC OMITTED]
While the Company has capabilities and competencies in the functions on
either side of its stated business focus, it has chosen to concentrate on
software-enabled configuration, integration and implementation services due to
both the absence of major competition and the Company's strategic advantages in
these areas of expertise.
10
However, the Company does compete with other organizations whose core
competencies are in areas outside its focus. These include systems integrators,
VARs, local and regional network service firms, telecommunications providers,
network equipment vendors and computer systems vendors, many of which have
significantly greater financial, technical and marketing resources and greater
name recognition and generate greater service revenues than Glasgal.
INTELLECTUAL PROPERTY
Glasgal's proven methodology for managing the software-enabled process
relies on several automated tools that collectively comprise The Integrator's
Workbench Product Series(TM) (IWPS). The IWPS tools, developed by Glasgal's
Computer-Aided Software Integration, Inc. subsidiary, provide a systemic
foundation for the collection and use of structured design information. This
unique series of software tools combines computer-aided software engineering
(CASE) techniques and workflow technologies to streamline the configuration,
integration and management of distributed networks and connectivity devices as
well as software applications, desktop computers and distributed servers. With
IWPS, the effort and associated costs of systems development, information
exchange, platform migration, and enterprise management are more easily managed
while improving the quality of these efforts.
The IWPS tools were first developed by CASI in 1995 to address the
continued challenges faced by designers, systems managers and integrators in
implementing complex, ever-evolving information systems solutions. These tools
allow IT teams to aggregate the collective wisdom of process and technology
experts into repeatable methodologies and "best practices", creating greater
ease of customization and implementation. Today, IWPS tools act as the process
management vehicle for managing all of Glasgal's customer interactions for each
of our software-enabled solutions.
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RECENT BUSINESS DEVELOPMENTS
On April 24, 1996, the Company acquired 80% of the common stock of
CASI. CASI develops and licenses a suite of system engineering software tools
collectively known as the Integrator's Workbench Product Series(TM). This
software automates the design, implementation, migration and support of
client/server computing environments. The acquisition has been accounted for as
a purchase; operations of CASI have been included in the accompanying
consolidated financial statements from the date of the acquisition.
On July 31, 1996, the Company acquired 100% of the common stock of HH
Communications, Inc. The acquisition provided the Company with a midwest
presence it previously did not have. The acquisition has been accounted for as a
pooling of interest.
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On October 31, 1996, the Company acquired 98.5% of the common stock of
Datatec Industries, Inc. This acquisition enhanced the Company's ability to
stage, integrate and implement technology solutions for its Fortune 2,000
customer base. The acquisition has been accounted for as a pooling of interest.
In June 1997, Management of the Company with the consent of the Board,
agreed to discontinue its business as a distributor of data communications
equipment and services (see Note 4 to financial statements).
HUMAN RESOURCES
The Company has 560 full-time employees. Of these full-time employees,
235 are employed under contracts with the International Brotherhood of
Electrical Workers and the International Brotherhood of Electrical Workers Local
1430. The Company believes its relationship with its employees is satisfactory.
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ITEM 2. PROPERTIES
The Company's Corporate headquarters is located in Totowa, New Jersey.
The headquarters leased office space of 19,245 square feet, also houses the
Company's New York/New Jersey office. In addition to its headquarters building,
the Company leases throughout the United States approximately 89,269 square feet
of office space in 19 locations for its branch operations. The Company also
leases an aggregate of approximately 18,080 square feet of office space in five
locations in Canada.
ITEM 3. LEGAL PROCEEDING
The Company is not a party to any legal proceedings which individually
or in the aggregate, is believed to be material to the Company's business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is currently traded on the Nasdaq Small Cap
Market ("Nasdaq") under the symbol "GLAS". The Company's Common Stock commenced
listing on Nasdaq on May 3, 1994. The following table sets forth the high and
low bid prices on Nasdaq for the periods indicated, prices without adjustment
for retail mark-ups, mark-downs or commissions, and do not necessarily represent
actual transactions. These prices may not necessarily be indicative of any
reliable market value.
HIGH LOW
---- ---
August 1, 1995 - October 31, 1995......... $4 $2-1/2
November 1, 1995 - January 31, 1996...... $10-1/2 $3-3/4
February 1, 1996 - April 30, 1996......... $12-3/4 $6-1/2
May 3, 1996 - July 31, 1996............... $11-5/8 $6-3/4
August 1, 1996 - October 31, 1996......... $8-7/8 $4-3/4
November 1, 1996 - January 31, 1997...... $6-3/8 $4
February 1, 1997 - April 30, 1997......... $6 $25-4/64
May 3, 1997 - July 31, 1997............... $5 $2-3/4
On July 31, 1997, the closing bid price for the Company's common Stock
as reported on Nasdaq was $4-1/8. As of July 31, 1997, there were approximately
205 holders of record of the Company's Common Stock.
The Company has not paid any cash dividends on its Common Stock since
its inception, other than distributions to shareholders in amounts sufficient to
reimburse the Predecessor's shareholders for federal (and some state) income tax
liabilities arising from the Predecessor's former status as an "S" corporation.
The Company currently intends to retain any earnings for use in the business and
does not anticipate paying any dividends to its shareholders in the foreseeable
future. The Company's loan agreement with its bank includes a restriction
prohibiting the payment of dividends.
RECENT SALES OF UNREGISTERED SECURITIES
During the fiscal year ended April 30, 1997, the following securities
were sold by the Company without registration under the Securities Act. Except
as otherwise indicated, the securities were sold by the Company in reliance upon
the exemption provided by Section 4(2) of the Securities Act, among others, on
the basis that such transactions did not involve any public offering and the
purchasers were sophisticated with access to the kind of information
registration would provide.
15
In July 1996, the Company acquired 100% of the Common Stock of HH in
exchange for 1,500,000 shares of the Company's Common Stock. HH was in the
business of selling computer networking equipment and providing value-added
services in connection with such equipment.
In July 1996, the Company issued warrants to Joseph Stevens to purchase
an aggregate of 100,000 shares of Common Stock at a per share exercise price of
$6.25 in consideration for services rendered to the Company.
In September 1996, October 1996 and November 1996, the Company
consummated three separate financings with Southbrook International Investments,
Ltd. (the "Southbrook Placements") pursuant to which it issued 250,000 shares of
Series A Preferred Stock, 25,000 shares of Series B Preferred Stock and 75,00
shares of Series C Preferred Stock, respectively. The Preferred Stock was
subsequently converted into approximately 2,500,000 shares of Common Stock. The
net proceeds of the Southbrook Placements aggregating approximately $6,562,000
was used to fund the working capital needs of the Company and Datatec. The
Company has also issued to Southbrook International Investments, Ltd. a warrant
to purchase an aggregate of 175,000 shares of Common Stock at a per share price
of $5.25.
In September 1996, the Company issued warrants to Wharton Capital and
State Capital Market Group to purchase 10,000 shares of Common Stock, each at a
per share exercise price of $7.15.
In October 1996, the Company issued warrants to Wharton Capital and
State Capital Market Group to purchase 5,000 shares of Common Stock, each at a
per share exercise price of $5.78.
In October 1996, the Company acquired approximately 98.5% of the Common
Stock of Datatec in exchange for 4,000,000 shares of the Company's Common Stock.
Datatec is a network integrator which provides full integration and deployment
services to a wide range of customers concentrated in the retail market.
In December 1996, the Company issued an aggregate of 132,460 shares of
Common Stock to RAD Data Communications, Ltd. in exchange for the cancellation
of accounts payable of the Company in the amount of approximately $361,000.
16
In January 1997, the Company issued an aggregate 26,087 shares of
Common Stock to Amtech Associates, Inc. in exchange for the cancellation of
accounts payable of the Company in the amount of approximately $150,000.
In February 1997, the Company entered into two convertible loans each
for $1,000,000. The loans are convertible into Common Stock at 80% of the
average closing bid price per share of the Common Stock for the five trading
days immediately preceding the conversion date. The loans bear interest at 10%
which is due at the time of conversion. If not previously converted, the loans
mature in February 1999. In connection with this financing, the Company also
issued warrants to purchase an aggregate of 700,000 shares of Common Stock at a
per share exercise price of $5.25.
In March 1997, the Company issued an aggregate of 12,500 shares of
Common Stock to Tonar Industries, Inc. in exchange for the cancellation of
accounts payable of the Company in the amount of approximately $50,000.
17
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth the selected financial data of the
Company for, and at the end of (i) each of the years in the two-year period
ended December 31,1993, (ii) the four months ended April 30, 1993 and 1994 and
(iii) the years ended April 30, 1995, 1996 and 1997 after giving effect in all
periods presented for the discontinuance of a segment of the Company's business
(See Note 4 to the financial statements). The Company changed its fiscal
year-end from December 31 to April 30 on May 2, 1994. The Company acquired
Signatel on October 28, 1994. On July 31, 1996 the Company acquired HH
Communications, Inc. On October 31, 1996 the Company acquired 98.5% of Datatec
Industries, Inc. All three acquisitions were accounted for using the pooling of
interests method of accounting; consequently all periods presented reflect the
combined accounts of all companies. On April 24, 1996 the Company acquired 80%
of CASI which was accounted for as a purchase and the results of CASI operations
from the date of acquisition are included below.
The financial data presented below for, and at the end of, the four
month period ended April 30, 1993, has been derived from the unaudited
consolidated financial statements of the Company. In the opinion of management,
the financial data includes all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of such data.
The data presented below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Company's consolidated financial statements and the notes
thereto appearing elsewhere herein.
Year Ended Four Months Year Ended
December 31, Ended April 30, April 30,
(In thousands, except per share data)
Statement of Operations Data: 1992 1993 1993 1994 1995 1996 1997
-------- ----------- --------- ----------- ----------- ----------- ------------
Net Sales $42,905 $50,629 $13,795 $16,332 $55,876 $59,169 $59,481
Operating Income 2,935 13,244 2,299 1,191 3,204 (4,248) 1,538
Net income (loss) from Continuing
Operations 2,402 12,316 2,040 1,081 2,596 (5,149) 702
Discontinued Operations (1,460) (6,491) (1,700) (2,600) (4,989) (8,046) (5,662)
Extraordinary item (223)(a)
Net Income (loss) 941 5,825 340 (1,519) (2,393) (13,418) (4,960)
Loss Per Share:
Income (loss) from Continuing
Operations .14 (.28) .03
Discontinued Operations (.27) (.44) (.24)
Extraordinary Item -- (.01) --
----- ---- ------
Net Loss Per Share (.13) (.73) (.21)
=========== =========== ============
Average number of shares outstanding 17,981,000 18,354,000 23,557,000
18
DECEMBER 31, April 30,
-------------------------- ------------------------------------------------------------
1992 1993 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ---- ----
Balance Sheet Data:
Working Capital (deficiency) $ 181 $ 5,447 $ 1,442 $444 $(585) $(7,664) $(2,957)
Total Assets 13,510 13,877 13,103 17,665 22,334 23,494 27,804
Long-term debt 1,242 1,057 2,170 2,509 3,642 2,338 5,001
Total shareholders'
equity (deficit) 1,511 6,893 1,761 4,768 1,967 (3,706) (2,000)
Write off of unamortized deferred financing fees as a result of the early
extinguishment of debt.
19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Company's Consolidated Financial Statements and notes thereto appearing
elsewhere herein. On October 28, 1994, July 31, 1996 and October 31, 1996, the
Company acquired Signatel, HH and Datatec, respectively. These acquisitions have
been accounted for as a pooling of interests and the financial information for
all periods represent the combined results of all companies. On April 24, 1996
the Company acquired CASI. The acquisition has been accounted for as a purchase
and the operations of CASI have been included from the date of acquisition. See
Note 2 to Consolidated Financial Statements. The financial information below
gives effect to the discontinuance of a segment of the Company's business (See
Note 4 to the Financial Statements).
In conjunction with the Company's merger with Sellectek in May 1994,
the Company changed its fiscal year end from December 31 to April 30.
In addition, certain matters discussed herein are forward looking
statements that are subject to risks and uncertainties that could cause actual
results to differ materially from those presented.
RESULTS OF OPERATIONS
FISCAL YEARS ENDED APRIL 30, 1997 AND 1996
Net sales for the year ended April 30, 1997 were $59,481,000 compared
to $59,169,000 for the year ended April 30, 1996.
The current year was a year of significant change for the Company. The
Company acquired two businesses during the year as well as discontinued a major
segment of its business, the resale of computer and network equipment. In
addition, the Company has more fully integrated the utilization of the software
tools developed by CASI. The Company believes all of these changes to be
positive long-term strategic decisions. However, during the current year these
changes required a significant refocusing of the business as well as an
assimilation process that will take several more months to fully complete.
Gross profits for the year ended April 30, 1997 were $22,322,000
compared to $24,952,000 for the year ended April 30, 1996, representing 37% of
sales for the year ended April 30, 1997 compared to 42% of sales for the year
ended April 30, 1996. The decrease in gross margin is primarily attributable to
a lack of working capital. During the year the Company experienced delays in
receiving materials, was incurring additional costs in delivering materials on a
rush basis and was less efficient in delivering its services to customers as a
result of delays caused by a lack of working capital.
20
Selling, general and administrative expenses for the year ended April
30, 1997 were $20,784,000 compared to $29,200,000 for the year ended April 30,
1996. Included in the year ended April 30, 1996 is a restructuring charge of
$6,756,000. In April, 1995 the Company began an expansion plan which included
the addition of a marketing group, additional salespeople, a new headquarters
facility, a west coast configuration center and a new facility in the southeast
and furniture to equip these offices. In April 1996, the Company realized the
expansion plan, at the time, was overaggressive and began taking corrective
actions. The Company relocated its headquarters facility to smaller, less
expensive offices, and sold certain furniture and fixtures associated with the
old headquarters facility. These actions along with the Company's continuing
efforts to improve efficiency and reduce costs have resulted in additional
savings.
During June, 1997, the Company discontinued its business as a
distributor of hardware. As a result of this decision, the operations of that
business for all years presented in the accompanying financial statements have
been included as a loss from discontinued operations. In the year ended April
30, 1997 the loss was $4,709,000. In addition to the loss from discontinued
operations the Company's has provided a reserve of $953,000 for future losses
relating to the phase out of this segment of its business (See Note 4 to the
Financial Statements).
FISCAL YEARS ENDED APRIL 30, 1996 AND 1995
Net sales for the year ended April 30, 1996 were $59,169,000 compared
to $55,876,000 for the year ended April 30, 1995. The increase of 6% is largely
attributable to a 41% increase in configuration services.
Gross profits for the year ended April 30, 1996 were $24,952,000
compared to $23,260,000 for the year ended April 30, 1995, representing 42% for
both years.
Selling, general and administrative expenses for the year ended April
30, 1996 were $29,200,000 compared to $20,057,000 for the year ended April 30,
1995. As previously mentioned, the Company began an expansion program in late
1995 and felt the full effects of the additional costs during fiscal 1996.
During April 1996 the Company realized the expansion plan was overaggressive and
took action to restructure its business. Included in the year ended April 30,
1996 are $6,756,000 or restructuring changes. These restructuring changes
included projected cash outflows for personnel severance and facilities
consolidation as well as write downs of certain of the Company's long-lived
assets.
BACKLOG
The Company records revenue up on the performance of services. Many
orders are performed over several months and often exceed one year, and, as a
result, are added to the Company's backlog, which was approximately $38,000,000
and $36,000,000 as of July 31, 1996 and 1997, respectively. The Company expects
that all of the backlog as of July 31, 1997 will be shipped by July 31, 1998.
21
LIQUIDITY AND CAPITAL RESOURCES
EQUITY TRANSACTIONS
In September 1996, October, 1996, and November, 1996, the Company
issued 350,000 shares of preferred stock for net proceeds of approximately
$6,561,000. The preferred stock was subsequently converted into approximately
2,500,000 shares of common stock. The proceeds were used to reduce outstanding
debt and accounts payable of the Company's newly acquired subsidiary, Datatec.
In June 1997 and July 1997, the Company issued 859,000 shares of common
stock in private equity placements, raising approximately $3,120,000.
FINANCINGS
In March, 1997, the Company replaced existing credit facilities with a
$17,000,000 credit facility consisting of (i) a $15,000,000 three year revolving
credit facility and (ii) $2,000,000 three year term loan payable in 36 monthly
installments of principal and interest. The borrowings under the revolving line
of credit are based on a formula of 85% of eligible receivables and 50% of
eligible inventory. The revolving line of credit bears interest at prime plus
.75% and the term loan bears interest at prime plus 1.5%. As of April 30, 1997
approximately $11,675,000 was outstanding under the revolving credit facility
and $2,000,000 was outstanding under the term loan.
In February 1997, the Company issued convertible notes of $2,000,000,
which mature in February 1999. These notes bear interest at 10% per annum
payable at conversion or maturity. These notes, however, are convertible into
the Company's common stock following the expiration of six months following the
closing date, at the Company's option. Upon conversion, the aggregate amount of
the notes plus accrued interest converts into common stock at 80% of the then
quoted price of a share of the Company's common stock. In connection with these
notes, the Company issued warrants to purchase 700,000 shares of the Company's
common stock at $5.25 per share, the fair market value on the date of issuance.
It is anticipated that the notes will be converted into shares of the Company's
Common Stock prior to maturity.
As of April 30, 1997, the Company had a working capital deficiency of
$2,957,000 compared to a working capital deficiency of $7,664,000 at April 30,
1996. The improvement in working capital is attributable to the above mentioned
equity offering and loans.
22
As of April 30, 1997, the Company had net operating loss carryforwards
for income tax purposes of $10,200,000 to offset future taxable income. Such net
operating loss carryforwards begin to expire in 2011.
The Company believes it has adequate liquidity and resources to sustain
current operations for the next twelve (12) months.
INFLATION
In the opinion of management, inflation has not had a material adverse
effect on its results of operations.
23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Consolidated Financial Statements and Financial Statements Schedules
CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Reports of Independent Public Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Consolidated Balance Sheets as of April 30, 1996 and 1997 . . . . . . . . . . . . . . . . . . . . 28
Consolidated Statements of Operations for the years ended April 30, 1995,
1996 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Consolidated Statements of Changes in Shareholders' Equity (Deficit) for the
years ended April 30, 1995, 1996 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Consolidated Statements of Cash Flows for the years ended
April 30, 1995, 1996 and 1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Notes to Consolidated Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SCHEDULES
Schedule II - Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . 51
Schedules other than the one listed above have been omitted since they are
either not required, are not applicable, or the required information is shown in
the consolidated financial statements or related notes.
24
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Glasgal Communications, Inc.:
We have audited the accompanying consolidated balance sheets of Glasgal
Communications, Inc. (a Delaware corporation) and subsidiaries as of April 30,
1996 and 1997 and the related consolidated statements of operations, changes in
shareholders' equity (deficit) and cash flows for each of the three years in the
period ended April 30, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Glasgal
Communications, Inc. and subsidiaries as of April 30, 1996 and 1997 and the
results of their operations and their cash flows for each of the three years in
the period ended April 30, 1997, in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The schedule listed in the
index of consolidated financial statements is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic consolidated financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
-----------------------
Roseland, New Jersey ARTHUR ANDERSEN LLP
August 9, 1997
25
GLASGAL COMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
April 30,
---------
1996 1997
---- ----
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Notes 1 and 4) $2,219,000 $ 1,135,000
Accounts receivable, less allowances of $538,000 and
$520,000 in 1996 and 1997, respectively, for doubtful
accounts (Note 4) 7,470,000 11,289,000
Inventory (Notes 1 and 4) 3,238,000 2,134,000
Prepaid expenses and other current
assets (Note 1) 1,045,000 1,446,000
Net assets from discontinued operations (Note 4) 3,226,000 4,816,000
--------- ---------
Total current assets 17,198,000 20,820,000
PROPERTY AND EQUIPMENT, net
(Notes 1, 3 and 6) 3,299,000 3,634,000
GOODWILL (Note 2) 1,866,000 1,680,000
OTHER ASSETS (Note 1 ) 1,131,000 1,670,000
----------- ------------
Total assets $23,494,000 $27,804,000
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)
CURRENT LIABILITIES:
Short-term borrowings (Note 5) $8,337,000 $11,675,000
Current portion of long-term
obligations (Note 6) 2,555,000 850,000
Accounts payable 7,701,000 5,415,000
Accrued liabilities 6,251,000 5,331,000
Other current liabilities 18,000 506,000
---------- -----------
Total current liabilities 24,862,000 23,777,000
---------- =----------
DUE TO RELATED PARTIES (NOTE 9) -- 1,026,000
---------- ------------
LONG-TERM OBLIGATIONS (Note 6) 2,338,000 5,001,000
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 11)
SHAREHOLDERS' EQUITY (DEFICIT):
Preferred stock, $.001 par value (4,000,000 shares
authorized, no shares issued and outstanding) -- --
Common stock, $.001 par value (authorized 34,000,000
shares; issued and outstanding 20,341,000 and
23,661,000 shares, respectively) (Notes 7 and 14) 20,000 24,000
Additional paid-in capital 11,662,000 10,341,000
Accumulated deficit (15,141,000) (12,080,000)
Cumulative translation adjustment (Note 1) (247,000) (285,000)
------------ ------------
Total shareholders' equity (deficit) (3,706,000) (2,000,000)
------------ ------------
Total liabilities and shareholders' equity
(deficit) $23,494,000 $27,804,000
=========== ===========
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ARE AN INTEGRAL PART OF THESE CONSOLIDATED STATEMENTS.
26
GLASGAL COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended
April 30,
--------------------------------------------------------------
1995 1996 1997
---- ---- ----
Net Sales $ 55,876,000 $ 59,169,000 $ 59,481,000
Cost of sales 32,616,000 34,217,000 37,159,000
-------------- -------------- --------------
Gross Profit 23,260,000 24,952,000 22,322,000
Selling, general and administrative expenses (Note 13) 20,057,000 29,200,000 20,784,000
-------------- -------------- --------------
Operating income 3,203,000 (4,248,000) 1,538,000
Other Income -- -- 430,000
Interest Expense (Notes 5 and 6) (495,000) (938,000) (1,155,000)
-------------- -------------- --------------
Income (loss) before provision (benefit) for income taxes 2,708,000 (5,186,000) 813,000
Provision (benefit) for income taxes (Notes 1& 8) 112,000 (37,000) 111,000
-------------- -------------- --------------
Income (loss) from Continuing Operations 2,596,000 (5,149,000) 702,000
Discontinued Operations (Note 4):
Loss from operations (4,989,000) (5,762,000) (4,709,000)
Provision for future losses -- (2,284,000) (953,000)
-------------- -------------- --------------
LOSS BEFORE EXTRAORDINARY ITEM (2,393,000) (13,195,000) (4,960,000)
Extraordinary Item - (223,000) -
-------------- -------------- --------------
NET LOSS $ (2,393,000) $ (13,418,000) $ (4,960,000)
=============== ============== ================
INCOME (LOSS) PER SHARE
Income (loss) from continuing operations $ .14 $ (.28) $ .03
Discontinued operations (.27) (.44) (.24)
Extraordinary item -- (.01) --
-------------- -------------- --------------
NET LOSS PER SHARE $ (.13) $ (.73) $ (.21)
================= =============== =================
WEIGHTED AVERAGE COMMON AND COMMON
EQUIVALENT SHARES (Note 1) 17,981,000 18,354,000 23,557,000
---------------- -------------- --------------
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS ARE AN INTEGRAL PART OF THESE
CONSOLIDATED STATEMENTS.
27
Glasgal Communications, Inc.
Consolidated Statements of Changes in Shareholders' Equity (Deficit) (Note 5)
Preferred Stock Common Stock
-------------------------------------------------------------------
Issued
-------------- --------------- ---------------------------------
Shares Dollars Shares Dollars
-------------- --------------- ----------------- --------------
Balance at April 30, 1994 - - $ - 15,817,000 $ -
-------------- --------------- ----------------- --------------
Distributions to S Corporation Shareholders
Sellectek merger ( Note 7)
Private Placement Offerings of
Common stock 180,000
Conversion of accounts payable
into Common stock 100,000
Exercise of warrants 125,000
Net loss
Effect of exchange rate changes
Common stock issued for options exercised 19,000
Stock exchanged for cancellation of loan (Note 9) (442,000)
-------------- --------------- ----------------- --------------
Balance at April 30, 1995 - $ - 15,799,000 $ -
============== =============== ================= ==============
Distributions to S Corporation Shareholders
Private placement offering of common stock and
warrants and bridge financing (Note 7) 443,000
Public offering of common stock
and warrants (Note 7) 3,566,000
Acquisition and cancellation of
common stock (13,000)
Common stock issued for options exercised 189,000
Change in par value of common stock (Note 14) 20,000
Private placement offering of common stock 313,000 -
Stock issued for business acquisition (Note 2) 44,000 -
Net loss
Effect of exchange rate changes -
-------------- --------------- ----------------- --------------
Balance at April 30,1996 - $ - 20,341,000 $ 20,000
-------------- --------------- ----------------- --------------
Distributions to S Corporation Shareholders
Issuance of preferred stock (Note 7) 350,000 -
Conversion of preferred stock into common stock (Note 7) (350,000) - 2,500,000 3,000
Exercise of warrants and options 649,000 1,000
Conversion of accounts payable into common stock 171,000 -
Conversion from S corporation status to C corporation
Net loss
Effect of exchange rates changes
-------------- --------------- ----------------- --------------
Balance at April 30, 1997 - $ - 23,661,000 $ 24,000
============== =============== ================= ==============
Additional Additional Retained
Paid-in-capital Paid-in-capital Earnings
Preferred Common (Deficit)
--------------- -------------------- -------------------
Balance at April 30, 1994 $ - $ 2,264,000 $ 3,177,000
--------------- -------------------- -------------------
Distributions to S Corporation Shareholders (1,790,000)
Sellectek merger ( Note 7) 190,000
Private Placement Offerings of
Common stock 428,000
Conversion of accounts payable
into Common stock 237,000
Exercise of warrants 237,000
Net loss (2,393,000)
Effect of exchange rate changes
Common stock issued for options exercised 94,000
Stock exchanged for cancellation of loan (Note 9) (476,000)
--------------- -------------------- -------------------
Balance at April 30, 1995 $ - $ 2,974,000 $ (1,006,000)
=============== ==================== ===================
Distributions to S Corporation Shareholders (667,000)
Private placement offering of common stock and
warrants and bridge financing (Note 7) 579,000
Public offering of common stock
and warrants (Note 7) 6,535,000 (50,000)
Acquisition and cancellation of
common stock (27,000)
Common stock issued for options exercised 123,000
Change in par value of common stock (Note 14) (20,000)
Private placement offering of common stock (Note 2) 1,207,000
Stock issued for business acquisition (Note 2) 291,000
Net loss (13,418,000)
Effect of exchange rate changes
--------------- -------------------- -------------------
Balance at April 30,1996 $ - $ 11,662,000 $ (15,141,000)
--------------- -------------------- -------------------
Distributions to S Corporation Shareholders (837,000)
Issuance of preferred stock (Note 7) 6,562,000
Conversion of preferred stock into common stock (Note 7) (6,562,000) 6,559,000
Exercise of warrants and options 429,000
Conversion of accounts payable into common stock - 549,000
Conversion from S corporation status to C corporation (8,858,000) 8,858,000
Net loss (4,960,000)
Effect of exchange rates changes
--------------- -------------------- -------------------
Balance at April 30, 1997 $ - $ 10,341,000 $ (12,080,000)
=============== ==================== ===================
Cumulative Total
Translation Shareholders'
Adjustment Equity
---------------- --------------------
Balance at April 30, 1994 $ (272,000) $ 5,169,000
---------------- --------------------
Distributions to S Corporation Shareholders (1,790,000)
Sellectek merger ( Note 7) 190,000
Private Placement Offerings of
Common stock 428,000
Conversion of accounts payable
into Common stock 237,000
Exercise of warrants 237,000
Net loss (2,393,000)
Effect of exchange rate changes 174,000 174,000
Common stock issued for options exercised 94,000
Stock exchanged for cancellation of loan (Note 9) (476,000)
---------------- --------------------
Balance at April 30, 1995 (98,000) $ 1,870,000
================ ====================
Distributions to S Corporation Shareholders (667,000)
Private placement offering of common stock and
warrants and bridge financing (Note 7) 579,000
Public offering of common stock
and warrants (Note 7) 6,485,000
Acquisition and cancellation of
common stock (27,000)
Common stock issued for options exercised 123,000
Change in par value of common stock (Note 14) -
Private placement offering of common stock (Note 2) 1,207,000
Stock issued for business acquisition (Note 2) 291,000
Net loss (13,418,000)
Effect of exchange rate changes (149,000) (149,000)
---------------- --------------------
Balance at April 30,1996 $ (247,000) $ (3,706,000)
---------------- --------------------
Distributions to S Corporation Shareholders (837,000)
Issuance of preferred stock (Note 7) 6,562,000
Conversion of preferred stock into common stock (Note 7) -
Exercise of warrants and options 430,000
Conversion of accounts payable into common stock 549,000
Conversion from S corporation status to C corporation -
Net loss (4,960,000)
Effect of exchange rates changes (38,000) (38,000)
---------------- --------------------
Balance at April 30, 1997 $ (285,000) $ (2,000,000)
================ ====================
The accompanying notes to consolidated
financial statements are an integral part
of these consolidated statements
28
GLASGAL COMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended
April 30,
--------------------------------------------------------------------
1995 1996 1997
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,393,000) $ (13,418,000) $ (4,960,000)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities--
Depreciation and amortization 862,000 1,114,000 1,200,000
Extraordinary item -- 223,000 --
Changes in operating assets and liabilities net
of effects from purchase of CASI
(Increase) decrease in accounts
receivable, net (1,641,000) 1,860,000 (3,819,000)
(Increase) decrease in inventory (39,000) (378,000) 1,104,000
(Increase) decrease in prepaid expenses and
other assets (572,000) 2,044,000 (940,000)
Increase in net assets from discontinued
operations (725,000) (777,000) (1,590,000)
Increase (decrease) in accounts payable,
accrued liabilities and other 3,262,000 3,661,000 (2,169,000)
--------------- -------------- -------------
Net cash used in
Operating activities (1,246,000) (5,671,000) (11,174,000)
---------------- -------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net 2,884,000 (725,000) (1,349,000)
Net cash used for CASI acquisition -- (705,000) --
Advances to CASI -- (1,135,000) --
------------------ -------------- -------------
Net cash provided by (used in) investing 2,884,000 (2,565,000) (1,349,000)
------------------ -------------- -------------
activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from short-term borrowings -- 8,337,000 3,338,000
Net Proceeds (Payments) of indebtedness 4,457,000 (5,103,000) 958,000
Net Proceeds from Common Stock/Warrant
issuances 958,000 7,772,000 6,992,000
Net proceeds from related parties -- -- 1,026,000
Distributions to Stockholders (1,790,000) (667,000) (837,000)
----------------- ------------- -----------
Net cash provided by (used in) financing
activities 3,625,000 10,339,000 11,477,000
---------------- ------------- -----------
Net effect of foreign currency translation
on cash 173,000 (149,000) (38,000)
---------------- ------------- -----------
Net (decrease) increase in cash (332,000) 1,954,000 (1,084,000)
CASH AT BEGINNING OF PERIOD 597,000 265,000 2,219,000
---------------- ------------- -----------
CASH AT END OF PERIOD $ 265,000 $ 2,219,000 $ 1,135,000
============== ============= ==============
29
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid $ 624,000 $ 1,020,000 $ 1,313,000
Income taxes paid $ 600,000 $ 14,000 $ 397,000
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
On June 6, 1994, a vendor converted $250,000 of Glasgal's accounts payable into
100,000 shares of Glasgal's Common Stock.
On April 30, 1995, Mr. Glasgal contributed 442,478 shares of Common Stock in
consideration for the cancellation of $476,000 owed to the Company.
On April 24, 1996, the Company purchased 80% of the common stock of
Computer-Aided Software Integration, Inc. (CASI) for $500,000 in cash plus
44,260 shares of common stock of the Company valued at $290,000.
Goodwill $1,866,000
Cash Paid for Common Stock (including expenses) (705,000)
Common Stock Issued (290,000)
----------
Liabilities Assumed $ 871,000
==========
During 1997, the Company converted $561,000 of accounts payable into 171,000
shares of common stock.
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS ARE AN INTEGRAL PART OF THESE
CONSOLIDATED STATEMENTS.
30
GLASGAL COMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
Business--
Glasgal Communications, Inc. (the "Company" or "Glasgal"), and its
subsidiaries are in the business of providing software-enabled
technical configuration, integration and implementation services (See
Note 4).
Basis of Presentation -
The consolidated financial statements include the accounts of the
Company and its subsidiaries. These consolidated financial statements
include, for all periods presented, the accounts of all companies
acquired under the pooling of interests method of accounting (See Note
2). All intercompany accounts and transactions have been eliminated.
Theaccompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As
reflected in the consolidated financial statements, the Company has
incurred net losses and operating cash flow deficits. During Fiscal
1997, the Company completed two acquisitions which have substantially
increased its revenues and the integration of these operations has
resulted in significant cash requirements (See Note 4). As a
consequence, the Company has had to rely primarily on private
placements of equity to fund its working capital requirements.
Subsequent to April 30, 1997, the Company raised approximately
$3,120,000 in private equity placements for 859,000 shares of its
common stock. Although there can be no assurance that additional funds
will be obtained, if needed, management believes that its fiscal 1998
operating plan is attainable and, together with the funds received from
the private placements subsequent to April 30, 1997, will provide
sufficient funds to enable the Company to meet its debt service and
working capital requirements.
Significant Accounting Policies-
Revenue Recognition--
Revenues from configuration, deployment and implementation services are
recognized as the services are provided.
31
Contract Costs-
Precontract costs incurred in connection with defining and clarifying
technical requirements and designing technical solutions are deferred
and amortized as the services are provided. As of April 30, 1997,
approximately $980,000 of such costs are included in other current
assets.
Cash and Cash Equivalents-
The Company considers as cash equivalents all highly liquid investments
with an original maturity of three months or less. The Company has
$210,000 of restricted cash as of April 30, 1997.
Inventory--
Inventory is stated at the lower of cost (first-in, first-out basis) or
market.
Property and Equipment--
Property and equipment is stated at cost, less accumulated depreciation
and amortization. Depreciation and amortization are computed using the
straight-line and declining balance methods over the estimated useful
lives or lease terms of the related assets, whichever is shorter.
Capitalized Software Costs --
The Company capitalized certain software costs which are amortized
utilizing the straight-line method over the economic lives of the
related products, not to exceed three years. Approximately $300,000 of
capitalized software costs are included in other assets in the
accompanying consolidated financial statements as of April 30, 1997.
Long-Lived Assets --
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets" ("SFAS 121") requires, among other
things, that an entity review its long-lived assets and certain related
intangibles for impairment whenever changes in circumstances indicate
that the carrying amount of an asset may not be fully recoverable. As a
result of its review, reserves have been provided to record certain
assets at net realizable value (See Notes 4 and 13).
Stock Based Compensation --
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123") requires that an entity account
for employee stock-based
32
compensation under a fair value based method. However, SFAS 123 also
allows an entity to continue to measure compensation cost for employee
stock-based compensation arrangements using the intrinsic value based
method of accounting prescribed by APB Opinion No. 25, "Accounting for
Stock Issued to Employees". The Company continues to account for
employee stock-based compensation using the intrinsic value based
method and is required to make pro forma disclosures of net income and
earnings per share as if the fair value based method of accounting
under SFAS 123 had been applied (See Note 7).
Income Taxes--
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes"
("SFAS 109"). Certain transactions are recorded in the accounts in a
period different from that in which these transactions are reported for
income tax purposes. These transactions, as well as other temporary
differences between the basis in assets and liabilities for financial
reporting and income tax purposes, result in deferred income taxes.
Earnings (Loss) per Share --
Earnings (loss) 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. The adoption of this standard will
require restatement of prior years' earnings per share.
If the Company had adopted the new standard in 1997, basic earnings
(loss) per common share from continuing operations, discontinued
operations and net loss per common share would have been $.03, ($.27),
and $(.24), respectively, based on 21,151,000 basic weighted average
shares. Diluted earnings per share from continuing operations would
have been the same as basic earnings per share.
Foreign Currency Translation --
The local currency of the Company's foreign subsidiaries is its
functional currency. Assets and liabilities of the Company's foreign
subsidiaries are translated into US dollars at the current exchange
rate. Income statement accounts are translated at the average rate of
exchange prevailing during the year. Translation adjustments arising
from the use of differing exchange rates from period to period are
included as a separate component of shareholders' equity (deficit).
33
Use of Estimates --
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Reclassifications --
Certain prior year amounts have been reclassified to conform to the
current year financial statement presentation.
(2) MERGERS AND ACQUISITIONS:
CASI --
On April 24, 1996, the Company acquired 80% of the outstanding common
stock of CASI, a company that develops and licenses software products,
in exchange for $500,000 and 44,260 shares of common stock of the
Company valued at $6.57 per share based on the average trading price of
the Company's common stock for several days before and after the date
of the acquisition agreement. The acquisition was accounted for as a
purchase. The excess of purchase price over fair value of net assets
acquired is included in goodwill and is being amortized over 10 years
on a straight-line basis. Revenues of CASI, which commenced operations
in February, 1995, were immaterial and CASI recorded losses of $490,000
and $415,000 in the period from inception through December 31, 1995 and
the four months ended April 30, 1996, respectively.
In connection with this transaction, in March 1996 the Company
completed a private placement offering of 312,500 shares of common
stock. The net proceeds of the private placement offering, $1,207,000,
were used to acquire 80% of the issued and outstanding shares of common
stock of CASI, and to provide CASI with working capital.
HH Communications, Inc. --
On July 31, 1996, the Company acquired all of the issued and
outstanding shares of HH Communications, Inc. (HH), a value-added
reseller of computer hardware, in exchange for 1,500,000 shares of its
common stock. The transaction has been accounted for as a pooling of
interests.
34
Datatec Industries, Inc. --
On October 31, 1996, the Company acquired 98.5% of the issued and
outstanding shares of Datatec Industries, Inc. (Datatec), an
implementor of information communications networks, in exchange for
4,000,000 shares of its common stock. The transaction has been
accounted for as a pooling of interests.
Presented below are the individual entity and combined financial
information, after giving effect to classifying certain segments of the
Company's business as discontinued operations (See Note 4).
GLASGAL HH Datatec Combined
---------------- ------------------- ------------------------ --------------------
For the year ended April 30, 1995
Net Sales $ 3,252,000 $ - $ 52,624,000 $ 55,876,000
Income from Continuing Operations 673,000 - 1,923,000 2,590,000
Loss from Discontinued Operations (2,317,000) (92,000) (2,580,000) (4,989,000)
Net loss (1,644,000) (92,000) (657,000) (2,393,000)
For the year ended April 30, 1996
Net Sales $ 5,055,000 $ - $ 54,114,000 $ 59,169,000
Income (loss) from Continuing Operations 2,298,000 - (7,447,000) (5,149,000)
Loss from Discontinued Operations (3,255,000) (289,000) (4,502,000) (8,046,000)
Extraordinary loss (223,000) - - (223,000)
Net loss (1,180,000) (289,000) (11,949,000) (13,418,000)
For the year ended April 30, 1997
Net Sales $ 4,835,000 $ - $ 54,646,000 $ 59,481,000
Income (loss) from Continuing Operations (226,000) - 928,000 702,000
Loss from Discontinued Operations (5,267,000) (395,000) - (5,662,000)
Net income (loss) (5,493,000) (395,000) 928,000 (4,960,000)
The combined results are not necessarily indicative of what actually
would have occurred if the acquisitions had been in effect for the
entire periods presented. In addition, the combined results are not
intended to be a projection of future results and do not reflect any
synergies that might be achieved from operations.
35
(3) PROPERTY AND EQUIPMENT:
The following is a summary of property and equipment.
April 30,
---------
1996 1997
---- ----
Equipment $1,078,000 $ 977,000
Computer Equipment 2,893,000 3,158,000
Furniture, fixtures and leasehold improvements 2,548,000 2,444,000
--------- ----------
6,519,000 6,579,000
Less--Accumulated depreciation and
amortization 3,220,000 2,945,000
--------- ---------
Property and equipment, net $3,299,000 $3,634,000
========== ==========
(4) DISCONTINUED OPERATIONS:
Prior to fiscal 1997, the Company had primarily been a distributor of
data communications equipment. Commencing with the Company's
acquisition of Signatel in October 1994, the Company revised its
business strategy to expand its implementation of information
communication network services. The acquisition of Datatec and CASI
(See Note 2) enabled the Company to transition from predominantly a
reseller of data communications network equipment to an open systems
integrator, providing software enabled configuration, deployment and
implementation services. The acquisition of HH (See Note 2), a value
added reseller of computer equipment, provided the Company the
opportunity to introduce these services to HH's premier customers.
Datatec's prior services were typically of short duration. As of April
30, 1997, the Company has entered into long term contracts of
significant value.
After several months of assimilating the Datatec acquisition and
repositioning its services, the Company, in June 1997, with the
concurrence of its Board of Directors, discontinued its data
communications equipment distribution business. The Company is
currently winding down this business which is expected to be completed
by the end of fiscal 1998. The Company is no longer a distributor of
data communications equipment and will only honor its existing
commitments.
The net losses of this business prior to April 30, 1997 are included in
the consolidated statements of operations as discontinued operations.
Revenues from such operations were $35,004,000, $43,033,000 and
$35,178,000 for the years ended April 30, 1995, 1996 and 1997,
respectively. Substantially all assets to be disposed of were those of
Glasgal. Included in net assets from discontinued operations is a 10
year mortgage agreement with a bank for $977,000, with an interest rate
of 8.05% per annum. Beginning in the year 2002, the interest rate is
subject to adjustment, as defined.
36
The provision for future losses of discontinued operations included in
the consolidated statements of operations includes the write-down of
assets to estimated net realizable value.
As of April 30, 1996, Datatec had discontinued its international
operations, which was a distributor of computer hardware, and its
Shoppertrak division, which developed and sold a proprietary system
that provided shopper traffic information. The loss from current year
operations was approximately $2,579,000 and $2,218,000 in 1995 and
1996, respectively, and the provision for future losses was
approximately $2,284,000 as of April 30, 1996, substantially all of
which was utilized in 1997. Revenues relating to these operations were
approximately $14,000,000 in 1995 and 1996.
(5) SHORT-TERM BORROWINGS:
In October 1996, the Company amended its credit facility with a bank
which was outstanding as of April 30, 1996. The Amended agreement that
provided for the borrowing of the lesser of $10,500,000 or a sum based
on a formula of qualified assets. As of April 30, 1996 the interest
rate was 9.0%. The outstanding borrowings under this facility were
repaid during 1997 with the proceeds obtained from the revolving loan
discussed below.
During 1997, the Company entered into a revolving loan agreement that
provides for maximum borrowings of $15,000,000. Availability under the
revolving loan is calculated at the sum of 85% of eligible accounts
receivable, as defined, and 50% of the cost or wholesale market value
of eligible inventory, as defined. The amount of available borrowings,
as defined, was $11,989,000 as of April 30, 1997. The revolving loan
accrues interest at the prime rate plus 0.75% (9.25% at April 30,
1997).
(6) LONG-TERM DEBT:
Long term debt consists of the following:
April 30,
--------------------------------------
1996 1997
----------------- -----------------
Term loan (a) $2,023,000 $ --
New Jersey EDA Note (b) 895,000 680,000
Term note (c) -- 2,000,000
Convertible notes (d) -- 2,000,000
Capital leases 1,975,000 1,171,000
----------------- -----------------
Total Debt 4,893,000 5,851,000
Less - Current maturities (2,555,000) (850,000)
----------------- ------------------
Long-term debt, net of current
maturities $2,338,000 $5,001,000
================= ===================
37
(a) The $2,800,000 term loan provided for equal monthly installments
of $78,000 commencing July 1995 through June 1998. As of April
28, 1996 the interest rate was 10.25%. The borrowings were
repaid during 1997.
(b) The Company entered into a $1,320,000 loan agreement with the
New Jersey Economic Development Authority ("NJEDA"). The note
provides for monthly payments of principal and interest through
June 1, 2002. Monthly principal payments range from $9,000 to
$14,000. Interest is based on a floating rate equal to the
variable rate borne by the NJEDA Economic Growth Bonds. As of
April 30, 1997 the interest rate was 4.5%. The note is secured
by the assets acquired with the loan proceeds.
(c) In March 1997, the Company entered into a $2,000,000 term note.
The term note bears interest at a variable rate equal to the
prime rate plus 1.5% (10.0% at April 30, 1997) and is payable
monthly. The outstanding principal is payable in 36 monthly
installments and matures in April 2000. The term note is
collateralized by certain assets, as defined.
(d) In February 1997, the Company issued convertible notes of
$2,000,000, which mature in February 1999. These notes bear
interest at 10% per annum payable at conversion or maturity.
These notes, however, are convertible into the Company's common
stock following the expiration of six months following the
closing date at the Company's option. Upon conversion, the
aggregate amount of the notes plus accrued interest converts
into common stock at 80% of the then quoted price of a share of
the Company's common stock. In connection with these notes, the
Company issued warrants to purchase 700,000 shares of the
Company's common stock at $5.25 per share, the fair market value
on the date of issuance. It is the intent of the Company to
convert the notes into common shares in August 1997.
The scheduled repayments of long-term debt are as follows:
1998 $ 850,000
1999 2,725,000
2000 1,757,000
2001 371,000
2002 148,000
38
(7) SHAREHOLDERS' EQUITY:
On May 2, 1994, the Company merged with and into Sellectek,
Incorporated (Sellectek), a public company which had cash and no
liabilities. For accounting purposes, the merger has been recorded as a
recapitalization of the Company with the Company as the acquirer
(reverse acquisition). Sellectek changed its name to Glasgal.
In connection with a January 1994 common stock purchase agreement with
Direct Connect International, Inc. (DCI), DCI converted approximately
$2,000,000 of indebtedness into 2,723,973 shares of common stock of the
Company. Under the agreement, the Company has the right to require DCI
to purchase up to 1,337,230 additional shares ("Additional Shares") of
Common Stock of the Company for an aggregate of $8,750,000, less
current warrant solicitation fees (the "Additional DCI Investment").
The Company may require the Additional DCI Investment if, and then only
to the extent, that DCI receives proceeds from the exercise of existing
warrants. If the Company does not require the Additional DCI
Investment, DCI may still purchase, on the same terms, up to one-half
of the additional shares.
Public Offering --
During 1995, the Company consummated two bridge financings for
aggregate proceeds of $1,270,000. In connection with the financings,
442,478 shares of common stock were issued at $1.13 per share and
warrants were issued for the purchase of 950,000 shares of common
stock. Each warrant was subsequently converted into a warrant having
terms identical to those of the redeemable warrants issued in
connection with the public offering (the Offering) discussed below. The
bridge financings were repaid from the proceeds of the Offering
resulting in the write-off of the unamortized original issue discount
and deferred financing costs of $223,000 as an extraordinary loss.
On September 28, 1995, the Company completed the Offering of 1,783,000
units at $5.00 per unit (including an overallotment of 258,000 units in
October 1995) for net proceeds of approximately $6,485,000. Each unit
consisted of two shares of Common Stock and one redeemable warrant.
Each redeemable warrant entitles the holder to purchase one share of
Common Stock at an initial exercise price of $3.75 per share. In
addition, in connection with the sale of 400,000 shares of common stock
by certain selling shareholders, the Company contributed 200,000
redeemable warrants (valued at $50,000) that were included in the
200,000 units sold by such shareholders.
39
Preferred Stock --
During 1997, the Company issued 350,000 shares of convertible preferred
stock. The net proceeds from these issuances were approximately
$6,562,000. The preferred stock was subsequently converted into
2,500,264 shares of common stock.
Common Stock Options --
The 1990 Stock Option Plan (the "1990 Plan") provides for grants of
1,500,000 common stock options to employees, directors, and consultants
to purchase common stock at a price at least equal to 100% of the fair
market value of such shares on the grant date. The exercise price of
any options granted to a person owning more than 10% of the combined
voting power of all classes of stock of the Company ("10%
shareholder"), shall be at least equal to 110% of the fair market value
of the share on the grant date. The options are granted for no more
than a 10-year term (5 years for 10% shareholders) and the vesting
periods range from 2 to 4 years.
The 1993 Consultant Stock Option Plan (the "1993 Plan") provides for
grants of 30,000 shares of common stock to selected persons who provide
consulting and advisory services to the Company at a price at least
equal to 100% of the fair market value of such shares on the grant
date, as determined by the Board of Directors. The exercise price of
any options granted to a person owning more than 10% of the combined
voting power of all classes of stock of the Company ("10%
shareholder"), shall be at least equal to 110% of the fair market value
of such shares on the grant date. The options are granted for no more
than a 10-year term (5 years for 10% shareholders) and the vesting
periods are determined by the Board of Directors.
The following table represents a summary of stock option activity under
the 1990 Plan and the 1993 Plan:
1993 CONSULTANT STOCK
1990 STOCK OPTION PLAN OPTION PLAN
----------------------------------------------- --------------------------
SHARES PRICE SHARES PRICE
-------------- ------------------------------ ------------- -----------
Options outstanding at April 30, 1995 486,849 $ 1.25 - $ 15.63 4,000 $ 5.00
Granted 353,000 $ 2.775 - $ 10.55 5,000 $ 2.50
Exercised (91,248) $ 1.25 4,000 $ 5.00
Canceled (53,320) $ 1.25 - -
-------------- ------------------------------ ------------- ------------
Options outstanding at April 30, 1996 695,281 $ 1.25 - $ 15.63 5,000 $ 2.50
Granted 63,500 $ 6.00 - $ 10.55 - -
Exercised (122,107) $ 1.25 - -
Canceled (81,243) $1.25 - $10.55 - -
-------------- ------------------------------ ------------- ------------
Options outstanding at April 30, 1997 555,431 $ 1.25 - $ 15.63 5,000 $ 2.50
============== ============================== ============= ============
Exercisable at April 30, 1997 293,396 $ 1.25 - $ 15.63 5,000 $ 2.50
============== ============================== ============= ============
As of April 30, 1997, a total of 597,000 and 4,000 shares remain
reserved for future grants under the 1990 Plan and the 1993 Plan,
respectively.
The 1995 Directors Stock Option Plan (the "Directors Plan") provides
for grants of 500,000 shares of Common Stock. All members of the Board
of Directors who are not employees of the Company ("Eligible
Directors") are eligible to receive grants of options. Each Eligible
Director is granted an option to purchase 24,000 shares of Common Stock
on the date the Eligible Director is elected to the Board of Directors,
and will be granted another option to purchase 24,000 shares of Common
Stock annually thereafter so long as he remains an Eligible Director.
Generally, each option vests ratably over a three-year period provided
such individual continues to serve as a Director of the Company.
40
1995 DIRECTORS STOCK
OPTION PLAN
------------------------------------------
Shares Price
------ -----
Options Outstanding at April 30, 1995 48,000 $1.25
Granted during 1996 72,000 $2.552 - $2.775
Exercised -- --
Canceled -- --
----------------- --------------------
Options outstanding at April 30, 1996 120,000 $1.25 - $2.775
Granted 96,000 $6.73 - $8.33
Exercised -- --
Canceled -- --
----------------- --------------------
Options outstanding at April 30, 1997 216,000 $1.25 - $8.33
================= ====================
Shares exercisable at April 30, 1997 88,000 $1.25 - $2.775
================= ====================
As of April 30, 1997, 284,000 shares were available for future issuance
under the Directors Plan.
During January 1992, the Company granted options to purchase 1,386,742
shares of its common stock, at an exercise price of $.005 per share.
The options may be exercised at any time prior to January 1, 2002.
345,000 options have been exercised as of April 30, 1997. In April
1993, the Company granted options, which expire in April 2003, to
purchase 109,755 shares of common stock to a consultant/advisor to the
Company at an exercise price of $.005 per share. As of April 30, 1997,
93,291 options have been exercised.
In March 1995, the Company granted options to purchase 165,000 shares
of Common Stock at an exercise price of $1.25 to certain executive
officers of the Company. These options vest over a three year period
beginning August 24, 1995. The options expire in March 2005. No options
have been exercised as of April 30, 1997.
On April 25, 1995 the Company granted options to purchase 350,000
shares of Common Stock at an exercise price of $1.75, to certain
officers of the Company. These options are exercisable, at any time and
from time to time, prior to April 21, 2005. During 1996, 95,455 options
were canceled. As of April 30, 1997 no options have been exercised.
The table below sets forth the activity relating to stock options
referred to above which were originally granted by the Company not
pursuant to any option plan.
41
SHARES PRICE
---------------- ----------------------
Options Outstanding at April 30, 1995 2,011,497 $.005 - $1.75
Granted -- --
Exercised (94,000) $.005
Canceled (95,455) $1.75
--------------- ---------------------
Options Outstanding at April 30, 1996 1,822,042 $.005 - $1.75
Granted -- --
Exercised 349,293 $.005
Canceled -- --
---------------- ----------------------
Options Outstanding at April 30, 1997 1,472,749 $.005 - $1.75
================ ======================
In 1996, the Company adopted the 1996 Employee and Consultant Stock
Option Plan (the "1996 Plan"), under which 2,000,000 shares of common
stock are reserved for issuance. The 1996 Plan was established to
attract, retain, and provide equity incentives to selected employees to
promote the financial success of the Company.
The following table represents a summary of the stock option activity
under the 1996 Plan:
1996 EMPLOYEE AND CONSULTANT
STOCK OPTION PLAN
-------------------------------------
SHARES PRICE
------------------- -------------
Options outstanding at April 30, 1996 -- $ --
Granted 1,500,000 $5.82 - $6.928
Exercised -- --
Canceled 121,000 $5.82 - $6.928
------------------- ---------------------
Options outstanding at April 30, 1997 1,379,000 $5.82 - $6.928
=================== =====================
In 1996, the Company adopted the senior executive stock option plan
(the "1996 Executive Plan") under which 560,000 shares of common stock
are reserved for issuance to senior executive officers of the Company
at an exercise price as determined by the plan committee at the time of
grant.
42
Thefollowing table represents a summary of stock option activity under
the 1996 Executive Plan:
SENIOR EXECUTIVE PLAN
--------------------------------------------
SHARES PRICE
------------------- ---------------------
Options outstanding at April 30, 1996 -- $ --
Granted 535,000 $5.25
Exercised -- --
Canceled -- --
------------------- ---------------------
Options outstanding at April 30, 1997 535,000 $5.25
=================== =====================
The 1996 Stock Option Conversion Plan was established to primarily
replace stock options previously granted by the Company's subsidiary,
Datatec Industries, Inc., with Glasgal options on the same terms as
indicated in the merger agreement. The maximum number of shares that
may be issued pursuant to options granted under the plan shall not
exceed 470,442. As of April 30, 1997 447,270 options were outstanding,
with no options exercised during the year ended April 30, 1997. The
options outstanding have exercise prices ranging from $.86 to $3.14.
On July 17, 1995, Mr. Glasgal granted to five executive officers of the
Company, options to purchase an aggregate of 300,000 shares of his
common stock. The options granted by Mr. Glasgal vest 1/3 on July 17,
1996 (at an exercise price of $2.775 per share, the fair market value
at the date of grant), 1/3 on July 17, 1997 (at an exercise price of
$3.50 per share) and 1/3 on July 17, 1998 (at an exercise price of
$4.50 per share). As of April 30, 1997, 6,884 shares have been
exercised.
Effective May 1, 1996, the Company adopted the provisions of SFAS 123
"Accounting for Stock-Based Compensation". As permitted by the
statement, the Company has elected to continue to account for
stock-based compensation using the intrinsic value method. Accordingly,
no compensation expense has been recognized for its stock-based
compensation plans. Had the fair value method of accounting been
applied to the Company's stock option plans during 1996 and 1997, which
requires recognition of compensation expense ratably over the vesting
period of the underlying equity instruments, net loss would have been
increased by $106,000 with no per share effect in 1996 and $589,000
with a $.02 per share effect in 1997. This pro forma impact takes into
account options granted since May 1, 1995 and is likely to increase in
future years as additional options are granted and amortized ratably
over the vesting period. The weighted average
43
fair value of options granted during 1996 and 1997 was $2.60 and $3.58,
respectively. The fair value was estimated using the Black-Scholes
option pricing model based on the weighted average market price at
grant date of $4.45 in 1996 and $5.57 in 1997 and the following
weighted average assumptions; risk risk free interest rate of 8.5% in
1996 and 1997 and volatility of 75% in 1996 and 1997.
(8) INCOME TAXES:
Under the provisions of SFAS 109 "Accounting for Income Taxes", the
statement requires that deferred income taxes reflect the tax
consequences on future years of differences between the tax bases of
assets and liabilities and their financial reporting amounts.
Deferred income taxes result primarily from temporary differences in
the recognition of expenses for tax and financial reporting purposes.
Deferred income taxes consisted of the following:
April 30, April 30,
-------------------------- ---------------------------
1996 1997
-------------------------- ---------------------------
Net operating loss carryforwards $ 1,406,000 $ 3,462,000
Accelerated depreciation (316,000) (1,159,000)
Allowance for doubtful accounts 109,000 280,000
Inventory obsolescence 112,000 257,000
Other 19,000 480,000
-------------------- -----------------------
1,330,000 3,320,000
Valuation Allowance (1,330,000) (3,320,000)
------------------ -----------------------
$ -- $ --
=================== =======================
The Company has recorded a full valuation allowance against the net
deferred tax asset due to uncertainty relating to the realization of
this asset.
The Company does not provide for US income taxes on the undistributed
earnings of its foreign subsidiaries as the Company does not have any
current intention of repatriating such earnings.
As of April 30, 1997, the Company has $10,200,000 available of net
operating loss carryforwards, which may be used to offset future
taxable income. These net operating loss carryforwards expire through
2012.
44
(9) RELATED PARTY TRANSACTIONS:
On April 30, 1995, and in contemplation of the closing of the First
Bridge Financing (see Note 7), Mr. Glasgal, the majority shareholder of
the Company, contributed to the Company 442,478 shares of Common Stock
in consideration for the cancellation of $476,000 owed by him to the
Company. The 442,478 shares of Common Stock contributed to the Company
were canceled.
During the year ended April 30, 1997, the Company loaned $410,000 to
certain executive officers of the Company. These loans bear interest at
8% per annum. Two of these loans, representing $210,000, are repayable
with the proceeds from the future exercise of stock options of these
executives. All of these loans mature on December 31, 1999.
Datatec had previously leased a facility owned by a company controlled
by a majority shareholder. Under an agreement with the lender, if the
facility were sold, the majority shareholder would be required to apply
any proceeds in excess of the mortgage to repayment of Datatec debt
with that lender. In January 1997, the facility was sold and
approximately $1,686,000 of excess proceeds were used by the majority
shareholder to repay Datatec debt. This amount, net of repayment of
$250,000, is included in due to related parties. The Company continues
to lease two facilities from companies with whom a majority shareholder
is affiliated. The annual lease payments on the facilities is included
in Note 11.
(10) EMPLOYEE BENEFIT PLAN:
The Company currently has two contributory 401(k) salary reduction
plans which permit employees to contribute if they are at least 21
years of age and have been a full time employee of the Company for six
months.
The Glasgal Communications, Inc. Salary Reduction Plan requires a
minimum contribution of 2% of the gross earnings and no more than 15%
of the gross earnings up to the maximum allowed by the IRS. Glasgal
matches a maximum of $600 annually, per participant. The matching
contributions for the three years ended April 30, 1997 were $27,000,
$17,000 and $15,000, respectively.
The Datatec Industries, Inc. 401(k) Savings Plan requires a minimum
contribution of 1% of the gross earning and no more than 15% of the
gross earnings up to the maximum allowed by the IRS. The Datatec plan
does not match any of the employee's contributions.
(11) COMMITMENTS AND CONTINGENCIES
The Company leases sales offices and warehouse facilities from related
and unrelated parties throughout the United States and Canada. The
minimum annual rentals for future years are as follows:
45
(in thousands)
TWELVE MONTH PERIOD Related Sublease
ENDING APRIL Party Other Income Net
- ------------------------------- ------------ ------------------ ----------------- --------------
1998 $ 545 $ 1,059 $ (404) $ 1,200
1999 545 984 (453) 1,076
2000 545 801 (372) 974
2001 545 449 (270) 724
2002 545 333 (210) 668
Thereafter 3,818 423 (18) 4,223
Rent expense was $1,194,000, $1,785,000 and $1,713,000 for the years
ended April 30, 1995, 1996 and 1997, respectively.
The Company has one-year lease commitments for its fleet of vehicles.
Lease expense related to these vehicles was $943,000, $1,155,000 and
$1,347,000 for the years ended April 30, 1995, 1996 and 1997,
respectively. The leases expire throughout the year, most with an
option for renewal. Future commitments are not reflected in the amounts
above but are expected to approximate the 1997 expense.
The Company has entered into employment agreements with thirteen key
employees. These agreements provide for an aggregate annual salary of
$2,400,000, increased annually by the percentage increase in the
consumer price index. The agreements are generally three years in
duration and begin to expire through April 2001.
The Company, from time to time, is involved in routine litigation and
various legal matters in the ordinary course of business. The Company
does not expect that the ultimate outcome of this litigation will have
a material adverse effect on the results of operations or financial
position.
(12) CONCENTRATIONS OF CREDIT RISK:
The Company's financial instruments subject to credit risk are
primarily trade accounts receivable. Generally, the Company does not
require collateral or other security to support customer receivables.
At April 30, 1996, the Company's customers were primarily within the
continental United States and Canada. Customers representing
approximately 57% of the Company's revenues are in the retail industry.
46
In the year ended April 30, 1995, 2 customers had sales of $9,200,000,
$6,500,000, for the year ended April 30, 1996, 2 customers had sales of
$5,000,000, $4,700,000, for the year ended April 30, 1997, 2 customers
had sales of $7,000,000, $6,000,000.
(13) RESTRUCTURING OF OPERATIONS:
In April 1996, the Company recorded restructuring charges of $6,756,000
relating to reducing costs and improving the Company's efficiency.
These charges included in selling, general and administration expense
and included $2,049,000 in noncash write-downs of certain of the
Company's long-lived assets based upon the criteria described in Note 1
as well as the establishment of $4,707,000 of accrued liabilities,
which included $1,984,000 of projected cash outflows for personnel
severance and facilities consolidation plans.
(14) RECAPITALIZATION
In January 1996, the Company was reincorporated in the State of
Delaware and each outstanding share of the old California Corporation,
no par value common stock, was converted into one share of the new
Delaware Corporation $.001 par value common stock. This change resulted
in the transfer of $20,000 from the additional paid-in capital account
to the common stock account. In conjunction with the reincorporation,
the Company increased the authorized common stock from 21,000,000
shares to 34,000,000 shares.
47
GLASGAL COMMUNICATIONS, INC.
SCHEDULE II, VALUATION AND QUALIFYING ACCOUNTS
Balance, Charges to
beginning cost and Balance, end of
of period expenses Deductions period
------------- --------------- ----------------- -------------------
Year ended April 30, 1997
Allowance for doubtful accounts $ 538,000 $ 163,000 $ (181,000) $ 520,000
Year ended April 30, 1996
Allowance for doubtful accounts 456,000 542,000 (460,000) 538,000
Year ended April 30, 1995
Allowance for doubtful accounts 208,000 252,000 (4,000) 456,000
.
48
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
49
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company, their ages and
present positions with the Company are as follows:
NAME Age POSITION WITH THE COMPANY
---- -------------------------
Ralph Glasgal 64 Chairman of the Board and President
Isaac J. Gaon 48 Director and Chief Executive Officer
Christopher J. Carey 45 Director and Chief Executive Officer of Datatec
Robert F. Gadd 35 Senior Vice President and Chief Technology Officer
James M. Caci 32 Chief Financial Officer, Secretary and Treasurer
Dr. David Milch 42 Director
Robert H. Friedman 44 Director
Joseph M. Salvani 40 Director
Maurice Kulik 58 Director
Thomas J. Berry 72 Director
The directors are elected for one year terms which expire at the next
annual meeting of shareholders. Executive officers are elected annually by the
Board of Directors to hold office until the first meeting of the Board following
the next annual meeting of shareholders and until their successors have been
elected and qualified.
The following is a brief summary of the background of each director and
executive officer of the Company.
RALPH GLASGAL, Director, Chairman of the Board and President, with
degrees in Engineering Physics and Electrical Engineering, founded the
Predecessor in 1975 as a distributor of data communications equipment and
services. Prior to 1975 he held various engineering positions with RCA, Siemens
and Timeplex. He is the author of numerous articles and three books on data
communications.
50
ISAAC J. GAON, Chief Executive Officer and Director, joined the
Predecessor in April 1992. He served as Chief Financial Officer from April 1992
until October 1994. Prior to joining the Predecessor, Mr. Gaon served as a
consultant to the Predecessor, developing the strategic plan and financial model
for the Predecessor's nationwide enterprise networking strategy. From September
1987 to December 1991, Mr. Gaon, a chartered accountant, served as President and
Chief Executive Officer of Toronto-based NRG, Inc., (a subsidiary of Gestetner
International) an office equipment supplier, and in several key senior
management roles within Gestetner Canada and Gestetner USA.
CHRISTOPHER J. CAREY, Director since November 1, 1996, is Chief
Executive Officer and founder of Datatec. Mr. Carey, a graduate of Princeton
University, led a management buy- out of a data communications network
installation company and founded Datatec in 1976. In 20 years under his
leadership, Datatec grew from $480,000 in sales and 9 employees to $65,000,000
in sales and 500 employees in 1996. In October 1996, Datatec merged with Glasgal
Communications, Inc. Datatec's unique line of products and services, have been
extolled in various publications, including INC. magazine, FORBES, THE WALL
STREET JOURNAL, and BUSINESS WEEK. Mr. Carey was selected by NEW JERSEY MONTHLY
magazine as Entrepreneurial Leader of the Year.
ROBERT F. GADD, Senior Vice President and Chief Technology Officer,
joined the Company in April 1992. Mr. Gadd has been the Company's Chief
Technology Officer since November 1996. From August 1992 until November 1996 Mr.
Gadd was the Vice President of the Company's Federal and Enterprise Systems
group. Mr. Gadd served as Director of Technical Operations of the Company from
April 1992 until August 1992. Prior to joining the Predecessor, Mr. Gadd was
co-founder of Automation Partners International, Inc. ("API"), a San
Francisco-based systems integration firm which has provided open architecture
solutions to the legal industry since 1986. Prior to API, Mr. Gadd had his own
automation consulting firm and specialized in developing integrated solutions to
meeting specific objectives in a variety of business disciplines, including
political campaigns, oil and gas, real estate, and banking.
JAMES M. CACI, Chief Financial Officer, Secretary and Treasurer, joined
the Company in October 1994. Mr. Caci has been the Company's Chief Financial
Officer since October 1994 and the Company's Secretary and Treasurer since June
1995. From April 1994 to October 1994 Mr. Caci was a manager in the finance
department of Merck & Co., and from July 1986 to April 1994, Mr. Caci was
associated with the accounting firm of Arthur Andersen LLP, most recently
holding the position of Manager.
51
DR. DAVID MILCH, Director since October 3, 1996 has been a principal
and officer of Bermil Industries Corporation, a closely held business owned by
the Milch family, since 1983. Bermil, with annual sales over $50,000,000, is a
diversified company involved in the manufacture, sale, financing, and
distribution of capital equipment, and in real estate development. In 1989,
after the sale of a portion of Bermil Industries Corporation to a public company
in 1988, Dr. Milch formed Davco Consultants, Inc. for the purpose of
identifying, advising, and investing in interesting emerging growth
technologies. Dr. Milch is also a registered New York State Physician.
ROBERT H. FRIEDMAN, Director since August 1994, has been a partner with
Olshan Grundman Frome & Rosenzweig, a New York City law firm, since August 1992.
Prior to that time and since September 1983 he was associated with Cahill Gordon
& Reindel, also a New York City law firm. Mr. Friedman specializes in corporate
and securities law matters.
JOSEPH M. SALVANI, Director since August 1994, has been the President
of Salvani Investments, Inc., an investment and consulting firm that is a
consultant to Brookehill Equities, Inc. since 1991. Mr. Salvani was a registered
broker with Brookehill Equities, Inc. from March 1991 to July 1992. From July
1989 through 1991, he was a founder, general partner and Hedge Fund Manager of
EGS Associates, LP, a private investment limited partnership. He served as a
general partner of Steinhardt Partners from October 1986 until April 1989 and as
a general partner of Institutional Partners, LP from January 1987 to April 1989.
He began his career in 1981 as an analyst with Goldman, Sachs & Co. Mr. Salvani
is a graduate of Rutgers College with Bachelor of Science degrees in Accounting,
Economics and Finance. He also holds a Masters Degree in Business Administration
from Columbia University. Mr. Salvani is Chairman of the Board of Directors and
Chief Executive Officer of Direct Connect International Inc. ("DCI"), a Nasdaq
traded company and a director of Medicis Pharmaceutical, Inc., a pharmaceutical
company.
MAURICE KULIK, Director since October 1994, is also Chief Executive
Officer and President of Signatel which he founded in 1977. Prior to 1977 he
held various engineering, sales and marketing management positions with ATELCO,
ROR Associates, Beckman Instruments and SPERRY/UNIVAC. From 1985 to 1989 Mr.
Kulik also served as President, Chief Executive Officer and Director of Black
Box Canada Corporation, a joint venture corporation with Black Box Corporation
of Pittsburgh, PA. Mr. Kulik currently oversees Signatel's financial and
strategic planning as well as its marketing and sales management functions.
THOMAS J. BERRY, Director since July 1995, is currently retired. Mr.
Berry was an executive with the U.S. Postal Service from November 1986 to
December 1992, serving as executive assistant to the Postmaster General. Prior
to that time and until November 1986, Mr. Berry held various executive positions
at AT&T. Mr. Berry is a director of Computer Horizons Corp., a Nasdaq traded
company.
52
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission
(the "Commission"). Officers, directors and greater than ten percent
stockholders are required by the Commission's regulations to furnish the Company
with copies of all Section 16(a) forms they file.
Each of the following persons failed to file on a timely basis one
report for a single transaction required by Section 16(a) of the Securities
Exchange Act of 1934, as amended and the rules and regulations promulgated
thereunder (the "Exchange Act"), during the fiscal year ended April 30, 1997:
James Caci and Isaac Gaon. Christopher Carey failed to file on a timely basis
two reports covering transactions required by section 16(a) of the Exchange Act
during the fiscal year ended April 30,1 997. Ralph Glasgal failed to file on a
timely basis four reports covering transactions required by Section 16(a) of the
Exchange Act during the fiscal year ended April 30, 1997. Each of the
transactions for the above named individuals were subsequently reported to the
Commission on a Form 4.
53
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth information for the years ended April
30, 1995, 1996 and 1997 with respect to annual and long-term compensation for
services in all capacities to the Company of (i) the chief executive officer,
and (ii) the other four most highly compensated executive officers of the
Company at April 30, 1997 who received compensation of at least $100,000 during
fiscal year ended April 30, 1997 (collectively, the "Named Officers").
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
------------------- ----------------------
AWARDS PAYOUTS
------ -------
Stock LONG-TERM
Options INCENTIVE
Name and position Year Salary Bonus (SHARES) PAYMENTS
----------------- ---- ------ ----- -------- --------
Ralph Glasgal(1) 1997 $250,000 -- -- --
Chairman of the Board and President 1996 250,000 $74,800 -- --
1995(1) 26,700 -- -- --
Isaac Gaon 1997 $250,000 -- 350,000
Chief Executive Officer 1996 $204,800 -- 108,821 --
1995 192,300 -- 90,000 --
Robert Gadd 1997 $155,000 -- -- --
Chief Technology Officer 1996 136,433 $22,500 103,985 --
1995 113,900 -- 60,000 --
Christopher Carey 1997 $345,000 $95,000 120,353 --
Chief Executive Officer - Datatec 1996 416,000 -- -- --
1995 416,000 -- -- --
James M. Caci 1997 $128,100 -- 175,000 --
Chief Financial Officer, Treasurer , 1996 100,000 -- 43,528 --
Secretary
1995(2) 40,000 -- 52,000 --
(1) During 1995 Mr. Glasgal spent the majority of his time pursing
interests outside of the Company. Mr. Glasgal contributed to the
Company 442,478 shares of Common Stock in consideration for the
cancellation by the Company of the $476,000 owed as of April 30, 1995
by Mr. Glasgal to the Company. Mr. Glasgal is currently receiving
salary compensation of $250,000 per year. Mr. Glasgal may also receive
a bonus at the discretion of, and to be determined by, the Board of
Directors.
(2) Mr. Caci joined the Company on October 31, 1994, the salary for 1995
represents six months.
54
STOCK OPTION TABLE
The following table sets forth certain information regarding stock
option grants made to each of the Named Officers during the fiscal year ended
April 30, 1997,
OPTIONS GRANTED IN FISCAL YEAR ENDED
APRIL 30, 1997
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
----------------- AT ASSUMED RATES OF ANNUAL
Shares of % of Total Exercise RATES OF STOCK PRICE
Common Stock Options Granted or Base APPRECIATION FOR OPTION (1)
Underlying to Employees in Price ---------------------------
NAME Granted Fiscal Year ($/Sh) Expiration Date 5% 10%
---- ------- ----------- ------ --------------- -- ---
Ralph Glasgal -- -- -- -- -- --
Isaac J. Gaon 350,000 15.1 $5.25 October 31, 2006 $1,155,594 $2,928,502
Robert Gadd -- -- -- -- -- --
Christopher Carey 120,353 5.2 3.19 April 15, 2007 241,260 611,400
James M. Caci 175,000 7.5 5.25 October 31, 2006 577,797 1,464,251
(1) The potential realizable portion of the foregoing table illustrates
value that might be realized upon exercise of options immediately prior
to the expiration of their term, assuming (for illustrative purposes
only) the specified compounded rates of appreciation on the Company's
Common Stock over the term of the option. These numbers do not take
into account provisions providing for termination of the option
following termination of employment, nontransferability or difference
in vesting periods.
55
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following table sets forth information as to each of the named
officers concerning exercises of options during the fiscal year ended April 30,
1997 and unexercised stock options held as of April 30, 1997.
Value Realized
(Market Price at
Shares Acquired Exercise less Number of Unexercised Options Held at Value of Unexercised In-The-Money
on Exercise Exercise Price) April 30, 1997 Options at April 30, 1997(1)
-------------- --------------- -------------------------------- ------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
Ralph Glasgal -- $ -- -- -- $ -- $ --
Isaac J. Gaon -- -- 708,185 335,881 1,744,300 94,460
Robert Gadd -- -- 371,809 89,323 1,060,706 72,929
Christopher Carey -- -- -- 120,353 -- 7,221
James M. Caci -- -- 128,843 145,685 110,892 13,784
(1) Assuming a price of $3.25 per share of Common Stock, which was the
closing bid price per share as of April 30, 1997.
The value of personal benefits for executive officers of the Company
during the fiscal year ended April 30, 1997 that might be attributable to
management as executive fringe benefits such as automobiles and club dues cannot
be specifically or precisely determined; however, it would not exceed 10% for
any individual named above or, with respect to the group, would not in the
aggregate exceed 10% of the compensation reported above.
DIRECTORS COMPENSATION
Each director who is not an employee of the Company receives an annual
grant of options to purchase 24,000 shares of Common Stock pursuant to the
Directors Plan at an exercise price equal to fair market value on the date of
grant and a fee of $1,000 per meeting attended.
EMPLOYMENT AGREEMENTS
Isaac Gaon is employed as the Chief Executive Officer of Glasgal
pursuant to an employment agreement dated as of October 31, 1996, for a term
ending on October 31, 1999. The agreement provides for an initial base salary of
US$250,000 annually and incentive compensation based on achieving Projected EBIT
(as defined in the agreement). In the event of his disability, Mr. Gaon is to
receive the full amount of his base salary for six months. Upon a change of
control of the Company that results in Mr. Gaon's removal from the Company's
Board of Directors, a significant change in the conditions of his employment or
other breach of the agreement, he is to receive liquidated damages equal to 2.99
times the "base amount", as defined in the United States Internal Revenue Code
of 1986, as amended (the "Code"), of his compensation.
Effective as of October 31, 1996, the Company entered into an
employment agreement with James Caci on terms substantially similar to those of
Isaac Gaon's
56
employment agreement. Mr. Caci's agreement provides for his employment by the
Company as its Chief Financial Officer at an initial base salary of US$150,000
annually.
The Company entered into an Employment Agreement dated as of December
31, 1996 with Robert Gadd on terms substantially similar to those of Isaac
Gaon's employment agreement. Mr. Gadd's agreement provides for his employment by
the Company as its Senior Vice President at an initial base salary of US$155,000
annually. The agreement has a term ending on December 31, 1999.
The Company entered into an Employment Agreement dated as of December
31, 1996 with Ralph Glasgal under which Mr. Glasgal serves as the Company's
Chairman of the Board and President for a term ending on October 31, 1997 or at
such earlier date upon 6 months written notice. The agreement provides for a
base salary of US$250,000 annually.
The Company entered into an Employment and Non-Competition Agreement
dated November 1, 1996 with Christopher J. Carey under which Mr. Carey serves as
the Chief Executive Officer of Datatec Industries Inc. for a term ending on
October 31, 1999. The agreement provides for an initial base salary of
US$250,000 annually and non-discretionary incentive compensation based on
achieving performance goals. The agreement contains convanents restricting Mr.
Carey's ability to engage in activities competitive with those of the Company
for a period ending three years after his termination.
Effective as of November 1, 1996, the Company entered into an
Employment Agreement with Raymond R. Koch on terms substantially similar to
those of Christopher Carey's employment agreement. Mr. Koch's agreement provides
for his employment by the Company as the Chief Operating Officer of Datatec
Industries Inc. at an initial base salary of US$250,000 annually.
The Company has entered into an Employment Agreement with Mr. Kulik
pursuant to which he is employed full-time as the Chief Executive Officer and
President of Signatel Ltd., the Company's Canadian subsidiary commencing October
28, 1994 and until terminated in accordance with the agreement. Mr. Kulik
receives an annual base salary of $115,000; provided that the base salary shall,
at a minimum, be increased after each 12 months of employment by a percentage
equal to the percentage increase in the Consumer Price Index over such 12 month
period, with the increased amount to remain in effect for the next 12- month
period.
57
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information concerning ownership of the
Common Stock outstanding as of July 31, 1997, by (i) each person known by the
Company to be the beneficial owner of more than five percent (5%) of the
Company's Common Stock, (ii) each director, (iii) each of the executive officers
named in the summary compensation table, and (iv) by all executive officers and
directors of the Company as a group.
NAME AND ADDRESS OF Amount of Shares
BENEFICIAL OWNER(1) Beneficially Owned (2) Percent of Class
- ----------------------------- ---------------------- -------------------
Ralph Glasgal 4,906,387(3) 20.7%
Isaac Gaon 714,003(4) 2.9%
Robert F. Gadd 479,566(5) 2.0%
Christopher J. Carey 3,612,036(6) 15.2%
James M. Caci 112,000(7) *
Robert H. Friedman 55,146(8) *
505 Park Avenue
New York, New York 10022
Joseph Salvani 40,000(9) *
4800 Highway A-1-A
Vero Beach, FL 32963
Maurice Kulik 457,636(10) 1.9%
Thomas Berry(11) 24,000(11) *
David Milch 344,505 1.5%
All directors and officers as a
group (10 persons) 10,608,011(12) 42.0%
* Less than 1%
(1) Unless otherwise indicated, all addresses are c/o Glasgal
Communications, Inc., 20C Commerce Way, Totowa, New Jersey 07512.
(2) Beneficial ownership has been determined in accordance with Rule 13d-3
under the Exchange Act ("Rule 13d-3") and unless otherwise indicated,
represents shares for which the beneficial owner has sole voting and
investment power. The percentage of class is calculated in accordance
with Rule 13d-3 and includes options or other rights to subscribe which
are exercisable within sixty (60) days of July 31, 1997.
(3) Mr. Glasgal's beneficial ownership includes (i) 146,752 shares of
Common Stock owned by Ralph Glasgal's wife and (ii) 917,306 shares of
Common Stock owned by Direct Connect International Inc. ("DCI") which
Ralph Glasgal has the right to vote pursuant to a voting agreement with
DCI.
58
(4) Mr. Gaon's beneficial ownership includes options exercisable within
sixty (60) days from July 31, 1997 to purchase (i) 495,245 shares of
Common Stock at an exercise price of $.005 per share, (ii) 90,000
shares of Common Stock at an exercise price of $1.25 per share, (iii)
62,879 shares of Common Stock at an exercise price of $2.775 per share
(includes options to purchase 26,605 shares of Common Stock held by
Ralph Glasgal), and (iv) 62,879 shares of Common Stock at an exercise
price of $3.50 per share (includes options to purchase 26,605 shares of
Common Stock held by Ralph Glasgal).
(5) Mr. Gadd's beneficial ownership includes options exercisable within
sixty (60) days from July 31, 1997 to purchase (i) 297,166 shares of
Common Stock at an exercise price of $.005 per share, (ii) 60,000
shares of Common Stock at an exercise price of $1.25 per share, (iii)
61,200 shares of Common Stock at an exercise price of $2.775 per share
(includes options to purchase 26,538 shares of Common Stock held by
Ralph Glasgal), and (iv) 61,200 shares of Common Stock at an exercise
price of $3.50 per share (includes options to purchase 26,538 share of
Common Stock held by Ralph Glasgal.
(6) Mr. Carey's beneficial ownership includes (i) 118,518 shares of Common
Stock owned by Mary Carey, Mr. Carey's wife, (ii) 96,296 shares held by
Amy Carey GRAT, a trust formed for the benefit of Mr. Carey's daughter,
and (iii) 96,296 shares held by Christopher Carey GRAT, a trust formed
for the benefit of Mr. Carey's son.
(7) Mr. Caci's beneficial ownership includes options exercisable within
sixty (60) days from July 31, 1997 to purchase (i) 52,000 shares of
Common Stock at an exercise price of $1.25 per share, (ii) 30,000
shares of Common Stock at an exercise price of $2.775 per share
(includes options to purchase 15,491 shares of Common Stock held by
Ralph Glasgal), and (iii) 30,000 shares of Common Stock at an exercise
price of $3.50 per share (includes options to purchase 15,491 shares of
Common Stock held by Ralph Glasgal).
(8) Mr. Friedman's beneficial ownership includes options exercise within
sixty (60) days from July 31, 1997 to purchase (i) 24,000 shares of
Common Stock at an exercise price of $1.25 per share, and (ii) 16,000
shares of Common Stock at an exercise price of $2.525 per share.
(9) Mr. Salvani's beneficial ownership includes options exercisable within
sixty (60) days of July 31, 1997 to purchase (i) 24,000 shares of
Common Stock at an exercise price of $1.25 per share and (ii) 16,000
shares of Common Stock at an exercise price of $2.525 per share. Mr.
Salvani is also the Chairman of the Board of DCI but has no power to
direct DCI's voting or disposition of its interest in the Company. Thus
the shares of the Company's Common Stock owned by DCI are not deemed to
be attributable to Mr. Salvani.
59
(10) Mr. Kulik's beneficial ownership includes options exercisable within
sixty (60) days of July 31, 1997 to purchase 203,636 shares of Common
Stock at an exercise price of $1.75 per share.
(11) Mr. Berry's beneficial ownership includes options exercisable within
sixty days of July 31, 1997 to purchase 24,000 shares of Common Stock
at an exercise price of $2.775 per share.
(12) Includes (i) options exercisable within (60) days of July 31, 1997 to
purchase an aggregate of 1,556,770 shares of Common Stock held by the
directors and executive officers of the Company (excludes options to
purchase 137,268 shares of Common Stock already counted as being
beneficially owned by Ralph Glasgal) and (ii) 917,306 shares of Common
Stock owned by DCI which Ralph Glasgal has the right to vote pursuant
to a voting agreement with DCI.
60
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has entered into a common stock purchase agreement (the
"DCI Agreement") with DCI, a principal shareholder of the Company, governing
certain equity investments which DCI has made, and in the future intends to
make, in the Company's Common Stock. Pursuant to the DCI Agreement, in January
1994 DCI converted $1.9 million of outstanding indebtedness of the Company owed
to DCI into equity of the Company (the "DCI Conversion"). In addition, the DCI
Agreement gives the Company the right to require DCI to purchase an additional
number of shares of Common Stock equal to 13.5% of the outstanding shares on the
date of the agreement (the "Additional Share") for an aggregate of $8.75
million, less certain warrant solicitation fees (the "Additional DCI
Investment"). The Company may require this purchase if, and then only to the
extent, that DCI receives proceeds from the exercise of certain existing DCI
warrants. DCI has the right to retain the first $500,000 of warrant proceeds;
however, such amount must be used by DCI to purchase shares of Common Stock if
the aggregate amount of warrant proceeds applied to the purchase of Common
Stock, after the earlier of the expiration or exercise of all warrants or 24
months after the effectiveness of the registration statement covering the DCI
common stock underlying the warrants, is less than $8.4 million. If the Company
does not require the Additional DCI Investment, DCI may still purchase, on the
same terms, up to one-half of the Additional Shares.
During the year ending April 30, 1997, the company loaned $410,000 to
certain executive officers of the Company. These loans bear interest at 8% per
annum. Two of these loans, representing $210,000, are repayable with the
proceeds from the future exercise of stock options of these executives. All of
these loans mature on December 31,1999.
In January 1997, and pursuant to a prior agreement between Glasgal,
Datatec, Datatec's previous 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 consideration for subordinating this loan
to the Company's credit facility, the affiliated company was granted options to
purchase 30,000 shares of Common Stock at an exercise price of $4.00 per share,
which was the market value at that time.
In June 1997, the Company's Chairman purchased 160,000 shares of the
Company's common stock, in a private placement offering, for $620,000. The
proceeds from this offering are being used for working capital purposes.
RELATED PARTY TRANSACTIONS
Pursuant to a Stock Purchase Agreement dated July 10, 1997, Direct
Connect International Inc. ("DCI") purchased 130,000 shares of Common Stock for
an aggregate purchase price of $500,000. Joseph Salvani, a director of the
Company, is also Chairman of the Board of DCI. Pursuant to the agreement, the
Company terminated a prior obligation of DCI to transfer to the Company, at a
price of $3.00 per share, 200,000 shares of the Company's Common Stock in the
event that the Company does not receive $8.25 million from the Purchaser
pursuant to the terms of a certain Common Stock Purchase Agreement dated as of
January 7, 1994 (the "1994 Agreement") prior to October 10, 1997.
Pursuant to a Stock Purchase Agreement dated July 25, 1997, Direct
Connect International Inc. ("DCI") purchased an additional 350,000 shares of
Common Stock for an aggregate purchase price of $1,356,250. In connection with
the transaction, the parties amended Section 3.2(b) of the 1994 Agreement to
increase DCI's conditional right to purchase shares of the Company's Common
Stock to 1,207,239 shares (the "Call Shares") at approximately $6.54 per share
on the terms and conditions set forth in the 1994 Agreement. The 1994 Agreement
provides the Company with an equivalent right to sell such shares to DCI on the
terms and conditions set forth therein. DCI has also agreed to suspend the
Company's obligation to issue the Call Shares until such time as the Company
amends its charter to increase its authorized Common Stock.
61
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS OF FORM 8-K
(a)(1) The following financial statements are included in Part II, Item
8:
CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Public Accountants
Financial Statements:
Consolidated Balance Sheets as of April 30, 1996 and 1997
Consolidated Statements of Operations for the years ended April
30, 1995, 1996 and 1997.
Consolidated Statements of Changes in Shareholders' Equity
(Deficit) for the years ended April 30, 1995, 1996 and 1997.
Consolidated Statements of Cash Flows for the years ended April
30, 1995, 1997 and 1997. Notes to Consolidated Financial
Statements
(2) The following financial statement schedules are included in this
Form 10-K report:
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not required,
are inapplicable, or the information is otherwise shown in the
financial statements or notes thereto.
(b) Reports on Form 8-K filed during the last quarter of 1997:
None
(c) Exhibits:
EXHIBIT #
3.1 Articles of Incorporation of the Company (as
amended), incorporated by reference to Exhibit 3.1 to
the Company's Form 10-K for the fiscal year ended
April 30.1996.
3.2 Bylaws of the Company, incorporated by reference to
Exhibit 3.2 to the Company's Form 10-K for the fiscal
year ended April 30, 1996.
62
4.1 Specimen Common Stock Certificate, incorporated by
reference to the Company's registration statement on
Form S-3 (File No. 333-03414) filed with the
Commission on April 8, 1996.
4.2 Specimen Warrant Certificate, incorporated by
reference to the Company's registration statement on
Form S-1 (File No. 33-93470) filed with the
Commission on June 14, 1995.
*4.3 Form of Common Stock Purchase Warrant dated as of
January 27, 1997 in favor of Southbrook International
Investments.
10.1 1990 Stock Option Plan, as amended to date,
incorporated by reference to the Company's
registration statement on Form S-8 (File No.
333-08381) filed with the Commission on June 18,
1996.
10.2 1993 Consultant Stock Option Plan, incorporated by
reference to the Company's registration statement on
Form S-1 (File No. 33-93470) filed with the
Commission on June 14, 1995.
10.3 1995 Director's Stock Option Plan, incorporated by
reference to the Company's registration statement on
Form S-1 (File No. 33-93470) filed with the
Commission on June 14, 1995.
10.4 1996 Employee and Consultant Stock Option Plan,
incorporated by reference to Exhibit 4.8 to the
Company's Form 10-K for the fiscal year ended April
30, 1996.
*10.5 1996 Stock Option Conversion Plan
*10.6 Senior Executive Stock Option Plan
*10.7 Employment Agreement dated December 31, 1996 between
the Company and Ralph Glasgal.
*10.8 Employment Agreement dated October 31, 1996 between
the Company and Isaac Gaon.
*10.9 Employment Agreement dated October 31, 1996 between
the Company and James Caci.
*10.10 Employment Agreement dated October 31, 1996 between
the Company and Robert Gadd.
*10.11 Employment and Non-Competition Agreement dated
November 1, 1996 between the Company and Christopher
J. Carey.
63
*10.12 Employment and Non-Competition Agreement dated
November 1, 1996 between the Company and Raymond
Koch.
*10.13 Employment Agreement dated April 24, 1996 between the
Company, Computer-Aided Software Integration, Inc.
and David Tobey.
10.14 Employment Agreement dated October 28, 1994 between
the Company, Signatel, Ltd. and Maurice Kulik,
incorporated by reference to the Company's
registration statement on Form S-1 (File No.
33-93470) filed with the Commission on June 14, 1995.
*10.15 Employment Agreement dated July 31, 1996 between the
Company and HH Communications, Inc. and Frank Frazel.
*10.16 Employment Agreement dated July 31, 1996 between the
Company, HH Communications and Steven Grubner.
*10.17 Employment Agreement dated July 31, 1996 between the
Company, HH Communications, Inc. and Mark Herzog.
*10.18 Employment Agreement dated July 31, 1996 between the
Company, HH Communications, Inc. and George Terlizzi.
10.19 Warrant Agreement between Continental Stock Transfer
& Trust Co. and the Company, incorporated by
reference to the Company's registration statement on
Form S-1 (File No. 33-93470) filed with the
Commission on June 14, 1995. *10.20 Loan and Security
Agreement dated March 17, 1997 between the Company
and Finova Capital Corporation.
10.21 Stock Purchase Agreement dated as of February 15,
1996 by and among the Company, David H. Tobey and
Computer-Aided Software Integration, Inc.,
incorporated by reference to the Company's
registration statement on Form S-3 (File No.
333-03414) filed with the Commission on April 8,
1996.
10.22 Stockholders Agreement dated April 24, 1996 by and
among the Company, David H. Tobey and Computer-Aided
Software Integration, Inc., incorporated by reference
to Exhibit 10.20 to the Company's Form 10-K for the
fiscal year ended April 30, 1996.
64
10.23 Stock Purchase Agreement dated as of July 31, 1996 by
and among Glasgal Communications, Inc., Francis J.
Frazel, Stephen M. Grubner, Mark Herzog, George
Terlizzi and HH Communications, Inc., incorporated by
reference to Exhibit 2 to the Company's Form 8-K
dated July 31, 1996.
10.24 Stock Purchase Agreement dated as of October 31, 1996
by and among Glasgal Communications, Inc., Datatec
Industries Inc. and those stockholders listed on
Schedule 1.1 thereto, incorporated by reference to
Exhibit 2 to the Company's Form 8-K dated October 31,
1996.
*10.25 Notes and Warrant Purchase Agreement dated as of
February 18, 1997, by and between the Company,
Tinicum Investors and Frank Brosens (Exhibit A - Form
of Convertible Note, Exhibit B - Form of Warrant,
Exhibit C - Form of Conditional Warrant).
10.26 Convertible Preferred Stock Purchase Agreement, dated
as of September 30, 1996, by and between Glasgal
Communications, Inc. and Southbrook International
Investments, Ltd., incorporated by reference to
Exhibit 10.1 to the Company's Form 8-K dated
September 30, 1996.
10.27 Convertible Preferred Stock Purchase Agreement, dated
as of October 29, 1996, by and between Glasgal
Communications, Inc. and Southbrook International
Investments, Ltd., incorporated by reference to
Exhibit 10.2 to the Company's Form 8-K dated
September 30, 1996.
*10.29 Stock Purchase Agreement dated July 10, 1997 between
Direct Connect International, Inc. and the Company.
*10.30 Stock Purchase Agreement dated July 25, 1997 by and
among the Company and the Purchasers lised on the
Signature Pages thereto.
*10.31 Letter Agreement dated July 25, 1997 between Direct
Connect International, Inc., and the Company.
*10.32 Stock Purchase Agreement dated June 30, 1997 between
the Company and Ralph Glasgal.
*11.1 Statement of Computation of Per Share Earnings
*21.1 Subsidiaries of the Company.
*23.1 Consent to the incorporation by reference in the
Company's Registration Statements on Forms S-3 and
S-8 of the report of Arthur Andersen LLP included
herein.
*27.1 Financial Data Schedule
- ---------------------
* Filed herewith
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Ace of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
GLASGAL COMMUNICATIONS, INC.
(Registrant)
Date: AUGUST 12, 1997 By:/S/ ISAAC J. GAON
--------------- -----------------
Name: ISAAC J. GAON
Title:CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/S/ RALPH GLASGAL
- ------------------ Chairman of the Board and President August 12, 1997
Ralph Glasgal
/S/ ISAAC J. GAON
- ------------------------ Chief Executive Officer and Director August 12, 1997
Isaac J. Gaon (principal executive officer)
Director
/S/ CHRISTOPHER J. CAREY
- ------------------------ Chief Executive Officer - Datatec August 12, 1997
Christopher J. Carey and Director
/S/ David Milch
- ------------------------ Director August 12, 1997
David Milch
- -----------------------
Joseph M. Salvani Director August 12, 1997
/S/ ROBERT H. FRIEDMAN
- -----------------------
Robert H. Friedman
/S/ MAURICE KULIK Director August 12, 1997
- -----------------------
Maurice Kulik
Director August 12, 1997
- -----------------------
Thomas Berry
/S/ JAMES M. CACI
- ------------------------ Chief Financial Officer August 12, 1997
James M. Caci (principal financial
and accounting officer)