Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1998
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number ___________0-8174________
Conolog Corporation
(Exact name of registrant as specified in its charter)
Delaware 52-0853566
(State or other jurisdiction of (I. R. S. Employer
organization) Identification No.)
5 Columbia Road, Somerville, NJ 08876
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (908) 722-8081
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 report(s), and (2) has
been subject to such filing requirement for the past 90 days.
YES X NO
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PROCEEDING FIVE YEARS.
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13, or 15 (d) of the
Securities Exchange Act of 1934 subsequently to the distribution of
securities under a plan confirmed by a court.
YES ______ NO ________
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock, par value $1.00 per share, 3,789,763 shares outstanding
as of October 31, 1998 (inclusive of Treasury Stock).
Conolog Corporation
BALANCE SHEETS
Oct 31, 1998 July 31, 1998
ASSETS (Unaudited) (Audited)
Current Assets:
Cash $ 1,232,379 $1,108,581
Accounts Receivable, less
allowances of $6,000 241,710 44,477
Inventories 3,281,800 3,210,268
Other Current Assets 15,529 36,347
------------ ---------
Total Current Assets $ 4,771,418 $4,399,673
Property, Plant and Equipment 102,015 409,988
less accumulated depreciation
of $1,573,362 and $1,944,822
respectively
Other Assets 154,478 9,803
------------ -----------
Total Assets $ 5,027,911 $4,819,464
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable 40,905 60,845
Accrued Payroll 59,519 30,950
Other Accrued Expenses 34,650 115,337
------------ ----------
Total Current Liabilities $ 135,074 $ 207,132
------------ ----------
CONOLOG CORPORATION
BALANCE SHEETS
Oct. 31, 1998 July 31, 1998
Stockholders' Equity
Preferred Stock, par value $.50;
Series A; 4% cumulative; 162,000
shares authorized;155,000 shares
issued and outstanding 77,500 77,500
Preferred Stock, par value $.50;
Series B; $.90 cumulative; 50,000
shares authorized issued and
outstanding 1,197 shares 597 597
Common Stock; par value $1.00;
20,000,000 shares authorized;
issued 3,724,773 shares, including
8,776 shares held in Treasury 3,724,773 3,724,773
Contributed Capital 9,644,260 9,643,215
Retained Earnings (Deficit) (8,422,559) (8,702,019)
Treasury Shares at Cost (131,734) (131,734)
------------ -----------
Total Stockholders' Equity $ 4,892,837 $ 4,612,332
Total Liabilities and
Stockholders' Equity $ 5,027,911 $ 4,819,464
=========== ===========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
CONOLOG CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED
OCTOBER 31,
1998 1997
TOTAL REVENUES $ 319,349 $ 113,327
COSTS OF GOODS SOLD 281,148 113,527
---------- -----------
GROSS MARGIN 37,201 (200)
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 169,164 158,507
---------- -----------
OPERATING INCOME (LOSS) (131,963) (158,707)
OTHER INCOME-GAIN ON SALE OF
BUILDING 413,789 0
INTEREST EXPENSE 0 13,350
---------- -----------
INCOME/(LOSS) BEFORE TAXES 281,826 (172,057)
PROVISION FOR INCOME TAXES 1,320 1,141
----------- -----------
NET INCOME/(LOSS) $ 280,506 (173,198)
=========== ===========
EARNINGS/(LOSS) PER SHARE $ .08 $ (.06)
=========== ===========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
CONOLOG CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS
ENDED OCTOBER 31,
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 280,503 $(173,198)
Adjustments to Net Income to Reconcile
to Net Cash Provided by Operating Activities:
Depreciation and amortization 7,256 14,289
Gain on Sale of Building (413,789) 0
(Increase)/Decrease in Accounts Receivable (197,233) 60,642
(Increase)/Decrease in Inventories (71,532) (126,253)
(Increase)/Decrease in Other Current Assets 21,280 20,958
(Increase)/Decrease in Deferred Offering
Costs 0 ( 25,678)
Increase/(Decrease) in Accounts Payable (19,940) ( 75,473)
Increase/(Decrease) in Accrued Expenses
and other liabilities (52,118) ( 19,310)
Net Cash Provided/(Used) in Operating ---------- ---------
Activities (494,023) ( 324,023)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Equipment (3,789) 0
Sale of Property & Plant 720,060 0
Purchase of Assets of Atlas Design (146,900) 0
--------- ---------
Net Cash Provided/(Used) in Investing 617,821 0
Activities
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in Capital Lease Obligations 0 ( 799)
---------- ---------
NET INCREASE/(DECREASE) IN CASH $ 123,798 $ (324,822)
CASH AT BEGINNING OF YEAR 1,108,581 503,217
--------- ----------
CASH AT END OF PERIOD $1,232,379 $ 178,395
========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 0 $ 0
Income Taxes 1,320 1,141
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
CONOLOG CORPORATION
NOTES TO INTERIM FINANCIAL STATEMENTS
NOTE 1 - Computation of Earnings Per Share:
For the Three Months Ended
October 31,
1998 1997
Weighted Average Number of Shares
Outstanding: 3,724,773 2,816,126
COMMON STOCK
Reserve for Conversion:
Series A Preferred Stock* 155,000
Series B Preferred Stock (1 to 20
conversion factor) 0 0
Common Stock Equivalents
(Warrants)** 5,135,750 235,750
--------- ---------
Total 8,860,523 3,051,876
Gain/(Loss) Per Share:
Total Gain/(Loss) $ 280,503 $(173,198)
Pro-rata Dividends on Preferred
Stock Series A & B 1,045 1,045
---------- ----------
Net Gain/(Loss) available for
Common Stock $ 279,448 $(174,243)
---------- ----------
Average Number of Shares of Common Stock 3,724,773 2,816,126
========== ==========
Primary Gain/(Loss) Per Share $ .08 $ (.06)
========== ==========
*Each share of Series A Preferred Stock may be exchanged for one share
of Common Stock upon surrender of the Preferred Stock and payment of
$1200 per share. In view of the large difference between the current
market value of the stock and the conversion rate, these shares have
not been added to the total common shares used in computing the net
earnings per share.
**Each Warrant may be exchanged for one share of Common Stock at an
exercise price of $6.00 per share. In view of the large difference
between the current market value of the stock and the exercise price,
these shares have not been added to the total common shares used in
computing net earnings per share.
Fully diluted earnings per share, assuming conversion of Series A and
Series B Preferred Stock, has not been reflected, as the effect would
be either anti-dilutive or not material.
NOTE 2 - Sale/Leaseback of Building
In September 1998, the Company completed a sale/leaseback of its
manufacturing facility. This enables the Company to significantly
reduce operating costs and increases the working capital. This
resulted in $717,000 net proceeds to the Company. The transaction also
provides for a three year rent-free lease to the Company of
approximately 38% of the total space.
NOTE 3 - Purchase of Atlas Design
In September 1998, the Company completed the acquisition of the assets
of Atlas Design, Inc. for $145,000 in cash. Atlas Design provides
short and long term qualified engineering and technical staff to the
country's leading companies as well as human resource consulting.
Atlas Design's integration with the Company will provide a pool of
project engineering leaders and software designers in support of the
Company's longer term contracts including the GE PTR-1500 series.
Both the sale of the building and the acquisition of Atlas Design, Inc.
is in line with the Company's expansion plan through acquisitions,
mergers and GE software support.
NOTE 4 - Taxes
At October 31, 1998 the Company has a net operating loss carry forward
of approximately $4,710,000 for tax purposes which is available to
offset future Federal taxable income. For Federal purposes, $253,276
of the carry forward expires in 2008, $1,232,010 expires in 2009,
$957,538 expires in 2010, $550,752 expires in 2012 and $1,716,424 in
2013. For state purposes the carry forward is approximately
$3,863,000; $706,241 expires in 2001, $897,997 expires in 2002,
$542,540 in 2004 and $1,716,222 in 2005. Also, at October 31, 1998 the
Company has unused tax credits of approximately $103,300 of which
$12,100 expires in 2000, $26,300 in 2001 and $64,900 in 2002.
The above net operating loss created a deferred tax asset that has been
fully reserved. The amount is approximately $2,000,000.
At October 31, 1998 no deferred income taxes have been provided for per
SFAS No. 109 - Accounting for Income Taxes since management estimated
that temporary differences due to operating losses and tax credit carry
forwards will not be absorbed by future taxable income.
ITEM 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
QUARTER ENDED OCTOBER 31, 1998
A summary of income, costs and expenses for the current quarter and
corresponding quarter of the previous year follows:
For the Quarter
Ended October 31,
1998 1997
Revenues $ 319,349 $ 113,327
Costs and Expenses (450,312) (272,034)
Other Income 413,789 0
---------- ---------
Net Income/(Loss)
after Taxes, before $ 280,506 $ (173,198)
extraordinary item =========== ===========
Revenues for the quarter ended October 31, 1998 totaled $319,349,
representing an increase of 65% or $206,022 from $113,327 reported for
the same quarter a year ago. Revenues increased largely due to the
purchase of Atlas Design, a human resource company in September 1998.
Gross margin for the quarter totaled $37,201 representing 11.65% of
revenues as compared to $(200) or 0% of revenues for the quarter ended
October 31, 1997. The increase in gross margin is primarily attributed
to higher sales and lower costs of running a human resource company.
Selling, general and administrative expenses increased from $158,507 to
$169,164 for the quarter, representing an increase of $10,657 as
compared to 1997. This increase in attributable to administrative
costs of Atlas Design.
Interest expense decreased from $13,350 to $0 for the quarter ended
October 31, 1998 over the same period of 1997 due to the repayment of
debts of the Company.
The sale of the building contributed a net gain of $413,789 as other
income.
As a result of the foregoing, the Company reported a net income of
$280,503, or $0.08 per share for the quarter compared to a net loss of
$(173,198) or $(.06) per share.
LIQUIDITY AND FINANCIAL CONDITION
Inventories increased $71,532 from July 31, 1998 attributable to the
PTR-1500 Series product.
Accounts Receivable increased $197,233 to $241,710 reflecting higher
sales for the period.
Working Capital at October 31, 1998 was $4,636,344 compared to
$4,192,541 at July 31, 1998. This is primarily attributed to the sale
of the Company's building.
The Company plans to use the additional funds from the sale of the
building to complete the PTR1500 for the General Electric Co., to
improve its financial condition and prepare for an anticipated increase
in business in fiscal 1999. The Company anticipates additional backlog
releases from the Bonneville Power Administration and the US Government
as well as other key customers. This should generate additional sales
and resulting cash flow to support an expanded operating level in
fiscal 1999 versus fiscal 1998.
The Company also plans to use the funds for future expansion through
mergers and acquisitions.
The Company presently meets its cash requirements through existing cash
balances and cash generated from operations.
MANAGEMENT REPRESENTATION
The information furnished reflects all adjustments which management
considers necessary for a fair statement of the results of the period.
As of October 31, 1998 the Registrant's backlog of orders stands at
$1.4 million, a mix of military and commercial telecommunication
products. The company anticipates its commercial shipments to grow as
a percentage of total sales for the foreseeable future.
STATEMENT REGARDING PRESENT OPERATIONS
There was no material change in the nature of the operations of
Registrant during the three months ended October 31, 1998 from the
information contained in the Registrant's annual report of Form 10-K
for the fiscal year ended July 31, 1998.
FORWARD LOOKING STATEMENTS
The foregoing contains certain forward-looking statements. Due to
the uncertainties associated with doing business with governmental
entities and the release of backlog orders and competition in a
business characterized by rapid technologic changes and advances,
actual results may differ materially from any such forward looking
statements.
Part II - Other Information
CONOLOG CORPORATION
1. Legal Proceedings - No material proceedings pending
October 31, 1998
2. Changes in Securities - See Management Discussion
3. Defaults upon Senior Securities - None
4. Submission of Matters to a Vote of Security Holders - None
5. Other Materially Important Events - See Management's
Discussion
6. No reports or Exhibits on Form 8-K have been filed during the
quarter.