Conolog Corporation (NASDAQ: CNLGD) announced today the results
for the nine months ended April 30, 2010.
Contrary to the rules of the Securities and Exchange Commission,
the Company’s condensed consolidated financial statements included
in this filing have not been reviewed by our independent public
accountant in accordance with professional standards for conducting
such reviews.
When the review is complete, the Company will amend this Form
10-Q for the period ended April 30, 2010.
Results of Operations (three months ended April 30, 2010
compared to the three months ended April 30, 2009.
For the three months ended April 30, 2010 product revenues were
$515,897 compared to $293,920 for the three months ended April 30,
2009. The Company attributes this increase to additional customer
purchase order releases.
Cost of goods sold (Materials and Labor) increased to $220,403
for the quarter ended April 30, 2010 from $78,159 for the same
quarter ended April 30, 2009. This increase in cost can be
attributed to the increase in products produced and shipped within
the quarter and by an increase in fixed labor costs.
Gross profit for the three month periods ended April 30, 2010
and 2009, amounted to $295,494 or 57% of revenues and $215,761 or
73% of revenues respectively.
Total Selling, general and administrative expenses decreased to
$849,894 for the three months ended April 30, 2010 compared to
$1,152,063 for the three months ended April 30, 2009.
This decrease for the three month period was primarily due to a
non-cash expense of $1,381,800 for the annual stock incentive grant
to employees, officers and directors which was amortized in an
earlier period.
Other non-cash non-operating income (expenses) increased to
$8,581,657 for the three months ended April 30, 2010 compared to
($184,759) for the three months ended April 30, 2009. This increase
consisted primarily of changes in fair market value of derivatives
of $13,965,643 offset by related interest expense ($4,946,564)
related to recording of equity derivatives on debt.
As a result of the foregoing, the Company reported net income
from operations for the three months ended April 30, 2010 of
$8,027,257, or $1.22 earnings per share- Basic and $0.47 earnings
per share- Diluted, compared to a net loss from operations of
($1,121,061), or ($1.19) (loss) per share –Basic and diluted, for
the three months ended April 30, 2009.
Basic earnings per share is computed based on the weighted
average number of common shares outstanding, including potential
common shares outstanding for conversion and exercise of secured
promissory notes and warrants to purchase common stock, which are
recognized as derivative liabilities and separately accounted for
at fair value for each reporting period.
The Company determined the fair value of the embedded conversion
feature and the free-standing warrants utilizing a Black-Scholes
pricing model. The fair values were measured at the commitment
date, at the conversion or exercise date, as applicable, and at the
end of the interim period, based on the following range of
assumptions: strike price - $0.78 (conversion feature) and $1.00 -
$1.12 (warrants); expected life – 18 months from commitment date
(conversion feature) and 5 years from commitment date (warrants);
risk-free rate – 2.36% - 2.43%; dividend yield – none; volatility –
117.4% (conversion feature) and 108.0% (warrants).
Results of Operations (nine months ended April 30, 2010
compared to the nine months ended April 30, 2009.
For the nine months ended April 30, 2010 product revenues were
$1,095,913 compared to $1,239,560 for the nine months ended April
30, 2009. The Company attributes this decrease to the scheduling in
receiving customer purchase order releases. The Company believes
that this scheduling of releases will adjust in the following
quarter.
Cost of goods sold (Materials and Labor) increased to $514,394
for the nine months ended April 30, 2010 from $312,522 for the same
nine months period ended April 30, 2009. The Company attributes
this increase in cost of $201,872 to production of more costly
systems combined with an increase in fixed labor costs.
Gross profit for the nine month periods ended April 30, 2010 and
2009, amounted to $581,519 or 53% of revenues and $927,038 or 75%
of revenues respectively.
Total Selling, general and administrative expenses increased to
$3,434,412 for the nine months ended April 30, 2010 compared to
$2,285,610 for the nine months ended April 30, 2009. This increase
of $1,148,802 was primarily due to the amortization of a non-cash
expense of $1,381,800 for the annual stock incentive grant to
employees, officers and directors in an earlier period.
Other non-cash non-operating expenses increased to $25,644,348
for the nine months ended April 30, 2010 compared to $428,413 for
the nine months ended April 30, 2009. This increase in expenses
consisted primarily of negative change in fair market value of
derivatives of ($2,102,682) and the increase in interest expense
($23,678,829) related to recording of equity derivatives on
debt.
As a result of the foregoing, the Company reported a net loss
from operations for the nine months ended April 30, 2010 of
($28,500,376), or ($7.24) (loss) per share –Basic and Diluted,
compared to a net loss of ($1,786,985), or ($2.46) (loss) per share
for the nine months ended April 30, 2009.
Basic earnings per share is computed based on the weighted
average number of common shares outstanding, including potential
common shares outstanding for conversion and exercise of secured
promissory notes and warrants to purchase common stock, which are
recognized as derivative liabilities and separately accounted for
at fair value for each reporting period.
The Company determined the fair value of the embedded conversion
feature and the free-standing warrants utilizing a Black-Scholes
pricing model. The fair values were measured at the commitment
date, at the conversion or exercise date, as applicable, and at the
end of the interim period, based on specific assumptions for each
reporting period including: strike price (conversion feature and
warrants); expected life – 18 months from commitment date
(conversion feature) and 5 years from commitment date (warrants);
risk-free rate; dividend yield – none; and volatility.
About Conolog Corporation
Conolog Corporation is a provider of digital signal processing
and digital security solutions to electric utilities worldwide. The
Company designs and assembles electromagnetic products to the
military and provides engineering and design services to a variety
of industries, government organizations and public utilities
nationwide. The Company’s INIVEN division is a provider of a line
of digital signal processing systems, including transmitters,
receivers and multiplexers.
Forward-looking statements in this release are made pursuant to
the “safe harbor” provisions of the Private Securities Litigation
Reform Act of 1995. Investors are cautioned that such forward
looking statements involve risks and uncertainties, including,
without limitation, continued acceptance of the Company’s products,
increased levels of competition, new products introduced by
competitors, and other risks detailed from time to time in the
Company’s periodic reports filed with the Securities and Exchange
Commission.
CONOLOG CORPORATION AND SUBSIDIARIES Condensed
Consolidated Balance Sheets (Unaudited)
ASSETS
Restated
April 30, 2010 July 31, 2009
Current Assets: Cash and cash
equivalents $ 1,097,410 $ 27,358 Accounts receivable, net of
allowance 396,118 245,980 Prepaid expenses 15,896 70,843 Prepaid
service agreements 435,651 - Current portion of note receivable -
14,864 Inventory 700,000 425,920 Other current assets 5,000
5,000
Total Current Assets
2,650,075 789,965
Property and
equipment: Net Property and Equipment 360,775
396,704
Other Assets:
Other non-current assets 262,234 Non-current inventory 547,721
425,000 Deferred financing fees, net of amortization 51,507 8,445
Note receivable, net of current portion 83,103
69,846
Total Other Assets 944,565
503,291
TOTAL ASSETS $ 3,955,415
$ 1,689,960
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current Liabilities: Accounts payable $ 181,682 $
217,456 Accrued expenses 47,334 26,132 Derivative Liability
20,847,678 - Current Convertible debenture, net of discount
- 34,318
Total Current Liabilities
21,076,694 277,906
Non-Current Liabilities: Convertible debenture, net
of discount $ 355,634 -
Total
Liabilities 21,432,328 277,906
Stockholders' Equity:
Preferred stock, par value $.50;
Series A; 4% cumulative;500,000 shares authorized; 155,000 shares
issued and outstanding
77,500 77,500
Preferred stock, par value $.50;
Series B; $.90 cumulative;500,000 shares authorized; 1,197 shares
issued and outstanding
597 597
Common stock, par value $0.01;
30,000,000 shares authorized;6,965,680 and 1,842,485 shares issued
and outstanding atApril 30, 2010 and July 31, 2009 respectively
69,679 18,425 Contributed capital 61,471,520 52,385,432 Accumulated
deficit (78,964,475 ) (50,938,166 ) Treasury shares at cost - 2
shares (131,734 ) (131,734 )
Total
Stockholders’ Equity (17,476,913 ) 1,412,054
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $
3,955,415 $ 1,689,960 The accompanying notes
are an integral part of the condensed consolidated financial
statements
CONOLOG CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Operations (Unaudited)
For the Three Months For the
Nine Months Ended April 30, Ended April 30,
2010 2009 2010 2009
OPERATING REVENUES Product revenue $ 515,897
$ 293,920 $ 1,095,913
1,239,560
Cost of product revenue Cost of
goods sold 220,403 78,159
514,394 312,522
Total Cost of
product revenue 220,403 78,159
514,394 312,522
Gross Profit (Loss) from Operations 295,494
215,761 581,519
927,038
Selling, general and administrative expenses
General and administrative (includes non-cash stock grants)
849,894 1,152,063 3,434,412
2,285,610 Total selling, general and
administrative expenses 849,894
1,152,063 3,434,412 2,285,610
Loss Before Other Income (Expenses) (554,400 )
(936,302 ) (2,852,893 )
(1,358,572 )
OTHER INCOME (EXPENSES) Interest expense
(4,946,564 ) (6,289 ) (22,415,385 ) (75,563 ) Interest income 1,244
76 2,661 13,888 Other Income - (320 ) 284,703 354,947 Change in
Fair Market value of derivatives 13,965,643 - (2,102,682 ) Induced
conversion cost - (142,071 ) (150,201 ) (347,982 ) Amortization
(438,666 ) (36,155 ) (1,263,444 )
(373,703 )
Total Other Income (Expense)
8,581,657 (184,759 ) (25,644,348 )
(428,413 )
Income (Loss) before provision for
income taxes 8,027,257 (1,121,061 ) (28,497,241 ) (1,786,985 )
Provision for income taxes - -
- -
NET INCOME
(LOSS) $ 8,027,257 $ (1,121,061 ) $ (28,497,241 ) $ (1,786,985
) Preferred stock dividends $ (1,045 ) $ - $ (3,135 )
$ -
NET INCOME (LOSS) APPLICABLE TO COMMON
SHARES $ 8,026,212 $ (1,121,061 ) $ (28,500,376 ) $ (1,786,985
)
NET INCOME (LOSS) PER COMMON SHARE BASIC EARNINGS
(LOSS) $ 1.22 $ (1.19 ) $ (7.24 ) $ (2.46 )
DILUTIVE
EARNINGS (LOSS) $ 0.47 $ - $ - $ -
WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING - BASIC 6,596,113
939,688 3,938,957
727,420
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - ASSUMING DILUTIVE 17,068,624
- - -
The accompanying notes are an integral part of the condensed
consolidated financial statements
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