-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QYJaoZOzORKQMdcQ/e+HVXJMzlwP2kQGWo86dGX+X+6uki30J8Cf9i+euJIxn2PZ eBn4LSmLN6WoIddNLsGdlQ== 0000355876-96-000002.txt : 19960131 0000355876-96-000002.hdr.sgml : 19960131 ACCESSION NUMBER: 0000355876-96-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19951230 FILED AS OF DATE: 19960130 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: GANDALF TECHNOLOGIES INC CENTRAL INDEX KEY: 0000355876 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER PERIPHERAL EQUIPMENT, NEC [3577] IRS NUMBER: 132991700 STATE OF INCORPORATION: A6 FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-12643 FILM NUMBER: 96508840 BUSINESS ADDRESS: STREET 1: 130 COLONNADE RD S CITY: NEPEAN ONTARIO CANAD STATE: A6 BUSINESS PHONE: 6137236500 MAIL ADDRESS: STREET 1: 130 COLONNADE RD S CITY: NEPEAN ONTARIO CANAD STATE: A6 10-Q 1 Gandalf Technologies Inc. 130 Colonnade Road South Nepean, Ontario K2E 7M4 January 26, 1996 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. USA 20549 Dear Sir/Madam: Re: Gandalf Technologies Inc. Quarterly Report of Form 10-Q Commission File No. 0-12643 Transmitted herewith in electronic format for filing with the Securities and Exchange Commission is the Quarterly Report on Form 10-Q for Gandalf Technologies Inc. for the quarter ended December 30, 1995. If you have any comments or questions with respect to the foregoing, please contact the undersigned at (613) 274-6563. Please acknowledge receipt of this letter and validation of documents by means of Compuserve to: User ID# 72741,124 CIK: 0000355876 Yours truly, s/Diana Cianciusi Corporate Counse SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended December 30, 1995 Commission file number 0-12643 - ------------------ ------- GANDALF TECHNOLOGIES INC. - --------------------------------------------------------------- (Exact name of registrant as specified in its charter) ONTARIO, CANADA NOT APPLICABLE - ---------------------------- ------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 130 COLONNADE ROAD SOUTH, NEPEAN, ONTARIO K2E 7M4 - ----------------------------------------- --------- (Address of principal executive offices) (Postal Code) Registrant's telephone number, including area code (613) 274-6500 NOT APPLICABLE - --------------------------------------------------------------- Former name, former address and former fiscal year, if changed since last report. *Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- The number of shares outstanding as at December 31, 1995 was 42,749,830. GANDALF TECHNOLOGIES INC. INDEX Page No. -------- PART I FINANCIAL INFORMATION Consolidated Balance Sheet 3 Consolidated Statement of Income 4 Consolidated Statement of Changes in Financial Position 5 Consolidated Statement of Shareholders' Equity 6 Notes to Consolidated Financial Statements 7 Management's Discussion and Analysis of Financial Condition and Results of Operations 11 PART II OTHER INFORMATION 16 SIGNATURE PAGE 16
GANDALF TECHNOLOGIES INC. CONSOLIDATED BALANCE SHEET (Thousands of U.S. dollars) December 30 March 31 1995 1995 ----------- -------- (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 14,611 $ 11,817 Accounts receivable 25,527 26,880 Inventories (note 2) 13,518 15,230 Other 1,373 2,268 -------- -------- Total current assets 55,029 56,195 Fixed assets (note 3) 16,902 18,619 Goodwill, net of amortization of $3,118 (March 31, 1995: $2,952) 3,296 3,462 Other assets 2,349 3,232 -------- -------- Total assets $ 77,576 $ 81,508 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Bank operating lines (note 4) $ 2,786 $ 5,854 Accounts payable and accrued liabilities (note 5) 17,756 21,369 Deferred revenue 5,872 7,758 Current portion of long-term debt 266 157 -------- -------- Total current liabilities 26,680 35,138 Long-term debt 2,297 1,877 8.5% convertible debentures, due 2002 (note 6) - 10,051 Shareholders' equity: Capital stock: Common shares, 42,749,830 issued and outstanding (March 31, 1995: 35,238,064) (note 7) 53,683 91,644 Retained earnings (deficit) (note 7) 193 (52,364) Cumulative translation adjustment (5,277) (4,838) -------- -------- Total shareholders' equity 48,599 34,442 -------- -------- Total liabilities and shareholders' equity $ 77,576 $ 81,508 ======== ======== (See accompanying notes to consolidated financial statements)
GANDALF TECHNOLOGIES INC. CONSOLIDATED STATEMENT OF INCOME (Unaudited) (Thousands of U.S. dollars except per share amounts) 13 Weeks Ended 39 Weeks Ended December 30 December 30 -------------------- -------------------- 1995 1994 1995 1994 -------- -------- -------- -------- Revenues: Product $ 19,326 $ 20,363 $ 57,141 $ 62,862 Service 8,845 9,388 27,037 27,267 -------- -------- -------- -------- 28,171 29,751 84,178 90,129 Operating expenses: Cost of product sales 9,179 10,661 27,414 32,651 Service expenses 6,096 5,754 17,875 17,364 Sales and marketing 7,892 7,854 23,749 24,598 Administration and general 2,102 1,957 6,315 5,793 Research and development 2,895 2,658 8,329 7,652 Restructuring costs - - - 685 -------- -------- -------- -------- Income from operations 7 867 496 1,386 Interest expense (108) (795) (450) (2,416) Interest income and foreign exchange 193 58 147 203 Gain on sale of portfolio investment - 2,024 - 2,024 -------- -------- -------- -------- Net income for the period $ 92 $ 2,154 $ 193 $ 1,197 ======== ======== ======== ======== Earnings per share (note 8): Basic $ - $ 0.08 $ - $ 0.04 ======== ======== ======== ======== Fully diluted $ 0.06 ======== Weighted average number of shares outstanding (thousands): Basic 41,358 28,145 39,520 28,101 ======== ======== ======== ======== Fully diluted 43,320 ======== (See accompanying notes to consolidated financial statements)
GANDALF TECHNOLOGIES INC. CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION (Unaudited) (Thousands of U.S. dollars) 13 Weeks Ended 39 Weeks Ended December 30 December 30 --------------------- -------------------- 1995 1994 1995 1994 -------- -------- -------- -------- Operating activities: Cash provided by operations (note 9) $ 1,489 $ 1,612 $ 4,234 $ 3,262 Decrease (increase) in operating working capital (note 10) (866) 2,482 (1,193) (485) -------- --------- -------- -------- Cash provided by operating activities 623 4,094 3,041 2,777 -------- --------- -------- -------- Financing activities: Issue of capital stock 6,543 4 14,844 57 Conversion of 8.5% convertible debentures (note 6) (2,337) - (10,336) - Other 30 (72) 481 (432) -------- --------- -------- -------- Cash provided by (applied to) financing activities 4,236 (68) 4,989 (375) -------- --------- -------- -------- Investing activities: Purchase of fixed assets (782) (425) (1,940) (1,710) Proceeds on disposal of investment - 2,594 - 3,857 Proceeds on disposal of fixed assets - 96 - 205 Other 22 168 (15) 75 -------- --------- -------- -------- Cash provided by (applied to) investing activities (760) 2,433 (1,955) 2,427 -------- --------- -------- -------- Effect of exchange rate changes on cash balances (47) (9) (213) 101 -------- --------- -------- -------- Increase in cash position in the period 4,052 6,450 5,862 4,930 Cash position at beginning of period 7,773 (6,759) 5,963 (5,239) -------- --------- -------- -------- Cash position at end of period $ 11,825 $ (309) $ 11,825 $ (309) ======== ========= ======== ======== Cash position is comprised of: Cash and cash equivalents $ 14,611 $ 10,063 $ 14,611 $ 10,063 Bank operating lines (2,786) (10,372) (2,786) (10,372) -------- --------- -------- -------- $ 11,825 $ (309) $ 11,825 $ (309) ======== ========= ======== ======== (See accompanying notes to consolidated financial statements)
GANDALF TECHNOLOGIES INC. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Unaudited) (Thousands of U.S. dollars) 13 Weeks Ended 39 Weeks Ended December 30 December 30 ----------------------------------------- ---------------------------------------- 1995 1994 1995 1994 --------------------- ------------------- -------------------- ------------------ Shares Dollars Shares Dollars Shares Dollars Shares Dollars ---------- --------- -------- --------- ---------- -------- --------- -------- Capital Stock: Consisting of an unlimited number of common shares authorized, without par value Balance at beginning of period 40,056,196 $ 47,220 28,143,810 $ 79,864 35,238,064 $ 91,644 28,072,333 $ 79,811 Issued: On conversion of debentures (note 6) 1,343,402 2,200 - - 5,983,372 9,839 - - Exercise of stock options 1,221,834 2,859 - - 1,399,996 3,160 - - Other 128,398 1,404 3,500 4 128,398 1,404 74,977 57 Reduction in stated capital (note 7) - - - - - (52,364) - - ---------- --------- ---------- --------- ---------- --------- ---------- --------- Balance at end of period 42,749,830 $ 53,683 28,147,310 $ 79,868 42,749,830 $ 53,683 28,147,310 $ 79,868 ========== ========= ========== ========= ========== ========= ========== ========= Retained Earnings (Deficit): Balance at beginning of period $ 101 $ (54,727) $ (52,364) $ (53,770) Net income 92 2,154 193 1,197 Reduction in stated capital (note 7) - - 52,364 - --------- --------- --------- --------- Balance at end of period $ 193 $ (52,573) $ 193 $ (52,573) ========= ========== ========= ========= Cumulative Translation Adjustment: Balance at beginning of period $ (4,760) $ (5,884) $ (4,838) $ (6,932) Adjustment arising on translation of foreign subsidiaries' financial statements to U.S. dollars (850) (1,347) 675 144 Adjustment relating to subsidiary loans designated as long-term investments 333 1,296 (1,114) 853 --------- ---------- ---------- --------- Balance at end of period $ (5,277) $ (5,935) $ (5,277) $ (5,935) ========= ========== ========== ========= (See accompanying notes to consolidated financial statements)
GANDALF TECHNOLOGIES INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) All amounts are stated in U.S. dollars unless otherwise indicated. C$ refers to Canadian dollars. Tabular amounts are in thousands. 1. INTERIM FINANCIAL STATEMENTS The consolidated financial statements at December 30, 1995 and for the thirteen and thirty-nine week periods then ended are unaudited and reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim periods. All such adjustments are of a normal recurring nature. 2. INVENTORIES December 30 March 31 1995 1995 ----------- -------- Raw materials $ 3,558 $ 3,336 Work-in-process 3,223 4,591 Finished goods 6,737 7,303 -------- -------- $ 13,518 $ 15,230 ======== ========
3. FIXED ASSETS
December 30 March 31 1995 1995 ----------- -------- Cost: Land $ 222 $ 232 Buildings 4,670 4,725 Equipment 57,897 55,879 Leasehold improvements 1,974 1,930 -------- -------- 64,763 62,766 Accumulated depreciation 47,861 44,147 -------- -------- Net book value $ 16,902 $ 18,619 ======== ========
4. BANK OPERATING LINES The Company's authorized bank operating lines at December 30, 1995 totalled $19.0 million. At that time, there was sufficient margin available to borrow $13.9 million and $2.8 million was being utilized. Cash and short-term deposits held as of that date represented a further $14.6 million of available cash resources, and cash and unused credit lines totalled $25.7 million. Cash and unused credit lines at March 31, 1995 were $20.8 million. The authorized lines include two committed credit facilities with a Canadian chartered bank and a demand facility with a bank in the United Kingdom. They are secured by certain of the accounts receivable, inventories and other assets of the Company and bear interest at rates ranging from 0.5% to 2.5% above the respective banks' prime or base rates. 5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
December 30 March 31 1995 1995 ----------- -------- Trade accounts payable $ 5,177 $ 7,341 Payroll, commissions and related taxes 3,685 4,072 Accrued restructuring charges 1,729 3,033 Other payables 5,808 5,266 Income and other taxes payable 1,357 1,657 -------- -------- $ 17,756 $ 21,369 ======== ========
6. 8.5% CONVERTIBLE DEBENTURES
Shares Issued Aggregate Principal Amount % Upon Conversion - ---------------------------------------------------------------------- --------------- Balance at March 31, 1994 C$ 30,000 $ 21,681 100% Converted during the year (15,939) (11,533) (53%) 6,782,519 Impact of foreign exchange - (97) - - ---------------------------------------------------------------------- Balance at March 31, 1995 14,061 10,051 47% Converted during the period (14,061) (10,336) (47%) 5,983,372 Impact of foreign exchange - 285 - - ---------------------------------------------------------------------- Balance at December 30, 1995 C$ - $ - - ======================================================================
In November 1992 the Company issued 8.5% convertible debentures with an aggregate principal amount of C$30.0 million which were due to mature in November 2002. At any time prior to maturity they were convertible into common shares of the Company at the option of the holder at a conversion price of C$2.35 (approximately $1.72) which would yield 425.53 common shares for each C$1,000 (approximately $733) of principal amount of debentures held. During the fourth quarter of fiscal 1995 approximately 53% of the original amount of debentures were converted into common shares in accordance with the terms of the debentures. During the thirty-nine week period ended December 30, 1995 all remaining debentures were converted into 5,983,372 common shares in accordance with the terms of the debentures. The resulting increase in capital stock of $9,839,000 was determined as the sum of the principal amount of the debentures converted ($10,336,000) plus interest accrued to the date of conversion ($135,000), net of the pro rata share of the associated unamortized deferred financing costs ($632,000). 7. REDUCTION IN STATED CAPITAL On August 10, 1995 the shareholders of the Company passed a special resolution authorizing a reduction in statutory stated capital in respect of the common shares by $52,364,000. This resulted in a corresponding reduction in the accumulated deficit as shown on the consolidated balance sheet and the consolidated statement of shareholders' equity. 8. EARNINGS PER SHARE Basic earnings per share figures are presented on the consolidated statement of income. These figures are calculated using the monthly weighted average number of common shares outstanding during the period. Fully diluted earnings per share information has not been presented in those periods where potential conversions are anti-dilutive. 9. CASH PROVIDED BY OPERATIONS Cash provided by operations is computed as follows:
13 Weeks Ended 39 Weeks Ended December 30 December 30 -------------------- -------------------- 1995 1994 1995 1994 -------- ------- -------- -------- Income from operations $ 7 $ 867 $ 496 $ 1,386 Depreciation and amortization 1,396 1,428 4,022 4,165 Interest paid (107) (741) (431) (2,286) Interest income and foreign exchange 193 58 147 203 Other - - - (206) -------- -------- -------- -------- $ 1,489 $ 1,612 $ 4,234 $ 3,262 ======== ======== ======== ========
10. DECREASE (INCREASE) IN OPERATING WORKING CAPITAL The decrease (increase) in operating working capital is computed as follows:
13 Weeks Ended 39 Weeks Ended December 30 December 30 -------------------- -------------------- 1995 1994 1995 1994 -------- ------- -------- -------- Accounts receivable $ 691 $ 3,974 $ 1,353 $ 3,049 Inventories 1,236 1,611 1,712 5,099 Prepaid expenses (23) 436 895 533 Accounts payable and accrued liabilities (1,367) (1,784) (3,185) (8,002) Income taxes payable (23) (25) (301) 200 Deferred revenue (1,130) (1,093) (1,886) (1,654) Foreign currency equity adjustment (250) (637) 219 290 -------- ------- -------- -------- $ (866) $ 2,482 $ (1,193) $ (485) ======== ======== ======== ========
11. UNITED STATES ACCOUNTING PRINCIPLES The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in Canada ("Canadian GAAP") which in the case of the Company differ in the following material respects from those generally accepted in the United States ("U.S. GAAP"). (a) Under U.S. GAAP, financing and investing activities not involving a receipt or outlay of cash are excluded from the consolidated statement of changes in financial position. Accordingly, the following financing activities would not be presented in the consolidated statement of changes in financial position but would be shown supplementally.
13 Weeks Ended 39 Weeks Ended December 30 December 30 --------------------- ------------------- 1995 1994 1995 1994 -------- -------- ------- -------- Conversion of 8.5% convertible debentures $ (2,377) - $ (10,336) - Issue of capital stock on conversion of debentures $ 2,377 - $ 10,336 -
(b) Under U.S. GAAP, bank operating lines would not be included as a component of the cash position presented in the consolidated statement of changes in financial position. The change in bank operating lines would be presented as a financing activity and would therefore be included in the determination of the increase or decrease in cash position in the period. (c) U.S. GAAP requires the calculation of primary earnings per share. This figure is not materially different from the basic earnings per share figure calculated under Canadian GAAP. (d) Reductions in stated capital and deficit, as described under note 7 are not recorded under U.S. GAAP. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introduction - ------------ The consolidated financial statements for the third quarter ended December 30, 1995, together with accompanying notes, should be read as an integral part of this review. These financial statements have been prepared by management in accordance with accounting principles generally accepted in Canada. Note 11 to the consolidated financial statements describes the impact, in the case of the Company, of differences between accounting principles generally accepted in Canada and the United States. All amounts are stated in U.S. dollars unless otherwise indicated. C$ refers to Canadian dollars. References to years are to fiscal years ended March 31. Results of Operations - Third Quarter Ended December 30, 1995 - ---------------------------------------------------------- The following table sets forth items derived from the quarterly consolidated statements of income as a percentage of revenues for the quarter ended December 30, 1995 and for each of the preceding four quarters. The column in the table entitled "Percentage Change Quarter 3, 1996 vs 1995" represents the percentage change, either favourable or (unfavourable), in the dollar amount of such items for the third quarter of 1996 compared with the third quarter of 1995.
Percentage Fiscal 1995 Fiscal 1996 Change --------------------- ------------------------------- Quarter 3 Quarter 3 Quarter 4 Quarter 1 Quarter 2 Quarter 3 1996 vs.1995 ---------- --------- --------- --------- --------- ------------ (Thousands of dollars) Revenues $29,751 $30,382 $28,650 $27,357 $28,171 (5.3)% ======= ======= ======= ======= ======= ======= (Percentage of Revenues) Revenues: Product 68.4% 68.9% 67.8% 67.3% 68.6% (5.1)% Service 31.6 31.1 32.2 32.7 31.4 (5.8) ------- ------- ------- ------- ------- ------- 100.0% 100.0% 100.0% 100.0% 100.0% (5.3)% ======= ======= ======= ======= ======= ======= Gross Margin: Product 47.6% 47.6% 50.2% 53.4% 52.5% 4.6 % Service 38.7 37.0 36.5 34.0 31.1 (24.4) Combined 44.8 44.3 45.8 47.1 45.8 (3.3) Expenses: Sales & marketing 26.4 28.1 28.6 28.0 28.0 0.5 Administration & general 6.6 5.7 7.2 7.8 7.5 7.4 Research & development 8.9 8.4 9.1 10.4 10.3 8.9 ------- -------- ------- ------- ------- Income from operations 2.9 2.1 0.9 0.9 - Interest expense (2.7) (1.8) (0.7) (0.5) (0.4) Interest income and foreign exchange 0.2 0.4 - (0.3) 0.7 Gain on sale of portfolio investment 6.8 - - - - ------- ------- ------- ------- ------- Net income 7.2% 0.7% 0.2% 0.1% 0.3% ======= ======= ======= ======= =======
Revenues - -------- The following two tables set forth product and service revenues by geographic segment for the quarter ended December 30, 1995 and for each of the preceding four quarters. The table also includes the change in revenues, expressed as a percentage, in the third quarter of 1996 compared to the corresponding period of 1995.
Percentage Fiscal 1995 Fiscal 1996 Change --------------------- --------------------------------- Quarter 3 Quarter 3 Quarter 4 Quarter 1 Quarter 2 Quarter 3 1996 vs. 1995 ----------- --------- --------- --------- --------- ------------- (Thousands of dollars) Product Revenues: United States $ 6,048 $ 5,578 $ 5,733 $ 6,243 $ 6,361 5.2 % Canada 3,491 3,443 3,438 3,642 3,474 (0.5) United Kingdom 5,129 6,474 4,905 3,783 4,361 (15.0) Holland/France 2,774 2,350 2,853 2,272 3,428 23.6 International markets 2,921 3,094 2,485 2,461 1,702 (41.7) ------- ------- ------- ------- ------- $20,363 $20,939 $19,414 $18,401 $19,326 (5.1)% ======= ======= ======= ======= ======= Service Revenues: United States $ 2,261 $ 2,370 $ 2,159 $ 2,078 $ 1,962 (13.2)% Canada 1,943 1,676 1,747 1,598 1,690 (13.0) United Kingdom 3,519 3,704 3,502 3,445 3,074 (12.6) Holland/France 1,665 1,693 1,828 1,835 2,119 27.3 ------- ------- ------- ------- ------- $ 9,388 $ 9,443 $ 9,236 $ 8,956 $ 8,845 (5.8)% ======= ======= ======= ======= =======
The following three tables set forth, for the thirty-nine weeks ended December 30, 1995 and for each of the two preceding full fiscal years, product revenues by geographic segment and product group expressed as a percentage of total product revenues. These amounts have been calculated assuming constant rates of exchange in the translation of foreign currency amounts to U.S. dollars. Remote access products primarily include internetworking products sold under the names Gandalf Xpressway (TM), XpressStack (TM) and XpressConnnect (TM) LANLine. Remote access products represent a subset of the Company's total LAN internetworking product line. The other three product groups shown below represent traditional product areas for the Company which include wide area networking (WAN) backbone products; modems, multiplexers and local connectivity products; and other products which primarily represent third party products.
Modems/ Multiplexers/ Remote WAN Local Access Backbone Connectivity Other Total ------- --------- ------------- ------- ------- Fiscal 1994: United States 7% 3% 9% 7% 26% Canada 5 1 9 2 17 United Kingdom 6 6 10 5 27 Holland/France 3 1 4 3 11 International markets 4 7 5 3 19 --- --- --- --- --- 25% 18% 37% 20% 100% === === === === === Modems/ Multiplexers/ Remote WAN Local Access Backbone Connectivity Other Total ------- --------- ------------- ------- ------- Fiscal 1995: United States 15% 1% 8% 4% 28% Canada 9 2 7 1 19 United Kingdom 12 3 9 4 28 Holland/France 6 1 3 1 11 International markets 7 3 2 2 14 --- --- --- --- --- 49% 10% 29% 12% 100% === === === === === Fiscal 1996 (Year to Date): United States 25% 2% 5% 1% 33% Canada 12 1 5 1 19 United Kingdom 12 2 6 2 22 Holland/France 8 1 3 2 14 International markets 7 2 3 - 12 --- --- --- --- --- 64% 8% 22% 6% 100% === === === === ===
Gross Margin - ------------ The gross margin on product revenues (product revenues minus the cost of product sales expressed as a percentage of product revenues) was 52.5% in the third quarter of 1996 compared with 47.6% in the third quarter of 1995. In general, the combined effect of lower manufacturing costs following restructuring actions taken in the fourth quarter of 1994 and the first quarter of 1995 and a more favourable product mix primarily due to a reduction in the volume of third-party product sales, has resulted in improvements since 1994 in the gross margin earned on product revenues. However, the Company anticipates that it will continue to experience quarterly fluctuations in the gross margin on product revenues such as those that have been experienced during the first three quarters of 1996. The gross margin on service revenues (service revenues less service expenses expressed as a percentage of service revenues) was 33.9% during the thirty-nine weeks ended December 30, 1995 compared to 36.3% during the same period a year ago. This decline has occurred as a result of a 4.0% decline in service revenues in the first three quarters of the current fiscal year versus the same period a year ago, when applying constant exchange rates for translation purposes for both periods. Service expenses, when translated in the same way, declined 0.3% during the first three quarters of 1996 compared to 1995. The gross margin on service revenue during the third quarter of 1996 was 31.1%, down from 38.7% during the third quarter of 1995. This decline, when comparing the two periods, occurred as a result of the combined effect of lower service revenues and higher associated expenses. Operating Expenses - ------------------ Sales and marketing, and administration and general expenses were $10.0 million in the third quarter of 1996, compared to $9.8 million in the third quarter a year ago. For the first three quarters of 1996, sales and marketing, and administration and general expenses were $30.1 million, a decrease of $0.3 million over the corresponding period in the prior fiscal year. Research and development expenses increased by 8.9% from the third quarter of 1995 to the third quarter of 1996. This increase is primarily attributable to accruals established for the repayment of government funding under the MSDP program as described below. Since 1991, the Company has received funding of approximately $1.4 million and $2.6 million respectively under two projects approved through the Canadian federal government's Microelectronics and Systems Development Program ("MSDP"). The amount that is potentially repayable is calculated without interest as a royalty on revenues earned in the 10 years following the project completion date and is limited to the amount of funding received. The first MSDP project was completed on March 31, 1995 and the Company began accruing the corresponding royalty at the beginning of the current fiscal year. The royalty for this project is 2% of consolidated gross revenues from the resulting products. The second MSDP project was completed on September 30, 1995 and the Company began accruing the corresponding royalty in the third quarter of the current fiscal year. The royalty for this project is 1% of the Canadian subsidiary's total product revenues. The royalty payments are due annually between three and six months after the anniversary of the project completion date. The Company expects that the funding will be fully repaid within three to five years. Income from Operations - ---------------------- The Company reported income from operations of $7,000 on revenues of $28.2 million for the third quarter of 1996. For the third quarter of 1995 the Company reported income from operations of $867,000 on revenues of $29.8 million. Income from operations for the thirty-nine weeks ended December 30, 1995 was $0.5 million, compared to $1.4 million in the same period in the previous fiscal year. Interest Expense - ---------------- Interest expense for the third quarter of 1996 was $0.1 million compared with $0.8 million in the third quarter of 1995. Interest expense has declined primarily as a result of the conversion to common shares of all outstanding 8.5% convertible debentures during the period from the fourth quarter of 1995 to the third quarter of 1996. Lower utilization of bank operating lines in the third quarter of 1996 compared to the third quarter a year ago has also contributed to the year-over-year decrease in interest expense. Net Income - ---------- Net income for the third quarter of 1996 was $92,000, or breakeven on a per share basis, versus net income of $2.2 million or $0.08 per share in the third quarter a year ago. The Company reported net income of $0.2 million for the thirty-nine weeks ended December 30, 1995, compared to net income of $1.2 million for the corresponding period in 1995. Net income for the thirteen weeks and thirty-nine weeks ended December 30, 1994 included a $2.0 million gain on the sale of a portfolio investment. II - OTHER INFORMATION - ---------------------- Item 6(b) - Report on Form 8-K - ------------------------------ There were no reports on Form 8-K filed for the quarter ended December 30, 1995. SIGNATURES - ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GANDALF TECHNOLOGIES INC. January 24, 1996 BY: s/THOMAS A. VASSILIADES - ------------------------- --------------------------- Date Thomas A. Vassiliades Chairman, President and Chief Executive Officer January 24, 1996 BY: s/WALTER R. MACDONALD - -------------------------- -------------------------- Date Walter R. MacDonald Vice President, Finance and Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----