-----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, FxWTWn8K4zu+yG9HuQLhjXXxCYOOTo6UVMZHw4UtAATnkyri023mrgAyVOMbgQWb bCU6ObjUgmCTvE3b9Tmicg== 0000891092-00-000408.txt : 20000515 0000891092-00-000408.hdr.sgml : 20000515 ACCESSION NUMBER: 0000891092-00-000408 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PORTA SYSTEMS CORP CENTRAL INDEX KEY: 0000079564 STANDARD INDUSTRIAL CLASSIFICATION: TELEPHONE & TELEGRAPH APPARATUS [3661] IRS NUMBER: 112203988 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08191 FILM NUMBER: 630154 BUSINESS ADDRESS: STREET 1: 575 UNDERHILL BLVD CITY: SYOSSET STATE: NY ZIP: 11791 BUSINESS PHONE: 5163649300 MAIL ADDRESS: STREET 1: 575 UNDERHILL BLVD CITY: SYOSSET STATE: NY ZIP: 11791 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2000 [ ] 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 1-8191 PORTA SYSTEMS CORP. ------------------- (Exact name of registrant as specified in its charter) Delaware 11-2203988 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 575 Underhill Boulevard, Syosset, New York ------------------------------------------ (Address of principal executive offices) 11791 ----- (Zip Code) 516-364-9300 ------------ (Company's telephone number, including area code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 of 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 ______ 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 $0.01) 9,785,310 shares as of May 4, 2000 Page 1 of 11 pages PART I.- FINANCIAL INFORMATION Item 1- Financial Statements PORTA SYSTEMS CORP. AND SUBSIDIARIES Consolidated Balance Sheets (Dollars in thousands)
March 31, December 31, 2000 1999 -------- ------------ (Unaudited) Assets ------ Current assets: Cash and cash equivalents $ 3,107 $ 3,245 Accounts receivable - trade, less allowance for doubtful accounts 17,517 12,137 Inventories 8,600 8,893 Prepaid expenses and other current assets 1,410 1,373 -------- -------- Total current assets 30,634 25,648 Property, plant and equipment, net 4,668 4,193 Goodwill, net 10,902 11,076 Other assets 2,630 2,531 -------- -------- Total assets $ 48,834 $ 43,448 ======== ======== Liabilities and Stockholders' Deficit ------------------------------------- Current liabilities: Current portion of senior debt $ 2,000 $ 2,000 Subordinated notes 900 --- Accounts payable 11,103 8,831 Accrued expenses 6,819 5,723 Accrued interest payable 515 588 Accrued commissions 1,621 1,864 Accrued deferred compensation 196 196 Income taxes payable 240 267 Short-term loans 8 44 -------- -------- Total current liabilities 23,402 19,513 -------- -------- Senior debt, net of current maturities 17,668 15,518 Subordinated notes 5,126 6,013 6% convertible subordinated debentures 372 371 Deferred compensation 917 1,004 Income taxes payable 301 352 Other long-term liabilities 945 971 Minority interest 1,028 1,093 -------- -------- Total long-term liabilities 26,357 25,322 -------- -------- Total Liabilities 49,759 44,835 -------- -------- Stockholders' deficit: Preferred stock, no par value; authorized 1,000,000 shares, none issued --- --- Common stock, par value $.01; authorized 20,000,000 shares, issued 9,760,400 and 9,638,861 shares at March 31, 2000 and December 31, 1999 98 96 Additional paid-in capital 75,426 75,310 Accumulated deficit (70,652) (70,959) Accumulated other comprehensive loss: Foreign currency translation adjustment (3,859) (3,896) -------- -------- 1,013 551 Treasury stock, at cost (1,938) (1,938) -------- -------- Total stockholders' deficit (925) (1,387) -------- -------- Total liabilities and stockholders' deficit $ 48,834 $ 43,448 ======== ========
See accompanying notes to consolidated financial statements. Page 2 of 11 pages PORTA SYSTEMS CORP. AND SUBSIDIARIES Unaudited Consolidated Statements of Operations and Comprehensive Income (Loss) (In thousands, except per share data)
Three Months Ended March 31, March 31, 2000 1999 -------- -------- Sales $ 15,928 $ 9,526 Cost of sales 10,212 6,715 -------- -------- Gross profit 5,716 2,811 Selling, general and administrative expenses 3,135 2,754 Research and development expenses 1,408 1,270 -------- -------- Total expenses 4,543 4,024 -------- -------- Operating income (loss) 1,173 (1,213) Interest expense (934) (793) Interest income 27 68 Other income (expense), net 5 136 -------- -------- Income (loss) before income taxes and minority interest 271 (1,802) Income tax expense (30) (8) Minority interest 65 66 -------- -------- Net income (loss) $ 306 $ (1,744) ======== ======== Other comprehensive income (loss), net of tax: Foreign currency translation adjustments 37 (41) -------- -------- Comprehensive income (loss) $ 343 $ (1,785) ======== ======== Per share data: Basic per share amounts: Net income (loss) per share of common stock $ 0.03 $ (0.18) ======== ======== Weighted average shares outstanding 9,661 9.485 ======== ======== Diluted per share amounts: Net income (loss) per share of common stock $ 0.03 $ (0.18) ======== ======== Weighted average shares outstanding 10,707 9.485 ======== ========
See accompanying notes to unaudited consolidated financial statements. Page 3 of 11 pages PORTA SYSTEMS CORP. AND SUBSIDIARIES Unaudited Consolidated Statements of Cash Flows (In thousands)
Three Months Ended March 31, March 31, 2000 1999 --------- --------- Cash flows from operating activities: Net income (loss) $ 306 $(1,744) Adjustments to reconcile net income (loss) to net cash used in operating activities: Non-cash financing expenses --- 7 Depreciation and amortization 374 386 Amortization of debt discounts 14 80 Minority interest (65) (66) Changes in operating assets and liabilities: Accounts receivable (5,380) 5,554 Inventories 293 (505) Prepaid expenses (37) (654) Other assets (108) 103 Accounts payable, accrued expenses and other liabilities 2,861 (3,562) ------- ------- Net cash used in operating activities (1,742) (401) ------- ------- Cash flows from investing activities: Proceeds from disposal of assets --- 243 Capital expenditures, net (664) (96) Proceeds from exercised options and warrants 118 --- Repayment of employee loans --- 89 ------- ------- Net cash provided by (used in) investing activities (546) 236 ------- ------- Cash flows from financing activities: Proceeds from senior debt 2,550 --- Repayments of senior debt (400) (620) Proceeds from (repayments of) short term loans (36) (31) ------- ------- Net cash provided by (used in) financing activities 2,114 (651) ------- ------- Effect of exchange rate changes on cash 36 (47) ------- ------- Decrease in cash and cash equivalents (138) (863) Cash and equivalents - beginning of the year 3,245 3,044 ------- ------- Cash and equivalents - end of the period $ 3,107 $ 2,181 ======= ======= Supplemental cash flow disclosure: Cash paid for interest expense $ 996 $ 525 ======= ======= Cash paid for income taxes $ 20 $ 60 ======= =======
See accompanying notes to unaudited consolidated financial statements. Page 4 of 11 pages PORTA SYSTEMS CORP. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Note 1: Management's Responsibility For Interim Financial Statements Including All Adjustments Necessary For Fair Presentation Management acknowledges its responsibility for the preparation of the accompanying interim consolidated financial statements which reflect all adjustments, consisting of normal recurring adjustments, considered necessary in its opinion for a fair statement of its consolidated financial position and the results of its operations for the interim period presented. These consolidated financial statements should be read in conjunction with the summary of significant accounting policies and notes to consolidated financial statements included in the Company's Form 10-K annual report for the year ended December 31, 1999. Results for the interim period are not necessarily indicative of results for the year. Note 2: Inventories Inventories are stated at the lower of cost (on the average or first-in, first-out methods) or market. The composition of inventories at the end of the respective periods is as follows: March 31, 2000 December 31, 1999 -------------- ----------------- (in thousands) Parts and components $ 5,491 $ 5,558 Work-in-process 1,005 584 Finished goods 2,104 2,751 ------- ------- $ 8,600 $ 8,893 ======= ======= Note 3: Senior Debt On March 31, 2000, the Company's debt to its senior lender was $19,668,000. During the three months then ended, the Company borrowed $2,550,000 and repaid principal of $400,000. Based on required principal payments, $2,000,000 has been classified as a current liability at March 31, 2000. In April 2000, the Company and its senior lender agreed to extend the loan and security agreement to July 3, 2001. As consideration, Porta agreed to reduce the exercise price of the outstanding warrants held by its senior lender to $2.00 per share. At March 31, 2000, the senior lender held warrants to purchase approximately 470,000 shares of common stock. Financial debt covenants include an interest coverage ratio measured quarterly, limitations on the incurrence of indebtedness, limitations on capital expenditures, and prohibitions on declarations of any cash or stock dividends or the repurchase of the Company's stock. As of March 31, 2000, the Company was in compliance with its financial covenants. Note 4: Subordinated Notes As of March 31, 2000, the Company has outstanding $6,064,000 of subordinated notes. In April 2000, the Company and the holders of 85% of the subordinated notes agreed to eliminate the requirement that Porta meet specific financial goals for Porta to extend the maturity date of their subordinated notes to July 3, 2001. As a result, notes in the principal amount of $900,000 are due January 3, 2001 and note in the principal amount of $5,164,000 is due July 3, 2001. The carrying value of such combined subordinated notes as of March 31, 2000 is $6,026,000 which is net of a related issuance discount. Page 5 of 11 pages In connection with the extension agreement, the Company agreed to issue to the noteholders warrants to purchase 127,500 shares of common stock at $3.00 per share. The Company may issue to any other noteholders, who agree to this amendment, warrants to purchase up to 22,500 shares of common stock at $3.00 per share. The warrants to purchase 150,000 shares of common stock which were previously authorized, will be issued if the notes are extended. Note 5: Segment Data The Company has three reportable segments: Line Connection and Protection Equipment ("Line") whose products interconnect copper telephone lines to switching equipment and provides fuse elements that protect telephone equipment and personnel from electrical surges; Operating Support Systems ("OSS") whose products automate the testing, provisioning, maintenance and administration of communication networks and the management of support personnel and equipment; and Signal Processing ("Signal") whose products are used in data communication devices that employ high frequency transformer technology. The factors used to determine the above segments focused primarily on the types of products and services provided, and the type of customer served. Each of these segments is managed separately from the others, and management evaluates segment performance based on operating income. Total assets for the Company increased from December 31, 1999 to March 31, 2000 due to increased accounts receivable primarily from the OSS segment. There has been no significant change from December 31, 1999 in the basis of measurement of segment revenues and profit or loss. Three Months Ended March 31, 2000 March 31, 1999 -------------- -------------- Sales: Line $ 6,094,000 4,628,000 OSS 8,114,000 3,202,000 Signal 1,578,000 1,623,000 ------------ ------------ $ 15,786,000 9,453,000 ============ ============ Segment profit: Line $ 1,269,000 1,368,000 OSS 551,000 (1,901,000) Signal 302,000 461,000 ------------ ------------ $ 2,122,000 (72,000) ============ ============ Page 6 of 11 pages The following table reconciles segment totals to consolidated totals:
Three Months Ended March 31, 2000 March 31, 1999 -------------- -------------- Sales: Total revenue for reportable segments $ 15,786,000 9,453,000 Other revenue 142,000 73,000 ------------ ------------ Consolidated total revenue $ 15,928,000 9,526,000 ============ ============ Operating income: Total segment profit for reportable segments $ 2,122,000 (72,000) Corporate and unallocated (949,000) (1,141,000) ------------ ------------ Consolidated total operating income $ 1,173,000 (1,213,000) ============ ============
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The Company's consolidated statements of operations for the periods indicated below, shown as a percentage of sales, are as follows: Three Months Ended ------------------ March 31, --------- 2000 1999 ------ ------ Sales 100% 100% Cost of Sales 64% 70% Gross Profit 36% 30% Selling, general and administrative expenses 20% 29% Research and development expenses 9% 13% Operating income (loss) 7% (13%) Interest expense - net (5%) (7%) Other 0% 1% Minority interest 0% 1% Net income (loss) 2% (18%) The Company's sales by product line for the periods ended March 31, 2000 and 1999 are as follows: Three Months Ended March 31, ---------------------------- $(000) 2000 1999 ---- ---- Line connection/protection equipment $ 6,094 38% $ 4,628 48% OSS equipment 8,114 51% 3,202 34% Signal Processing 1,578 10% 1,623 17% Other 142 1% 73 1% ------------------- ------------------- $15,928 100% $ 9,526 100% =================== =================== Page 7 of 11 pages Results of Operations The Company's sales for the quarter ended March 31, 2000 were $15,928,000 representing an increased of $6,402,000 (67%) compared to the quarter ended March 31, 1999 of $9,526,000. The overall increase in sales reflects increased sales of OSS and Line equipment. Signal sales decreased by $45,000 (3%) from $1,623,000 to $1,578,000 for the 1999 and 2000 quarters, respectively. Line equipment sales increased by $1,466,000 (32%) from $4,628,000 for the quarter ended March 31, 1999 to $6,094,000 for the quarter ended March 31, 2000. This increase in sales is primarily attributable to sales of approximately $2,700,000 pursuant to a $3,100,000 purchase order from Telefonos de Mexico S.A. de C.V. (Telmex). OSS sales increased by $4,912,000 (153%) from $3,202,000 for the quarter ended March 31,1999 to $8,114,000 for the quarter ended March 31, 2000. The increased sales resulted from sales of approximately $5,900,000 to Fujitsu Telecommunications Europe Limited under a $12,000,000 supply contract. Gross Margin for the quarter ended March 31, 2000, as a percentage of sales, was 36% compared to 30% for the quarter ended March 31, 1999. This improvement in gross margin is attributable to the increased level of sales, which enabled the Company to absorb more efficiently certain fixed expenses associated with the OSS contracts. Selling, general and administrative expenses increased by $381,000 (14%) from $2,754,000 in March 1999 to $3,135,000 in March 2000. This increase relates primarily to the Company's efforts to increase its sales and marketing effectiveness in order to secure future business. Research and development expenses increased by $138,000 (11%) from $1,270,000 in March 1999 to $1,408,000 in March 2000. This increase in research and development expenses results from the Company's efforts to develop new products, primarily related to the OSS business. As a result of the foregoing, the Company had operating income of $1,173,000 for the quarter ended March 31, 2000, as compared to an operating loss of $1,213,000 for the quarter ended March 31, 1999. Interest expense increased by $141,000 (18%) from $793,000 in 1999 to $934,000 in 2000. This change is attributable primarily to increased levels of borrowing from the senior lender. As the result of the foregoing, the Company generated net income of $306,000, $0.03 per share (basic and diluted), for the quarter ended March 31, 2000 versus a net loss of $1,744,000, $0.18 per share (basic and diluted), for the quarter ended March 31, 1999. Page 8 of 11 pages Liquidity and Capital Resources At March 31, 2000, the Company had cash and cash equivalents of $3,107,000 compared with $3,245,000 at December 31, 1999. The Company's working capital at March 31, 2000 was $7,232,000, compared to working capital of $6,135,000 at December 31, 1999. The increase in working capital reflects an increased level of accounts receivable, which was partially offset by an increased level of accounts payable. During the first quarter of 2000, the net cash used by the Company in operations was $1,742,000. The principal source of cash during the quarter was a net increase of $2,150,000 in loans from the senior lender. As of March 31, 2000, the Company's loan and security agreement with its senior secured lender provided the Company, under its revolving line of credit and its letter of credit facility, with combined availability totaling $9,000,000. Under this agreement the unused portion at March 31, 2000 was approximately $400,000. The Company has $19,668,000 outstanding as of March 31, 2000, of which $7,750,000 was pursuant to the revolving line of credit, $1,242,000 was a non-interest-bearing note and $10,676,000 was a term loan agreement. In April 2000, the Company and its senior lender agreed to extend the loan and security agreement to July 3, 2001. As of March 31, 2000, the Company has outstanding $6,064,000 of subordinated notes. In April 2000, the Company and the holders of 85% of the subordinated notes agreed to eliminate the requirement that Porta meet specific financial goals for Porta to extend the maturity date of their subordinated notes to July 3, 2001. As a result, notes in the principal amount of $900,000 are due January 3, 2001 and note in the principal amount of $5,164,000 is due July 3, 2001. The carrying value of such combined subordinated notes as of March 31, 2000 is $6,026,000 which is net of a related issuance discount. The Company believes that its current cash position and internally generated cash flow will be sufficient to satisfy the Company's anticipated operating needs for at least the ensuing twelve months. However, in order to fulfill its current purchase obligations under its existing contracts and sales orders, the Company may be required to seek a short term increase in its credit line. Such an increase may not be granted, in which event the Company's ability to perform its obligations in a timely manner may be impaired. Page 9 of 11 pages Year 2000 Issue Many existing computer programs use only two digits to identify a year in a date field. These programs were designed and developed without considering the impact of the upcoming change in the century. If not corrected, many computer applications could fail or create erroneous results by or at the year 2000. This is referred to as the "Year 2000 Issue." Management initiated a company-wide program to prepare our computer systems and applications for year 2000 compliance. To date, the Company has not experienced any significant Year 2000 issues. Porta incurred internal staff costs as well as other expenses necessary to prepare its systems for the year 2000, replacing some systems and upgrading others. The total cost of this program, which was incurred during 1999, was approximately $500,000, with approximately $200,000 representing internal costs and $300,000 representing external equipment and services. The Company has not incurred any expenses related to the Year 2000 Issue in 2000. Statements contained in this Year 2000 disclosure are subject to certain protection under the Year 2000 Information and Readiness Disclosure Act. Forward Looking Statements Statements contained in this Form 10-Q include forward-looking statements that are subject to risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors, including those identified in this Form 10-Q, the Company's Annual Report on From 10-K for the year ended December 31, 1999 and in other documents filed by the Company with the Securities and Exchange Commission. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits None (b) Reports on Form 8-K None Page 10 of 11 pages 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. PORTA SYSTEMS CORP. Dated May 12, 2000 By /s/William V. Carney -------------------- William V. Carney Chairman of the Board and Chief Executive Officer Dated May 12, 2000 By /s/Edward B. Kornfeld --------------------- Edward B. Kornfeld Senior Vice President and Chief Financial Officer Page 11 of 11 pages EX-27 2 FDS --
5 3-MOS DEC-31-2000 JAN-01-2000 Mar-31-2000 3,107 0 17,517 0 8,600 30,634 4,668 0 48,834 23,402 0 98 0 0 (1,023) 48,834 15,928 15,928 10,212 4,543 0 0 934 271 30 306 0 0 0 306 0.03 0.03
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