EX-99.1 2 v093926_ex99-1.htm
NEWS RELEASE
 
Exhibit 99.1

CONTACT:
Edward B. Kornfeld
Chief Executive Officer
Chief Financial Officer
Porta Systems Corp.
(516) 364-9300
FOR IMMEDIATE RELEASE
 
PORTA SYSTEMS CORP. REPORTS RESULTS FOR THE QUARTER
AND NINE MONTHS ENDED SEPTEMBER 30, 2007

Syosset, NY - November 13, 2007 - Porta Systems Corp. (OTC.BB:PYTM) today reported operating income from continuing operations for the quarter ended September 30, 2007 of $132,000 compared to operating income from continuing operations of $1,188,000 for the quarter ended September 30, 2006. The Company recorded a net loss from continuing operations of $425,000, $0.04 per share (basic and diluted), versus a net income from continuing operations of $905,000, $0.09 per share (basic and diluted), for the quarters ended September 30, 2007 and 2006, respectively. The net loss for the quarter ended September 30, 2007, was $425,000, $.04 per share (basic and diluted), compared to net income of $818,000, $0.08 per share (basic and diluted), which included a loss from discontinued operations of $87,000, for the quarter ended September 30, 2006.
There was no loss from discontinued operations for the quarter ended September 30, 2007.

The Company reported operating income from continuing operations for the nine months ended September 30, 2007 of $1,056,000 compared to operating income from continuing operations of $3,192,000 for the nine months ended September 30, 2006. The Company recorded a net loss from continuing operations of $531,000, $0.05 per share (basic and diluted) versus net income from continuing operations of $2,254,000, $0.22 per share (basic and diluted) for the nine months ended September 30, 2007 and 2006, respectively. Net loss for the nine months ended September 30, 2007, after a loss from discontinued operations of $521,000, was $1,052,000, $0.10 per share (basic and diluted), compared to net income of $2,009,000, after a loss from discontinued operations of $245,000, $0.20 per share (basic and diluted) for the nine months ended September 30, 2006.

As of June 30, 2007, the Company completely discontinued the operation of its OSS business and wrote off the remaining OSS assets and incurred losses related to the discontinued OSS operations in the amount of $521,000. The OSS operating loss for the quarter and nine months ended September 30, 2006 was $87,000 and $245,000, respectively. There was no OSS activity for the quarter ended September 30, 2007.
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Porta Systems Corp. Press Release
Page 2
November 13, 2007

Sales from continuing operations were $6,651,000 for the quarter ended September 30, 2007 versus $9,018,000 for the quarter ended September 30, 2006, a decrease of approximately $2,367,000 (26%). Copper Connection/Protection sales were $5,594,000 for the quarter ended September 30, 2007 versus $7,694,000 for the quarter ended September 30, 2006, a decrease of $2,100,000 (27%). The decrease in sales for the quarter is the result of a decline in orders from British Telecommunications that was partially offset by higher sales of connection and protection products to North America customers. Signal Processing sales for the quarter ended September 30, 2007 were $1,057,000 versus $1,324,000 for the quarter ended September 30, 2006, a decrease of $267,000 (20%). The decline in Signal revenue was primarily due to the deferral of anticipated orders from the military sector related to Congress’ failure to approve the U.S. military budget.

Sales from continuing operations were $21,922,000 for the nine months ended September 30, 2007 versus $25,039,000 for the nine months ended September 30, 2006, a decrease of approximately $3,117,000 (12%). Copper Connection/Protection sales for the nine months ended September 30, 2007 were $18,228,000 versus $21,308,000 for the nine months ended September 30, 2006, a decrease of $3,080,000 (14%). The decrease in sales for the nine months is the result of a decline in orders from British Telecommunications that was partially offset by higher sales of connection and protection products to North America customers. Signal Processing sales for the nine months ended September 30, 2007 were $3,694,000 versus $3,731,000 for the nine months ended September 30, 2006, a decrease of $37,000 (1%). The decline in Signal revenue was primarily due to the deferral of anticipated orders from the military sector related to Congress’ failure to approve the U.S. military budget.

The overall gross margin from continuing operations was 31% for the quarter ended September 30, 2007, compared to 33% for the quarter ended September 30, 2006. Gross margin for the nine months ended September 30, 2007 was 31% compared to 34% for the nine months ended September 30, 2006. The decrease for the quarter and nine months is primarily related to a change in product mix sold to British Telecommunications from the higher gross profit DSL products to the lower margin local loop unbundling products and less absorption of manufacturing overhead due to the lower level of revenue. Our Signal segment gross margin increased slightly during the quarter and nine months due to changes in the sales mix. 

Operating expenses from continuing operations for the quarter ended September 30, 2007 increased by $162,000 (9%) from 2006. For the nine months ended September 30, 2007, operating expenses increased by $473,000 (9%) when compared to last year’s nine months. The increase for the quarter and nine months ended September 30, 2007 relates primarily to increased expenses for general and administrative expenses primarily related to the Company’s ongoing debt restructuring activities.

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Porta Systems Corp. Press Release 
Page 3
November 13, 2007


Interest expense increased for the quarter and nine months by $286,000 and $688,000, respectively. These increases are primarily due to additional interest expenses of $312,500 and $493,000 for the quarter and nine months, respectively, accrued on our senior debt under the terms of our extension agreement with our senior debt holder. We do not accrue interest on the entire amount of the senior debt of approximately $23,373,000 under the terms of our agreement with our senior debt holder.

The Company’s Copper Connection/Protection business unit operated profitably during the quarter and nine months, with operating income of $637,000 and $2,383,000, respectively, for the quarter and nine months. The Signal Processing unit operated profitably during the quarter and nine months of 2007, with operating income of $235,000 and $933,000, respectively.
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On February 7, 2007, Cheyne Special Situations Fund L.P. (“Cheyne”) purchased our senior debt of approximately $23,400,000 from SHF IX, LLC and subsequently extended the maturity of the senior debt to February 1, 2008. We are engaged in negotiations with respect to a restructuring of our senior, subordinated debt and other creditors. We anticipate that any such restructuring, if successful, will result in a very significant dilution to our common stock holders and will require the approval of the holders of our common stock, subordinated debt and certain other creditors. If we are unable to obtain the necessary consents, we may be unable to effect a restructuring of our debt which could result in our seeking protection under the Bankruptcy Code.

On October 23, 2007 the Company borrowed an additional $1,000,000 from Cheyne, our senior debt holder, to fund its current operations. Interest accrues at an amount equal to the six month Libor rate plus 10%. The principal and accrued interest are due on February 1, 2008. If the senior debt holder does not extend the maturity date of our obligations or demands payment of all or a significant portion of our obligations due to the senior lender, we will likely seek protection under the Bankruptcy laws.  

Porta Systems Corp. designs, manufactures, markets and supports communication equipment used in telecommunications, video and data networks worldwide.

Statements in this press release may be “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations, estimates and projections about the Company’s business based, in part, on assumptions made by management. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes

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Porta Systems Corp. Press Release
Page 4
November 13, 2007


and results may, and probably will, differ materially from what is expressed or forecasted in such forward-looking statements due to numerous factors, including those described above and those risks discussed from time to time in the Company’s filings with the Securities and Exchange Commission filings, including the Risk Factors included in the Form 10-K for the year ended December 31, 2006 and the Management’s Discussion and Analysis of Financial Conditions and Results of Operations in the Form 10-K for the year ended December 31, 2006 and the Form 10-Q for the quarter ended September 30, 2007. In addition, general industry and market conditions and growth rates, and general economic conditions could affect such statements. Any forward-looking statements speak only as of the date on which they are made, and the Company does not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this release.








-See Accompanying Table-
 
 
 
Porta Systems Corp. and Subsidiaries
Condensed Consolidated Statement of Operations
Quarter and Nine Months ended September 30,
(in thousands except per share amounts)
Unaudited
  
     
Quarter ended September 30,
 
 
Nine Months ended September 30,
 
 
 
 
2007
 
 
2006
 
 
2007
 
 
2006 
  
Sales
  
$
6,651
  
$
9,018
  
$
21,922
  
$
25,039
  
                           
Gross profit
    
2,088
    
2,982
    
6,783
    
8,446
  
                           
Total operating expenses
    
1,956
    
1,794
    
5,727
    
5,254
  
                           
Operating income
    
132
    
1,188
    
1,056
    
3,192
  
                           
Interest expense, net of interest and other
                          
 income
    
(538
)
  
(261
)
  
(1,529
)
  
(846
)
                           
Income (loss) before income taxes
    
(406
)
  
927
    
(473
)
  
2,346
  
                           
Income tax expense
    
(19
)
  
(22
)
  
(58
)
  
(92
)
                           
Income (loss) from continuing operations
    
(425
)
  
905
    
(531
)
  
2,254
  
                           
Discontinued operations:
                          
Loss from discontinued operations
    
--
    
(87
)
  
(521
)
  
(245
)
                           
Net income (loss)
  
$
(425
)
$
818
  
$
(1,052
)
$
2,009
  
                           
Per share data:
                          
                           
Basic per share amounts:
                          
                           
Continuing operations
  
$
(0.04
)
$
0.09
  
$
(0.05
)
$
0.22
  
Discontinued operations
    
--
    
(0.01
)
  
(0.05
)
  
(0.02
)
                           
Net income (loss) per share:
  
$
( 0.04
)
$
0.08
    
(0.10
)
$
0.20
  
                           
Weighted average shares
                          
 outstanding
    
10,076
    
10,076
    
10,076
    
10,076
  
                           
Diluted per share amounts:
                          
                           
Continuing operations
  
$
(0.04
)
$
0.09
  
$
(0.05
)
$
0.22
  
Discontinued operations
    
--
    
( 0.01
)
  
(0.05
)
  
(0.02
)
                           
Net income (loss) per share:
  
$
(0.04
)
$
0.08
    
(0.10
)
$
0.20
  
                           
Weighted average shares
                          
 outstanding
    
10,076
    
10,076
    
10,076
    
10,104