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 September 30, 1995
[ ] 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
(Registrant's telephone number, including area code)
Indicate by check mark whether (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 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:
7,307,106 shares as of November 13, 1995
Page 1 of 15 pages
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Part I
Financial Information
Porta Systems Corp. and Subsidiaries
Condensed Consolidated Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
Assets (Unaudited)
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash $ 1,436 $ 2,332
Accounts receivable - trade, net 15,944 13,964
Inventories 16,868 20,146
Prepaid expenses 1,694 1,020
-------------------------
Total current assets 35,942 37,462
-------------------------
Property, plant and equipment, at cost 32,889 32,187
Less accumulated depreciation and amortization (22,812) (21,048)
-------------------------
Total 10,077 11,139
-------------------------
Other assets:
Amounts receivable from sale of discontinued operations 1,000 4,500
Deferred computer software 5,132 6,257
Goodwill - net of accumulated amortization 18,596 19,032
Other assets 6,734 6,573
-------------------------
31,462 36,362
-------------------------
Total assets $ 77,481 $ 84,963
=========================
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable - banks $ 1,722 $ 1,253
Current maturities of long-term debt 26,490 152
6% Convertible subordinated debentures due July 1, 2002 32,029 --
Accounts payable 10,254 9,690
Accrued expenses 13,895 12,168
Income taxes payable 430 478
-------------------------
Total current liabilities 84,820 23,741
-------------------------
Long-term liabilities:
6% Convertible subordinated debentures due July 1, 2002 -- 35,073
Long-term debt, net of current maturities -- 21,000
Other long-term liabilities 2,934 2,967
Minority interest 856 657
-------------------------
Total long-term liabilities 3,790 59,697
-------------------------
Stockholders' equity:
Preferred stock, no par value; authorized
1,000,000 shares of which 100,000 shares
are designated as Series A; none issued -- --
Common stock, par value $.01; authorized
20,000,000 shares, issued 7,461,806 shares
in 1995 and 7,461,806 in 1994 75 75
Additional paid-in capital 33,248 32,888
Foreign currency translation adjustment (3,898) (4,031)
Accumulated deficit (38,180) (25,033)
-------------------------
(8,755) 3,899
Less shares held in treasury, at cost, 154,700 shares
in 1995 and 1994 (1,938) (1,938)
Receivable for employee stock purchases (436) (436)
-------------------------
Total stockholders' equity (deficit) (11,129) 1,525
-------------------------
Total liabilities and stockholders' equity $ 77,481 $ 84,963
=========================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 2 of 15 pages
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Porta Systems Corp. and Subsidiaries
Condensed Consolidated Statements of Operations
(Dollars in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30, September 30, September 30,
1995 1994 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $ 47,922 $ 56,459 $ 14,744 $ 19,383
Cost of sales 37,269 40,429 11,422 16,799
--------------------------------------------------------
Gross profit 10,653 16,030 3,322 2,584
Selling, general and administrative expenses 11,573 13,770 2,839 4,457
Research and development expenses 3,853 2,981 1,419 965
--------------------------------------------------------
Total expenses 15,426 16,751 4,258 5,422
--------------------------------------------------------
Operating loss (4,773) (721) (936) (2,838)
Interest expense (5,882) (3,719) (2,072) (1,255)
Interest income 48 198 15 74
Other (642) (385) (93) (243)
--------------------------------------------------------
loss from continuing operations
before income taxes and minority interest (11,249) (4,627) (3,086) (4,262)
Income tax (70) (14,030) (53) (13,997)
Minority interest (199) (282) (42) (200)
--------------------------------------------------------
Loss from continuing operations (11,518) (18,939 (3,181) (18,459)
Loss on sale of discontinued operations (3,500) -- -- --
Extraordinary Item:
Gain on early extinguishment of debt 1,871 -- -- --
--------------------------------------------------------
Net loss ($13,147) ($18,939) ($3,181) ($18,459)
========================================================
Per share amounts:
Loss from continuing operations ($1.58) ($2.66) ($0.44) ($2.57)
Loss from discontinued operations and
extraordinary Item ($0.22) -- -- --
--------------------------------------------------------
Net loss per share ($1.80) ($2.66) ($0.44) ($2.57)
========================================================
Weighted average shares outstanding (in thousands) 7,307 7,120 7,307 7,195
========================================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 3 of 15 pages
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Porta Systems Corp. and Subsidiaries
Consolidated Statement of Cash Flows
(Dollars in thousands)
(Unaudited) Nine Months Ended
September 30, September 30,
1995 1994
- --------------------------------------------------------------------------------
Cash flows from operating activities:
Net loss ($13,147) ($18,939)
Adjustments to reconcile net loss
to net cash used in operating activities:
Adjustment of receivable from sale of
discontinued operations 3,500 --
Gain on early extinguishment of debt (1,871) --
Deferred income taxes 13,955
Depreciation and amortization 3,735 3,508
Accretion of convertible subordinated
debentures 544 332
Minority interest 199 299
-------------------------
Total (7,040) (845)
Changes in assets and liabilities
Accounts receivable (1,980) (4,415)
Inventories 3,278 2,834
Prepaid expenses (314) (71)
Deferred computer software (510) (1,362)
Intangible and other assets 622 (617)
Accounts payable 564 5,330
Accrued expenses 1,827 801
Other liabilities (81) (893)
-------------------------
Net cash (used in) provided by operating
activities (3,634) 762
-------------------------
Cash flows from investing activities:
Capital additions, net of minor disposals (702) (904)
-------------------------
Net cash used in investing activities (702) (904)
-------------------------
Cash flows from financing activities:
Proceeds from additional long-term debt 5,338 --
Repayments of long-term debt (2,500) (1,394)
Proceeds from issuance of common stock -- 2,137
Issuance of notespayable/short term loans 469 281
-------------------------
Net cash provided by financing activities 3,307 1,024
-------------------------
Effect of exchange rates on cash 133 (277)
Increase(decrease) in cash and cash equivalents (896) 605
Cash and equivalents - beginning of year 2,332 1,727
-------------------------
Cash and equivalents - end of period $ 1,436 $ 2,332
=========================
Supplemental cash flow disclosure:
Cash paid for interest expense $ 2,365 $ 3,701
=========================
Cash paid for income taxes $ 41 $ 42
=========================
See accompanying notes to condensed consolidated financial statements.
Page 4 of 15 pages
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PORTA SYSTEMS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 the results for the interim period
presented. Results for the first nine months of 1995 are not necessarily
indicative of results for the year.
Note 2: Discontinued Operations
At December 31, 1994, the Company's balance sheet reflected a $4.5 million
receivable from sale of discontinued operations. This amount represented the
Company's expected recovery at such date from the sale by the Company in 1993 of
its Israeli subsidiaries which were engaged in the manufacture of data
communications connecting equipment. As a result of a liquidation and
receivership proceedings involving the buyer of the subsidiaries, the estimated
recovery from the sale of such operations has been reduced to $1.0 million,
which resulted in an additional loss on sale of discontinued operations of $3.5
million during the first nine months ended September 30, 1995.
Note 3: Inventories
Inventories at September 30, 1995 have been computed using a standard cost
system. Inventories at December 31, 1994 resulted from a physical inventory
conducted on that date. The composition of inventories at the end of the
respective periods is as follows:
September 30, 1995 December 31, 1994
------------------ -----------------
(in thousands)
Parts and Components $11,670 $11,838
Work in Process 1,315 1,854
Finished Goods 3,883 6,454
------- -------
$16,868 $20,146
======= =======
Note 4: Long Term Contracts
Accounts receivable include approximately $3.1 million at September 30,
1995 in excess costs and related profits over amounts billed relating to
long-term contracts under which the Company provides specialized products to
major international customers Substantially all such amounts will be billed
during the remainder of 1995.
Page 5 of 15 pages
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Note 5: Long-Term Debt
At December 31, 1994, the Company's long-term debt consisted principally of
$35 million of 6% convertible subordinated debentures due July 1, 2002 (the
"Debentures"), and $21 million due to Foothill Capital Corporation ("Foothill")
pursuant to the Company's Amended and Restated Loan and Security Agreement,
dated as of November 28, 1994, as amended, between Foothill and the Company (the
"Foothill Agreement"). At September 30, 1995, the Company's debt under the
Debentures and the Foothill Agreement was $32.0 million and $26.5 million
respectively. The change in outstanding debt reflects primarily the repurchase
by the Company from Foothill of certain Debentures which had been acquired by
Foothill and an increase in borrowings pursuant to the Foothill Agreement. The
purchase of the Debentures from Foothill was paid in part through increased
borrowings from Foothill. The amount of Debentures outstanding reflects the
amount paid by the initial purchasers of the Debentures plus the unamortized
original issue discount. Borrowings under the Foothill Agreement are secured by
substantially all the assets of the Company and its subsidiaries. The Debentures
are unsecured obligations of the Company, and the Company's obligations under
the Foothill Agreement are senior to its obligations on the Debentures. Loans
pursuant to the Foothill Agreement bear interest at 12% per annum which rate may
increase as a result of the event of default.
The Foothill Agreement contains various restrictive covenants, including
the maintenance of various financial ratios and tests, including a consolidated
net worth test, maintenance of ratios of cash and accounts receivable to current
liabilities and a minimum operating income test. As of September 30, 1995, the
Company was in default with respect to financial covenants under the Foothill
Agreement. In addition, the Foothill Agreement prohibits payment of dividends.
The borrowings under the Foothill Agreement are limited by a borrowing base
formula. During the quarter, the borrowings, including obligations with respect
to letter of credit, under the Foothill Agreement exceeded the maximum
availability. As of September 30, 1995, the Company's borrowings and letter of
credit obligations exceeded the maximum availability by approximately $4.1
million.
As a result of the Company's default with respect to the financial
covenants, Foothill has the right to accelerate payment of the Company's
obligations under the Foothill Agreement. In July 1995, Foothill issued a notice
of event of default under the Foothill Agreement. Although the Foothill
Agreement provides various remedies to Foothill if an event of default occurs,
Foothill, while expressly reserving the right to enforce any right or remedy
permitted by the Foothill Agreement, in its notice it elected only to exercise
its right to require the Company to refrain from making payments on account of
the Debentures for up to 225 days. As a result, the Company did not make the
interest payment of approximately $2.2 million due on July 31, 1995 with respect
Page 6 of 15 pages
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to the Debentures. While the terms of the indenture pursuant to which the
Debentures were issued precluded the Company from making the interest payment,
the failure of the Company to make the interest payment constitutes a default
with respect to the Debentures, and gives the holders of the Debentures certain
rights with respect to the Debentures, including certain acceleration rights. As
a result of the occurrence of events of default under both the Foothill
Agreement and the Debentures, the Company's liabilities with respect to such
indebtedness have been classified as current liabilities as of September 30,
1995.
Note 6: Legal Matters
Eight alleged class action complaints have been consolidated and are
pending in the U.S. District Court for the Eastern District of New York against
the Company and certain of its present and former directors and alleging
violations of Section 10(b) and 20(a) of the Securities Exchange Act of 1934 and
Rule 10b-5 thereunder. The plaintiffs seek, among other things, unspecified
money damages. The Company intends to vigorously defend these suits, however
management cannot presently determine what, if any, damages may be sustained as
a result of these actions. No reserves for any such losses have been recorded.
Page 7 of 15 pages
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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:
Nine Months Ended Three Months Ended
September 30, September 30,
-------------- --------------
1995 1994 1995 1994
---- ---- ---- ----
Sales 100% 100% 100% 100%
Cost of sales 78% 72% 77% 87%
---- ---- ---- ----
Gross profit 22% 28% 23% 13%
Selling, general and
administrative expenses 24% 24% 19% 23%
Research and development expenses 8% 5% 10% 5%
Operating income (loss) (10)% (1)% (6)% (15)%
Interest expense - net (12)% (6)% (14)% (6)%
Other (1)% (1)% (1)% (1)%
Income tax -- (25)% -- (72)%
Minority interest -- -- -- (1)%
Loss on sale of discontinued
Operations (7)% -- -- --
Gain on extinguishment of debt 4% -- -- --
Net loss (27)% (34)% (22)% (95)%
The Company's sales from continuing operations by product line for the
periods ended September 30, 1995 and 1994 are as follows:
Nine Months Ended
September 30,
---------------------------
(Dollars in thousands)
1995 1994
---- ----
Line connection/protection
equipment $23,051 48% $30,418 54%
OSS equipment 20,995 44% 20,824 37%
Other 3,876 8% 5,217 9%
------- --- ------- ---
$47,922 100% $56,459 100%
Page 8 of 15 pages
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Three Months Ended
September 30,
---------------------------
(Dollars in thousands)
1995 1994
---- ----
Line connection/protection
equipment $ 6,946 47% $ 8,647 45%
OSS equipment 6,599 45% 9,114 47%
Other 1,199 8% 1,622 8%
------- --- ------- ---
$14,744 100% $19,383 100%
Financial Condition and Liquidity
The Company's working capital changed from working capital of $13.7 million
at December 31, 1994 to a working capital deficiency of $48.9 million at
September 30, 1995. This change results principally from the reclassification of
the Company's obligations to Foothill Capital Corporation ("Foothill") and its
6% convertible subordinated debentures due July 1, 2002 (the "Debentures") from
long-term at December 31, 1994 to current at September 30, 1995. Such change
resulted from the occurrence of an event of default under the agreement relating
to the Company's debt to Foothill. As a result of the event of default, Foothill
took action to prohibit the Company from making a $2.2 million interest payment
on the Debentures, which was due by July 31, 1995, thereby triggering a default
under the Debentures. As a result of the defaults under both the agreement with
Foothill and the Debentures, Foothill and the holders of the Debentures have
certain rights, including certain acceleration rights. Accordingly, such
indebtedness was treated as current at September 30, 1995. See Note 5 of Notes
to Consolidated Financial Statements. Furthermore, although Foothill is, as of
the date of this Report, continuing to fund the Company's operations and has not
taken any action other than to prohibit the Company from paying the $2.2 million
interest payment due to the holders of the Debentures, as a result of events of
default, Foothill has no obligation to provide financing to the Company, and
Foothill has reserved its rights and remedies.
The Company's obligations to Foothill are secured by substantially all of
the assets of the Company and its subsidiaries. Other than cash generated from
accounts receivable, the Company does not have any significant source of funds
to fund its ongoing operations. Under the Company's agreement with Foothill, all
receipts generated from its accounts receivable are deposited in a lockbox
account under Foothill's control. Although Foothill is continuing to finance the
Company's business and has not demanded repayment of the Company's borrowings in
excess of its borrowing base, there is no assurance that it will continue to
advance money to the Company or refrain from demanding repayment of the excess
borrowings. In the event that Foothill forecloses on the Company's assets,
Page 9 of 15 pages
<PAGE>
particularly its accounts receivable, or does not permit the Company to
re-borrow, the Company will not have sufficient funds to continue operations.
The Company has a preliminary understanding, subject to approval of final
documents, with certain holders of the Debentures to exchange each $1,000
debenture for 97 shares of common stock and $767.22 principle amount of a new
note. Upon approval of the final documents the company intends to make the offer
to all the holders of the Debentures.
The Company's liquidity problems have resulted in increased cost of sales,
resulting in lower gross profits. As discussed under "Management's Discussion
and Analysis of Financial Condition and Results of Operation - Results of
Operation," the gross profit for the nine months ended September 30, 1995 is
less than the selling, general and administrative expenses for the period.
Accordingly, without a significant improvement in gross profit and/or a
significant reduction in selling, general and administrative and other expenses,
any restructuring of the Company's debt will not be sufficient to enable the
Company to operate profitably.
The Company may seek to raise funds through the sale of one or more of its
lines of business. Currently, the Company is engaged in informal exploratory
discussions with a number of parties. However , no assurance can be given that
such discussion will result in any agreement.
Results of Operations
The Company's continued shortage of working capital has had a material
adverse effect upon its operations during the three and nine months ended
September 30, 1995. Moreover, the Company has embarked on, among other
activities, an inventory reduction program, and a reduction of its workforce.
The Company's sales for the three and nine months ended September 30, 1995
decreased from the same periods of the prior year by 23.9% and 15.1%,
respectively, as the Company experienced continuing cash constraints which
adversely affected the Company's operations. Sales of fiber products fell
substantially, primarily due to the effects of the Company's liquidity problems.
Sales of copper based connection/protection products in the three and nine
months ended September 30, 1995 were significantly lower sales of such products
for the comparable periods of 1994, as a result of both the absence of sales to
Telefonos de Mexico due, in part, to the continuing Mexican financial crisis,
and a reduced level of sales to British Telecommunications plc ("BT"). The
company believes that a portion of the decline in sales to BT will be reflected
in increased sales to BT in subsequent periods. Domestic sales of copper based
connection/protection products remained generally the same. Sales of OSS
equipment during the nine months ended September 30, 1995 increased compared to
the same period of 1994, due to the increased shipments by the Company's Korean
joint venture subsidiary, but decreased during the three months ended September
30, 1995 due to the Company's high level of performance under OSS contracts
during the third quarter of 1994. Sales of other products decreased due
Page 10 of 15 pages
<PAGE>
primarily to decreased third party sales of plastic molded product in the three
and nine months ended September 30, 1995, partially offset by certain price
increases.
Cost of sales for the nine months ended September 30, 1995 increased as a
percent of sales by 6% but decreased by 10% during the third quarter, from the
comparable periods of 1994. The increase in the cost of sales percentage, which
resulted from the Company's cash problems, reflected (i) a lower volume of
sales, (ii) the inability of the Company to purchase efficiently and to obtain
materials from certain suppliers, (iii) the under-absorption of overhead costs,
and (iv) the need to rework inventory in order to fulfill customer orders. The
steps taken to reduce manufacturing labor costs by staffing reductions, was not
implemented until late in the second quarter but are reflected in the third
quarter.
Selling, general and administrative expenses decreased 32% and 29% for the
three and nine months ended September 30, 1995, from the comparable periods of
1994, the result of the company's original effort to reduce operating expenses.
Although the Company is taking steps to reduce both the cost of goods and
the selling, general and administrative expenses, no assurance can be given that
such reductions will be sufficient to enable the Company to operate profitably.
Research and development increased during the three and nine months ended
September 30, 1995 from the comparable periods of 1994. Research and development
expenses and capitalized software development costs during the 1995 and 1994
periods were comparable.
Interest expense was significantly higher for the three and nine months
ended September 30, 1995 compared with the comparable periods in 1994, as a
result of substantially higher average interest rates and increased borrowings
under the Foothill agreement as compared with the interest rate and borrowings
payable during the 1994 periods on the Company's borrowings from Chemical Bank.
Other expense includes costs associated with the modification of the
Company's agreement with Foothill during the first nine months of 1995 which
were not present in the comparable period of 1994.
In the three and nine months ended September 30, 1995, the Company's tax
expense was considerably reduced from the similar periods of 1994 due primarily
to the write off of the deferred taxes in 1994. Tax expense for the 1995
periods, is comprised primarily of offshore taxes.
During the three and nine months ended September 30, 1995, the Company
recorded charges of approximately $42,000 and $199,000, respectively,
representing the 50% interest in the income of its Korean subsidiary. During the
Page 11 of 15 pages
<PAGE>
comparable periods of 1994 the Company recorded income of $200,000 and $282,000
in the 50% interest in the income of its Korean subsidiary, during the three and
nine months ended September 30, 1994, respectively.
The $3.5 million extraordinary loss from the sale of discontinued
operations reflects a reduction in the amount of the expected recovery from the
sale by the Company in 1993 of its Israeli subsidiaries which were engaged in
the manufacture of data communications connecting equipment. As a result of a
receivership and liquidation proceedings involving the purchaser of the
subsidiaries, the estimated recovery from the sale of such operations has been
reduced from $4.5 million which was the estimated recovery at December 31, 1994,
to $1.0 million which is the estimated recovery at September 30, 1995.
In connection with the modification of the Company's agreement with
Foothill, the Company repurchased from Foothill and retired $3.9 million
principal amount of its 6% Convertible Subordinated Debentures for approximately
$2.5 million through an increase in the term-loan under the New Credit Agreement
and the repricing of certain warrants granted to the senior lender. The company
included as an extraordinary item a gain of $1.9 million on early extinguishment
of this debt, representing the difference between the principal amount of the
debt retired less the related amount of the unamortized original issue discount
and the approximate market value of the debt on the date of the transaction.
Page 12 of 15 pages
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PART II
Item 1. Legal Proceedings.
As previously disclosed, seven complaints alleging class actions pending in
the U.S. District Court for the Eastern District of New York were consolidated,
and styled "In re Porta Systems Securities Litigation." On or about September 9,
1993, plaintiffs in those cases filed a consolidated amended and supplemental
complaint naming as defendants the Company and certain of its present or former
officers and directors. On or about November 11, 1994 plaintiffs in those cases
filed a revised third consolidated amended and supplemental class action
complaint ( the "amended complaint").
The amended complaint alleges violations of the anti-fraud provisions of
Sections 10 (b) of the Securities Exchange Act of 1934 (the "Exchange Act") and
Rule 10b-5 thereunder and Section 20(a) of the Exchange Act based on the
Company's April 1, 1993 announcement that certain revenue attributable to a sale
of a line test system previously recorded during 1992 was being reversed during
the fourth quarter and that the Company would suffer a loss for the year ended
December 31, 1992. The amended complaint also alleges that certain other public
statements made by the Company during 1992 were false, including statements
relating to anticipated sales and the divestiture of its North Hills Israel,
Ltd. subsidiary and the NetCom business of its North Hills Electronics, Inc.
subsidiary. The amended complaint alleges that the Company and certain of the
other named defendants knew or should have known that statements contained in
various of the Company's public filings and press releases misrepresented
material facts concerning the Company and its financial prospects, resulting in
the Company's reported revenues and profits for the second and third quarters of
1992 being misstated, and the market price of the Company's Common Stock being
artificially inflated during the purported class period. The plaintiffs seek,
among other things, unspecified money damages.
The Company moved under Rules 9(b) and 12(b) (6) of the Federal Rules of
Civil Procedure to dismiss the complaint. Following the Court's denial of that
motion by order entered October 13, 1994, on or about November 11, 1994,
defendants filed an answer to the amended complaint, denying the material
factual allegations of the amended complaint and asserting affirmative defenses
to the alleged claims. Discovery is in progress. The Company intends to continue
to defend this action.
As previously disclosed, on or about April 23, 1993, a complaint alleging a
class action entitled Klein vs. Porta Systems Corporation et al. was filed in
Delaware Chancery Court naming as defendants the Company and certain of its
current and former officers and directors, and alleging certain violations of
Delaware law, including breach of fiduciary duty, fraudulent misrepresentation,
concealment, and nondisclosure. An amended complaint was filed on or about
October 4, 1993. The amended complaint substantially the same facts as those
alleged in the New York action, and the claims were likewise based on
allegations concerning the Company's April 1, 1993 announcement and certain
Page 13 of 15 pages
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other allegedly false and misleading public statements made by the Company
during 1992. The plaintiff sought, among other things, unspecified money damages
on behalf of the alleged class of shareholders.
Prior to filing an answer in which the material factual allegations of the
amended complaint would have been denied, the Company and other defendants moved
to dismiss or stay the action in view of the prior pending litigation in New
York. In a decision dated April 21, 1994, the Court granted the motion to stay
the Delaware action pending the outcome of the earlier filed New York
litigation. Subsequently, by stipulation-so-ordered by the Court on April 22,
1994, the Delaware action was dismissed without prejudice. The plaintiff (and
his counsel) have since joined the action pending in New York.
Item 3. Default Upon Senior Securities.
See Note 5 of Notes to Consolidated Financial Statements for information
concerning the Company's default under its agreement with Foothill Capital
Corporation.
Item 5. Other Information
As previously reported the company does not satisfy the American Stock
Exchange's financial guidelines for the continued listing of its Common Stock on
such exchange. The exchange is continuing to review the status of the Company's
listing, and no assurance can be given that the Common Stock will continue to be
listed on such exchange.
In November 1995, Mr. Edward R. Olson was elected president and chief
operating officer of the Company. Mr. Olson is also president and one of the
founders of KPMG Bay Mark Strategies LLC, and independent firm in a strategic
alliance with KMPG Peat Marwick LLP. Mr. Olson will continue in this position
while serving as president and chief operating officer of the Company.
In October 1995, Mr. Edward B. Kornfeld was elected as vice president and
chief financial officer of the Company. Prior to his election to this position,
Mr. Kornfeld held positions with several publicly traded companies.
Page 14 of 15 pages
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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.
Date: November 9,1995 By /s/Vincent F. Santulli
------------------------
Vincent F. Santulli
Chairman of the Board
Chief Executive Officer
Date: November 9, 1995 By /s/Edward B. Kornfeld
------------------------
Edward B. Kornfeld
Vice President and Chief
Financial Officer
Page 15 of 15 pages
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1995 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
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<PERIOD-END> SEP-30-1995
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<PP&E> 32,889
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<COMMON> 75
0
0
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<TOTAL-REVENUES> 14,744
<CGS> 11,422
<TOTAL-COSTS> 11,422
<OTHER-EXPENSES> (93)
<LOSS-PROVISION> 15
<INTEREST-EXPENSE> 2,072
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<EXTRAORDINARY> 0
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<EPS-PRIMARY> (.44)
<EPS-DILUTED> (.44)
</TABLE>
