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 June 30, 1999
[ ] 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) 9,488,661 shares as of August 6, 1999
Page 1 of 14 pages
<PAGE>
PART I.- FINANCIAL INFORMATION
Item 1- Financial Statements
<TABLE>
<CAPTION>
PORTA SYSTEMS CORP. AND SUBSIDIARIES
Consolidated Balance Sheets
(Dollars in thousands)
June 30, December 31,
1999 1998
--------- ------------
<S> <C> <C>
Assets (Unaudited)
------
Current assets:
Cash and cash equivalents $ 3,399 $ 3,044
Accounts receivable, net 11,784 19,802
Inventories 8,524 8,944
Prepaid expenses 1,932 1,716
------- -------
Total current assets 25,639 33,506
------- -------
Property, plant and equipment, net 3,774 4,213
Deferred computer software, net 42 82
Goodwill, net 11,366 11,597
Other assets 2,615 2,738
------- -------
Total assets $43,436 $52,136
======= =======
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Current portion of senior debt $ 2,000 2,000
12% subordination debentures 5,843 --
Accounts payable 3,349 6,893
Accrued expenses 5,688 6,266
Accrued interest payable 615 545
Accrued commissions 1,966 2,438
Income taxes payable 498 762
Accrued deferred compensation 196 196
Short-term loans 82 144
------- -------
Total current liabilities 20,237 19,244
------- -------
Senior debt net of current maturities 11,968 11,188
12% subordinated debentures -- 5,685
6% convertible subordinated debentures 368 365
Deferred Compensation 942 1,021
Income taxes payable 445 719
Other long-term liabilities 1,017 776
Minority interest 1,044 1,154
------- -------
Total long-term liabilities 15,784 20,908
======= =======
Stockholders' equity:
Preferred stock, no par value; authorized 1,000,000 shares, none issued -- --
Common stock, par value $.01; authorized 20,000,000 shares, issued
9,484,742 shares at June 30, 1999
and December 31, 1998 95 95
Additional paid-in capital 75,135 75,135
Accumulated other comprehensive loss:
Foreign currency translation adjustment (3,822) (3,754)
Accumulated deficit (61,956) (57,273)
------- -------
9,452 14,203
Treasury stock, at cost (1,938) (1,938)
Receivable for employee stock purchases (99) (281)
------- -------
Total stockholders' equity 7,415 11,984
------- -------
Total liabilities and stockholders' equity $43,436 $52,136
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
Page 2 of 14 pages
<PAGE>
PORTA SYSTEMS CORP. AND SUBSIDIARIES
Unaudited Consolidated Statements of Operations
(In thousands, except per share data)
Six Months Ended
June 30, June 30,
1999 1998
---------- ---------
Sales $ 18,635 $ 30,943
Cost of sales 13,185 17,622
-------- --------
Gross profit 5,450 13,321
Selling, general and administrative expenses 6,023 6,967
Research and development expenses 2,747 3,013
-------- --------
Total expenses 8,770 9,980
-------- --------
Operating income (loss) (3,320) 3,341
Interest expense (1,720) (1,782)
Interest income 104 157
Other income 158 712
Debt conversion expense -- (945)
-------- --------
Income (loss) before income taxes, minority
interest and extraordinary item (4,778) 1,483
Income tax expense (15) (200)
Minority interest 110 (76)
-------- --------
Income (loss) before extraordinary item (4,683) 1,207
Extraordinary item -- 76
-------- --------
Net income (loss) $ (4,683) $ 1,283
======== ========
Per share data:
Basic per share amounts:
Income (loss) before extraordinary item $ (0.49) $ 0.13
Extraordinary item -- 0.01
-------- --------
Net income (loss) per share of common stock $ (0.49) $ 0.14
======== ========
Weighted average shares outstanding 9,485 9,220
======== ========
Diluted per share amounts:
Income (loss) before extraordinary item $ (0.49) $ 0.12
Extraordinary item -- 0.01
-------- --------
Net income (loss) per share of common stock $ (0.49) $ 0.13
======== ========
Weighted average shares outstanding 9,485 10,075
======== ========
See accompanying notes to unaudited consolidated financial statements.
Page 3 of 14 pages
<PAGE>
PORTA SYSTEMS CORP. AND SUBSIDIARIES
Unaudited Consolidated Statements of Operations
(In thousands, except per share data)
Three Months Ended
June 30, June 30,
1999 1998
-------- ---------
Sales $ 9,109 $ 14,651
Cost of sales 6,470 8,017
-------- --------
Gross profit 2,639 6,634
Selling, general and administrative expenses 3,269 3,500
Research and development expenses 1,477 1,683
-------- --------
Total expenses 4,746 5,183
-------- --------
Operating income (loss) (2,107) 1,451
Interest expense (927) (925)
Interest income 36 79
Other income 21 203
-------- --------
Income (loss) before income taxes, minority
interest and extraordinary item (2,977) 808
Income tax expense (7) (184)
Minority interest 44 (121)
-------- --------
Net income (loss) $ (2,940) $ 503
======== ========
Per share data:
Basic per share amounts:
Net income per share of common stock $ (0.31) $ 0.05
======== ========
Weighted average shares outstanding 9,485 9,299
======== ========
Diluted per share amounts:
Net income per share of common stock $ (0.31) $ 0.05
======== ========
Weighted average shares outstanding 9,485 10,345
======== ========
See accompanying notes to unaudited consolidated financial statements.
Page 4 of 14 pages
<PAGE>
PORTA SYSTEMS CORP. AND SUBSIDIARIES
Unaudited Consolidated Statements of Comprehensive Income (Loss)
Six Months Ended
June 30, June 30,
1999 1998
-------- --------
Net income (loss) $(4,683) $ 1,283
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments (68) 127
------- -------
Comprehensive income (loss) $(4,751) $ 1,410
======= =======
Three Months Ended
June 30, June 30,
1999 1998
-------- --------
Net income (loss) $(2,940) $ 503
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments (27) (15)
------- -------
Comprehensive income (loss) $(2,967) $ 488
======= =======
See accompanying notes to unaudited consolidated financial statements.
Page 5 of 14 pages
<PAGE>
<TABLE>
<CAPTION>
PORTA SYSTEMS CORP. AND SUBSIDIARIES
Unaudited Consolidated Statements of Cash Flows
(In thousands)
Six Months Ended
June 30, June 30,
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $(4,683) $ 1,283
Adjustments to reconcile net income to net cash provided by
operating activities:
Extraordinary gain -- (76)
Non-cash debt conversion expense -- 945
Non-cash financing expenses 14 228
Write off of interest expense -- 304
Depreciation and amortization 723 1,080
Amortization of discount on convertible subordinated debentures 161 108
Minority interest (110) 76
Changes in assets and liabilities:
Accounts receivable 8,018 (940)
Inventories 420 56
Prepaid expenses (216) (437)
Other assets 71 (68)
Accounts payable, accrued expenses and other liabilities (4,900) (1,873)
------- -------
Net cash provided by (used in ) operating activities (502) 686
------- -------
Cash flows from investing activities:
Proceeds from disposal of assets 243 --
Capital expenditures (226) (297)
Repayment of employee loans 182 --
------- -------
Net cash provided by (used in) investing activities 199 (297)
------- -------
Cash flows from financing activities:
Proceeds from senior debt 1,800 6
Repayments of senior debt (1,020) (3,883)
Proceeds from 12% subordinated debentures and warrants -- 6,000
Repayment of Zero coupon senior subordinated convertible notes -- (2,796)
(Repayments of) proceeds from short term loans (62) (57)
------- -------
Net cash provided by (used in) financing activities 718 (730)
------- -------
Effect of exchange rate changes on cash (60) 127
------- -------
Increase (decrease) in cash and cash equivalents 355 (214)
Cash and equivalents - beginning of the year 3,044 5,091
------- -------
Cash and equivalents - end of the period $ 3,399 $ 4,877
======= ========
Supplemental cash flow disclosures:
Cash paid for interest expense $ 1,381 $ 1,219
======= =======
Cash paid for income taxes $ 306 $ 82
======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
Page 6 of 14 pages
<PAGE>
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 periods 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 annual report to stockholders for the year ended
December 31, 1999. Results for the first six months of 1999 are not necessarily
indicative of results for the year.
Note 2: Inventories
Inventories are valued at lower of cost or market. Inventory costs at June
30, 1999 and December 31,1998 have been computed using a standard cost system.
The composition of inventories at the end of the respective periods is as
follows:
June 30, 1999 December 31,1998
------------- ----------------
(in thousands)
Parts and components $4,291 $4,959
Work-in-process 944 743
Finished goods 3,289 3,242
------ ------
$8,524 $8,944
====== ======
Note 3: Senior Debt
On June 30, 1999, the Company's debt to its senior lender was
$13,968,000. During the six and three months ended June 30, 1998, the Company
repaid principal of $1,020,000 and $400,000, respectively. The Company borrowed
$1,800,000 during the six and three-month periods ended June 30, 1999. Based on
anticipated principal payments, $2,000,000 has been classified as a current
liability at June 30, 1999.
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 June 30, 1999, the Company was not
in compliance with the interest coverage covenant and obtained a waiver from its
senior lender.
Note 4: 12% Subordinated Notes
As of June 30, 1999, the Company has outstanding $6,000,000 of 12 %
Subordinated Notes due January 3, 2000 ("12% Notes") which are classified as a
current liability. The carrying value of such 12% Notes as of June 30, 1999 is
$5,843,000 which is net of a related issuance discount. During the quarter ended
March 31, 1999, pursuant to the terms of the 12% Notes, the Company issued to
the holders of the 12% Notes Series C Warrants to purchase 150,000 shares of
common stock at an average price of $1.94 per share to the holders of the 12%
Notes. The Series C Warrants, together with the Series B Warrants issued in
1998, were valued at $630,000 and recorded as part of additional paid in capital
in 1998.
Page 7 of 14 pages
<PAGE>
Note 5: Segments 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 declined from December 31, 1998 to June 30,
1999 due to decreased accounts receivable primarily from the Line and OSS
segments. There has been no significant change from December 31, 1998 in the
basis of measurement of segment revenues and profit or loss.
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue:
Line $ 9,161,000 $ 10,600,000 $ 4,533,000 $ 5,831,000
OSS 6,268,000 15,743,000 3,065,000 6,569,000
Signal 3,109,000 4,520,000 1,486,000 2,195,000
------------ ------------ ------------ ------------
$ 18,538,000 $ 30,863,000 $ 9,084,000 $ 14,595,000
============ ============ ============ ============
Segment profit:
Line $ 2,207,000 $ 2,564,000 $ 839,000 $ 1,684,000
OSS (3,990,000) 2,083,000 (2,090,000) 544,000
Signal 809,000 1,296,000 349,000 549,000
------------ ------------ ------------ ------------
$ (974,000) $ 5,943,000 $ (902,000) $ 2,777,000
============ ============ ============ ============
</TABLE>
The following table reconciles segment totals to consolidated totals:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenue:
Total revenue for reportable
segments $ 18,538,000 $ 30,863,000 $ 9,084,000 $ 14,595,000
Other revenue 97,000 80,000 25,000 56,000
------------ ------------ ------------ ------------
Consolidated total revenue $ 18,635,000 $ 30,943,000 $ 9,109,000 $ 14,651,000
============ ============ ============ ============
Operating income:
Total segment Profit
for reportable segments$ $ (974,000) $ 5,943,000 $ (902,000) $ 2,777,000
Corporate and unallocated (2,346,000) (2,602,000) (1,205,000) (1,326,000)
------------ ------------ ------------ ------------
Consolidated total
operating income $ (3,320,000) $ 3,341,000 $ (2,107,000) $ 1,451,000
============ ============ ============ ============
</TABLE>
Page 8 of 14 pages
<PAGE>
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:
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
---------------- ------------------
June 30, June 30,
-------- --------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales 100% 100% 100% 100%
Cost of Sales 71% 57% 71% 55%
Gross Profit 29% 43% 29% 45%
Selling, general and administrative expenses 32% 22% 36% 24%
Research and development expenses 15% 10% 16% 11%
Operating income (18%) 11% (23%) 10%
Interest expense - net (9%) (5%) (10%) (6%)
Other income 1% 2% 0% 1%
Debt conversion expense 0% (3%) 0% 0%
Minority interest 1% 0% 1% (1%)
Income taxes 0% (1%) 0% (1%)
Extraordinary item 0% 0% 0% 0%
Net income (25%) 4% (32%) 3%
</TABLE>
The Company's sales by product line for the periods ended June 30, 1999 and 1998
are as follows:
Six Months Ended
----------------
June 30,
--------
1999 1998
---- ----
(Dollars in thousands)
Line $ 9,161 49% $10,600 34%
OSS 6,268 33% 15,743 51%
Signal 3,109 17% 4,520 15%
Other 97 1% 80 0%
-------------- ------------------
$18,635 100% $30,943 100%
============== ==================
Three Months Ended
------------------
June 30,
--------
1999 1998
---- ----
(Dollars in thousands)
Line $ 4,533 50% $ 5,830 40%
OSS 3,065 34% 6,570 45%
Signal 1,486 16% 2,195 15%
Other 25 0% 53 0%
---------------- -----------------
$ 9,109 100% $14,651 100%
================ =================
Page 9 of 14 pages
<PAGE>
Results of Operations
The Company's sales for the six months ended June 30, 1999 compared to the
six months ended June 30, 1998 decreased by $12,308,000 (40%) from $30,943,000
in 1998 to $18,635,000 in 1999. Sales for the quarter ended June 30, 1999 of
$9,109,000 decreased by $5,542,000 (38%) compared to $14,651,000 for the quarter
ended June 30, 1998. The decrease in sales for the six and three month periods
are due primarily to reduced sales from the OSS division for these periods,
although sales from Line Connection and Signal also decreased for both the six
and three month periods.
Line sales for the six months ended June 30 decreased from $10,600,000 to
$9,161,000, or $1,439,000 (14%) from 1998 to 1999. Sales for the three months
ended June 30 decreased by $1,298,000 (22%) from $5,831,000 in 1998 to
$4,533,000 in 1999. The decrease for both the six and three months ended June
30, 1999 reflects reduced unit sales primarily to customers in the United States
and Mexico.
OSS sales for the six months ended June 30, 1999 was $6,268,000 compared
to the six months ended June 30, 1998 of $15,743,000, a decrease of $9,475,000
(60%). OSS revenue for the three months ended June 30, 1999 was $3,065,000
compared to the three months ended June 30, 1998 of $6,569,000, a decrease of
$3,504,000 (53%). The decrease in sales during the six and three months ended
June 30, 1999 resulted from delays in the installation of certain contracts and
delays in obtaining certain anticipated large new orders which are now
anticipated to be secured in the third and fourth quarters of 1999.
Signal sales for the six months ended June 30, 1999 were $3,109,000
compared to the six months ended June 30, 1998 of $4,520,000, a decrease of
$1,411,000 (31%). Sales for the three months ended June 30, 1999 were $1,486,000
compared to the three months ended June 30, 1998 of $2,195,000, a decrease of
$709,000 (32%). The decrease in sales for the six and three-month periods
primarily reflects customer requested postponements and are anticipated to
generate sales beginning in the fourth quarter of 1999. Furthermore, 1998
revenue was positively effected by shipments on multiple year sales orders to
certain military customers, which were secured during the latter part of 1997.
Cost of sales for the six months and the quarter ended June 30, 1999, as a
percentage of sales compared to the same periods of 1998, increased from 57% to
71% and from 55% to 71%, respectively. The decline in gross margin is primarily
attributed to inefficiency resulting in the inability to absorb certain fixed
expenses associated with the OSS contracts over a substantially lower revenue
base.
Selling, general and administration expenses decreased by $944,000 (14%)
from $6,967,000 to $6,023,000 for the six months ended June 30, 1999 compared to
1998. For the quarter ended June 30, 1999 selling, general and administration
expenses decreased by $231,000 (7%) from 1998. The decrease from 1998 to 1999
for the six and three months primarily reflects lower sales commissions based
upon the reduced revenues for the first six months of 1999.
Research and development expenses decreased by $266,000 (9%) and by
$206,000 (12%) for the six and three months ended June 30, 1999 from the
comparable periods in 1998, respectively. The decreased expenses resulted from
the completion of certain development projects. This decrease was somewhat
offset by increased development expenses related to the Company's efforts to
develop new products, primarily related to the OSS business.
Page 10 of 14 pages
<PAGE>
Results of Operations (continued)
As a result of the above, for the six months ended June 30, 1999 compared
to 1998, the Company had an operating loss of $3,320,000 in 1999 versus
operating income $3,341,000 in 1998. The Company had an operating loss of
$2,107,000 for the quarter ended June 30, 1999 as compared to operating income
of $1,451,000 for the quarter ended June 30, 1998.
Other income for the six months ended June 30, 1998 included $400,000 from
the settlement of litigation and $167,000 of additional funds received from the
settlement of the sale of the Company's Israeli business.
During the six months ended June 30, 1998, the Company recorded debt
conversion expense of $945,000 as a result of the conversion of Zero Coupon
Notes and 6% Convertible Subordinated Debentures to common stock.
In the six months ended June 30, 1998, the Company recorded a $76,000 gain
from the early extingushment of its 6% Convertible Subordinated Debt as a result
of the exchange of the 6% Debt for Zero Coupon Notes and common stock.
Income tax expense decreased for the six months ended June 30, 1999
compared to 1998 by $185,000 from $200,000 to $15,000, and for the three months
ended June 30, 1999 compared to 1998 by $177,000 from $184,000 to $7,000 due to
the Company's losses for the respective periods.
As the result of the foregoing the Company incurred a net loss of
$4,683,000, $0.49 per share (basic and diluted) for the six months ended June
30, 1999 compared with net income after extraordinary items of $1,283,000, $0.14
per share (basic) and $0.13 per share (diluted), for the six months ended June
30, 1998. The net loss for the three months ended June 30, 1999 was $2,940,000,
$0.31 per share (basic and diluted), compared with net income for the three
months ended June 30, 1998 of $503,000, $0.05 per share (basic and diluted).
Liquidity and Capital Resources
At June 30, 1999 the Company had cash and cash equivalents of $3,399,000
compared with $3,044,000 at December 31, 1998. The Company's working capital at
June 30, 1999 was $5,402,000, compared to working capital of $14,262,000 at
December 31, 1998. The decline in working capital reflects (i) decreased
accounts receivable and (ii) the shift of the 12% Subordinated Notes from
long-term to current liabilities.
As of June 30, 1999, the Company's loan and security agreement with its
senior secured lender, which expires January 2, 2001, provides the Company,
under its revolving line of credit and its letter of credit facility, with
combined availability totaling $9,000,000. The combined availability is subject
to the Company's borrowing base and amounts outstanding under the revolver and
committed letters of credit. In addition, the Company has $13,968,000
outstanding as of June 30, 1999 of which $1,542,000 was a non-interest bearing
note, $1,750,000 was outstanding against the revolving line of credit, and
$10,676,000 was a term loan agreement. As discussed in Note 3, the Company was
not in compliance with the interest coverage covenant and obtained a waiver from
its senior lender for the period ended June 30, 1999.
Page 11 of 14 pages
<PAGE>
Liquidity and Capital Resources (continued)
As of June 30, 1999, the Company's current liabilities include $5,843,000,
net of unamortized debt discount of $157,000, of the principal value $6,000,000
12% Subordinated Notes, all of which are due and payable on January 3, 2000. At
June 30, 1999, the Company does not have sufficient resources to pay the Notes
when they mature and it is likely that it cannot generate such cash from its
operations. Although the Company is seeking to refinance or restructure the
Notes and believes it will be able to prior to the maturity date, no assurance
can be given that it will be successful in these efforts. If the Company is
unable to refinance or restructure the Notes, the Company's business may be
materially and adversely affected.
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 has initiated a company-wide
program to prepare the Company's computer systems and applications for year 2000
compliance.
The Company has assigned a team to monitor Year 2000 compliance. With
respect to the products the Company offers for sale, the Company has verified
that the products are Year 2000 compliant. The team is charged with ensuring
Year 2000 compliance for all hardware and software products through its
purchasing process, as well as assessing the Year 2000 readiness and risk to the
Company of its critical vendors and suppliers. The team is also responsible to
coordinate Year 2000 compliance for its internal systems and devices. At
present, Year 2000 compliance of the Company's internal systems and devices is
scheduled to be substantially complete by September 1999.
The Company expects to incur internal staff costs as well as other
expenses necessary to prepare its systems for the year 2000. The Company expects
to both replace some systems and upgrade others. Maintenance or modification
costs will be expensed as incurred. Management estimates that the cost of this
program will approximate $500,000, with approximately $200,000 representing
incremental costs to the Company. The total cost effort does not include
potential costs related to any customer or other claims or the cost of internal
hardware or software replaced in the normal course of business. Based upon
current information and assessment, the Company does not believe that the Year
2000 issue as discussed above will be material to its financial position or
results of operations or that its business will be adversely affected in any
material respect. Nevertheless, achieving Year 2000 compliance is dependent upon
many factors, some of which are not completely within the Company's control.
Should either the Company's internal systems or one or more of its critical
vendors or suppliers fail due to Year 2000 issues, the Company's business and
its results of operations could be adversely affected.
The Company has evaluated the worst case scenarios in the event that its
products, systems, or business partners are not Year 2000 ready and has
formulated contingency plans to operate. If the Company's investigations suggest
that there is a significant risk that certain products, systems, or business
partners might not be Year 2000 ready, the Company will execute its contingency
plans accordingly.
Statements contained in this Year 2000 disclosure are subject to certain
protection under the Year 2000 Information and Readiness Disclosure Act.
Page 12 of 14 pages
<PAGE>
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, 1998 and in other documents filed by
the Company with the Securities and Exchange Commission.
PART II-OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.
The Company's 1999 Annual Meeting of Stockholders was held on June 23,
1999. At the annual meeting, the stockholders (i) reelected its present board,
consisting of Messrs. William V. Carney, Seymour Joffe, Michael A. Tancredi,
Warren H. Esanu, Herbert H. Feldman, Stanley Kreitman, Lloyd I. Miller, III and
Robert Schreiber (ii) approved the 1999 Incentive and Non-Qualified Stock Option
Plan, (iii) approved the 1999 Employee Stock Purchase Plan and (iv) ratified the
appointment of BDO Seidman, LLP as independent auditors for the year ended
December 31, 1999.
Each director received at least 8,431,003 votes for his election. Set
forth below is the vote on the other matters approved at the meeting.
Matter Votes For Votes Against Abstentions
------ --------- ------------- -----------
1999 Incentive and Non-Qualified
Stock Option Plan 4,489,138 503,048 38,389
1999 Employee Stock Purchase
Plan 4,511,517 385,372 37,346
Appointment of Auditors 8,421,459 77,022 24,496
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
Page 13 of 14 pages
<PAGE>
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 August 11, 1999 By /s/William V. Carney
--------------------
William V. Carney
Chairman of the Board
Dated August 11, 1999 By /s/Edward B. Kornfeld
---------------------
Edward B. Kornfeld
Senior Vice President
and Chief Financial Officer
Page 14 of 14 pages
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
PORTA SYSTEMS CORP
FINANCIAL DATA SCHEDULE
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-01-1998
<PERIOD-END> Jun-30-1999
<CASH> 3,399
<SECURITIES> 0
<RECEIVABLES> 11,784
<ALLOWANCES> 0
<INVENTORY> 8,524
<CURRENT-ASSETS> 25,639
<PP&E> 3,774
<DEPRECIATION> 0
<TOTAL-ASSETS> 43,436
<CURRENT-LIABILITIES> 20,237
<BONDS> 0
0
0
<COMMON> 95
<OTHER-SE> 7,320
<TOTAL-LIABILITY-AND-EQUITY> 43,436
<SALES> 18,635
<TOTAL-REVENUES> 18,635
<CGS> 13,185
<TOTAL-COSTS> 8,770
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,720
<INCOME-PRETAX> (4,778)
<INCOME-TAX> 15
<INCOME-CONTINUING> (4,683)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,683
<EPS-BASIC> (0.49)
<EPS-DILUTED> (0.49)
</TABLE>
