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 September 30, 1995
Commission File Number 33-7693
___________________________________________________________________________
VTX ELECTRONICS CORP.
(Exact name of registrant as specified in its charter)
___________________________________________________________________________
Delaware 11-2816128
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
61 Executive Boulevard, Farmingdale, New York 11735
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (516) 293-1610
Indicate by check mark whether the registrant (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 _______
On November 1, 1995, 12,652,000 shares of common stock, $.10 par value were
outstanding.
Note: This is Page 1 of a document consisting of 13 pages.
VTX ELECTRONICS CORP. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS:
Balance Sheets - September 30, 1995 and June 30, 1995............... 3
Statements of Operations - Quarter Ended
September 30, 1995 and 1994....................................... 4
Statements of Cash Flows - Quarter Ended
September 30, 1995 and 1994......................................... 5
Notes to Consolidated Financial Statements........................... 6-10
ITEM 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................ 11
PART II- OTHER INFORMATION............................................. 12
SIGNATURES............................................................. 13
VTX ELECTRONICS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, June 30,
1995 1995
------------- -----------
ASSETS
CURRENT ASSETS:
Cash....................................... $ 237,809 $ 583,388
Accounts receivable, net of allowance
for doubtful accounts of $128,000 and
$154,000 as of September 30, 1995 and
June 30, 1995, respectively.............. 4,883,635 4,864,443
Inventories, net........................... 3,674,340 3,786,172
Prepaid expenses and other current
assets................................... 339,770 463,518
----------- -----------
TOTAL CURRENT ASSETS....................... 9,135,554 9,697,521
PROPERTY, PLANT AND EQUIPMENT, net........... 3,201,842 3,264,975
DEFERRED CHARGES AND OTHER ASSETS............ 206,163 224,451
----------- -----------
TOTAL ASSET.................................. $12,543,559 $13,186,947
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt.......... $ 148,931 $ 158,954
Accounts payable and accrued expenses...... 5,437,851 5,062,469
----------- -----------
TOTAL CURRENT LIABILITIES.................... 5,586,782 5,221,423
LONG-TERM DEBT............................... 5,524,203 5,966,383
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.01 per share,
authorized 5,000,000 shares, none issued
and outstanding.......................... - -
Common stock, par value $.10 per share;
Authorized 40,000,000 shares; issued
and outstanding 12,652,000 shares at
September 30, 1995 and June 30, 1995..... 1,265,200 1,265,200
Paid-in capital............................ 8,591,476 8,591,476
Retained earnings (deficiency)............. (8,289,037) (7,705,550)
Deferred compensation...................... (84,369) (98,433)
Note receivable from officer............... (50,000) (50,000)
Cumulative foreign currency translation
adjustment............................... (700) (3,552)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 1,432,582 1,999,141
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $12,543,555 $13,186,947
============ ============
The accompanying notes are an integral part of these financial statements.
VTX ELECTRONICS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
September 30,
1995 1994
----------- -----------
Net sales.................................... $ 7,578,044 $ 9,543,907
Cost of goods sold........................... 6,075,996 7,422,888
----------- -----------
Gross profit................................. 1,502,048 2,121,019
Selling, general and administrative expenses. 1,918,423 2,075,263
Interest expense............................. 169,649 191,503
Foreign currency (gains)..................... (2,537) (612)
------------ ------------
Net loss..................................... $ (583,487) $ (145,135)
============ ============
Share Information
Loss per share............................... $ (.05) $ (.01)
============ ============
Weighted average number of common shares
outstanding................................. 12,652,000 11,837,500
============ ============
The accompanying notes are an integral part of these financial statements.
VTX ELECTRONICS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
September 30,
1995 1994
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss........................................... $ (583,487) $ (145,135)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization................... 145,992 144,215
Provision for losses on accounts receivable..... - 35,000
Provision for slow moving and obsolete
inventories.................................... (149,478) 60,000
Change in operating assets and liabilities:
(Increase) in accounts receivable................ (19,192) (485,847)
(Increase) decrease in inventories............... 261,310 (100,561)
(Increase) decrease in prepaid expenses and other
current assets................................. 123,748 (101,432)
(Increase) in other assets....................... (15,068) -
Increase in accounts payable and
accrued expenses............................... 375,382 618,752
----------- ------------
Net cash provided by operating
activities...................................... 139,207 24,992
----------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.............................. (35,435) (20,507)
Net cash used in investing activities............ (35,435) (20,507)
----------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under debt agreements.................. 7,591,201 10,316,595
Debt repayments................................... (8,043,404) (10,590,467)
----------- ------------
Net cash used in financing activities............ (452,203) (273,872)
----------- ------------
Effect of exchange rate changes on cash............ 2,852 17,266
----------- ------------
NET (DECREASE) IN CASH............................. (345,579) (252,121)
CASH at beginning of period........................ 583,388 593,438
----------- ------------
CASH at end of period.............................. $ 237,809 $ 341,317
============ ============
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ 169,649 $ 191,503
============ ============
The accompanying notes are an integral part of these financial statements.
VTX ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
a. The accompanying consolidated financial statements include the accounts of
VTX Electronics Corp. and its wholly-owned subsidiaries, Vertex Technologies,
Inc., Vertex Data Systems, Inc. [inactive], and its foreign subsidiary,
Vertex Electronics UK, LTD. Operations of Vertex Electronics UK Ltd.
commenced July 1992. All significant intercompany transactions and balances
have been eliminated in consolidation.
The consolidated balance sheet as of September 30, 1995 and the related
consolidated statements of operations and cash flows for the three months
ended September 30, 1995 and 1994, have been prepared by the Company without
audit. In the opinion of management, all adjustments (which include only
normal recurring adjustments) necessary to present fairly the financial
position, results of operations and changes in cash flows at September 30,
1995 and for all periods presented have been made. Results of operations for
the three month period are not necessarily indicative of results of
operations for the corresponding year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted. It is suggested that these consolidated
financial statements be read in conjunction with consolidated the financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the year ended June 30, 1995.
2. LONG-TERM DEBT
Long-term debt consists of the following:
September 30, June 30,
1995 1995
------------ ----------
Revolving asset-based loan (a).............. $ 4,466,355 $4,903,805
First mortgage loan, net of imputed
interest (b)............................... 1,027,358 1,025,741
Subordinated mortgage loan, net of imputed
interest (b)............................... 21,168 31,649
Machinery and equipment loan (c)............ 105,250 105,250
Capitalized lease obligations (d)........... 53,003 58,892
----------- ----------
5,673,134 6,125,337
Less current portion of long-term debt...... 148,931 158,954
----------- ----------
$ 5,524,203 $5,966,383
=========== ==========
VTX ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
a. On February 10, 1995, the Company entered into an amended and restated
revolving credit agreement with a lending institution. Such agreement
provided for a revolving credit facility with maximum available of
$10,000,000 and expires on December 31, 1995. Under the terms of the credit
facility, the Company is required to pay interest at prime plus 2 3/4% and
a commitment fee of 1/2% per annum on the daily unused portion of the credit.
The agreement also provides for termination fees as a result of default or
early termination of 2%, 1% and .5% of the maximum credit if such termination
occurs before December 31, 1995, 1996 and 1997, respectively. In connection
with this financing amendment, the Company incurred in fiscal 1995 costs
approximating $80,000, which have been accounted for as deferred charges and
are being amortized through December 31, 1997. Under the terms of the
agreement, borrowings are limited to 80% of eligible accounts receivable
(constituting those amounts outstanding 90 days or less) and 50% of eligible
accounts receivable outstanding between 91 and 120 days, and 40% of regular
inventories and 20% of slow moving inventory. As of September 30, 1995 and
1994, the Company had $5,100,000 and $5,860,000 availability under the
eligibility terms of the facility, of which $4,600,000 and $4,449,000 was
outstanding on such dates, respectively. This loan is collateralized by
substantially all of the assets of the Company not otherwise collateralized.
In connection with its revolving credit facility, the Company is subject to
restrictive covenants which impose certain limitations with respect to the
Company's incurrence of indebtedness, capital expenditures, creation or
recurrence of liens, declaration or payment of dividends or other
distributions, mergers, consolidations and sales or purchases of substantial
assets. In general, the Company is not allowed to incur further indebtedness
or create additional liens on its assets except for unsecured current
liabilities incurred in the ordinary course of business or liabilities
incurred in the ordinary course of business secured by purchase money
security interest not to exceed an aggregate of $750,000. The Company is not
allowed to make loans or investments or provide guarantees or to prepay
indebtedness. The Company is prohibited from paying dividends and may not
enter into a merger, consolidation or sale of all or substantially all of its
assets. Additionally, the Company is required to maintain consolidated net
worth of not less than $750,000 and to maintain consolidated working capital,
defined as current assets less current liabilities and debt outstanding under
the credit facility, of not less than a negative $1.5 million.
b. On March 31, 1994, the Company satisfied its subordinated asset-based term
loans and the Industrial Development Agency Bonds aggregating $2,080,496 on
such date with the $1,200,000 proceeds from a first mortgage loan and the
issuance of a $100,000 non-interest bearing subordinated mortgage loan
payable in 24 monthly installments of $4,167 each commencing March 31, 1994.
As a result of this debt refinancing, the Company recorded an extraordinary
gain of $747,422 in the consolidated statement of operations for the year
ended June 30, 1994 net of related expenses of $33,074.
VTX ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The first mortgage loan is with a group of lenders, and is payable over five
years in monthly installments of $15,980, inclusive of principal and interest
at 14%, commencing May 1, 1994, with a final installment of principal of
$1,033,183 payable on April 1, 1999 and collateralized by a first mortgage
lien on the Company's corporate headquarters. In connection with such loan,
the Company issued to one of the lenders 250,000 common stock purchase
warrants exercisable on or before March 31, 2001 at an exercise price at $.50
per share. A portion of the proceeds of the loan has been allocated to the
warrants based on the Company's Board of Directors' assessment of their fair
value at the time of issuance ($.70 per share). For financial statement
purposes, the fair value ascribed to the warrants of $175,781 has been
deducted from the proceeds of the mortgage loan as additional interest
expense and is being amortized over the term of the mortgage to yield an
effective interest rate of approximately 20% per annum. The loans have
prepayment penalties which are calculated as a percentage of the prepayment
amount. The percentage is determined based upon the date of payment as
follows:
Prepaid Percentage
Between one and two years 3%
Between two and three years 1%
Thereafter 0%
The loan contains covenants prohibiting certain types of transactions and
limiting capital expenditures to $250,000 per annum without the prior consent
of the lenders.
c. On October 18, 1991, the Company received $500,000 in cash from an
unaffiliated investor group in exchange for a mortgage on certain machinery
and equipment. Concurrently, such investor group acquired a 50.6% interest
in the then outstanding issued common stock of the Company for $1,000,000 (or
$.40 per-share) and was granted a five-year warrant to purchase 1,000,000
shares of the Company's common stock for $.50 per-share. Such warrants were
fully exercised in June 1994. The loan, which bears interest at the rate of
1-1/4% above the prime lending rate (9.00% and 6.75% at September 30, 1995
and June 30 1995, respectively), was originally due on September 30, 1994;
however, on April 25, 1994, such due date was extended to September 30, 1995.
On December 19, 1994, however, the Company extinguished $394,750 of the
$500,000 loan balance in exchange for 789,500 shares of the Company's common
stock. The Company's Board of Directors and management believe based upon
a fairness opinion rendered by an independent investment banking firm and
other analysis, that the fair value of the shares exchanged was equal to the
carrying amount of the converted portion of the loan. The fairness opinion
stated that the exchange was fair to the stockholders of the Company from a
financial point of view. The remaining $105,250 principal balance of the
loan has an amended due date of March 31, 1996. All other terms remain
unchanged.
d. The Company leases its telephone system under agreements accounted for as
capital leases. The obligation for the telephone system require the Company
to make monthly payments of $1,963 through December 1997.
VTX ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following is a summary of the aggregate annual maturities of long-term
debt and capitalized lease obligations:
Capitalized
Long-term lease
debt obligations Total
September 30: ---------- ----------- -----------
1996 $ 125,374 $ 23,557 $ 148,931
1997 - 23,557 23,557
1998 4,461,574 5,889 4,467,463
1999 1,033,183 - 1,033,183
---------- ----------- -----------
$5,620,131 $ 53,003 $ 5,673,134
========== =========== ===========
3.INVENTORIES
Inventory consists principally for products held for sale. The Company
regularly reviews its inventory for obsolete and slow-moving items which
includes reviews of inventory levels of certain product lines and an
evaluation of the inventory based on changes in technology and markets. As
of September 30, 1995 and June 30, 1995, the reserve was approximately
$385,000 and $535,000, respectively.
September 30, June 30,
1995 1995
------------ -----------
Raw Materials $ 45,326 $ 67,267
Work in Process 18,202 31,934
Finished Goods 3,610,812 3,686,971
----------- -----------
Inventories, Net $3,674,340 $3,786,172
4. COMMITMENTS AND CONTINGENCIES
a. Employment Agreement
On March 31, 1994, the Company entered into an employment agreement with its
newly appointed president which requires total annual minimum compensation
of $200,000 through March 1997 plus an annual bonus based on a percentage of
specified levels of achieved net profits.
b. Consulting Agreements
Under the terms of a nonexclusive consulting/investment banking agreement,
the Company is obligated to pay an underwriter $4,115 per month for 24 months
which commenced in April 1995 for consulting services related to investment
banking and finance services.
Effective April 1, 1994, the Company entered into a three-year consulting
agreement with a director for financial/management services. Under the terms
of the agreement, the director receives $4,000 per-month.
VTX ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
c. Leases:
The Company's minimum annual lease commitments under noncancellable operating
leases for premises at September 30, 1995 are as follows:
September 30:
1996 $ 424,902
1997 279,510
1998 93,890
1999 51,317
2000 12,829
-----------
$ 862,448
===========
Rent expense, including related real estate taxes and other operating
charges, was approximately $139,215 and $134,112 for quarter ended September
30, 1995, and 1994, respectively.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Quarter Ended September 30, 1995 and 1994
For the quarter ended September 30, 1995, net sales were $7,578,000 as compared
to the quarter ended September 30, 1994 of $9,544,000, a decrease of 20.6%. The
decrease was due to tight industry supply of certain cable and wire items and
lost sales from related items without the "pull through" effect of the items in
tight supply; and turnover of sales personnel and to recently hired sales people
learning the Company's operation. For the quarter ended September 30, 1995,
sales from value-added distribution and manufacturing were approximately
$5,098,000 and $2,483,000, respectively, compared to $5,766,000 and $3,778,000,
respectively for the quarter ended September 30, 1994.
Gross profit for the quarter ended September 30, 1995 was $1,502,000 or 19.8% as
compared to the quarter ended September 30, 1994 of $2,121,000 or 22.2%, a
decrease in gross profit of $619,000 or 29%. The decrease in gross profit was
mainly due to lower sales levels as a result of tight industry supply of certain
cable and wire items, and turnover of sales personnel and to recently hired
sales personnel learning the Company's operation. The lower gross profit
percentage was due to product mix change as a result of tight industry supply of
certain cable and wire items.
Selling, general and administrative expenses decreased by $157,000 or 8.0% to
$1,918,000 for the quarter ended September 30, 1995 from $2,075,000 for the
quarter ended September 30, 1994. General and administrative expenses decreased
by approximately $154,000 from improved financial controls over spending, while
an increase of $22,000 of selling expenses were incurred as a result of slightly
higher sales personnel headcounts. In addition the prior years expense included
$25,000 of bad debt expense that was not incurred in the current year as a
result of improved credit and collections management.
Interest expense decreased by $23,000 or 12% to $169,000 for the quarter ended
September 30, 1995 from $192,000 for the comparable quarter ended in 1994. The
decrease was due to reduced borrowing levels. The decrease would have been
greater as compared to the prior year if the prime rate had not increased.
Liquidity and Financial Condition
As of September 30, 1995 and 1994
Working capital as of September 30, 1995 was $3,549,000 as compared with
$4,476,000 as of June 30, 1995. The $927,000 decrease in working capital was
mostly due to a decrease in cash, inventory, and prepaid expenses and other
current assets which was offset by an increase in accounts payable.
Long term debt as of September 30, 1995 was $5,524,000 a decrease of $442,000 or
7.4% from $5,966,000 at June 30, 1995. This was due primarily to the reduced
borrowing levels. The Company's asset based revolving credit facility provides
a maximum availability of $10,000,000 based on eligible accounts receivable and
inventory. As of September 30, 1995, $5,100,000 was available under this
facility of which $4,600,000 was drawn down. The Company intends to continue
to employ this line of credit to finance inventory and accounts receivable.
<PAGE>
PART II- OTHER INFORMATION
None
<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.
VTX ELECTRONICS CORP.
By:
President
By:
Controller, Secretary and
Principal Accounting Officer
Dated: September 14, 1995
<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.
VTX ELECTRONICS CORP.
By: /s/ Donald W. Rowley
President
By: /s/ Nicholas T. Hutzel
Controller, Secretary and
Principal Accounting Officer
Dated: September 14, 1995
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