As filed with the Securities and Exchange Commission on May 8, 1995
Registration No. 33-88710
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
VTX ELECTRONICS CORP.
(Exact name of Registrant as specified in its charter)
DELAWARE 11-2816128
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
61 Executive Boulevard
Farmingdale, New York 11735
(516) 293-9880
(Address, including zip code, and Telephone Number,
including area code, of Registrants Principal Executive Offices)
Donald W. Rowley, President
VTX Electronics Corp.
61 Executive Boulevard
Farmingdale, New York 11735
(516) 293-9880
(Name, Address, including zip code, and telephone number,
including area code, of agent for service)
COPIES OF COMMUNICATIONS TO:
Steven Wolosky, Esq.
Jeffrey S. Spindler, Esq.
Olshan Grundman Frome & Rosenzweig
505 Park Avenue
New York, New York 10022
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
reinvestment plans, check the following box. [ X ]
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED MAY 8, 1995
PROSPECTUS
VTX ELECTRONICS CORP.
3,339,500 SHARES OF COMMON STOCK
This Prospectus relates to the offer and sale by certain stockholders (the
"Selling Stockholders") of VTX Electronics Corp. (the "Company") of an aggregate
of 3,339,500 shares (the "Shares") of Common Stock, par value $.10 per share
(the "Common Stock"), of the Company. The shares of Common Stock are being
offered hereby for the account of the Selling Stockholders. The Company will not
receive any proceeds from the sale of such shares. All expenses of the offering,
other than broker's fees and commissions, are payable by the Company. See
"Principal and Selling Stockholders" and "Plan of Distribution."
The Common Stock may be offered by or for the account of the Selling
Stockholders from time to time on the American Stock Exchange ("AMEX") or in
negotiated transactions, or a combination of such methods of sale, at fixed
prices that may be changed, at market prices prevailing at the time of sale, at
prices related to such prevailing market prices, or at negotiated prices. See
"Plan of Distribution."
The Common Stock is listed on AMEX. On May 4, 1995 the closing price for
the Common Stock on AMEX was $1/4 per share.
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THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS."
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this Prospectus is ____________, 1995.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational and reporting requirements of
the Securities Exchange Act of 1934 (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, statements
and other information can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 and at its New York Regional Office, 7 World Trade Center, Suite
1300, New York, New York 10048 and at its Chicago Regional Office, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. Such reports, proxy
statements and other information concerning the Company also may be inspected at
the offices of AMEX, 86 Trinity Place, New York, New York 10006, on which the
Common Stock is listed for trading.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-3 (the "Registration Statement") under the Securities Act of 1933 (the
"Securities Act") with respect to the Common Stock offered hereby of which this
Prospectus constitutes a part. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits and
schedules thereto. For further information with respect to the Company and the
Common Stock, reference is hereby made to such Registration Statement, exhibits
and schedules. Any statements contained in this Prospectus as to the contents of
any contract or other document are not necessarily complete, and reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement of which this Prospectus forms a part, each such
statement being qualified in all respects by such reference. A copy of this
Registration Statement may be inspected without charge at the offices of the
Commission, 450 Fifth Street, N.W., Washington, D.C., and copies of all or any
part thereof may be obtained from the Commission upon payment of certain fees
prescribed by the Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by the Company with the Commission
under the Exchange Act (File No. 1-9263) are incorporated herein by reference:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1994.
2. The Company's Quarterly Reports on Form 10-Q for the quarters ended
September 30, 1994 and December 31, 1994, as amended on Form 10-Q/A-1.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering made hereby (other than portions thereof that,
pursuant to applicable rules of the Commission are not deemed to be filed) shall
be deemed to be incorporated by reference in this Prospectus and to be a part
hereof from the date of the filing of such documents. Any statement contained in
this Prospectus, in a supplement to this Prospectus, or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any subsequently filed supplement to this
Prospectus or in any document that also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus is delivered, on the written or oral request of
any such person, a copy of the documents incorporated by reference as a part of
the Registration Statement, other than exhibits to such documents. Requests for
such copies should be directed to Nicholas T. Hutzel, Secretary, VTX Electronics
Corp., 61 Executive Boulevard, Farmingdale, New York 11735, telephone number
(516) 293-9880.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
included elsewhere in this Prospectus. Each prospective investor is urged to
read this Prospectus in its entirety.
RISK FACTORS
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN
CONNECTION WITH AN INVESTMENT IN THE SECURITIES OFFERED HEREBY.
THE COMPANY
VTX Electronics Corp. (the "Company"), through its Vertex Technologies,
Inc. subsidiary, is a multi-regional value-added specialty distributor of
electronic components and cable, and a manufacturer of custom-made electronic
cable assemblies used in providing connectivity solutions for customers
operating a wide range of data communications. This includes linking or
connecting standard or proprietary electronic devices and peripheral components
from different manufacturers to provide solutions for various customer
requirements. The Company adds value by providing connectivity solutions which
may include distributed sales of passive components (electronic connectors,
electronic wire and cable, cabinets and racks, and patch panels), and active
components (hubs, bridges, routers, gateways, and modems) and/or the manufacture
of custom-made electronic cable assemblies which the Company designs
specifically to meet individual customer's unique and complete connectivity
requirements.
The Company's executive offices are located at 61 Executive Boulevard,
Farmingdale, New York 11735 and its telephone number is (516) 293-9880. Unless
the context requires otherwise, all references herein to the Company or Vertex
mean VTX Electronics Corp. and its subsidiaries.
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Common Stock offered by the Selling Stockholders.......... 3,339,500 shares
Common Stock Outstanding.................................. 12,627,000 shares(1)
AMEX Symbol............................................... VTX
Use of Proceeds........................................... The Company will not receive any of the proceeds
from the sale of the Shares by the Selling
Stockholders. See "Use of Proceeds."
Recent Developments...................................... The Company has recently completed a private
placement involving the issuance of securities,
employed a new president and restructured certain
indebtedness. See "Recent Developments."
</TABLE>
(1) Excludes 1,375,000 shares of authorized common stock reserved for issuance
upon exercise of outstanding options and warrants. See "Risk
Factors--Shares Eligible For Future Sale" and "Risk Factors--Warrants and
Options Outstanding--Market Overhang."
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<PAGE>
RISK FACTORS
Purchase of the Shares involves a high degree of risk. Prospective
investors should carefully consider the following factors, among others set
forth in this Prospectus including the consolidated financial statements and
notes thereto, before making a decision to purchase Shares.
FINANCIAL CONDITION-PAST OPERATING LOSSES
For the fiscal years ended June 30, 1994, 1993 and 1992, the Company
sustained operating losses (loss before income taxes and extraordinary items) of
$2,934,499, $2,055,928 and $1,982,521, respectively. For the six months ended
December 31, 1994, the Company sustained a net loss of $218,263. The Company's
operating loss in fiscal 1993 included a $1,200,000 non-cash write-off for
obsolete and slow moving inventory. The Company's operating loss in fiscal 1994
included a restructuring charge of $939,000. The Company anticipates losses will
continue until it can generate sufficient revenues from the sale of its products
to cover operating expenses. There is no assurance that the Company will ever
obtain profitable operations in the future. In addition, the Company's ability
to utilize its net operating loss carryforwards is limited to approximately
$615,000 annually during the carryforward period as the result of several
"ownership changes" as defined in the Internal Revenue Code. The Company will
incur income taxes once its net income exceeds the above limitations and all
unrestricted carryover losses are exhausted. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
CAPITAL NEEDS FOR EXPANSION
Although the Company has recently completed an equity financing and
refinanced certain debt in order to improve its financial position, the Company
may seek to obtain additional capital necessary to achieve business expansion as
part of the implementation of its plan of operation or to otherwise continue its
business operations if it can't return to profitability. See "Recent
Developments", "Plan of Operations" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." There is no assurance that such
additional capital will be available to the Company and, if available, that it
would be on terms acceptable to the Company.
DEPENDENCE UPON CREDIT FACILITIES
The Company depends on its credit facilities to finance its operations and
inventory purchases necessary to meet customer requirements. Because of the
Company's historical cash shortages and inability to pay promptly certain of
these credit facilities, the Company has had difficulties meeting customer
requirements and has lost sales as a result. There can be no assurance that
trade creditors may not place the Company on a cash-on-delivery or
payment-in-advance basis which (as the Company experiences from time to time)
would adversely affect the Company's ability to conduct business. See "Business"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations".
ADVERSE EFFECTS OF NEW SALES FORCE
The Company has experienced a very large turn-over of its sales force
during the end of fiscal 1994 and beginning of fiscal 1995. During the period of
transition, the new sales force must learn the Company's operations, computer
system as well as the salesperson's territory. The Company has experienced a
decrease in sales due to this sales force turn-over and the Company expects the
sales force turn-over to result in a decrease in sales during the transition
period.
INVENTORY
Within the last 12 months, the Company has at times had insufficient
inventory on hand to meet all customer order requests, and consequently has
experienced lost sales. The Company is currently restructuring its operations to
concentrate on a focused customer and supplier base and product line. The
purpose of the restructuring plan is to increase revenues resulting from greater
specialization, to improve profit margins as a result of greater purchasing
leverage with fewer suppliers, and to reduce operating expenses as a result of
lower corporate overhead.
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Product lines which will be emphasized are in the passive and active component
areas of connectivity solutions, while hardware and application and operating
software areas of connectivity solutions will be discontinued. See "Plan of
Operations" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations." There can be no assurance that any of these goals of the
restructuring plan will be realized.
The Company has experienced substantial inventory write-offs in part as a
result of changes to the product lines offered by the Company and the Company's
previously unfocused product line. In order to help minimize such write-offs,
the Company has put in place certain purchasing and monitoring controls as well
as more effectively utilizing the return and price protection policies of its
suppliers. However, there can be no assurance that these actions will preclude
the Company from being required to take additional inventory write-offs in the
future.
LEVERAGE
The Company has been and will continue to be highly leveraged. At December
31, 1994, the Company's long-term debt was $5,862,888, as compared to total
stockholder's equity of $3,079,532. All of the assets of the Company are pledged
to secure the Company's indebtedness. Upon the occurrence of an event of default
under the instruments governing the Company's secured indebtedness, the lenders
could elect to declare all amounts owed thereunder due and payable and could
proceed against such collateral. As of the date of this Prospectus, there have
been no defaults on the Company's secured indebtedness. See "-- Capital Needs
for Expansion."
RESTRICTIVE COVENANTS
The instruments governing the Company's indebtedness contain certain
restrictive covenants which impose limitations on the Company with respect to,
among other things: (1) the incurrence of indebtedness; (2) capital
expenditures; (3) the creation or occurrence of liens; (4) the declaration or
payment of dividends or other distributions; and (5) mergers, consolidations and
sales or purchases of substantial assets. Such instruments also require that the
Company satisfy certain financial tests.
Upon the occurrence of an event of default under the instruments governing
the Company's indebtedness, the lenders may terminate their commitments and/or
accelerate repayment of all amounts due thereunder (or in the case of an event
of default resulting from a bankruptcy, insolvency or reorganization of the
Company, such commitments terminate and such repayment accelerates
automatically). Such instruments specify a number of events of default,
including, among others the failure to: (1) make timely principal or interest
payments; (2) perform the covenants; or (3) meet the financial tests. During
fiscal 1994, the Company satisfied certain lender obligations at a discount.
This satisfaction of debt did not activate any covenants which accelerate the
Company's repayment of outstanding indebtedness. See "Market for the Company's
Securities" and "Management's Discussion and Analysis of Financial Conditions
and Results of Operations."
HIGHLY COMPETITIVE INDUSTRY
The Company faces substantial competition from several national
distributors which have greater financial and other resources than the Company,
as well as other distributors operating on a local or regional basis and systems
integrators. The distribution of passive and active components is a highly
competitive business. The amount of competition is largely dependent on the
number of distributors and the technical nature of the products. In the event of
the occurrence of technological changes affecting the business in which the
Company competes, such changes could affect the relative competitiveness of the
Company and its competitors.
DEPENDENCE ON KEY OFFICER
The Company's planned operations are significantly dependent on its
President, Donald W. Rowley, and the Company might have difficulty in replacing
him if he should become unavailable. His employment agreement with the Company
expires March 30, 1997. See "Management" and "Plan of Operations."
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<PAGE>
DEPENDENCY ON SUPPLIERS
While most products distributed by the Company can be purchased from many
different suppliers, and the Company is typically not dependent on any one
vendor, AT&T and IBM accounted for 15.3% and 10.1%, respectively of purchases in
fiscal 1993. For the fiscal year ended June 30, 1994, purchases from AT&T and
Madison Wire and Cable accounted for 10.8% and 12.1% respectively of purchases
in fiscal 1994. Although the Company believes that it may be able to obtain
competitive products of comparable quality from other suppliers, the loss of
certain suppliers could have an adverse impact on its operations. See
"Business."
DEPENDENCY ON CUSTOMERS
The Company is typically not dependent on any one customer, however, during
the past three fiscal years, one customer accounted for 10% or more of the
Company sales. Bloomberg L.P. accounted for approximately 16.3%, 11.4%, and
10.1% of total sales in fiscal 1994, 1993 and 1992, respectively. The loss of
Bloomberg L.P. as a customer could have an adverse effect on the Company.
NO DIVIDENDS
The Company has never paid a dividend on its Common Stock and does not
anticipate paying any such dividends for the foreseeable future. Pursuant to the
terms of the Company's revolving credit facility, the Company is not permitted
to pay or declare any dividends or otherwise make any distribution of capital.
See "Market for the Company's Securities".
RISK OF AMEX DELISTING
Although the Common Stock is currently listed on the American Stock
Exchange ("AMEX"), the Company does not currently meet certain of the continued
listing guidelines of AMEX as to financial condition and/or operating results,
and there can be no assurance that trading on AMEX will continue. The Company
has been in communication with AMEX regarding plans for maintenance of its
listing. In the event the Company is unable to maintain its AMEX listing, there
is no assurance that a public market will continue to exist for the Company's
Common Stock, the Company may be unable to obtain news coverage, have difficulty
in obtaining financing, suffer a decline in the market value of its Common
Stock, and stockholders of the Company may subsequently have difficulty in
selling their Common Stock should they desire to do so. See "Market for the
Company's Securities."
The Commission has adopted rules that regulate broker-dealer practices in
connection with transactions in "penny stocks." Penny stocks generally are
equity securities with a price of less than $5.00 (other than securities
registered on certain national securities exchanges or quoted on the Nasdaq
System, provided that current price and volume information with respect to
transactions in that security is provided by the exchange or system). The penny
stock rules, which became effective January 1, 1993, require a broker-dealer,
prior to a transaction in a penny stock not otherwise exempt from the rules, to
deliver a standardized risk disclosure document prepared by the Commission that
provides information about penny stocks and the nature and level of risks in the
penny stock market. The broker-dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in the transaction, and monthly account
statements showing the market value of each penny stock held in the customer's
account. The bid and offer quotations, and the broker-dealer and salesperson
compensation information, must be given to the customer orally or in writing
prior to effecting the transaction and must be given to the customer in writing
before or with the customer's confirmation. These disclosure requirements may
have the effect of reducing the level of trading activity in the secondary
market for a stock that becomes subject to the penny stock rules. If the
Company's securities become subject to the penny stock rules (i.e., if the
securities are below $5.00 per share and are not registered on AMEX), it may
become more difficult to sell such securities.
In addition to the exemptions provided by quotation on Nasdaq and listing
on a national exchange, the following transactions would be exempt from the
broker-dealer disclosure requirements of the penny stock rules: (i) transactions
in penny stocks by a broker-dealer that does less than five percent of its
securities business in penny stocks and that has not been a market maker, during
the past year, in the subject penny stock, (ii) transactions in
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securities the issuer of which has $2,000,000 in net tangible assets, or
$5,000,000, if the issuer has not been in continuous operation for at least
three years, (iii) transactions in securities the issuer of which has had
average revenues of at least $6,000,000 for each of the last three years, (iv)
transactions in which the customer is an institutional accredited investor, and
(v) transactions that are not recommended by the broker-dealer.
LIMITED VOLUME OF TRADING
There has been a limited volume of trading for the Company's Common Stock
and there can be no assurance that an active public trading market for the
Common Stock will develop or be sustained.
SHARES ELIGIBLE FOR FUTURE SALE
As of the date of this Prospectus, a total of 5,617,600 shares of the
Company's outstanding Common Stock are "restricted securities" and, in the
future may be sold from time to time in compliance with Rule 144 adopted under
the Securities Act of 1933, as amended. Among other things, Rule 144 provides
that persons holding restricted securities for a period of two years or more may
sell, in brokers' transactions every three months, an amount equal to the
greater of 1% of the Company's outstanding Common Stock or the average weekly
reported volume of trading in such securities on all national securities
exchanges during the preceding four calendar weeks. Further, non-affiliates may
sell restricted stock after three years without regard to this volume
limitation. The possibility of such sales under Rule 144, and the sale of such
shares in the future, could have a depressive effect upon the market price of
the Common Stock. See "Principal and Selling Shareholders."
WARRANTS AND OPTIONS OUTSTANDING - MARKET OVERHANG
As of the date of this Prospectus, 12,627,000 shares of Common Stock were
issued and outstanding. The Shares will constitute approximately 26.4% of the
Common Stock outstanding. Additionally, as of March 31, 1995, the Company had
outstanding options and warrants to issue up to an additional 1,375,000 shares
of Common Stock. Actual sales or the prospect of future sales of the Shares in
this offering and the prospect of future sales of shares underlying the
outstanding options and warrants may also have a depressive effect upon the
market price of the Common Stock. See "Principal and Selling Stockholders".
These outstanding warrants and options will likely only be exercised at a
time when the price of the Company's Common Stock is in excess of the warrant or
option exercise price, and the Company would otherwise be able to raise equity
capital on more favorable terms. In addition, certain of the outstanding
warrants and options have demand and piggy-back registration rights. As a
result, the holders of the outstanding warrants and options will be given an
opportunity to profit from a rise in the market price of the Company's Common
Stock with little risk, with a resulting dilution of the interest of the
stockholders. Any registration of the shares underlying the outstanding warrants
will likely result in a significant expense to the Company.
PREFERRED STOCK AUTHORIZED
The Company's Articles of Incorporation, as amended, authorize the issuance
of a maximum of 5,000,000 shares of preferred stock, $.01 par value. Such shares
may be issued by the Company on the authority of the Board of Directors without
stockholder action. At present, no series of preferred stock have been
authorized or issued by the Company, however the terms of any series of
preferred stock established by the Company could adversely affect the rights of
the holders of the Company's Common Stock. The possible issuance of additional
shares of preferred stock may be considered a deterrence to a change of control.
See "Description of Capital Stock."
ANTI-TAKEOVER PROVISIONS OF DELAWARE LAW
Section 203 of the Delaware General Corporation Law (applicable to the
Company as a Delaware corporation) imposes significant restrictions upon
business combinations between the Company and any stockholder which owns,
directly or indirectly, 15% of the outstanding Common Stock of the Company.
Effectively, the statute requires that any such business combination must be
approved by the disinterested directors, and specified notice
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<PAGE>
must be given to the shareholders. The business combinations subject to the
statute include mergers, tender offers, exchange offers, and other similar
transactions.
LABOR AGREEMENT
Approximately 25% of the Company's full-time employees are covered by a
collective bargaining agreement in the Company's Farmingdale, New York facility.
The union agreement expires April 30, 1996 and is primarily in response to
market conditions in the New York City area which typically favors the use of
union labor. While the Company believes that its employee relations are good, if
the Company is unable to negotiate satisfactory agreements after the expiration
of the existing union contract, the Company may be adversely affected.
USE OF PROCEEDS
The Company will not receive any of the proceeds from the offer and sale of
the Common Stock offered hereby.
MARKET FOR THE COMPANY'S SECURITIES
The Company's Common Stock is listed for trading on AMEX under
the symbol VTX. The following table shows the quarterly range of the high and
low closing sale prices for the Common Stock on AMEX, for the periods indicated.
SALES PRICE (AMEX)
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PERIOD HIGH LOW
------ ---- ---
Fiscal 1993
First Quarter ended September 30, 1992 .......... 1.62 .87
Second Quarter ended December 31, 1992 .......... 1.37 .75
Third Quarter ended March 31, 1993 .............. 1.31 .63
Fourth Quarter ended June 30, 1993 .............. .81 .38
Fiscal 1994
First Quarter ended September 30, 1993 .......... 1.38 .75
Second Quarter ended December 31, 1993 .......... 1.00 .69
Third Quarter ended March 31, 1994 .............. 1.75 1.06
Fourth Quarter ended June 30, 1994 .............. 1.31 1.08
Fiscal 1995
First Quarter ended September 30, 1994 .......... 1.06 .56
Second Quarter ended December 31, 1994 .......... .81 .38
Third Quarter ended March 31, 1995 .............. .63 .38
Fourth Quarter (thru May 4, 1995) ............... .44 .25
See the cover page for the price of the Company's Common Stock as of a
recent date. As of March 29, 1995, there were 220 record holders of Common
Stock.
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The Company has never paid a cash dividend on its Common Stock and the
Company does not anticipate paying any dividends on the Common Stock in the
foreseeable future. Pursuant to the terms of its revolving credit facility, the
Company is not permitted to pay or declare any dividends or otherwise make any
distribution of capital.
RECENT DEVELOPMENTS
On March 4, 1994, the Company closed an equity transaction (the "Initial
Equity Transaction") wherein it sold a total of 2,000,000 shares of Common Stock
together with warrants to purchase 2,000,000 shares of Common Stock to
unaffiliated investors resulting in gross proceeds to the Company of $1,000,000.
The warrants were exercisable for a period of four years at a price of $.50 per
share and have been exercised in full.
On March 28, 1994, the Company entered into a non-exclusive Consulting
Agreement/Investment Banking Agreement with Chatfield Dean & Co., Inc. In
addition, the Company engaged Mr. Patrick Kolenik in November 1993 and Jerome M.
Sidel in January 1995 as consultants.
On March 31, 1994, VTX completed the restructuring of certain debt
resulting in a pre-tax extraordinary gain on the extinguishment of the debt in
the amount of $747,422 (which is net of expenses). VTX satisfied the mortgage
debt owed to Fleet Bank in the principal amount of $2,080,496 by the payment of
$1,200,000 plus a $100,000 second mortgage. The debt, which encumbered VTX's
principal headquarters in Farmingdale, was satisfied by a new $1,200,000 first
mortgage obtained from Sterling Commercial Capital, Inc. ("Sterling"), lead
lender of a participating group, which included First Wall Street SBIC, L.P.,
Fundex Capital Corp. and Tappan Zee Capital Corp. In connection with the new
loan, the Company issued warrants to purchase 250,000 shares of Common Stock to
Sterling exercisable through March 31, 2001 at $.50 per share.
On March 31, 1994, the Company appointed Mr. Donald W. Rowley to the
position of president of the Company and its wholly-owned subsidiary, Vertex
Electronics, Inc. Mr. Rowley was formerly chairman of Lantek Electronics, Inc.
The Company and Lantek were parties to a consulting agreement, which agreement
was mutually terminated by the parties. Mr. Rowley entered into a three year
employment agreement with the Company pursuant to which he will devote his full
time to the affairs of the Company and its subsidiaries. See "Certain
Relationships and Related Transactions." Also effective March 31, 1994, Mr.
Stephen Stahl was appointed Executive Vice President and Mr. Nicholas Hutzel was
appointed Controller and Corporate Secretary. Both were previously employed by
the Company. On April 18, 1994, Mr. Robert Eide, a director since 1991, was
appointed Chairman of the Board upon the resignation from the Board of Mr.
Howard Lorber, and Mr. Rowley was appointed to the Board.
On April 6, 1994, the Company completed an additional equity transaction
(the "Additional Equity Transaction and, together with the Initial Equity
Transaction, the "Equity Transactions") wherein the Company sold a total of
500,000 shares of Common Stock together with warrants to purchase 500,000 shares
of Common Stock to unaffiliated investors resulting in gross proceeds to the
Company of $250,000. The warrants were exercisable for a period of four years at
a price of $.50 per share and have been exercised in full.
On June 9, 1994, a transaction was completed whereby 3,950,000 shares of
Common Stock offered by certain selling stockholders, which were issuable upon
exercise of then outstanding warrants to purchase Common Stock issued in the
Equity Transactions (the "Warrants") at a price of $.50 per share, were sold by
such selling stockholders to Chatfield Dean & Co., Inc. (the "Underwriter") for
a price of $11/8 per share, less a 15.5% underwriting discount (for a net price
of approximately $0.95 per share) on a "firm commitment" basis. The Underwriter
then resold the shares to the public for $11/8 per share. The Company did not
receive any of the proceeds from the sale of such shares. The Company did,
however, receive the net proceeds from the exercise of the Warrants of
approximately $1,415,000. Such net proceeds were used by the Company to reduce
outstanding trade accounts payable, purchase additional inventory and reduce the
Company's revolving credit facility.
On September 20, 1994, the Company's Board of Directors approved a
consulting agreement for the Company's Chairman of the Board, Robert J. Eide.
The consulting agreement provides for the Chairman to receive
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a bonus of 5% of the Company's net operating profits up to a maximum of $100,000
for the fiscal year ended June 30, 1995.
In December 1994, VX Capital Partners, L.P. (the "Partnership") distributed
to each of the limited partners of the Partnership their pro rata portion of a
Promissory Note in the principal amount of $500,000 (the "Note"). Each limited
partner, except for one limited partner holding a $105,250 portion of the Note,
exchanged their pro rata portions of the Note for an aggregate of 789,500 shares
of Common Stock of the Company. Such shares are being registered under the
Registration Statement of which this Prospectus forms a part. In connection with
the exchange of the Note into equity, the Company received a fairness opinion
from an independent investment banking firm which stated that the exchange was
fair to the stockholders of the Company from a financial point of view.
BUSINESS
THE COMPANY
VTX Electronics Corp. (the "Company"), through its wholly-owned Vertex
Technologies Inc. subsidiary, is a multi-regional value-added specialty
distributor of electronic components and cable, and a manufacturer of
custom-made electronic cable assemblies used in providing connectivity solutions
for customers operating a wide range of data communications. The Company adds
value by providing connectivity solutions for customers. This includes linking
or connecting standard or proprietary electronic devices and peripheral
components from different manufacturers to provide solutions for various
customer requirements. These may include sales of passive or active electronic
components and/or the manufacture of custom-made electronic cable assemblies
which the Company designs specifically to meet individual customer's unique and
complete connectivity requirements.
Management believes that the Company's technical ability for providing
connectivity solutions between the data system capabilities of many
manufacturers and the specific connectivity needs of its customers, and its
reputation for providing the design and manufacture of custom-made electronic
cable assemblies that are subject to 100% computerized quality control testing
will be the principal factors on which the Company will plan its future growth.
See "Plan of Operations".
The Company expects internal growth to be enhanced by what the Company
perceives to be three continuing trends: (i) the increasing demand for data
communications to provide timely information in the office environment and
factory floor that requires connectivity solutions; (ii) the growing number of
alternatives available to organizations of all sizes and all types of industries
to increase productivity through improved or upgraded computer data systems; and
(iii) manufacturers of passive and active components increasingly preferring
distributors, such as the Company, who are capable of offering complete
connectivity solutions to the end user.
The Company's executive offices are located at 61 Executive Boulevard,
Farmingdale, New York 11735 and its telephone number is (516) 293-9880. Unless
the context requires otherwise, all references herein to the Company and Vertex
mean VTX Electronics Corp. and its subsidiaries.
BUSINESS STRATEGY
The Company's business strategy is to develop a value-added distribution
network through internal growth with a focus on connectivity solutions for data
communications. Management believes it will continue to: (i) introduce new
connectivity solutions; (ii) improve operating efficiencies through a more
efficient organizational structure, eliminate duplicative activities, and
integrate manufacturing capabilities between the three separate manufacturing
facilities located in the United States; (iii) derive the benefits of critical
mass through the opportunity to develop stronger relationships with, and obtain
the best terms from, key suppliers; and (iv) derive the benefits of critical
mass through the ability to distribute to and service large national and
international customers.
In its relationship with its customers, the Company focuses on providing
connectivity solutions, thus adding significant value to the passive and active
components it distributes. Such solutions include advising customers on the
options available to meet their specific needs and manufacturing custom-made
electronic cable assemblies for the customers. In addition, the Company
continues to service the customers with components and assemblies as the
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customer's system grows. Management believes that manufacturers of products
generally choose to build relationships with distributorships capable of
offering advisory services, technical support, and other services such as
manufacturing custom-made electronic cable assemblies. The Company believes it
is perceived as a value-added distributor by both suppliers and customers as a
result of its technical skills and knowledge of the marketplace, access to and
understanding of the product capabilities, and technical design and
manufacturing capabilities for custom-made electronic cable assemblies.
PRODUCTS AND SERVICES
The Company's products and services consist principally of the distribution
of a broad range of passive and active electronic components, and the design and
manufacture of custom-made electronic cable assemblies used as solutions for
connectivity requirements in data communications. Typically, passive components
carry data signals without any processing or filtering of the data (e.g.,
electronic connectors, electronic wire and cable, cabinets and racks, and patch
panels), while active components generate and/or regenerate and filter data
signals (e.g., hubs, bridge, routers, gateways, and modems). The Company's
principal product lines focus on connectivity solutions for data communications.
The Company also designs and manufactures custom-made cable assemblies
tailored to the customer's requirements, and offers project management and
installation of structured wiring and network design for data communications.
The Company employs design, engineering, and technical support personnel to
develop alternative connectivity solutions and manufacture custom-made
electronic cable assemblies.
The Company is in the process of restructuring its operations to improve
focus and productivity, which will emphasize the passive and active component
areas of connectivity solutions, while discontinuing hardware and application
and operating software areas of connectivity solutions. See, "Risk
Factors--Inventory", "Plan of Operations" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
PRINCIPAL SUPPLIERS
Management believes that the Company is not dependent on any particular
supplier. The products that the Company distributes are generally characterized
by a large number of products manufactured by a variety of companies. The
Company deals with preferred suppliers and believes the Company has a good
working relationship with each of its existing strategic suppliers including
AMP, AT&T, Andrews, Cable Design Technologies, IBM, Madison Wire & Cable,
Microtest, Novell, Ortronics, Proteon, Racal Datacom, Siecor, and Synoptics. For
the fiscal year ended June 30, 1994, purchases from AT&T and Madison Wire &
Cable accounted for 10.8% and 12.1%, respectively. AT&T and IBM accounted for
15.3% and 10.1%, respectively of purchases in fiscal 1993. In fiscal 1992, AT&T
accounted for 17.1% of purchases.
Through stock rotation rights and price protection arrangements with most
of its major suppliers including AMP, AT&T and IBM, the Company has begun to
reduce the risk of holding obsolete or over-priced product. Stock rotation
rights allow distributors to return a certain proportion of their purchases in
the event that the product does not sell. A price protection program gives the
distributor a rebate on purchases during a specified period if the manufacturer
subsequently lowers its prices. The price protection generally covers any
purchases made within the most recent 60 to 90 day period prior to the
manufacturer's price reduction.
The Company works off manufacturers' lead times. Deliveries range from one
week to approximately 90 days. The Company has a fully integrated on-line
computer system that enables it to determine immediate inventory availability of
the Company's entire inventory at its stocking facilities. The Company monitors
and maintains manufacturers' delivery schedules to ensure "on-time" delivery for
customers and to maintain proper inventory levels for the Company. The Company
believes that it has recently adopted more thorough inventory control systems,
and management currently does not believe it will be required to expense any
significant amounts of inventory in the future. However, there can be no
assurance there will not be further inventory write-offs.
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The Company's objective is to minimize lead times for its customers without
financing excess stock levels or risking technological obsolescence. Several
manufacturers have provided the Company an expedited shipping function in order
to better service the Company's customers.
The Company is in the process of restructuring its operations to improve
productivity, which will emphasize centralized purchasing and establishment of
preferred suppliers including primary and secondary supplier bases. The Company
has written off approximately $1,200,000 of inventory during fiscal 1993 because
of technological obsolescence and an additional write-down for discontinued
products and obsolete inventory was taken during the fiscal year ended June 30,
1994 of approximately $262,000.
SALES AND MARKETING
The Company offers a broad range of passive and active electronic
components used as connectivity solutions to end-users, professionals who
install and service data communications, and original equipment manufacturers
(OEM's).
The Company operates through seven locations in the Northeast, Mid-Atlantic
and West Coast regions of the United States and one location in the United
Kingdom. All but one of the eight locations operate as a sales office and
warehouse, whereas the one location is solely a sales office. In addition, the
Company operates manufacturing operations in the states of New York, Maryland
and California, plus one operation in the United Kingdom. These operations
support the design and manufacture of custom-made and standard cable assembly
requirements for the entire Company.
The Company has recently consolidated its operations by closing two
facilities and realigned the organizational structure of the other facilities in
order to improve support of the Company's sales and marketing efforts to better
service the Company's customers. See "Plan of Operations".
In order to effectively meet each customer's needs, the sales force first
gains an understanding of the customer's system connectivity requirements before
recommending one or more possible solutions. The variety of products offered by
the Company often allows the sales person to add value by providing alternative
solutions or more complete solutions to customers' requirements and thereby
gaining add-on sales. Where necessary, technical support personnel assist sales
people in recommending the best solution. The Company generally does not
participate in the design of computer systems but rather participates in the
design and accomplishment of the connectivity required for data communications.
The field sales force is supported by inside sales personnel who handle
incoming customer calls, perform sales estimates, provide rapid responses to
customer questions and assist in sales prospecting. In addition, compensation
policies have been tailored to promote a profit-oriented, rather than a
revenue-oriented, sales philosophy.
Sales leads are typically generated by ongoing interaction with existing
customers, sales calls to companies not currently customers, referrals from
suppliers, and by advertising and promotional efforts. The advertising and
promotion program for the Company consists of: (i) exhibits at national and
regional trade shows; (ii) Company sponsored seminars and product demonstrations
in regional areas; (iii) advertisements in trade publications; and (iv) direct
mail campaigns to targeted market niches.
The Company has recently refocused its sales and marketing strategy to
concentrate its efforts in certain market niches in which it only distributes
the products of preferred suppliers. These products represent passive components
such as category 5 wiring products, fiber optics, and wireless communication
products, and active components such as bridges, hubs, modems and reuters,
including in the design and implementation of structured wiring solutions for
network applications. The market for the Company's refocused products has
historically remained more stable and has not been affected to the same degree
by technological changes or price fluctuations. The majority of the products
distributed by the Company are readily adaptable to various end-users in all
industries.
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MAJOR CUSTOMER
The Company has one customer that has accounted for 10% or more of its
sales during the last three fiscal years. Bloomberg L.P. accounted for
approximately 10.1% of sales in fiscal 1992, approximately 11.4% of sales in
fiscal 1993 and approximately 16.3% of sales in fiscal 1994.
COMPETITION
All aspects of the Company's business are highly competitive. The Company
competes with several national distributors, including Anixter, Inc., a
subsidiary of Itel Corporation, and Kent Electronics Corporation, many of which
have greater financial and other resources than the Company. The Company also
competes with numerous distributors and systems integrators operating on a local
or regional basis. The Company's principal method of competing with the other
national distributors is by adding value to the active and passive components it
sells by assisting its customers in achieving appropriate connectivity
solutions. The other national distributors generally sell components on a higher
volume driven basis than the Company and, therefore, can sell those components
at a lower price to customers buying in bulk. However, such national
distributors generally do not focus on connectivity solutions.
The Company also competes with a large number of regional and local
distributors and systems integrators. These entities generally provide
value-added components to their customers, but frequently cannot provide
comparable volume discounts and the price advantages as the Company is able to
provide. The Company purchases many of the system components on a national scale
directly from manufacturers and expects to be able to enhance its ability to
obtain these price advantages. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The Company believes that its ability to provide value-added specialty
distribution, together with its design and manufacture capability to custom make
electronic cable assemblies as well as making available technical support,
differentiates the Company's from its primary competitors and gives the Company
a competitive advantage. There can be no assurance the Company will be able to
successfully exploit such advantage.
PRODUCT LIABILITY INSURANCE
The Company maintains a comprehensive general liability insurance policy in
the amount of $2,000,000, with an umbrella policy, including products liability,
providing coverage in the aggregate amount of $20,000,000, which it believes to
be adequate coverage.
EMPLOYEES
As of March 29, 1995, the Company had 215 full-time employees. Of these, 61
are sales and marketing personnel; 12 are design, engineering, and technical
support personnel; 38 are purchasing, warehouse and inventory control personnel;
72 are cable assembly manufacturing personnel; 11 are quality control personnel;
and 21 are accounting, data processing and other administrative personnel. Fifty
employees in the Company's Farmingdale facility are covered by a collective
bargaining agreement. In addition to its employees, the Company uses other
workers on a contract basis, as its needs require. The Company considers its
relations with its employees to be good.
PROPERTY
The location and size of each of the Company's facilities, the principal
use of each facility and lease expiration date are summarized below:
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<TABLE>
<CAPTION>
LOCATION SQUARE FOOTAGE USE Lease Expiration Date
-------- -------------- --- ----------------------
<S> <C> <C> <C>
Farmingdale, New York 45,000 Executive Office, *
Sales Office, Manufacturing
and Warehouse
Folcroft, Pennsylvania 15,000 Sales Office and September 1996
Warehouse
San Jose, California 12,450 Sales Office, May 1997
Manufacturing and
Warehouse
Torrance, California 11,200 Sales Office and May 1997
Warehouse
Elkridge, Maryland 16,750 Sales Office, January 1997
Manufacturing and
Warehouse
Marlborough, Massachusetts 14,650 Sales Office and January 2000
Warehouse
Totowa, New Jersey 2,085 Sales Office January 1996
Sales Office,
Manufacturing and
Corby, England 3,000 Warehouse November 1996
</TABLE>
- -------------------------
*The Company owns the Farmingdale facility.
The Company's headquarters are in Farmingdale, New York. These premises,
which consist of approximately 10,000 square feet of office space and
approximately 35,000 square feet of manufacturing and warehouse space, are owned
by the Company. The Company believes that its facilities are adequate for its
current and presently foreseeable needs or that adequate replacement space is
available.
LEGAL PROCEEDINGS
The Company is not involved in any legal proceedings which it believes
could materially and adversely affect its financial condition; however, the
Company is involved in routine litigation incidental to its business.
PLAN OF OPERATIONS
In November, 1993, the Board of Directors retained Mr. Donald W. Rowley as
a consultant to conduct an ongoing analysis of the Company's strategic strengths
and weaknesses, and the Company's current operations. After Mr. Rowley's
analysis, he recommended a restructuring plan including short term, near term
and long term objectives. The Company's Board of Directors adopted all of Mr.
Rowley's recommendations and plans, and in March 1994, retained him as president
to enact them.
The Short Term Plan involves the following steps which have been
implemented:
o Closing Ohio and Georgia branch operations due to the extended period
of time necessary to make these operations profitable.
o "Right-sizing" the Maryland and Philadelphia branches to improve
profitability.
o Lowering corporate office operating expenses through employee
reductions.
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<PAGE>
o Reducing overtime by manufacturing products based on forecasted
product demand.
The Near Term Plan involves the following steps which have been implemented
at least in part:
o Implementing a new freight management program throughout the Company.
o Implementing centralized purchasing.
o Establishing standard sales operating procedures for all branches.
o Establishing standard manufacturing and quality control policies and
procedures in order to utilize the separate manufacturing operations
as an integrated/interchangeable manufacturing resource.
The Long Term Plan involves the following steps which have been implemented
at least in part:
o Establishing preferred suppliers including primary and secondary
supplier bases.
o Preparing and communicating to suppliers the Company's strategy of
value added component distribution for connectivity solutions.
o Utilizing any additional equity financing to rebuild financial
relationships with suppliers to finance the Company's restructuring
plan emphasizing products with a greater profit margin.
o Implementing centralized purchasing and eliminating smaller purchases
from multiple sources, thereby improving gross profit margins.
The Short Term Plan has been implemented as follows: the Ohio and Georgia
branch operations have been closed; the Maryland and Philadelphia branches has
been "right-sized" through employee reductions of approximately 16 people; the
corporate and branch office operating expenses have been lowered through
employee reductions of approximately 18 people; and manufacturing overtime has
been reduced by over 60% since December, 1993. The following items of the Near
Term Plan have been implemented: a new freight management program was initiated
approximately August 1, 1994; purchasing has been centralized for all branches;
standard sales operating procedures have been established for all branches; and
documentation for manufacturing and quality control policies and procedures
among the manufacturing facilities has been initiated.
The items mentioned in the Long Term Plan have begun being implemented as
of the start of fiscal 1995.
SELECTED FINANCIAL DATA
The selected financial data presented below are derived from the Company's
audited and unaudited consolidated financial statements. The consolidated
financial statements as of and for the years ended June 30, 1994, 1993 and 1992
have been audited by Grant Thornton LLP, independent certified public
accountants. The selected financial data as of and for the years ended June 30,
1991 and 1990 are derived from audited consolidated financial statements of the
Company not presented herein. The selected financial data presented below for
the six-month periods ended December 31, 1994 and 1993 have been derived from
the unaudited financial statements of the Company included elsewhere in this
Prospectus. In the opinion of Management, the interim data includes all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of such data at and for such dates and periods. The results of
operations for the six-month period ended December 31, 1994 are not necessarily
indicative of the results of operations for the entire year. This financial
information should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Consolidated
Financial Statements and notes thereto appearing elsewhere herein.
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<PAGE>
(In thousands, except per share data)
<TABLE>
<CAPTION>
Six Months Ended
December 31, Year Ended June 30,
---------------------- -------------------------------------------------------------
1994 1993 1994 1993 1992 1991 1990
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales $ 18,613 $ 23,198 $ 42,864 $ 49,407 $ 41,295 $ 46,728 $ 47,060
Cost of goods sold 14,363 18,138 33,490 39,935 32,262 37,359 36,651
--------- --------- --------- --------- --------- --------- ---------
Gross profit $ 4,250 $ 5,060 $ 9,374 $ 9,472 $ 9,033 $ 9,369 $ 10,409
========= ========= ========= ========= ========= ========= =========
Income (loss) before extraordinary items ($ 218) ($ 360) ($ 2,934) ($ 2,030) ($ 1,963) ($ 3,493) ($ 99)
Extraordinary items -- -- 747 2,492
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) ($ 218) ($ 360) $ 2,187 $ 462 ($ 1,963) ($ 3,493) ($ 99)
========= ========= ========= ========= ========= ========= =========
Income (loss) earnings per share(1)
Net (loss) before extraordinary items ($ .02) ($ .07) ($ .47) ($ .35) ($ .46) ($ 1.43) ($ .04)
Extraordinary items -- -- .12 .43 -- --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) per share ($ .02) ($ .07) ($ .35) ($ .08) ($ .46) ($ 1.43) ($ .04)
========= ========= ========= ========= ========= ========= =========
Weighted average number of shares
outstanding(1) 11,880 5,288 6,239 5,778 4,299 2,438 2,430
========= ========= ========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
December 31, June 30,
---------------------- --------------------------------------------------------------------
1994 1993 1994 1993 1992 1991 1990
------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA: (As re-stated)(2)
Working Capital $ 5,345 $ 5,524 $ 5,320 $ 6,473 $10,183 $ 9,914 $12,743
Total assets 14,262 $17,687 14,431 17,583 19,858 20,836 26,137
Long-term debt 5,863 8,458 6,338 9,413 13,311 11,989 11,254
Stockholders' equity 3,080 1,242 2,808 1,552 1,054 1,975 5,391
</TABLE>
(1) See Notes to Consolidated Financial Statements.
(2) During fiscal 1991, the Company discovered that liabilities associated with
the purchase of inventories and certain overhead selling and general and
administrative costs which related to fiscal 1990 had not been recorded.
The result of the Company's analysis, as verified by independent
accountants retained by the Company, was to record in fiscal 1990 a prior
period adjustment of approximately $1,033,000, and a reduction of
previously accrued income taxes of approximately $372,000, or a net
adjustment of $661,000 or $.27 per share. The effect of recording such
adjustment was to decrease net assets and retained earnings by a like
amount at June 30, 1990.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - SIX MONTHS ENDED DECEMBER 31, 1994 AND DECEMBER 31,
1993
Net sales for the six months ended December 31, 1994 were $18,613,000, as
compared to the six months ended December 31, 1993 of $23,198,000, a decrease of
19.8%. The decrease was due to a high percent of turnover in the Company's sales
force. These recently hired sales people must learn the Company's operation and
computer system. The Company expects the sales force turn-over to result in a
decrease in sales during the transition period of the new sales force. The
aspect of the Company's business involving custom-made cable assemblies
(referred to as manufacturing) increased by approximately $1,369,000 from
$6,031,000 to $7,400,000 (2.3%) during the six months ended December 31, 1994 as
compared with the prior year six months. During the same period, value added
distribution sales of electronic components decreased by approximately
$5,953,000 from $17,166,000 to $11,213,000 (34.7%) because the Company gave
priority with respect to the above described manufacturing activities. The
Company estimates that the profit margins respecting custom-made cable
assemblies and value added distribution sales are approximately the same.
The Company's restructuring change recorded at March 31, 1994 had an impact
on the balance of the fiscal 1994 year. The change reduced the rent expense from
abandoned leased facilities of $19,900 and legal expense for benefit settlements
of $4,200.
Gross profit for the six months ended December 31, 1994 was $4,250,000 or
22.8% as compared to the six months ended December 31, 1993 of $5,060,000 or
21.8%, a decrease in gross profit of $810,000 or 16%. The decrease was due to
lower sales, offset by slightly higher gross profit margins. Profit margins have
improved and are expected to continue to improve as a result of implementing
centralized purchasing and eliminating smaller purchases from multiple sources.
Selling, general and administrative expenses decreased by $825,000 or 16.8%
to $4,077,000 for the six months ended December 31, 1994 from $4,902,000 for the
six months ended December 31, 1993. The implementation of the Company's
Restructuring Plan decreased expenses in the areas of salary and related
expenses from headcount reductions, by approximately $328,000, bad debt reserves
by $112,000, professional fees by $123,000, depreciation and amortization by
$45,000, and overall general expenses by $217,000.
During fiscal year 1994 a total of $524,000 provision for doubtful accounts
was recorded (which includes $33,000 for the United Kingdom accounts
receivables) versus a provision of $255,000 in the prior fiscal year.
Interest expense decreased by $102,000 or 20.2% to $403,000 for the six
months ended December 31, 1994 from $505,000 for the comparable six month in
1993. The decrease was due to reduced borrowing levels as a result of equity
financing in prior quarters.
RESULTS OF OPERATIONS-YEARS ENDED JUNE 30, 1994 AND 1993
Net sales for the year ended June 30, 1994 were $42,864,000, as compared to
the year ended June 30, 1993 of $49,407,000, a decrease of 13.2%. The aspect of
the Company's business involving the Company's custom-made cable assemblies
(referred to as manufacturing) increased by approximately $174,000 from
$12,085,000 to $12,259,000 (1.4%) during the fiscal year ended June 30, 1994 as
compared with the prior fiscal year. During the same period, value added
distribution sales of electronic components decreased by approximately
$6,717,000 from $37,322,000 to $30,605,000 (18.0%) because the Company gave
priority with respect to the above described manufacturing activities. The
Company estimates that the profit margins respecting custom-made cable
assemblies and value added distribution sales are approximately the same. This
allocation of priorities was due to the Company's limited resources during the
last fiscal year. Insufficient inventory stocking levels for most of fiscal 1994
resulted in delayed sales of value added distribution, or lost sales.
Gross profit decreased by $98,000 or 1% for the year ended June 30, 1994 to
$9,374,000 from $9,472,000 as compared to fiscal 1993. The decrease was
primarily due to lower sales levels. The gross profit percentage for
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the year ended June 30, 1994, 1993, and 1992 was 21.9%, 19.2%, and 21.9%
respectively. The gross profit for the year ended June 30, 1993 was reduced when
compared to June 30, 1992 and June 30, 1994 due to the $1,200,000 write-off of
obsolete and slow moving inventory in the second quarter of fiscal year 1993.
Selling, general and administrative expenses increased approximately
$68,000 or 0.7% to $10,479,000 for the year ended June 30, 1994 from $10,411,000
as compared to fiscal 1993. Selling expenses decreased by approximately $907,000
mainly as a result of replacing several high fixed salary sales people with
lower fixed salary plus commission sales people and reducing the number of sales
people through closing two operations. A $524,000 provision for doubtful
accounts was recorded for the year ended June 30, 1994 (which includes $33,000
for the United Kingdom accounts receivables) versus $255,000 in the prior fiscal
year. Selling, general and administrative expenses included noncash compensation
expense attributed to the Common Stock, stock options and warrants issued to
officers, directors and consultants aggregating $582,000. Other selling, general
and administrative expenses increased by $124,000 for the year ended June 30,
1994 as compared to fiscal 1993 mainly due to an increase of expense associated
to recruiting and hiring new sales people, restructuring the Philadelphia branch
operation, hiring outside programmers for the Bill of Materials system
application, and general provision for employee issues.
The Company's restructuring activities, which began at the end of the
second quarter of fiscal 1994, are expected to continue through the second
quarter of fiscal 1995. Certain of these activities, including the
implementation of centralized purchasing, standardized manufacturing and quality
control policies and procedures, and new freight management programs are
intended to improve profitability without increasing expenses. In addition, the
Company's restructuring plan is designed to realign its corporate headquarters
and field operations (increasing overall profitability through the closing of
certain branches), eliminate marginally profitable product lines and disposing
of certain assets. Discontinued product lines included lower margin items such
as hookup wire and outside plant cable and high technology hardware and software
items. Approximately 16 people were terminated from branch closures and 18
people were terminated from "right-sizing" branch and corporate operations.
The restructuring charges of $939,000 consists of provisions for
termination of certain employment contracts, employee severance and benefit
settlements of $264,000, inventory write-downs for discontinued product lines of
$321,000, and abandonment of leased facilities, equipment and other assets of
$354,000.
Interest expense decreased by $147,000 or 14% for the year ended June 30,
1994 to $901,000 from $1,048,000. The decrease was due to lower borrowing levels
for most of the fiscal year ended June 30, 1994 compared to the prior fiscal
year.
RESULTS OF OPERATIONS - YEARS ENDED JUNE 30, 1993 AND 1992
Net sales for the year ended June 30, 1993 were $49,407,000, as compared to
the year ended June 30, 1992 of $41,295,000, an increase of 19.6%, which was the
result of increased sales of value added electronic components and in
manufacturing of custom assemblies. Gross profit percentages decreased to 19.2%
in fiscal 1993 from 21.9% in fiscal 1992, reflecting a $1,200,000 charge to
operations for obsolete and slow moving inventory.
Selling, general and administrative expenses increased approximately
$444,000, or 4.5%, in fiscal 1993 because of increased sales.
Interest expense was approximately $1,048,000, the same as in fiscal 1992
as the reduced levels of borrowing were offset by higher rates.
The net income tax benefit of $7,600 reflects a reduction in a deferred tax
liability of $26,000 offset by a current state income tax expense of $18,400.
There is no current federal income tax expense as a result of a utilization of a
net operating loss carryforward.
RESULTS OF OPERATIONS - YEARS ENDED JUNE 30, 1992 AND 1991
Lower net sales for the year ended June 30, 1992 of $41,295,000, as
compared to the year ended June 30, 1991 of $46,728,000, a decrease of 11.6%,
occurred primarily in the first half of fiscal 1992 and was a result of
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<PAGE>
supplier and customer concerns over the financial condition of the Company.
Since that time, operational improvements and the positive reactions of the
customers and suppliers to the Company's management change, an equity infusion
and renegotiated credit facility, resulted in increased quarterly sales. Gross
profit percentages increased to 21.9% in fiscal 1992 from 20.1% in fiscal 1991,
reflecting changes in the Company's customer profile and the effect of the
operational changes discussed above.
Selling, general and administrative expenses decreased approximately
$2,243,000, or 18.4%, in fiscal 1992 reflecting a full year's effect of the
reductions in such expenses commenced in the latter part of fiscal 1991 as well
as the non-recurring fourth quarter adjustments recorded in that year.
Interest expense decreased approximately $222,000 or 17.5% in fiscal 1992
as a result of decreases in the prime lending rate which reduced the Company's
overall borrowing rate.
The income tax benefit of $19,500 reflects a reduction in deferred tax
credits, as offset by over accruals of expected tax refunds recorded in prior
fiscal years.
LIQUIDITY AND FINANCIAL CONDITION - AS OF DECEMBER 31, 1994
Working capital as of December 31, 1994 was $5,345,000 as compared with
$5,320,000 as of June 30, 1994. The $25,000 increase in working capital was
largely due to an increase in inventory, and prepaid expenses and other current
assets, which was offset by a decrease in cash. Accounts Receivable increased as
a percentage of sales in the first quarter ended September 30, 1994 of fiscal
1995 due to an increase in days sales outstanding (DSO) with certain customers.
By the end of the second quarter of fiscal 1995 these customers paid down their
accounts to a satisfactory status.
Long term debt as of December 31, 1994 was $5,863,000 a decrease of
$475,000 or 7.5% from $6,338,000 at June 30, 1994. This was due primarily to the
Company's debt conversion of an equipment loan to common stock, reduced
borrowing levels and payments of capitalized lease obligations and the Company's
asset based revolving credit facility provides a maximum availability of
$12,500,000 (amended to $10,000,000 on February 10, 1994) based on eligible
accounts receivable and inventory. As of December 31, 1994, $6,279,000 was
available under this facility of which $4,676,000 was drawn down. The Company
intends to continue to employ this line of credit to finance inventory and
accounts receivable.
LIQUIDITY AND FINANCIAL CONDITION - AS OF JUNE 30, 1994
Working capital as of June 30, 1994 was $5,320,000 as compared with
$6,473,000 as of June 30, 1993. The $1,153,000 decline in working capital was
largely a result of a decrease in sales volume for year ended June 30, 1994.
During that period, however, the Company's operations provided a positive cash
flow of $628,002, notwithstanding the $2,187,000 net loss. Major factors
contributing to the positive cash flow from operations during the year ended
June 30, 1994 were decreased accounts receivable of approximately $1,598,000 and
decreased inventory of approximately $754,000, offset by a decrease in accounts
payable and accrued expenses of approximately $670,000.
During March and April of 1994, the Company completed a series of two
equity transactions whereby the Company sold 2,500,000 shares of its Common
Stock together with 2,500,000 common stock purchase warrants for which the
Company received $1,250,000. In June 1994, the Company completed the
registration of the shares of Common Stock underlying the common stock purchase
warrants, and received $1,415,000 representing the net proceeds from the
exercise of these warrants. The proceeds from these transactions were used to
reduce outstanding trade accounts payable, purchase additional inventory and
reduce the revolving credit facility.
The Company has typically, been extended trade credit for its inventory
purchases from suppliers. In normal business practice, a supplier will establish
a credit line and payment terms for the Company. Suppliers usually require
payment on trade credit between 30 and 60 days. Generally, the Company has been
able to arrange extended payment terms with its key suppliers and establish
schedules to reduce the trade credit days outstanding with
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<PAGE>
suppliers over an extended period of time during the past year. As of June 30,
1994, the Company had $5,196,000 in accounts payable and accrued expenses which
represents about 51 days of trade credit.
The Company has approximately $842,000 of inventory that is estimated to be
slow moving, with reserves against this inventory of $758,000. The Company
believes it will be able to realize the net amount of this inventory through
customer incentive programs and disposals.
Long term debt as of June 30, 1994 was $6,338,000, a decrease of $3,075,000
from $9,413,000 at June 30, 1993. The decrease was mainly due to the Company
reducing the revolving credit facility by $2,458,000 and refinancing a portion
of its debt resulting in a $747,422 extraordinary gain (net of expenses) on the
extinguishment of debt.
The Company currently has a revolving credit facility which provides for
maximum borrowings of $12,500,000 at an interest rate of prime plus 2 3/4% with
an additional commitment fee of 1/2% per annum on the daily average unused
portion of the credit. 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 inventory and 20% of slow moving inventory. As
of June 30, 1994 the Company had approximately $5,513,000 availability under the
facility, of which $4,713,000 was outstanding on that date. The loan is
collateralized by substantially all of the assets of the Company not otherwise
collateralized. This credit facility expires on December 31, 1995. The Company
intends to continue to employ this line of credit to finance inventory and
accounts receivable.
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
occurrence of liens, declaration or payment of dividends or other distribution,
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 interests 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. The Company is currently in compliance with the restrictive covenants
and financial tests under the credit facility.
At June 30, 1994, the Company has net operating loss carryforwards for tax
purposes of approximately $4,384,000. Such net operating loss carryforwards
expire through fiscal year 2009. The Company's use of its net operating loss
carryforward is limited as the Company is deemed to have undergone an "ownership
change", as defined in the Internal Revenue Code Section 382, during the fiscal
years ended June 30, 1992 and June 30, 1994. The Company's ability to utilize
net operating loss carryforwards of approximately $3,655,000, which arose prior
to the ownership change, is limited to approximately $615,000 annually during
the carryforward period.
In December 1994, VX Capital Partners, L.P. (the "Partnership") distributed
to each of the limited partners of the Partnership their pro rata portion of a
Promissory Note in the principal amount of $500,000 (the "Note"). Each limited
partner, except for one limited partner holding a $105,250 portion of the Note,
exchanged their pro rata portions of the Note for an aggregate of 789,500 shares
of Common Stock of the Company. Such shares are being registered under the
Registration Statement of which this Prospectus forms a part. In connection with
the exchange of the Note into equity, the Company received a fairness opinion
from an independent investment banking firm which stated that the exchange was
fair to the stockholders of the Company from a financial point of view.
LIQUIDITY AND CAPITAL RESOURCES - AS OF JUNE 30, 1993 AND 1992
As of June 30, 1993, the Company's working capital was $6,473,000 a
decrease of $3,709,000 as compared to June 30, 1992. The decline in working
capital was due to an inventory reduction of $2,848,000 which included
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<PAGE>
planned inventory reductions and a $1,200,000 write-down for obsolete and slow
moving inventory taken in the second quarter, a $588,000 increase in trade
payables required to support increased sales and a $563,000 increase in the
current portion of long term debt resulting from refinancing and capital
acquisitions. This was offset by a $798,000 increase in accounts receivable.
On December 31, 1992, the Company entered into a three year long-term
revolving credit facility, providing a maximum availability of $12,500,000
bearing interest at prime plus 2-3/4%, with advances based upon eligible
accounts receivable and inventory.
The Company is required to pay a commitment fee of 1/2% per annum on the
daily average unused portion of the credit line.
As of June 30, 1993, $7,333,000 was available under this facility of which
$7,171,000 has been drawn down. Management believes the Company may need
additional working capital to fund the future growth of the business. Capital
expenditures expected in fiscal 1994 are not expected to be material.
The new long-term senior revolving credit facility replaced a $10,900,000
revolving asset based loan which had an outstanding balance of approximately
$10,100,000 as well as a $2,000,000 collateralized term loan. The Company
satisfied its indebtedness and obligations to the financial institutions by
paying approximately $8,000,000 and converting $1,500,000 to a new subordinated
term loan secured by a second mortgage on its New York facility. The balance of
$2,600,000 of debt was forgiven and recorded as an extraordinary gain net of
expenses in the statement of operations for the year ended June 30, 1993.
The $1,500,000 subordinated, collateralized term loan bore interest at 8%
through December, 1997, at which time the Company had the right to convert to a
fluctuating interest rate at prime plus 2% through the loan's retirement on
December 31, 2002, or continue at a fixed rate based on the prime rate as of
December 15, 1997 plus 2%. The loan was payable in monthly installments with
$500,000 principal due by June 30,1994 and the remaining $1,000,000 due in
monthly installments through December 31, 2002. This indebtedness was
restructured in March, 1994. See "-Liquidity and Financial Condition - As of
March 31, 1994."
In connection with the bank lending arrangements described above, the
Company maintains minimal cash balances. As a result, there was a decrease in
cash for the year ended June 30, 1993 of approximately $156,000. Net borrowing
for the year ended June 30, 1993, decreased approximately $3,335,000 (which
includes a $2,600,000 forgiveness of debt realized in fiscal 1993 as an
extraordinary gain on the extinguishment of debt).
As of June 30, 1993, the Company has net operating losses available to
offset future taxable income of approximately $3,600,000, expiring through 2007.
However, the Company's ability to utilize $2,160,000 of this loss is limited to
approximately $134,500 per year during the carryforward period.
INFLATION
For the last three fiscal years, the Company has not been significantly
affected by inflation.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The Directors and Executive Officers of the Company and certain information
concerning them as of May 8, 1995 are set forth below:
POSITION WITH FIRST YEAR
NAME THE COMPANY AGE BECAME DIRECTOR
---- ------------ --- ---------------
Robert J. Eide Chairman of the Board 42 1991
Donald W. Rowley President, Director 43 1994
Steven J. Bayern Director 46 1992
Robert L. Frome Director 54 1992
Paul L. McDermott Director 40 1992
Jeffrey S. Podell Director 53 1992
Mark E. Bloom Director 43 1994
The Executive Officers of the Company who are not Directors are set forth below:
NAME POSITION WITH THE COMPANY AGE
- ---- ------------------------- ---
Nicholas T. Hutzel Controller and Secretary 25
ROBERT J. EIDE, age 42, has been a Director of the Company since October,
1991 and was Secretary of the Company from October, 1991 to January, 1992.
Mr.Eide was named Chairman of the Board in April, 1994. Mr. Eide is Executive
Vice President and Secretary of VX Acquisition Corp. which is the general
partner of VX Capital Partners, L.P. Mr. Eide is a private investor and has been
a principal owner of Aegis Capital Corp., a member firm of the NASD for more
than five years. Mr. Eide is a director of Nathans Famous, Inc., a Nasdaq
National Market listed company and the Brooke Group Ltd., a New York Stock
Exchange listed company. Mr. Eide is an attorney licensed to practice law in the
State of New York. Mr. Eide has been a shareholder and officer of a corporate
general partner of various limited partnerships organized to acquire and operate
real estate properties. Several of these partnerships filed for protection under
the federal bankruptcy laws in 1989, 1990 and 1991.
DONALD W. ROWLEY, age 43, has been a Director and President of the Company
since March, 1994. From 1992 to March, 1994, Mr. Rowley served as Chairman and
Director of Lantek Electronics, Inc., a specialty wire and cable distributor
which formerly provided the Company with consulting services. From March, 1992
to December, 1992, he served as a Director of the Maddox Group, Plc. Since 1989,
Mr. Rowley has been a Director of the Peak Technologies Group, Inc., a Nasdaq
National Market listed company, and also served from February, 1989 to November,
1992, as Vice President and Chief Financial Officer. Since 1989, Mr. Rowley has
been Vice President, Treasurer and Chief Financial Officer of Edwardstone &
Company, Inc. From 1988 to 1989, he was Vice President and Chief Financial
Officer of Thomson T-Line, Inc., a wholly-owned subsidiary of Thomson T-Line
Plc.
STEVEN J. BAYERN, age 46, has been a Director of the Company since 1992.
Mr. Bayern is a principal of Cyndel & Co., Inc., a financial/management company
since October 1992 to the present. Mr. Bayern was registered as a principal with
Aegis Capital Corp., a member firm of the National Association of Securities
Dealers, Inc., from February, 1991 to November, 1992. From 1984 to 1990, Mr.
Bayern was President and a principal of S.J. Bayern & Co., Inc., a member firm
of the National Association of Securities Dealers, Inc.
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<PAGE>
ROBERT L. FROME, age 54, has been a Director of the Company since January,
1992. Mr. Frome has been engaged in the practice of law for more than five years
as a member of the law firm of Olshan Grundman Frome & Rosenzweig. Mr. Frome is
a Director of Sidari Corp., an Italian food importing company, and Healthcare
Services Group, Inc. and is Assistant Secretary of United Capital Corp., an
American Stock Exchange listed company.
PAUL L. MCDERMOTT, age 40, has been a Director of the Company since
January, 1992. Mr. McDermott has been with Nomura Securities International, Inc.
since November, 1986 most recently as a Managing Director of Nomura Securities
International, Inc. and prior thereto the Vice President and Section Head of the
Mergers and Acquisitions Group. In such capacities, he is responsible for
overseeing the structuring and negotiation of mergers and acquisitions
transactions. Mr. McDermott is a Director of Perceptron, Inc., a Nasdaq National
Market listed company and New Valley Corporation, a company traded on the
Electronic Bulletin Board.
JEFFREY S. PODELL, age 53, has been a Director of the Company since
January, 1992. Mr. Podell has been the Chairman of the Board and President of
Newsote Inc. since September, 1989 and has been a private investor for more than
five years. Mr. Podell is an attorney licensed to practice law in the State of
New York. Mr. Podell is a Director of Brooke Group, Ltd., a New York Stock
Exchange listed company.
MARK E. BLOOM, age 42, has been a Director of the Company since December
1994. Mr. Bloom has been Managing Director of Client Services for Walsh,
Greenwood & Co., an investment management firm, since June, 1992. From October
1979 until 1992, Mr. Bloom was a tax partner and subsequently a managing
partner, with BDO Seidman, a certified public accounting firm. Mr. Bloom is a
Director of SkyBox International Inc., a Nasdaq National Market listed company,
B&T Holdings Inc. a London Stock Exchange company and Cray Electronics Holdings,
a London Stock Exchange company.
The following are the Executive Officers of the Company who are not
Directors:
NICHOLAS T. HUTZEL, SECRETARY, age 25, has been employed by the Company
since 1993. Mr. Hutzel has been Controller and Secretary of the Company since
March 1994. Prior thereto, Mr. Hutzel was a Controller of Corporate Service,
Inc. from February, 1992 to May, 1993. Previous to that time, Mr. Hutzel was a
staff accountant at Griesmeyer & Olsen, Certified Public Accountants for more
than three years.
EXECUTIVE COMPENSATION
The following table sets forth, for the fiscal years indicated, all
compensation awarded to, earned by or paid to the chief executive officer
("CEO") and the one other executive officer of the Company other than the CEO
whose salary and bonus exceed $100,000 with respect to the fiscal year
indicated.
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<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
---------------------------
OTHER ANNUAL ALL OTHER
NAME AND SALARY BONUS COMPENSATION NUMBER OF COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($)(1) OPTIONS ($)
- ------------------ ---- --------- ----- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Donald W. Rowley, 1994 62,692 -- -- 300,000 3,580(3)
President
Michael Scanzano, 1994 59,711 -- -- -- --
President 1993 126,770 -- -- 20,000 --
1992 136,039 -- -- -- --
Charles J. McMullin, 1994 48,654 -- -- -- --
Chief Executive Officer (2) 1993 146,579 -- -- 60,000 --
1992 116,768 -- -- 20,000 --
</TABLE>
(1) Prerequisites and other personal benefits, securities or property to each
executive officer did not exceed the lesser of $50,000 or 10% of such
executive officer's annual salary and bonus.
(2) As of October 1993, Mr. McMullin was no longer an Executive Officer or
Employee of the Company. Mr. Donald W. Rowley was appointed to replace Mr.
McMullin.
(3) The Company has purchased for Mr. Rowley a split dollar life insurance
policy. The Company pays the premium on such policy.
The Company has no defined benefit pension plans.
DIRECTORS' COMPENSATION
Directors who are not employees of the Company will receive an annual fee
of $6,000 and a fee of $1,000 for each Board of Directors meeting attended and
will be reimbursed for their expenses. Non-employee members of committees of the
Board of Directors will be paid an annual fee of $1,000 for each committee they
serve on and $500 for each committee meeting attended.
STOCK OPTION TABLE
The following table provides further information with respect to the
options granted to the President, Mr. Rowley as of the fiscal year ended June
30, 1994.
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<PAGE>
<TABLE>
<CAPTION>
Options Granted in Last Fiscal Year
Individual Grants(1)
--------------------------------------------------------------------------------
% of Total Options
Options Granted to Employees Exercise or Base
NAME Granted (#) in Fiscal Year Price ($/Sh) Expiration Date
- ---- ----------- --------------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Donald W. Rowley 300,000(2) 100% .50 (3)
</TABLE>
(1) The potential realizable portion of the foregoing table illustrates value
that might be realized upon exercise of options immediately prior to the
expiration of their term, assuming (for illustrative purposes only) the
specified compounded rates of appreciation on the Company's Common Stock
over the term of the option. These numbers do not take into account
provisions providing for termination of the option following termination of
employment, nontransferability or differences in vesting periods.
(2) Options to purchase 300,000 shares are exercisable one-third at March 31,
1995, one-third at March 31, 1996 and one-third at March 31, 1997.
(3) Options expire five years from the date they become exercisable.
The following table provides information with respect to options exercised
and option values as of the fiscal year ended June 30, 1994.
AGGREGATED OPTIONS EXERCISED IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Value of
Number of Unexercised In-
Unexercised the-Money
Shares Options at Options at
Acquired on Value 12/31/94 12/31/94 ($)(1)
Exercise Realized Exercisable/ Exercisable/
NAME # $ Unexercisable Unexercisable
- ---- ----------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Donald W. Rowley 0 0 0/300,000 0/150,000
</TABLE>
(1) The dollar value of unexercised options is calculated by determining the
difference between the fair market of the Company's Common Stock which
underlies the option at December 31, 1994, and the exercise price of the
options.
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<PAGE>
EMPLOYMENT AGREEMENTS
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 percent of
specified levels of achieved net profits. In addition, the Company's President
deposited $50,000 with a lender as cash collateral for a portion of a loan made
to an entity the president previously served as an officer and director (Note
15). The Company has agreed, pursuant to the employment agreement, to purchase
such cash collateral from its president for $50,000 in the event such cash
collateral is not released by March 31, 1995 and, in turn, the Company's
President agreed to assign to the Company at such time his rights and privileges
with respect to such cash collateral.
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth as of the date of this Prospectus, certain
information regarding beneficial ownership of the Common Stock held by (i) each
person known by the Company to own beneficially more than 5% of the Common
Stock, (ii) each of the Company's directors, (iii) each of the executive
officers named in the Summary Compensation Table, (iv) all of the Company's
executive officers and directors as a group and (v) each Selling Stockholder.
<TABLE>
<CAPTION>
Shares to
Shares Beneficially Owned Prior be Sold in Shares Beneficially
to Offering Offering Owned After Offering
---------------------------- ---------- ----------------------
Name and Address
OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- ------------------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Aeroflex Incorporated 1,247,600(1) 9.9% -- 1,247,600 9.9%
35 South Service Road
Plainview, NY 11803
Steven J. Bayern 419,781(2)(3) 3.3 86,500 333,281 2.6
Robert J. Eide 258,750(4) 2.0 -- 258,750 2.0
Robert J. Eide Family Trust 481,519(2) 3.8 126,300 355,219 2.8
Robert L. Frome 758,625(2)(5) 6.0 162,000 596,625 4.7
505 Park Avenue
New York, NY 10022
Paul L. McDermott 641,994(2)(6) 5.1 157,900 484,094 3.8
180 Maiden Lane
New York, NY 10038
Jeffrey S. Podell 641,994(2)(7) 5.1 157,900 484,094 3.8
70 East Sunrise Highway
Valley Stream, NY 11581
Donald W. Rowley 182,350(2)(8) 1.4 21,600 160,750 1.3
Joseph Nemeth 134,200(2) 1.1 35,200 99,000 *
KDE Financial 120,475(2) * 31,600 88,875 *
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Shares to
Shares Beneficially Owned Prior be Sold in Shares Beneficially
to Offering Offering Owned After Offering
---------------------------- ---------- ----------------------
Name and Address
OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- ------------------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Scott Gruder 40,031(2) * 10,500 29,531 *
Charles Trapp 100,000 * 50,000 50,000 *
Mark Bloom 0 0 0 0 0
Roland Catalano 532,500(9) 4.2 500,000 32,500 *
Henry Hackel 500,000 4.0 500,000 0 0
Lakewood Trading Group, 500,000 4.0 500,000 0 0
Inc.
Congregation Ohel Baruch 250,000 2.0 250,000 0 0
United Krasna Organization 250,000 2.0 250,000 0 0
Laura Huberfeld 250,000(10) 2.0 250,000 0 0
Naomi Bodner 250,000(10) 2.0 250,000 0 0
All directors and executive
officers as a group (9
persons) 2,903,494(11) 22.0 585,900 2,317,594 17.7
</TABLE>
* Less than 1%.
(1) Based upon a Statement on Schedule 13D filed with the Securities and
Exchange Commission on February 9, 1990 and the sale of 500,000 shares of
Common Stock to VX Capital Partners, L.P. ("VX") on October 18, 1991. VX,
with the consent of Aeroflex Incorporated, has granted Norstar Bank
presently exercisable options to purchase 250,000 shares of Common Stock at
$3.00 per share (market price at date of grant was $.81). Mr. Michael
Gorin, President of Aeroflex Incorporated, exercises voting power over the
shares owned by ARX.
(2) The shares of Common Stock being sold in this offering by such individuals
or entities was transferred to such individuals or entities in December
1994 pursuant to the liquidation of VX. Such individuals are not
registering all of the shares they received from VX in this Registration
Statement.
(3) Includes presently exercisable options to purchase 90,000 shares. Mr.
Bayern has been a Director of the Company since January 1992.
(4) Includes presently exercisable options to purchase 190,000 shares. Does not
include shares held by the Robert J. Eide Family Trust, for the benefit of
his family of which Mr. Eide disclaims beneficial interest. Mr. Eide has
been a Director of the Company since October, 1991 and was Secretary of the
Company from October, 1991 to January, 1992. Mr. Eide was named Chairman of
the Board of the Company in April,
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<PAGE>
1994. Also includes 68,750 shares owned of record by an unaffiliated party,
as to which Mr. Eide and two other individuals have an irrevocable proxy to
vote.
(5) Includes presently exercisable options to purchase 90,000 shares and 1,000
shares purchased by the minor daughter of Mr. Frome. Mr. Frome has been a
Director of the Company since January, 1992 and is a member of Olshan
Grundman Frome & Rosenzweig, which is general counsel to the Company.
(6) Includes presently exercisable options to purchase 40,000 shares. Mr.
McDermott has been a Director of the Company since January, 1992.
(7) Includes presently exercisable options to purchase 40,000 shares. Mr.
Podell has been a Director of the Company since January, 1992.
(8) Excludes options to purchase 300,000 shares which are not presently
exercisable. Mr. Rowley has been a Director and President of the Company
since March, 1994.
(9) Includes 250,000 shares owned by Mr. Catalano's individual retirement
account.
(10) Ms. Huberfeld and Ms. Bodner are related parties.
(11) Includes presently exercisable options to purchase 510,000 shares.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Robert L. Frome, a Director of the Company, is a member of the law firm of
Olshan Grundman Frome & Rosenzweig, general counsel to the Company. Fees
received from the Company by such firm during the fiscal year ended June 30,
1994 did not exceed 5% of such firm's or the Company's revenues.
On April 18, 1994, the Company granted five year options to purchase Common
Stock at $.50 per share to the following members of its Board of Directors:
Robert Eide - options to purchase 150,000 shares; Steven Bayern - options to
purchase 50,000 shares; and Robert L. Frome - options to purchase 50,000 shares.
The options were granted pursuant to a Board approved stock option plan. The
adoption of the plan and issuance of the options were approved at the July 27,
1994 Annual Meeting of Stockholders. In addition, the Company recently entered
into a three year management consulting agreement with Mr. Bayern pursuant to
which he will receive $4,000 per month for his services.
In connection with the Company's completion of an equity transaction in
March, 1994, one investor, Henry Hackel, a Selling Stockholder in this offering,
who purchased 500,000 shares and warrants received personal guarantees from
certain partners of VX Capital Partners, L.P., all of whom are Directors of the
Company and collectively constitute the majority of the Company's Board of
Directors, that in the event of a loss from the sale of the shares, they will
indemnify the investor at any time through February 16, 1996. Mr. Hackel was the
first investor in the equity transactions commenced in March 1994 and the
guarantors agreed to provide the guarantees as an incentive for his
participation in the equity transactions. The guarantees have been mutually
terminated by the parties thereto.
On March 31, 1994, the Company entered into an employment agreement with
its President, Donald W. Rowley. The agreement is for a term of three years and
pays compensation to Mr. Rowley at the rate of $200,000 per year. In addition,
Mr. Rowley is eligible to receive a bonus of between $25,000 and $200,000 if he
is able to meet net profit goals set forth in his business plan and approved by
the Company's Board of Directors. The agreement also allowed Mr. Rowley to
purchase 100,000 shares of the Company's stock at $.50 per share subject to a
promissory note and granted to him options to purchase an additional 300,000
shares at an exercise price of $.50 per share. The options are exercisable
one-third at March 31, 1995, one-third at March 31, 1996, and one-third at March
31,1997 and expire five years from the date they become exercisable.
Additionally, Mr. Rowley deposited
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<PAGE>
$50,000 as cash collateral for a loan from Congress Financial Corporation to
Lantek Electronics, Inc., Mr. Rowley's former employer. The agreement requires
the Company to replace its cash collateral for Mr. Rowley's cash collateral if
the collateral has not been released by March 31, 1995. The Company and Mr.
Rowley are currently negotiating the terms of a replacement or an extension.
On September 20, 1994, the Company's Board of Directors approved a
consulting agreement for the Company's Chairman of the Board, Robert J. Eide.
The consulting agreement provides for the Chairman to receive a bonus of 5% of
the Company's net operating profits up to a maximum of $100,000 for the fiscal
year ended June 30, 1995.
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 40,000,000 shares of
Common Stock, $.10 par value, and 5,000,000 shares of preferred stock, par value
$.01 per share. The Company's preferred stock may be issued by the Board of
Directors without further action by the Company's shareholders, in one or more
series having such powers, preferences and rights (including, without
limitation, voting rights), and such qualifications, limitations or
restrictions, as the Board may hereafter prescribe. As of the date of this
Prospectus, 12,627,000 shares of Common Stock were outstanding and no shares of
the Company's preferred stock were outstanding.
The shares of Common Stock covered by this Prospectus are fully paid and
nonassessable. Holders of the Common Stock have no preemptive rights. Each
stockholder is entitled to one vote for each share of Common Stock held of
record by such stockholder. There is no right to cumulate votes for the election
of directors. Upon liquidation of the Company, the assets then legally available
for distribution to holders of Common Stock are to be distributed ratably among
such stockholders in proportion to their holdings (after providing for
liquidation preferences of any preferred stock of the Company then outstanding).
Subject to the preference applicable to any preferred stock of the Company then
outstanding, holders of Common Stock are entitled to dividends when, as and if
declared by the Board out of funds legally available therefor.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and registrar for the Common Stock is American Stock
Transfer and Trust Company of New York, New York.
-29-
<PAGE>
PLAN OF DISTRIBUTION
The Common Stock may be offered for the account of the Selling Stockholders
from time to time on AMEX, in negotiated transactions, at fixed prices which may
be changed, at market prices prevailing at the time of sale, at prices related
to such prevailing market prices, or at negotiated prices. The Selling
Stockholders may effect such transactions by selling shares of Common Stock to
or through broker-dealers, and all such broker-dealers may receive compensation
in the form of discounts, concessions, or commissions from the Selling
Stockholders and/or the purchasers of shares for whom such broker-dealers may
act as agent or to whom they sell as principal, or both (which compensation as
to a particular broker-dealer might be in excess of customary commissions).
Any broker-dealer acquiring shares from the Selling Stockholders may sell
the shares either directly, in its normal market-making activities, through or
to other brokers on a principal or agency basis or to its customers. Any such
sales may be at prices then prevailing on AMEX, at prices related to such
prevailing market prices or at negotiated prices to its customers or a
combination of such methods. The Selling Stockholders and any broker-dealers
that act in connection with the sale of the shares hereunder might be deemed to
be "underwriters" within the meaning of Section 2(11) of the Securities Act; any
commissions received by them and any profit on the resale of shares as principal
might be deemed to be underwriting discounts and commissions under the
Securities Act. Any such commissions, as well as other expenses of the Selling
Stockholders and applicable transfer taxes, are payable by the Selling
Stockholders.
LEGAL MATTERS
Certain matters in connection with the issuance of the shares of Common
Stock offered hereby will be passed upon for the Company by Olshan Grundman
Frome & Rosenzweig, 505 Park Avenue, New York, New York 10022. Robert L. Frome,
a partner in such law firm, is a director of the Company and owns for the
benefit of himself and members of his firm 668,625 shares of Common Stock,
including 1,000 shares held by his minor daughter. Mr. Frome also holds
presently exercisable options to purchase 90,000 shares of Common Stock of the
Company. Steven Wolosky, also a member of such firm, holds presently exercisable
options to purchase 20,000 shares of Common Stock.
-30-
<PAGE>
Suite 3S01
One Huntington Quadrangle
Melville, NY 11747-4464
516 249-6001
FAX 516 249-6144
Grant Thornton
REPORT OF INDEPENDENT CERTIFIED Accountants and
PUBLIC ACCOUNTANTS Management Consultants
The U.S Member Firm of
Grant Thornton International
Board of Directors and Stockholders
VTX ELECTRONICS CORP.
We have audited the accompanying consolidated balance sheets of VTX
Electronics Corp. and Subsidiaries as of June 30, 1994 and 1993, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years in the three-year period ended June 30, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express and opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of VTX Electronics
Corp. and Subsidiaries as of June 30, 1994 and 1993, and the consolidated
results of their operations and their consolidated cash flows for each of the
years in the three-year period ended June 30, 1994, in conformity with generally
accepted accounting principles.
In connection with our audits of the consolidated financial statements
referred to above, we have also audited Schedules II and VIII for each of years
in the three-year period ended June 30, 1994. In our opinion, these schedules
present fairly, in all material respects, the information required to be set
forth herein.
/s/ Grant Thornton
------------------
GRANT THORNTON
Melville, New York
September 9, 1994 (except for
Note 16 b, as to which date is
September20, 1994)
S-1
<PAGE>
VTX ELECTRONICS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
ASSETS 1994 1993
- ------ ------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 593,438 $ 80,125
Accounts receivable, net of allowance for
doubtful accounts of $394,000 and $216,000,
in 1994 and 1993, respectively 6,061,826 8,183,587
Inventories, net 3,628,949 4,466,555
Prepaid expenses and other current assets 295,151 295,900
Refundable and prepaid income taxes 13,040 64,754
------------- -----------
TOTAL CURRENT ASSETS 10,592,404 13,090,921
PROPERTY, PLANT AND EQUIPMENT, net 3,558,540 4,049,282
DEFERRED CHARGES AND OTHER ASSETS 280,525 442,410
------------- -----------
TOTAL ASSETS $14,431,469 $17,582,613
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 75,815 $ 738,479
Accounts payable and accrued expenses 5,196,455 5,879,176
------------ -----------
TOTAL CURRENT LIABILITIES 5,272,270 6,617,655
LONG-TERM DEBT 6,338,355 9,413,428
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST IN SUBSIDIARY 12,534 - -
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 20,000,000
shares; issued and outstanding 11,837,500
shares as of June 30, 1994 and 5,287,500
shares as of June 30, 1993 1,183,750 528,750
Paid-in capital 8,275,676 5,289,628
Accumulated deficit (6,389,506) (4,202,429)
Notes receivable from officer (100,000) ( 50,000)
Deferred compensation (154,687) - -
Cumulative translation adjustment (6,923) ( 14,419)
----------- ------------
TOTAL STOCKHOLDERS' EQUITY 2,808,310 1,551,530
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $14,431,469 $17,582,613
============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
S-2
<PAGE>
VTX ELECTRONICS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
---------------------------------------------------
JUNE 30, JUNE 30, JUNE 30,
1994 1993 1992
------------ ------------ -----------
<S> <C> <C> <C>
Net sales $42,864,272 $49,406,815 $41,295,052
Cost of goods sold 33,490,460 39,934,940 32,262,486
------------ ------------ -----------
Gross profit 9,373,812 9,471,875 9,032,566
Selling, general and administrative
expenses 10,478,818 10,410,870 9,966,842
Restructuring charges 939,000 - -
Interest expense 901,314 1,047,972 1,048,245
Foreign currency loss (gain) (10,821) 68,961 -
------------ ------------ -----------
Loss before income taxes and extraordinary items (2,934,499) (2,055,928) (1,982,521)
Income tax benefit - (26,000) (19,500)
------------ ------------ ------------
(2,934,499) (2,029,928) (1,963,021)
Extraordinary item
Gain of $780,496 and $2,600,000 on
extinguishment of debt in 1994 and 1993,
respectively, net of related expenses of
$33,074 and $90,000, respectively,
and income taxes of $188,400 in
1993 747,422 2,321,600 -
Utilization of net operating loss carryforward - 170,000 -
------------ ------------ -----------
Net income (loss) $(2,187,077) $ 461,672 $(1,963,021)
------------ ------------ -----------
Income (loss) per share
Loss before extraordinary item ($.47) ($.35) ($.46)
Extraordinary item .12 .43 -
------------ ------------ -----------
Net income (loss) per share ($.35) $.08 ($.46)
------------ ------------ -----------
Weighted average number of shares
outstanding 6,239,417 5,777,548 4,298,565
------------ ------------ -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
S-3
<PAGE>
VTX ELECTRONICS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
Notes
Receivable Cumulative Total
Common Stock Paid-in Accumulated From Translation Deferred Stockholders'
Shares Amount Capital (deficit) Officer Adjustment Compensation Equity
---------- ---------- ---------- ------------ ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance July 1, 1991 2,437,500 $243,750 $4,488,104 ($2,701,080) ($55,323) $1,975,451
Net Loss (1,963,021) (1,963,021)
Sale of common stock,
net of related costs of
$138,000 2,750,000 275,000 716,028 991,028
Cancellation of non-
qualified stock options
(Note 10) (4,504) 4,504 0
Amortization of deferred
compensation 50,819 50,819
---------- ---------- ---------- ------------ ---------- --------- ---------- ----------
Balance, June 30, 1992 5,187,500 518,750 5,199,628 (4,664,101) 0 1,054,277
Net Income 461,672 461,672
Sale of common stock 100,000 10,000 90,000 100,000
Note receivable from
officer ($50,000) (50,000)
Translation adjustment ($14,419) ($14,419)
---------- ---------- ---------- ------------ ---------- --------- ---------- ----------
Balance, June 30, 1993 5,287,500 528,750 5,289,628 (4,202,429) (50,000) (14,419) 0 1,551,530
Net loss (2,187,077) (2,187,077)
Issuance of common
stock (net of related
costs of $560,000) 6,550,000 655,000 2,059,954 2,714,954
Note receivable from
officer (50,000) (50,000)
Warrants issued to lender 175,781 175,781
Warrants issued to officer 56,250 56,250
Options granted to
officers and directors 325,000 (168,750) 156,250
Warrants and options
granted to consultants 369,063 369,063
Foreign translation 7,496 7,496
adjustment
Amortization of Deferred
compensation 14,063 14,063
---------- ---------- ---------- ------------ ---------- --------- ---------- ----------
Balance, June 30, 1994 11,837,500 $1,183,750 $8,275,676 ($6,389,506) ($100,000) ($6,923) ($154,687) $2,808,310
========== ========== ========== ============ ========== ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
S-4
<PAGE>
VTX ELECTRONICS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30,
----------------------------------------------
1994 1993 1992
---- ----- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) .................................. ($2,187,077) $461 ($ 1,963,021)
Adjustments to reconcile net income (loss) to net
Cash provided by/(used in) operating activities:
Depreciation and amortization .................. 682,866 623,711 500,247
Provision for losses on accounts receivable .... 524,000 255,000 455,000
Provision for slow moving and obsolete
inventories .................................... 83,749 1,200,000 375,000
Non-cash compensation .......................... 581,563 -- --
Gain (loss) on sale of assets ................... (11,500) 19,824 --
Deferred income tax benefit ..................... -- (26,000) (54,000)
Extinguishment of debt .......................... (780,496) (2,491,600) --
Changes in operating assets and liabilities:
(Increase)/decrease in accounts receivable ..... 1,597,761 (797,698) (766,119)
Decrease in due from affiliate ................. -- -- 12,129
(Increase)/decrease in inventories ............. 753,851 1,647,898 (1,019,175)
(Increase)/decrease in prepaid expenses and
other current assets ........................... 749 167,700 (368,560)
(Increase)/decrease in refundable or prepaid
income taxes ................................... 51,714 (7,166) 860,048
(Increase)/decrease in deferred charges and
other asset .................................... 1,313 (404,800) --
Increase/(decrease) in accounts payable and
accrued expenses ............................... (670,187) 587,500 (1,335,120)
------------ ----------- -----------
Net cash provided by/(used in) operating
activities ..................................... 628,312 1,236,041 (3,303,571)
------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ............................ (31,552) (591,768) (331,675)
Proceeds from sale of property, plant and
equipment ....................................... -- 7,000 --
------------ ----------- -----------
Net cash used in investing activities .......... (31,552) (584,768) (331,675)
------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing under debt and loan agreements ........ 69,046,381 59,402,253 50,224,896
Debt repayments ................................. (71,742,018) (60,000,516)
Principal payments under capital leases ......... (110,260) (244,751) --
Issuance of common stock, and exercise of
warrants, net ................................... 2,714,954 50,000 991,028
------------ ----------- -----------
Net cash provided by/(used in) financing
activities ..................................... (90,943) (793,014) 2,323,960
------------ ----------- -----------
Effects of exchange rate changes on cash ........... 7,496 (14,419) --
------------ ----------- -----------
INCREASE/(DECREASE) IN CASH ........................ 513,313 (156,160) (1,311,286)
CASH at beginning of year .......................... 80,125 236,285 1,547,571
------------ ----------- -----------
CASH at end of year ................................ $ 593,438 $ 80,125 $ 236,285
------------ ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
S-5
<PAGE>
VTX ELECTRONICS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(CONTINUED)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
YEARS ENDED JUNE 30,
---------------------------------
1994 1993 1992
---- ---- ----
CASH PAID FOR:
Interest $ 922,035 $1,104,499 $1,029,377
========= ========== ==========
Income taxes $ 11,123 $ 68,822 $ 2,123
========= ========== ==========
The accompanying notes are an integral part of these financial statements.
S-6
<PAGE>
VTX ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1994, 1993 AND 1992
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. GENERAL - VTX Electronics Corp. and subsidiaries (collectively the
"Company") operate primarily in one business segment - assembly and
distribution of electronic wire, cable and related products used
primarily for data communication. The accompanying consolidated
financial statements include the accounts of VTX Electronics Corp.
and its wholly-owned subsidiaries, Vertex Electronics, Inc., Vertex
Data Systems, Inc. and its 80% owned foreign subsidiary, Vertex
Electronics UK, LTD. Vertex Data Systems, Inc. is an inactive
subsidiary. Operations of Vertex Electronics UK Ltd. commenced July
1992. All significant intercompany transactions and balances have
been eliminated in consolidation.
The Company has had losses before income taxes and extraordinary
items of $2,934,499, $2,055,928 and $1,982,521 for the years ended
June 30, 1994, 1993 and 1992, respectively. Management's plans to
continue operating the Company included generating sufficient cash
flows from operations (primarily through the liquidation of
receivables and increases in accounts payable) while completing a
financial reorganization and operational restructurings. The
financial reorganization included the satisfaction of certain
lender obligations at a discount as described in Notes 2 and 6 and
the establishment of a long-term revolving credit facility as
described in Note 6. The operational restructuring included the
discontinuance of certain product lines, closing of certain branch
operations and the termination of certain employees. Management
believes that the restructuring, which should be completed in early
fiscal 1995, will enable the Company to achieve profitability by
increasing revenues and profit margins as a result of greater
specialization and purchasing leverage, and by reducing corporate
overhead. Management believes that current levels of working
capital ($5,320,134 at June 30, 1994) including cash balances of
$593,438 will be adequate to fund operations for the next year.
Management's future plans include utilizing the results of its
reorganization and restructurings to pursue other sources of
capital such as the sale of common stock and exercise of warrants
described in Note 2, negotiating increases in its borrowing
capabilities described in Note 6, and investing in specific
inventories to increase sales.
b. INVENTORIES - Inventories, consisting principally of products held
for sale, are stated at the lower of cost (first-in, first-out
method) or market.
c. PROPERTY, PLANT AND EQUIPMENT - Property, plant and equipment are
stated at cost less accumulated depreciation and amortization
computed on a straight-line basis over the estimated useful lives
of the respective assets. Building improvements are amortized over
the useful life of the improvement.
Expenditures for maintenance, repairs and betterments which do not
materially extend the useful lives of the assets are charged to
operations as incurred. The cost and related accumulated
depreciation of assets retired or sold are removed from the
respective accounts and any gain or loss is recognized in
operations.
d. REVENUE RECOGNITION - The Company recognizes revenue on the date
the product is shipped to the customer.
e. DEFERRED COSTS - Costs incurred in connection with debt refinancing
consisting primarily of loan origination fees, broker's commission,
legal and other fees have been capitalized and are being amortized
on a straight-line
S-7
<PAGE>
VTX ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1994, 1993 AND 1992
basis over the term of the loans. Amounts of refinancing costs
deferred at June 30, 1994 and 1993 were $202,100 and $352,600,
respectively.
Certain costs incurred in connection with opening new branches have
been capitalized. Costs deferred with respect to the United Kingdom
branch of approximately $21,000 at June 30, 1992 were fully
amortized in fiscal 1993. All branches for which costs were
previously deferred have been fully amortized. No deferrals for new
branches were made in fiscal 1994 and 1993.
f. INCOME TAXES - The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes", in February 1992. The effective date
for application of this statement is for fiscal years beginning
after December 15, 1992. The Company has adopted the new standard
effective July 1, 1993.
g. INCOME (LOSS) PER SHARE - The weighted average shares outstanding
include common shares outstanding and common equivalent shares
attributable to outstanding stock options and warrants, if
dilutive. The income (loss) per share amounts are computed by
dividing the net income or net loss for each year by the weighted
average number of common and common equivalent shares (if dilutive)
outstanding during the period. The weighted average number of
shares outstanding includes common stock equivalents of 555,527 for
the year ended June 30, 1993. The outstanding options and warrants
were not considered as their effect was either antidilutive or
insignificant for the years ended June 30, 1994 and 1992.
h. FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS - Assets and
liabilities of the Company's foreign subsidiary are translated at
year-end exchange rates. Results of operations are translated using
the average exchange rates prevailing throughout the year. Exchange
rate changes arising from translation are included in the
cumulative translation component of stockholders' equity. Gains and
losses from foreign currency transactions are included in the net
income (loss) for the year.
i. RECLASSIFICATION - Certain reclassifications were made to the June
30, 1993 financial statements in order to conform to the June 30,
1994 presentation.
2. EQUITY INFUSION, RESTRUCTURING AND REFINANCINGS
On October 18, 1991, the Company sold, to an unaffiliated investor
group, 2,500,000 shares of unissued common stock in exchange for
$1,000,000, or $.40 per share, representing 50.6% of the then
outstanding issued common stock. The Company received an additional
$500,000 in cash from the same investor group in exchange for a mortgage
on certain machinery and equipment and the Company granted the investor
group a five-year warrant to purchase an additional 1,000,000 shares for
$.50 per share.
Concurrent with the above, the Company (1) replaced an interim
asset-based loan facility with a $10,900,000 revolving asset-based loan
agreement and (2) received an additional $2,000,000 from an asset-based
term loan.
S-8
<PAGE>
VTX ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1994, 1993 AND 1992
On December 31, 1992, the Company entered into a new three-year
long-term revolving credit facility, providing a maximum availability of
$12,500,000 which replaced the $10,900,000 revolving asset-based loan
facility (which had an outstanding balance of approximately
$10,100,000), and the $2,000,000 asset-based term loan referred to above
was restructured. The Company satisfied these outstanding obligations
aggregating $12,100,000 by paying approximately $8,000,000 and
converting $1,500,000 to a new subordinated term loan collateralized by
a second mortgage on its corporate headquarters. The balance of
$2,600,000 was forgiven and recorded as an extraordinary gain net of
related expenses in the statement of operations for the year ended June
30, 1993.
On March 4, 1994, the Company completed a series of equity transactions
whereby the Company sold 2,000,000 shares of its common stock together
with 2,000,000 common stock purchase warrants for a total of $1,000,000.
Each warrant entitles the holder to purchase one share of common stock
for $.50 per-share. The warrants expire February 28, 1998 and are
currently exercisable. One investor who purchased 500,000 shares
received personal guarantees from members of the Company's board of
directors that in the event the investor would sustain loss from the
sales of the shares (including the shares obtained through the exercise
of the warrants) such directors will indemnify the investor at any time
through February 16, 1996. Should the guarantors have to perform under
the terms of the guarantee, the ownership interest in the shares will
transfer to the guarantors.
On March 28, 1994, pursuant to a consulting agreement/investment banking
agreement with a NASD member firm (Note 11b), the Company issued
warrants to purchase 150,000 shares of common stock at a per share
exercise price equal to 165% of the offering price to the public for the
registration described below to a consultant for consulting services to
be performed with respect to securities and finance. In addition, the
Company is committed to issue additional warrants to purchase 200,000
shares of common stock at the same per share price to such consultant as
the close of the exercise of any of the Company's warrants covered by
the underwriting described below. All of these warrant grants expire
five years from grant date.
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 new first
mortgage loan and the issuance of a $100,000 non-interest bearing
subordinated mortgage loan which is payable in 24 monthly installments
of $4,167 commencing on March 31, 1994. As a result of this debt
refinancing, the Company recorded an extraordinary gain of $747,422 for
the nine months ended March 31, 1994 net of related expenses of $33,074.
On April 6, 1994, the Company completed additional equity transactions
by selling 500,000 shares of its common stock together with 500,000
common stock purchase warrants for a total of $250,000. Each warrant
entitles the holder to purchase one share of common stock for $.50
per-share. The warrants expire April 6, 1998 and are currently
exercisable.
During November 1993 and April 1994, the Company issued options to
purchase 250,000 (100,000 options vested immediately and the remaining
options vest at the rate of 12,500 each month beginning November 1993)
shares of common stock at $1.25 per share and warrants to purchase
468,750 shares of common stock at $.50 per share to consultants for
services provided to the Company. The options and warrants expire five
years from the date of issuance. In connection with these issuances, the
Company recognized compensation expense in the amount of $369,063 for
the year ended June 30, 1994, representing the estimated relative fair
market value of the options ($.07 per share) and warrants ($.75 per
share) on the dates of such issuance as determined by the Company's
Board of Directors.
S-9
<PAGE>
VTX ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1994, 1993 AND 1992
In June 1994, the Company completed the registration of 3,950,000 shares
of its common stock underlying outstanding common stock purchase
warrants. The Company did not receive any of the proceeds from the sale
of the common stock sold by the selling shareholders. However, the
Company did receive $1,415,000 representing the net proceeds from the
exercise of common stock purchase warrants ($1,975,000 in gross
proceeds).
The accompanying consolidated statement of operations for the year ended
June 30, 1994 reflects the estimated cost of a fiscal 1994 restructuring
plan designed to realign the Company's corporate headquarters and field
operations to increase it overall profitability through the closing of
certain branches, the elimination of certain marginally profitable
product lines and the disposal of certain assets. The restructuring
charge of $939,000 consists of provisions for termination of certain
employment contracts, employee severance and benefit settlements of
$264,000, inventory write-downs for discontinued product lines of
$321,000, and the abandonment of leased facilities, equipment and other
assets of $354,000.
3. RELATED PARTY TRANSACTIONS
A Director of the Company is a member of the law firm which serves as
general counsel to the Company. The Company was billed $338,000, 183,000
and $119,000 for legal services rendered by such law firm during the
fiscal years ended 1994, 1993 and 1992, respectively of which $183,000
and $81,000 is included in accounts payable and accrued expenses at June
30, 1994 and 1993.
On March 31, 1994, pursuant to an employment agreement, (see Note 11a),
the Company's newly appointed president purchased 100,000 shares of the
Company's stock for $0.50 per-share, representing an amount less than
the quoted market price of the stock on such date. Consequently, the
Company recognized compensation expense in the amount of $56,250 for the
year ended June 30, 1994 representing the difference between the
unadjusted quoted market price of the stock on such date and the price
payable per-share. The shares were purchased by the president with a
$50,000 non-interest bearing, non-recourse note collateralized by the
shares issued.
On April 18, 1994, three directors of the Company were granted options
to purchase an aggregate of 250,000 shares of common stock at an
exercise price of $.50 per-share representing an amount less than the
quoted market price of the stock on such date. Consequently, the Company
recognized compensation expense in the amount of $156,250 for the year
ended June 30, 1994 representing the difference between the unadjusted
quoted market price of the stock on such date and the price payable per
share. The options are issuable to the directors upon stockholder
approval and are exercisable for a period of five years.
On February 25, 1993, a previous officer of the Company purchased
100,000 shares of common stock ($.10 par) for $100,000 ($1.00 per share
representing the fair market value at date of purchase) $50,000 was paid
in cash and $50,000 in a 6% three-year promissory note. The interest on
this note is payable quarterly and the principal of $50,000 is due on
February 25, 1996. To date the interest payments have been in default.
The note may be prepaid in whole or in part at any time prior to the due
date.
S-10
<PAGE>
VTX ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1994, 1993 AND 1992
4. PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net, consist of the following:
Asset JUNE 30,
Lives -------------------------
(YEARS) 1994 1993
------- ---------- ----------
Land -- $ 545,776 $ 545,776
Building and building
improvements 30 2,547,450 2,542,362
Machinery and equipment 10 1,610,963 1,520,177
Furniture and fixtures 5-10 1,999,709 2,052,931
Vehicles 4 55,918 67,018
---------- ----------
6,759,816 6,728,264
Less accumulated depreciation
and amortization 3,201,276 2,678,982
---------- ----------
$3,558,540 $4,049,282
========== ==========
Depreciation and amortization of property, plant and equipment was
$490,362, $484,053, and $419,291 for the years ended June 30, 1994, 1993
and 1992, respectively.
5. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following:
JUNE 30,
------------------------------
1994 1993
---------- ----------
Accounts payable $3,490,787 $4,814,272
Accrued payroll and commissions 347,799 305,396
Other accrued expenses 1,357,869 759,508
---------- ----------
$5,196,455 $5,879,176
========== ==========
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
-----------------------
1994 1993
----------- ----------
<S> <C> <C>
Revolving asset-based loan (a) $ 4,713,180 $7,170,737
First mortgage loan, net of imputed interest (b) 1,024,496 -
Subordinated mortgage loan, net of imputed interest (b) 77,208 -
Subordinated asset-based term loans (c) - 1,347,222
Industrial Development Agency Bonds (d) - 924,402
Machinery and equipment loan (e) 500,000 500,000
Capitalized lease obligations (f) 99,286 209,546
----------- ----------
6,414,170 10,151,907
Less current portion of long-term debt 75,815 738,479
----------- ----------
$ 6,338,355 $9,413,428
=========== ==========
</TABLE>
S-11
<PAGE>
VTX ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1994, 1993 AND 1992
a. On December 31, 1992, the Company entered into a three-year
long-term revolving credit facility, providing a maximum
availability of $12,500,000 bearing interest at prime plus 2 3/4%
and expiring on December 31, 1995. The Company is required to pay a
commitment fee of 1/2% per annum on the daily average unused
portion of the credit. In connection with this financing, the
Company incurred in fiscal 1993 costs approximating $405,000 which
have been accounted for as deferred charges. Under the terms of
this 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 June 30, 1994, the Company had $5,513,000
availability under the eligibility terms of the facility, of which
$4,713,180 was outstanding on such date. 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 new first mortgage loan described below and the issuance of
a $100,000 non-interest bearing subordinated mortgage loan which is
payable in 24 monthly installments of $4,167 commencing on March
31, 1994. As a result of this debt refinancing, the Company
recorded an extraordinary gain of $747,422 for the year ended June
30, 1994 net of related expenses of $33,074.
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 $175,781 has been deducted from the
proceeds of the mortgage loan as additional interest expense and
will be 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
S-12
<PAGE>
VTX ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1994, 1993 AND 1992
percentage is determined based upon the date of payment as follows:
PREPAID PERCENTAGE
------- ----------
Within one year 5%
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. In connection with the December 1992 restructuring described in
Note 2, the Company obtained a $2,000,000 asset-based term loan at
an interest rate of 3% above the prime lending rate. This loan was
satisfied in full on March 31, 1994 in connection with the debt
refinancing described in Note 6b above.
d. The IDA bonds bore interest at 89.22% of the prime lending rate
with minimum and maximum rates of 9% and 17%, respectively. This
loan was satisfied in full on March 31, 1994 in connection with the
debt refinancing described in Note 6b above.
e. In connection with the December 1992 transaction described in Note
2, the Company obtained a $500,000 loan collateralized by certain
machinery and equipment which bears interest at the rate of 1-1/4%
above the prime lending rate (6.75% at June 30, 1994) and was
originally due on September 30, 1994, however, on April 25, 1994,
the due date was extended to September 30, 1995.
All other terms remain unchanged.
f. 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.
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
Year ending June 30: ---------- ----------- -----------
1995 $ 39,766 $ 36,049 $ 75,815
1996 5,241,935 22,094 5,264,029
1997 - 22,094 22,094
1998 - 19,049 19,049
1999 1,033,183 - 1,033,183
---------- ---------- -----------
$6,314,884 $ 99,286 $ 6,414,170
========== ========== ===========
7. INVENTORIES
The Company has recorded a reserve for obsolete and slow-moving
inventory following a review of inventory levels of certain product
lines and an evaluation of the inventory based on changes in technology
and markets. As of June 30, 1994 and 1993, the reserve was approximately
$903,000 and $641,000, respectively.
S-13
<PAGE>
VTX ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1994, 1993 AND 1992
8. FOURTH QUARTER ADJUSTMENTS
In the fourth quarter of 1992, the Company recorded a change in estimate
related to an additional provision for doubtful accounts of approximately
$225,000.
9. STOCK OPTIONS AND WARRANTS, INCENTIVE AND BENEFIT PLANS
a) In a prior year, the Company's Board of Directors and stockholders
approved a stock option plan, as amended, under the terms of which
key employees may be granted options to purchase an aggregate of
350,000 shares of the Company's common stock. The option plan is to
be administered by a committee consisting of at least three members
of the Board of Directors. The option price may not be less than
the fair market value on the date of grant with exceptions required
by the Internal Revenue Code of 1954, as amended, with respect to
incentive stock options. In October 1991, all options outstanding
under this plan were cancelled.
b) During October 1989, the Company issued an aggregate of 160,000
common stock purchase warrants to its then Chairman and Vice
Chairman of the Board and two Directors, exercisable through
December 31, 1994 at $2.00 per share, the fair market value at the
date of issuance. In October 1991, all of the warrants granted were
cancelled.
c) During April 1989, the Company's Board of Directors approved a
non-qualified stock option plan under which key employees could be
granted options to purchase up to an aggregate 115,000 shares of
the Company's common stock at an option price of $ .10 per share.
All of the options issued under the plan are currently exercisable.
No shares have been exercised to date. As a result of such plan,
the Company recorded deferred compensation equal to the difference
between the option price and the fair market value of such common
stock at the date of grant. Under the terms of this plan, options
that are cancelled may not be re-issued by the Company. The
following is a summary of the activity for this option issuance:
DEFERRED
COMPENSATION
STOCK OPTIONS AMOUNT SHARES
------------- ------------ ------
Balance June 30, 1991 $ 55,323 70,000
Cancelled (4,504) (12,500)
Amount amortized (50,819) -
--------- ---------
Balance June 30, 1992 - 57,500
Cancelled - (10,000)
--------- ---------
Balance June 30, 1993 -0- 47,500
Cancelled - -
--------- ---------
Balance June 30, 1994 $ -0- 47,500
========= =========
S-14
<PAGE>
VTX ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1994, 1993 AND 1992
d) In January 1992, the Company's Board of Directors and stockholders
approved the 1991 Incentive and Non-Qualified Stock Option Plan
(the "Plan"), under which current and perspective employees may be
granted options to purchase an aggregate of 500,000 shares of the
Company's common stock. The Plan is to be administered by a
committee consisting of three members of the Board of Directors.
The committee will designate which options granted under the Plan
are Incentive Options and which are Non-Qualified Options. The
option price may not be less than the fair market value on the date
of grant with exceptions required by the Internal Revenue Code of
1986, as amended, with respect to incentive stock options. The
shares vest one-third each over three years of employment following
the date of grant of the option. None of the options issued have
been exercised. Under the terms of this plan, options that are
cancelled may be reissued by the Company. At June 30, 1994, an
aggregate of 377,500 options remain available for grant under the
plan. The following is a summary of the activity of the Plan:
STOCK OPTIONS SHARES PRICE PER SHARE
------------- ------ ---------------
Balance July 1, 1991 -
Granted 70,000 $1.25 - $1.63
--------- ---------------
Balance June 30, 1992 70,000 $1.25 - $1.63
Granted 290,000 $1.00 - $1.13
Cancelled (82,500) $1.13 - $1.63
--------- ---------------
Balance June 30, 1993 277,500 $1.00 - $1.13
Cancelled (155,000) $1.00 - $1.13
--------- ---------------
Balance June 30, 1994 122,500 $1.00 - $1.13
========= ===============
e) In March 1992, the Company's Board of Directors authorized and
issued options to purchase an aggregate of 150,000 shares of common
stock to the members of the Board of Directors at a price of $1.25
per share (the fair market value at date of grant) until May 1,
1997. No options have been exercised to date.
f) In December 1992, the Company's Board of Directors authorized and
issued options to purchase an aggregate of 150,000 shares of common
stock to the members of the Board of Directors at a price of $1.13
per share (the fair market value at date of grant) until January 4,
1998. No options have been exercised to date.
g) In March 1994, pursuant to an employment agreement, the Company's
newly appointed president was granted an option to purchase 300,000
shares of common stock of the Company at an exercise price of $.50
per-share, representing an amount less than the unadjusted quoted
market price of the stock on such date. The options become
exercisable at the rate of one-third on each successive anniversary
date over three years. Consequently, the Company recorded unearned
compensation in the amount of $168,750, which will be recognized as
compensation expense ratably over the employment period of three
years: $14,063 has been amortized as compensation expense for the
year ended June 30, 1994. The option expires five years after the
date on which the options become exercisable.
S-15
<PAGE>
VTX ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1994, 1993 AND 1992
h) A bonus plan was adopted with respect to fiscal 1993, 1994 and
1995. The plan provides additional compensation to senior
management employees of the Company based on the achievement of
specified amounts of pre-tax profits, as determined by the Chief
Executive Officer with the approval of the Executive Committee of
the Board of Directors. No bonuses were awarded for the fiscal
years ended June 30, 1994 and 1993.
i) In January 1989, the Company began an Employee Stock Ownership Plan
(the "Plan"). Such plan was canceled and the assets were
distributed as of October 31, 1992. There were no contributions for
the years ended June 30, 1994, 1993 and 1992. The Plan covered
substantially all employees not covered by collective bargaining
agreements and who meet certain service requirements. The annual
contribution to the Plan was discretionary as determined by the
Company's Board of Directors.
j) The following information summarizes options and warrants at June
30, 1994:
<TABLE>
<CAPTION>
Reserved Range of
for Exercise
STOCK PLAN ISSUANCE ISSUED EXERCISABLE PRICE
---------- -------- ------ ----------- -----
<S> <C> <C> <C> <C>
Options - Executives 47,500 47,500 47,500 $.10
Options - 1991 Plan 500,000 122,500 40,833 $1.00-$1.13
Options - 1992 Directors 150,000 150,000 150,000 $1.25
Options - 1993 Directors 150,000 150,000 150,000 $1.13
Options - 1994 President's Issuance 300,000 300,000 0 $.50
Options - 1994 Directors 250,000 250,000 250,000 $.50
Options - 1994 Consultants 600,000 600,000 512,500 *
Warrants - 1994 Consultants 468,750 450,000 18,750 $.50
Warrants - 1994 Debt Agreement 250,000 250,000 250,000 $.50
----------------------------------------
2,716,250 2,320,000 1,419,583 $.10-$1.25
===========================================
</TABLE>
* 250,000 of these options are exercisable at $1.25 per share and
350,000 are exercisable at $1.125 per share.
10. INCOME TAXES
Due to the Company's 1994 loss and inability to realize tax benefits, the
Company recorded no tax expense or benefit for the year ended June 30,
1994.
Income tax provision (benefit) for the years ended June 30, 1993 and 1992
consisted of the following:
1993 1992
---------- ----------
Current:
Federal $ - $ -
State 18,400 34,500
---------- ----------
18,400 34,500
Deferred (26,000) (54,000)
---------- ----------
($ 7,600) ($ 19,500)
========== ==========
S-16
<PAGE>
VTX ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1994, 1993 AND 1992
Deferred taxes recorded in prior years have either reversed or have been
eliminated by the recognition of net operating losses.
Reconciliation between actual income tax (benefit) and the amount
computed by applying the statutory Federal income tax rate to the loss
before taxes is as follows:
1994 1993 1992
---------- ---------- ---------
Tax (benefit) at statutory Federal
income tax rates................. ($743,580) $ 154,400 ($674,000)
State income taxes, net of
federal income tax benefit....... - 34,000 4,800
Overaccrual of prior year state
tax refunds...................... - - 18,000
Reversal of deferred tax
liability........................ - (26,000) -
Utilization of net operating loss
carryforward..................... - (170,000) -
Respective years' net operating
loss not currently utilizable.... 743,580 - 631,700
---------- ---------- ---------
-0- ($ 7,600) ($ 19,500)
========== ========== ==========
The Company has adopted Statement of Financial Accounting Standards
(SFAS) No. 109. "Accounting for Income Taxes" as of July 1, 1993. The
standard for SFAS No. 109 requires that the Company utilize an
asset/liability approach for financial accounting and reporting for
income taxes. The provisions of SFAS No. 109 had no effect on the
consolidated financial statements presented for the year ended June 30,
1994.
The temporary differences of deferred tax (assets) and liabilities
determined in accordance with SFAS No. 109 are as follows as of June 30,
1994
Net operating loss carryforwards.............. $(1,666,000)
Other deferred assets:
Allowance for bad debts...................... (150,000)
Inventory reserves........................... (343,000)
Inventory capitalization..................... (74,000)
Other deferred assets........................ (223,000)
------------
Gross deferred tax (assets)................... (2,456,000)
Depreciation (deferred liability)............. 242,000
-----------
Net deferred tax (assets)..................... (2,214,000)
Deferred tax assets valuation allowance....... 2,214,000
-----------
Net deferred tax expense...................... $ -0-
===========
The Company anticipates that for the foreseeable future it will continue
to be required to provide a 100% valuation allowance for the tax benefit
of its net operating loss carryforwards and temporary differences.
S-17
<PAGE>
VTX ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1994, 1993 AND 1992
At June 30, 1994, the Company has net operating losses available to
carryforward of approximately $4,384,000 for tax purposes. Such net
operating loss carryforwards expire through fiscal year 2009. No benefit
has been recorded for such loss carryforwards since realization cannot be
assured.
The Company's use of its net operating loss carryforward is limited as
the Company is deemed to have undergone an "ownership change", as defined
in the Internal Revenue Code, during the fiscal years ended June 30, 1992
and June 30, 1994.
In connection with such net operating loss limitation, the Company must
obtain a fair valuation of the Company as of the date of the ownership
change. Based upon the Company's estimates of fair value, the total net
operating loss of $4,384,000 is limited to approximately $615,000
annually during the carryforward period.
11. COMMITMENTS AND CONTINGENCIES
a. Employment Contracts
In October 1993, an officer of the Company withdrew from active service
with the Company thereby ceasing to function in accordance with the terms
of his employment contract. Further, the former officer instituted an
action for an alleged breach of employment contract seeking to recover
$165,000. The Company denies liability, and is vigorously contesting
obligation and ascertaining counterclaims with the former officer, and
believes that such settlement will not materially differ from the amount
previously provided.
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 percent of specified levels of achieved net profits. In addition, the
Company's president deposited $50,000 with a lender as cash collateral
for a portion of a loan made to an entity the president previously served
as an officer and director (Note 15). The Company has agreed, pursuant to
the employment agreement, to purchase such cash collateral from its
president for $50,000 in the event such cash collateral is not released
by March 31, 1995 and, in turn, the president agreed to assign to the
Company at such time his rights and privileges with respect to such cash
collateral.
b. Consulting Agreements
On March 28, 1994, the Company entered into a three year nonexclusive
consulting agreement/investment banking agreement which obligates the
Company to pay an underwriter $49,375 upon the completion of the
underwriting for consulting services with respect to securities and
finance. Commencing April 1, 1995, the Company is obligated to pay such
underwriter an additional $4,115 per month for 24 months for consulting
services related to an 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 will receive $4,000 per-month.
S-18
<PAGE>
VTX ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1994, 1993 AND 1992
c. Leases:
The Company's minimum annual lease commitments under noncancellable
operating leases for premises at June 30, 1994 are as follows:
Year ending June 30:
1995 $ 436,579
1996 423,711
1997 338,752
1998 119,434
1999 and
thereafter 76,976
--------
$1,395,452
==========
Rent expense, including related real estate taxes and other
operating charges, was approximately $541,691, $736,156 and
$526,038 for the years ended June 30, 1994, 1993 and 1992,
respectively.
12. MAJOR CUSTOMER AND VENDORS
During fiscal 1994, 1993 and 1992, one customer accounted for 16.3%, 11.4%
and 10.1%, respectively, of the net sales of the Company. During fiscal
1994, two vendors accounted for 10.8% and 12.1% of the Company's product
purchases. During fiscal 1993, two vendors accounted for 15.3% and 10.1%
of the Company's product purchases. During the year ended June 30, 1992,
one vendor accounted for 17.1% of the Company's product purchases.
Although the Company believes that it may be able to obtain competitive
products of comparable quality from other suppliers, the loss of certain
suppliers could have an adverse impact of operations.
13. UNITED KINGDOM OPERATIONS
The United Kingdom subsidiary is 80% owned by the Company and 20% by a
Minority Shareholder. In July 1992, the Company entered into an agreement
with the Minority Shareholder for a contract facility to house its United
Kingdom operations. In return for the reimbursement of various
administrative and selling expenses, the Minority Shareholder has agreed
to provide the Company with warehousing and manufacturing capability and
office space and related facilities. Under certain circumstances, a put or
call option may be exercised by the Minority shareholder or the Company,
respectively, for the 20% Minority Shareholder ownership at the greater of
(pound)27,500 (approximately $45,000 at June 30, 1994) or 20% of the net
worth of the United Kingdom operations as of June 30 of the Company's
fiscal year. Operations in the United Kingdom were not material.
The arrangement between the Company and Minority Shareholder continues
until termination is requested through written notice by either party
twelve months in advance of the termination.
S-19
<PAGE>
VTX ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1994, 1993 AND 1992
14. MULTI-EMPLOYER PENSION PLAN
The Company participates in a multi-employer, union-sponsored pension plan
covering all union employees pursuant to a negotiated labor contract.
Pension expense for the defined contribution plan for the years ended June
30, 1994, 1993 and 1992 were $81,771, $92,705 and $94,167, respectively.
In the event of the Company's withdrawal from the multi-employer, union
sponsored plan, the Company could be liable for a portion of the plans
underfunding, if any.
15. PROPOSED MERGER AND CONSULTING AGREEMENT TERMINATION
In November 1993, the Company (i) signed a letter of intent contemplating
a merger with Lantek Electronics, Inc. (Lantek) and (ii) entered into an
interim consulting agreement with Lantek to advise in the operations of
the Company. On April 4, 1994, the Company and Lantek mutually terminated
the proposed merger and consulting agreement and, effective on such date,
the Company's newly appointed President resigned as an officer and
director of Lantek. The Company incurred fees for two Lantek employees
under the consulting agreement of approximately $141,000 which were
charged to operations for the year ended June 30, 1994.
16. SUBSEQUENT EVENTS
a) In July, 1994 the Company's shareholders approved the change in
the number of authorized shares from 20,000,000 to 40,000,000
shares.
b) On September 20, 1994 the Company's Board of Directors approved a
bonus agreement for the Company's Chairman of the Board. The
agreement provides for the Chairman to receive a bonus of 5% of
the Company's net operating profits up to a maximum of $100,000
for the fiscal year ended June 30, 1995.
In addition the Board of Directors have agreed to register
approximately 1,300,000 of shares representing the shares held by
approximately 20 employees, directors, and consultants/advisors.
S-20
<PAGE>
VTX ELECTRONICS CORP. AND SUBSIDIARIES
SCHEDULE II- AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS
AND EMPLOYEES OTHER THAN RELATED PARTIES
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------- -------- -------- -------- --------
DEDUCTIONS
NAME OF DEBTOR BALANCE AMOUNTS BALANCE
BEGINNING AMOUNTS WRITTEN END OF
OF YEAR ADDITIONS COLLECTED OFF YEAR
YEAR ENDED
JUNE 30, 1993
J. V.Tedesco and
N. Santos (1) $151,891 $ -0- $ -0- $151,891 $ -0-
YEAR ENDED
JUNE 30, 1992
J. V.Tedesco and
N. Santos (1) $ -0- $ 151,891 $ -0- $ -0- $151,891
(1) The above employees jointly and severally are indebted to the Company. The
amounts were repayable from 60% of commissions earned by the employees
over a consecutive three-year period through May 1995 and bore interest at
the Company's borrowing rate charged by its regular banking institution
plus 1-1/4% (7-1/4% as of June 30, 1992). There is no collateral for the
amounts due. During fiscal 1993, the Company charged to expense the entire
receivable amount.
S-21
<PAGE>
VTX ELECTRONICS CORP. AND SUBSIDIARIES
SCHEDULE VIII- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- -------- -------- -------- -------- --------
ADDITIONS
BALANCE, CHARGED TO BALANCE,
BEGINNING COSTS AND END OF
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS YEAR
- ----------- --------- ---------- ---------- --------
<S> <C> <C> <C> <C>
Year ended June 30, 1994:
Allowance for doubtful
accounts $216,000 $524,000 $346,000(A) $394,000
-------- -------- -------- --------
Allowance for slow-moving $84,000
and obsolete inventories $641,000 $178,000(C) - $903,000
-------- -------- -------- --------
Year ended June 30, 1993:
Allowance for doubtful
accounts $311,000 $255,000 $350,000(A) $216,000
-------- -------- -------- --------
Allowance for slow-moving
and obsolete inventories $822,000 $1,200,000 $1,381,000(B) $641,000
-------- ---------- ---------- --------
Year ended June 30, 1992:
Allowance for doubtful
accounts $175,000 $455,000 $319,000(A) $311,000
-------- -------- ---------- --------
Allowance for slow-moving
and obsolete inventories $600,000 $375,000 $153,000(B) $822,000
-------- -------- -------- --------
</TABLE>
(A) Net write-offs of uncollectible amounts.
(B) Inventory returned to vendor or liquidated.
(C) Inventory written down due to restructuring.
S-22
<PAGE>
================================================================================
No person has been authorized to give any information or to make any
representations in connection with this offering other than those contained in
this Prospectus and, if given or made, such other information and
representations must not be relied upon as having been authorized by the Company
or any Selling Stockholder. Neither the delivery of this Prospectus nor any sale
made hereunder shall, under any circumstances, create any implication that there
has been no change in the affairs of the Company since the date hereof or that
the information contained herein is correct as of any time subsequent to its
date. This Prospectus does not constitute an offer to sell or a solicitation of
an offer to buy any securities other than the registered securities to which it
relates. This Prospectus does not constitute an offer to sell or a solicitation
of an offer to buy such securities in any circumstances in which such offer or
solicitation is unlawful.
-------------
TABLE OF CONTENTS
PAGE
Available Information................................................... 2
Additional Information.................................................. 2
Incorporation of
Certain Documents by Reference........................................ 2
Prospectus Summary...................................................... 3
Risk Factors............................................................ 4
Use of Proceeds......................................................... 8
Market for the Company's Securities..................................... 8
Recent Developments..................................................... 9
Business................................................................ 10
Plan of Operations...................................................... 14
Selected Financial Data................................................. 15
Management's Discussion and Analysis
of Financial Condition and
Results of Operations................................................. 17
Management.............................................................. 22
Principal and Selling Stockholders...................................... 26
Certain Relationships and Related Transactions.......................... 28
Description of Capital Stock............................................ 29
Plan of Distribution.................................................... 30
Legal Matters........................................................... 30
================================================================================
================================================================================
3,339,500 SHARES
OF COMMON STOCK
VTX ELECTRONICS CORP.
----------
PROSPECTUS
----------
May , 1995
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses which will be paid by
the Registrant in connection with the issuance and distribution of the
securities being registered. With the exception of the SEC Registration Fee, all
amounts shown are estimates.
SEC Registration Fee................................ $719.72
Printing Expenses................................... 5,000.00
Legal Fees and Expenses............................. 10,000.00
Accounting Fees and Expenses........................ 40,000.00
Miscellaneous Expenses.............................. 4,280.28
Total............................................... $60,000.00
==========
- ----------------------
* To be provided by amendment.
Item 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Certificate of Incorporation includes a provision permitted
under the Delaware General Corporation Law that eliminates personal liability of
directors to the Company or its stockholders for monetary damages resulting from
any breach of their fiduciary duties as directors, except (i) for breach of the
directors' duty of loyalty to the corporation or its stockholders, (ii) for
knowing violation of law, (iii) for willful or negligent violations of certain
provisions of the Delaware General Corporation Law imposing certain requirements
with respect to stock repurchases, redemptions and the declaration of dividends,
or (iv) for any transaction from which the director derived an improper personal
benefit.
The Company's Bylaws include certain provisions that authorize the Company
to indemnify present and former directors, officers, employees and agents of the
Company against liabilities incurred in connection with actions brought or
threatened against such persons as a result of their relationship with the
Company. The indemnification shall be made to the fullest extent and in the
manner set forth in and permitted by the General Corporation Law of the State of
Delaware.
The Company has purchased an insurance policy providing that, in the event
any officer or director of the Company or its subsidiaries becomes legally
obligated to make a payment (including legal fees and expenses) in connection
with an alleged wrongful act, the insurer will reimburse such officers and
directors if the indemnification payments, as provided above, are not made by
the Company or its subsidiaries to such officers and directors. Wrongful act
means any breach of duty, neglect, error, misstatement, misleading statement or
other act done by an officer or director of the Company or any subsidiary.
Item 16. EXHIBITS
*5.1 Opinion of Olshan Grundman Frome & Rosenzweig.
*10.1 Consulting Agreement between the Company and Patrick Kolenik.
*10.3 Consulting Agreement between the Company and Jerome M. Sidel.
*10.4 Consulting Agreement between the Company and Robert Eide.
23.1 Consent of Grant Thornton LLP.
*23.2 Consent of Olshan Grundman Frome & Rosenzweig (included in
Exhibit 5.1).
*24 Power of Attorney (included on the signature page to this
Registration Statement).
II-1
<PAGE>
- ----------------------
* Previously filed
Item 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the Registration Statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the Registration
Statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Registration Statement;
Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
Registration Statement is on Form S-3 or Form S-8, and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the Registrant pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference in the
Registration Statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new Registration Statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to Section 13(a) or Section
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against the public policy as express in the Act and
will be governed by the final adjudication of such issue.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on Form S-3 and has duly caused Amendment No.
2 to this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Farmingdale, State of New York on
May 8, 1995.
VTX ELECTRONICS CORP.
By: /S/ DONALD W. ROWLEY
---------------------------
Donald W. Rowley, President
In accordance with the requirements of the Securities Act of
1933, Amendment No. 2 to this Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
NAME TITLE DATE
---- ----- ----
* Chairman of the Board May 8, 1995
- ------------------------
Robert J. Eide
/S/ DONALD W. ROWLEY President, Director (Principal May 8, 1995
- ------------------------ Executive Officer)
Donald W. Rowley
* Director May 8, 1995
- ------------------------
Steven J. Bayern
* Director May 8, 1995
- ------------------------
Robert L. Frome
* Director May 8, 1995
- ------------------------
Paul L. McDermott
* Director May 8, 1995
- ------------------------
Jeffrey S. Podell
* Secretary, Controller, May 8, 1995
- ------------------------ (Principal Financial Officer)
Nicholas T. Hutzel
* Director May 8, 1995
- ------------------------
Mark E. Bloom
*By: /S/ DONALD W. ROWLEY
--------------------
Donald W. Rowley
Attorney-in-fact
II-3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated September 9, 1994 (except for Note 16 b, as to
which the date is September 20, 1994) accompanying the consolidated financial
statements of VTX Electronics Corp. and Subsidiaries as of June 30, 1994 and
1993 and for each of the years in the three-year period ended June 30, 1994
contained in the Registration Statement and Prospectus, and accompanying the
related schedules included in the Annual Report on Form 10-K for the year ended
June 30, 1994 which are incorporated by reference in the Registration Statement
and Prospectus. We consent to the use of the aforementioned reports included and
incorporated by reference in the Registration Statement and Prospectus.
/s/ GRANT THORNTON LLP
----------------------
GRANT THORNTON LLP
Melville, New York
May 5, 1995
