SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended March 31, 1996
Commission File Number 33-7693
___________________________________________________________________________
VTX ELECTRONICS CORP.
(Exact name of registrant as specified in its charter)
___________________________________________________________________________
Delaware 11-2816128
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
61 Executive Boulevard, Farmingdale, New York 11735
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (516) 293-1610
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No _______
On May 1, 1996, 12,652,000 shares of common stock, $.10 par value and 12,375
shares of redeemable, cumulative, convertible preferred stock, $100 stated
value were outstanding.
Note: This is Page 1 of a document consisting of 18 pages.
<PAGE>
VTX ELECTRONICS CORP. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE
PART I: FINANCIAL INFORMATION
ITEM 1: CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Balance Sheets - March 31, 1996 and June 30, 1995.................. 3
Statements of Operations - Nine Months Ended
March 31, 1996 and 1995.......................................... 4
Statements of Operations - Three Months Ended
March 31, 1996 and 1995.......................................... 5
Statements of Cash Flows - Nine Months Ended
March 31, 1996 and 1995.......................................... 6
Notes to Condensed Consolidated Financial Statements............... 7-13
ITEM 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................ 14-16
PART II- OTHER INFORMATION............................................. 17
SIGNATURES............................................................. 18
<PAGE>
VTX ELECTRONICS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, June 30,
1996 1995
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash....................................... $ 247,612 $ 583,388
Accounts receivable, net of allowance
for doubtful accounts of $133,000 and
$154,000 as of March 31, 1996 and
June 30, 1995, respectively.............. 6,132,382 4,864,443
Inventories, net........................... 3,833,996 3,786,172
Prepaid expenses and other current
assets................................... 422,979 463,518
----------- -----------
TOTAL CURRENT ASSETS....................... 10,636,969 9,697,521
PROPERTY, PLANT AND EQUIPMENT, net........... 3,072,544 3,264,975
DEFERRED CHARGES AND OTHER ASSETS............ 260,843 224,451
----------- -----------
TOTAL ASSET.................................. $13,970,356 $13,186,947
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt.......... $ 21,802 $ 158,954
Accounts payable and accrued expenses...... 5,663,495 5,062,469
----------- -----------
TOTAL CURRENT LIABILITIES.................. 5,685,297 5,221,423
LONG-TERM DEBT............................... 6,214,155 5,966,383
SECURED SUBORDINATED DEBENTURES, net......... 2,054,251 -
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Redeemable, Cumulative, Convertible Preferred
stock, stated value $100 per share,
authorized 5,000,000 shares, 12,375 issued
and outstanding.......................... 1,064,251 -
Common stock, par value $.10 per share;
authorized 40,000,000 shares; issued
and outstanding 12,652,000 shares ....... 1,265,200 1,265,200
Paid-in capital............................ 9,158,226 8,591,476
Accumulated Deficit........................ (11,472,400) (7,705,550)
Deferred compensation...................... - (98,433)
Note receivable from officer............... - (50,000)
Cumulative foreign currency translation
adjustment............................... 1,376 (3,552)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 16,653 1,999,141
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $13,970,356 $13,186,947
=========== ===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
VTX ELECTRONICS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Nine Months Ended
March 31,
1996 1995
Net sales.................................... $21,587,578 $26,770,375
Cost of goods sold........................... 18,369,931 20,831,564
------------ ------------
Gross profit................................. 3,217,647 5,938,811
Selling, general and administrative expenses. 6,021,720 5,981,845
Interest expense............................. 618,955 606,054
Foreign currency (gains)..................... ( 3,445) (8,622)
Recapitalization related charge.............. 297,767 -
------------ ------------
Net loss .................................... (3,717,350) (640,466)
Dividends on preferred stock................. 49,500 -
------------ ------------
Net loss attributable to common stock........ $(3,766,850) $ (640,466)
============ ============
Share Information
Loss per share............................... $ (.30) $ (.05)
=========== =============
Weighted average number of common shares
outstanding................................. 12,652,000 12,128,558
=========== =============
The accompanying notes are an integral part of these financial statements.
<PAGE>
VTX ELECTRONICS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
1996 1995
Net sales.................................... $ 7,451,964 $ 8,157,813
Cost of goods sold........................... 6,292,124 6,468,829
------------ ------------
Gross profit................................. 1,159,840 1,688,984
Selling, general and administrative expenses. 2,174,358 1,905,088
Interest expense............................. 240,330 203,428
Foreign currency (gains) losses.............. (512) 2,672
------------ ------------
Net loss..................................... (1,254,336) (422,204)
Dividends on preferred stock................. 37,125 -
------------ ------------
Net loss attributable to common stock........ $(1,291,461) $ (422,204)
============ ============
Share Information
Loss per share............................... $ (.10) $ (.03)
============ ============
Weighted average number of common shares
outstanding................................. 12,652,000 12,635,889
============ ============
The accompanying notes are an integral part of these financial statements.
<PAGE>
VTX ELECTRONICS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
March 31,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss attributable to common stock.............. $(3,766,850) $ (640,466)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization................... 380,035 441,280
Deferred compensation amortization.............. 98,433 -
Provision for losses on accounts receivable..... 25,000 -
Provision for slow moving and obsolete
inventories.................................... 250,000 65,000
Change in operating assets and liabilities:
(Increase) decrease in accounts receivable....... (1,292,939) 843,052
(Increase) in inventories........................ (297,824) (38,976)
(Increase) decrease in prepaid expenses and other
current assets................................. 40,539 (261,899)
(Increase) in other assets....................... (56,581) (40,811)
Increase (decrease) in accounts payable and
accrued expenses............................... 601,014 (435,727)
------------ ------------
Net cash used in operating
activities...................................... (4,019,173) (68,547)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.............................. (92,651) (65,732)
------------ ------------
Net cash used in investing activities............ (92,651) (65,732)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under debt agreements.................. 23,612,446 30,249,572
Debt repayments................................... (23,501,826) (30,825,583)
Decrease in note receivable from officer.......... - 50,000
Proceeds from issuance of common stock............ - 397,250
Proceeds from issuance of debentures, net......... 2,015,875 -
Proceeds from issuance of preferred stock, net.... 1,025,875 -
Proceeds from issuance of warrants................ 618,750 -
------------ ------------
Net cash provided by (used in) financing
activities...................................... 3,771,120 (128,761)
------------ ------------
Effect of exchange rate changes on cash............ 4,928 15,243
------------ ------------
NET DECREASE IN CASH............................... (335,776) (247,797)
CASH at beginning of period........................ 583,388 593,438
------------ ------------
CASH at end of period.............................. $ 247,612 $ 345,641
============ ============
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ 584,413 $ 606,054
============ ============
The accompanying notes are an integral part of these financial statements.
<PAGE>
VTX ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
a. The accompanying condensed consolidated financial statements include the
accounts of VTX Electronics Corp. and its wholly-owned subsidiaries (the
"Company"), Vertex Technologies, Inc., Vertex Data Systems, Inc. [inactive],
and its foreign subsidiary, Vertex Technologies UK, LTD. All significant
intercompany transactions and balances have been eliminated in
consolidation.
The consolidated balance sheet as of March 31, 1996 and the related
consolidated statements of operations and cash flows for the three and nine
months ended March 31, 1996 and 1995, have been prepared by the Company
without audit. In the opinion of management, all adjustments (which include
only normal recurring adjustments) necessary to present fairly the financial
position, results of operations and changes in cash flows at March 31, 1996
and for all periods presented have been made. Results of operations for the
nine months ended March 31, 1996 are not necessarily indicative of results
of operations that may be expected for the year ended June 30, 1996.
Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted. It is suggested that these condensed
consolidated financial statements be read in conjunction with the
consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended June 30, 1995.
2. INVENTORIES
Inventory consists principally for products held for sale. The Company
regularly reviews its inventory for obsolete and slow-moving items which
includes reviews of inventory levels of certain product lines and an
evaluation of the inventory based on changes in technology and markets. As
of March 31, 1996 and June 30, 1995, the reserve was approximately
$545,000 and $535,000, respectively.
March 31, June 30,
1996 1995
Raw Materials $ 69,026 $ 67,267
Work in Process 12,154 31,934
Finished Goods 3,752,816 3,686,971
---------- ----------
Inventories, net $3,833,996 $3,786,172
========== ==========
<PAGE>
VTX ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. LONG-TERM DEBT
Long-term debt consists of the following:
March 31, June 30,
1996 1995
Revolving asset-based loan (a).............. $ 5,167,892 $4,903,805
First mortgage loan, net of imputed
interest (b)............................... 1,026,841 1,025,741
Subordinated mortgage loan, net of imputed
interest .................................. - 31,649
Machinery and equipment loan (c)............ - 105,250
Capitalized lease obligations (d)........... 41,224 58,892
----------- ----------
6,235,957 6,125,337
Less current portion of long-term debt...... 21,802 158,954
----------- ----------
$ 6,214,155 $5,966,383
=========== ==========
a. On February 10, 1995, the Company entered into an amended and restated
revolving credit agreement with a lending institution. Such agreement
provided for a revolving credit facility with maximum available of
$10,000,000 and expires on December 31, 1997. Under the terms of the credit
facility, the Company is required to pay interest at prime plus 2 3/4% and
a commitment fee of 1/2% per annum on the daily unused portion of the credit.
The agreement also provides for termination fees as a result of default or
early termination of 1% and .5% of the maximum credit if such termination
occurs before December 31, 1996 and 1997, respectively. In connection with
this financing amendment, the Company incurred in fiscal 1995 costs
approximating $80,000, which have been accounted for as deferred charges and
are being amortized through December 31, 1997. Under the terms of the
agreement, borrowings are limited to 80% of eligible accounts receivable
(constituting those amounts outstanding 90 days or less) and 50% of eligible
accounts receivable outstanding between 91 and 120 days, and 40% of regular
inventories and 20% of slow moving inventory. As of March 31, 1996 and June
30, 1995, the Company had $5,787,000 and $5,406,000 availability under the
eligibility terms of the facility, of which $5,168,000 and $4,904,000 was
outstanding on such dates, respectively. This loan is collateralized by
substantially all of the assets of the Company not otherwise collateralized.
In connection with its revolving credit facility, the Company is subject to
restrictive covenants which impose certain limitations with respect to the
Company's incurrence of indebtedness, capital expenditures, creation or
recurrence of liens, declaration or payment of dividends or other
distributions, mergers, consolidations and sales or purchases of substantial
assets. In general, the Company is not allowed to incur further
indebtedness or create additional liens on its assets except for unsecured
current liabilities incurred in the ordinary course of business or
liabilities incurred in the ordinary course of business secured by purchase
money security interest not to exceed an aggregate of $750,000. The Company
is not allowed to make loans or investments or provide guarantees or to
prepay indebtedness. The Company is prohibited from paying dividends on
common stock 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, including subordinated debentures, 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.
<PAGE>
VTX ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
b. 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 of $.50 per share, which was subsequently reduced to $.125
per share. A portion of the proceeds of the loan has been allocated to the
warrants based on the Company's Board of Directors' assessment of their fair
value at the time of issuance ($.70 per share). For financial statement
purposes, the fair value ascribed to the warrants of $175,781 has been
deducted from the proceeds of the mortgage loan as additional interest
expense and is being amortized over the term of the mortgage to yield an
effective interest rate of approximately 20% per annum. The loans have
prepayment penalties which are calculated as a percentage of the prepayment
amount. The percentage is determined based upon the date of payment as
follows:
Prepaid Percentage
Between one and two years 3%
Between two and three years 1%
Thereafter 0%
The loan contains covenants prohibiting certain types of transactions and
limiting capital expenditures to $250,000 per annum without the prior
consent of the lenders.
c. On October 18, 1991, the Company received $500,000 in cash from an
unaffiliated investor group in exchange for a mortgage on certain machinery
and equipment. Concurrently, such investor group acquired a 50.6% interest
in the then outstanding issued common stock of the Company for $1,000,000
(or $.40 per-share) and was granted a five-year warrant to purchase
1,000,000 shares of the Company's common stock for $.50 per-share. Such
warrants were fully exercised in June 1994. The loan, which bears interest
at the rate of 1-1/4% above the prime lending rate (8.25% and 6.75% at March
31, 1996 and June 30 1995, respectively), was originally due on September
30, 1994; however, on April 25, 1994, such due date was extended to
September 30, 1995. On December 19, 1994, however, the Company extinguished
$394,750 of the $500,000 loan balance in exchange for 789,500 shares of the
Company's common stock. The Company's Board of Directors and management
believe based upon a fairness opinion rendered by an independent investment
banking firm and other analysis, that the fair value of the shares exchanged
was equal to the carrying amount of the converted portion of the loan. The
fairness opinion stated that the exchange was fair to the stockholders of
the Company from a financial point of view. The remaining $105,250 principal
balance of the loan was fully satisfied on December 1, 1995.
<PAGE>
VTX ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
d. The Company leases its telephone system under agreements accounted for as
capital leases. The obligation for the telephone system requires 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:
March 31: Total
1997 $ 21,802
1998 5,180,972
1999 -
2000 1,033,183
-----------
$ 6,235,957
===========
4. SECURED SUBORDINATED DEBENTURES, PREFERRED STOCK AND WARRANTS ISSUED
Under a Capitalization Agreement (the "Agreement") signed on December 1,
1995, the Company received $2,475,000 from an unaffiliated investor group
("new investors") in exchange for Secured Subordinated Debentures (the
"bonds") with a principal amount of $1,237,500, 12,375 shares of Senior
Redeemable Cumulative Convertible Preferred Stock ("preferred stock") with
a stated value of $100 per share and warrants to purchase 19,800,000 shares
of common stock of the Company.
The bonds are due on December 1, 2000 and accrue interest at an annual rate
of 2% over the published prime rate of interest (10.25% at March 31, 1996),
payable quarterly over the life of the bonds. Such bonds are secured by all
of the assets of the Company, however, subordinate to the secured debt under
the revolving asset based loan and the first mortgage loan described in Note
3.
The preferred stock is redeemable on December 1, 2000 for $1,237,500 in cash
or common stock, based upon the lower of 70% of the fair market value of the
underlying common stock on such date or $.25 per common share, at the option
of the Company. The preferred shareholders are entitled to receive dividends
quarterly at an annual fixed rate of 12%, the effect of which is cumulative
to the extent the Company does not make such quarterly payment on the
prescribed basis. On or after June 1, 1996 and through December 1, 2000,
each preferred share may be converted into common stock of the Company at a
conversion rate of $.25 per share (400 common shares for each preferred
share converted). Each share of preferred stock contains 1,500 votes or
voting rights on all matters being voted on by the shareholders of the
Company other than the election of directors. Additionally, the holders of
the preferred stock, voting as a class, shall in each year elect seventy-
five percent of the members of the Board of Directors of the Company.
Effective December 1, 1996 and pursuant to the Agreement, the existing Board
of Directors
<PAGE>
VTX ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
("former directors") resigned in favor of a new Board of Directors ("new
directors").
The warrants to purchase common stock of the Company issued under the
Agreement to the new investors are currently exercisable at $.125 per common
share and have a term commencing June 1, 1996 and expiring December 1, 2000
for 4,950,000 of the warrants and an additional term commencing December 1,
1998 and expiring December 1, 2005 for the remaining 14,850,000 warrants.
In connection with these issuances, the Company recorded a discount on the
bonds payable of $185,625 and a discount on preferred stock of $185,625,
representing the estimated relative fair market value of the warrants on the
date of such issuance as determined by the Company, which will be recognized
as interest expense and preferred stock dividends, respectively, on a
straight line basis over the 60 month term of the Agreement.
Expenses of approximately $104,000 relating to various legal, accounting,
consulting and other fees were incurred in connection with the Agreement,
$52,000 of which has been attributed to the issuance of the bonds, which has
been recorded as a deferred charge and is being amortized over the 60 month
term on a straight line basis, and $52,000 of which has been attributed to
the issuance of the preferred stock, which has been recorded as a direct
reduction to the equity received by the Company.
On March 21, 1996, the Company received an additional $1,237,500 from the
new investors in exchange for Senior Secured Subordinated Debentures (the
"senior bonds") for a principal amount of $1,237,500 and warrants to
purchase 24,750,000 shares of common stock of the Company.
The senior bonds are due on April 1, 2001 and accrue interest at an annual
rate of 2% over the published prime rate of interest (10.25% at March 31,
1996), payable quarterly over the life of the senior bonds. Such senior
bonds are secured by all non-real estate assets of the Company, however
subordinate to the secured debt under the revolving asset based loan and the
first mortgage loan as described in Note 3.
The warrants to purchase 24,750,000 shares of common stock of the Company
are exercisable at $.125 per common share (which was less than the fair
market value on the effective date of the agreement) and have a term
commencing April 1, 1999 and expiring on March 31, 2009. In addition, the
exercise price for the 19,800,000 warrants issued in connection with the
December 1, 1995 agreement was reduced from $.25 to $.125 per share in
connection with this financing. The exercise of these warrants is contingent
upon the authorization, by the shareholders, of additional authorized common
stock. In connection with this issuance, the Company recorded a discount on
the senior bonds payable of $247,500 which represents the estimated fair
market value of the warrants on the date of such issuance as determined by
the Company, which will be recognized as interest expense on a straight line
basis over the 60 month term of the agreement.
Expenses of approximately $25,000 relating to various legal, accounting and
other fees incurred in connection with the financing have been recorded as
a deferred charge and is being amortized over the 60 month term on a
straight line basis.
<PAGE>
VTX ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5. COMMITMENTS AND CONTINGENCIES
a. Employment Agreement
On March 31, 1994, the Company entered into an employment agreement with its
then president which required total annual minimum compensation of $200,000
through March 1997 plus an annual bonus based on a percentage of specified
levels of achieved net profits. Effective December 1, 1995, this agreement
was terminated in connection with his resignation and the obligation was
settled for $134,000, which is payable monthly through March, 1997. Such
amount has been recognized as part of the "recapitalization related charge"
for the nine months ended March 31, 1996.
On January 1, 1996, the Company entered into employment agreements with two
of its newly appointed executive officers. The terms of these agreements
extend through December 31, 1997 and require monthly compensation payments
of $11,250 each. One of the employment agreements further contains a $25,000
bonus commitment to the executive which will be earned to the extent the
Company does not incur a net loss in the three month period ended June 30,
1996 as defined.
b. Management Agreements
On January 1, 1996, the Company entered into a management agreement with a
consulting firm whereas the Company has retained one of the consulting
firms principals to function as its Chairman of the Board and Chief
Executive Officer. The term of this agreement extends through December
31, 2000 and requires monthly management fees of $12,000, provided
however, that the Company does not hire a president or chief operating
officer during that period of time. To the extent that a president or
chief operating officer is hired by the Company, the management fee will
be reduced to $5,000 per month for any remaining term of the agreement.
c. Consulting Agreements
Under the terms of a nonexclusive consulting/investment banking agreement,
the Company is obligated to pay an underwriter $4,115 per month for 24
months which commenced in April 1995 for consulting services related to
investment banking and finance services. This agreement was fully
satisfied for an amount less than its full agreement terms on December 1,
1995 and classified as part of the "recapitalization related charge" for
the nine months ended March 31, 1996.
Effective April 1, 1994, the Company entered into a three-year consulting
agreement with a director (currently a former director) for
financial/management services. Under the terms of the agreement, the former
director receives $4,000 per-month. Such remaining amount has been
recognized as part of "recapitalization related charge" for the nine months
ended March 31, 1996.
<PAGE>
VTX ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
d. Leases
The Company's minimum annual lease commitments under noncancellable
operating leases for premises at March 31, 1996 are as follows:
March 31:
1997 303,117
1998 181,518
1999 51,317
2000 38,488
----------
$ 574,440
==========
Rent expense, including related real estate taxes and other operating
charges, was approximately $462,843 and $321,908 for the nine months ended
March 31, 1996 and 1995, respectively.
e. Litigation
An action was commenced in the New York State Supreme Court, County of
Nassau, by CPI Aerostructures, Inc.("CPI"), alleging that the Company had
wrongfully failed to consummate a proposed merger transaction. The plaintiff
is seeking "break-up" fee damages in the amount of $400,000. The Company has
served an answer and counterclaim, denying any wrongdoing and alleging that
CPI misled the Company by failing to adequately disclose material losses.
The case is in its early stages, however management believes the Company has
a meritorious defense and will vigorously defend the action.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Nine Months Ended March 31, 1996 and 1995
Net sales decreased $5,183,000 or 19.4% to $21,588,000 for the nine months ended
March 31, 1996 as compared $26,770,000 for the nine months ended March 31, 1995.
The decrease was primarily the result of significant sales employee turnover.
Net sales from value added distribution including systems integration consulting
services and manufacturing were $13,881,000 and $7,707,000, respectively, for
the nine months ended March 31, 1996 as compared to net sales of $16,062,000 and
$10,708,000, respectively, for the nine months ended March 31, 1995.
Gross profit decreased $2,721,000 or 45.8% to $3,218,000 for the nine months
ended March 31, 1996 as compared to $5,939,000 for the nine months ended March
31, 1995. Gross profit as percentage of net sales decreased to 14.9% from 22.2%
for the prior year period. The decrease in gross profit dollars was primarily
the result of the aforementioned decrease in net sales coupled with the decrease
in gross profit per sales dollar which is due primarily to the poor absorption
of fixed overhead costs caused by the significant decrease in sales volume, in
addition to an increase in inventory reserves for obsolescence.
Selling, general and administrative expenses increased approximately $40,000 or
less than 1% to $6,022,000 for the nine months ended March 31, 1996 as compared
to $5,982,000 for the nine months ended March 31, 1995. The increase in expense
was the result of costs associated with the new product catalog and computer
enhancements offset by the reduced selling expenses caused by the significant
reduction in net sales. As a percent of net sales, selling, general and
administrative expenses were 27.9% of net sales for the nine months ended March
31, 1996 as compared to 22.3% for the nine months ended March 31, 1995.
Recapitalization related charges of approximately $298,000 recorded in the nine
months ended March 31, 1996 represent non-recurring charges recognized by the
Company in connection with the resignation of the president and certain
directors on December 1, 1995. Such charge include the termination and
settlement of employment contracts, acceleration of deferred compensation
charges and other contractual obligations.
Interest expense, including dividends on preferred stock, increased
approximately $62,000 or 10% to $668,000 for the nine months ended March 31,
1996 as compared to $606,000 for the nine months ended March 31, 1995. The
increase was due to the requirements of interest and dividends as a result of
the December 1995 and March 1996 financings.
Net loss attributable to common stock increased to $(3,767,000) for the nine
months ended March 31, 1996 as compared to $(640,000) for the nine months ended
March 31, 1995. The increase in net loss was caused primarily by the
aforementioned decrease in sales, gross margin dollars, the recapitalization
related charges, and the increases in selling, general, administrative and
interest expenses.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Quarter Ended March 31, 1996 and 1995
Net sales decreased $706,000 or 8.7% to $7,452,000 for the three months ended
March 31, 1996 as compared $8,158,000 for the three months ended March 31, 1995.
The decrease was primarily the result of a significant number of new sales
employees who are currently in process of completing the Company's sales
training program. Net sales from value added distribution including systems
integration consulting services and manufacturing were $4,803,000 and
$2,649,000, respectively, for the three months ended March 31, 1996 as compared
to net sales of $4,848,000 and $3,310,000, respectively, for the three months
ended March 31, 1995.
Gross profit decreased $529,000 or 31% to $1,160,000 for the three months ended
March 31, 1996 as compared to $1,689,000 for the three months ended March 31,
1995. Gross profit as percentage of net sales decreased to 15.6% from 20.7% for
the prior year period. The decrease in gross profit dollars was primarily the
result of the aforementioned decrease in net sales coupled with the decrease in
gross profit per sales dollar which is due primarily to the poor absorption of
fixed overhead costs caused by the significant decrease in sales volume.
Selling, general and administrative expenses increased approximately $269,000 or
14% to $2,174,000 for the three months ended March 31, 1996 as compared to
$1,905,000 for the three months ended March 31, 1995. The increase in expense
was the result of costs associated with the new product catalog and computer
enhancements. As a percent of net sales, selling, general and administrative
expenses were 29.2% of net sales for the three months ended March 31, 1996 as
compared to 23.4% for the three months ended March 31, 1995.
Interest expense, including dividends on preferred stock, increased
approximately $74,000 or 36% to $277,000 for the three months ended March 31,
1996 as compared to $203,000 for the three months ended March 31, 1995. The
increase was due to the requirements of interest and dividends as a result of
the December 1995 and March 1996 financings.
Net loss attributable to common stock increased to $(1,291,000) for the three
months ended March 31, 1996 as compared to $(422,000) for the three months ended
March 31, 1995. The increase in net loss was caused primarily by the
aforementioned decrease in sales and gross margin dollars in addition to the
increase in selling, general and administrative expense and interest expense.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Financial Condition
As of March 31, 1996 and 1995
Current assets have increased approximately $939,000 to $10,637,000 at March 31,
1996 as compared to $9,698,000 at June 30, 1995. This net increase resulted
primarily from a significant increase in accounts receivable and an increase in
inventory balances. As described in the notes to the condensed consolidated
financial statements, in December 1995 and March 1996, the Company received a
$2,475,000 and $1,237,500, respectively, cash infusion from an unaffiliated
investor group. This cash infusion has been utilized to reduce vendor payments
outstanding and debt outstanding under the Company's revolving credit
arrangement in addition to satisfying certain other debts previously outstanding
and funding of operating losses. The Company had net working capital of
$4,952,000 at March 31, 1996 as compared to $4,476,000 at June 30, 1995. The
Company anticipates that its cash on hand coupled with amounts available under
its revolving credit facility may not be sufficient to meet its cash and working
capital requirements based upon expected sales. The Company intends to continue
to seek additional debt and/or equity financing to fund this shortfall. However,
there can be no assurance that the Company will be able to raise such additional
financing to fund such potential shortfall.
Total borrowings outstanding, excluding subordinated debentures, as of March 31,
1996 were $6,236,000, an increase of $111,000 or 1.8% from $6,125,000 at June
30, 1995. This was due primarily to the increased borrowing levels offset by the
satisfaction of both the subordinated mortgage loan and the machinery and
equipment loan. The Company's asset based revolving credit facility provides a
maximum availability of $10,000,000 based on eligible accounts receivable and
inventory. As of March 31, 1996, $5,787,000 was available under this facility
of which $5,168,000 was outstanding.
<PAGE>
PART II- OTHER INFORMATION
Item 1. Legal Proceedings
An action was commenced in the New York State Supreme Court, County
of Nassau, by CPI Aerostructures, Inc.("CPI"), alleging that VTX
Electronics Corp. had wrongfully failed to consummate a proposed
merger transaction. The plaintiff is seeking "break-up" fee damages
in the amount of $400,000. VTX has served an answer and
counterclaim, denying any wrongdoing and alleging that CPI misled VTX
by failing to adequately disclose material losses. The case is in
its very early stages, however management believes VTX has a
meritorious defense and will vigorously defend the action.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits None
(b) A Form 8-K was filed on March 27, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VTX ELECTRONICS CORP.
By:
Albert Roth
Chief Executive Officer
By:
Paul Snead
Chief Financial Officer
Dated: May 12, 1996
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VTX ELECTRONICS CORP.
By: /s/ Albert Roth
Chief Executive Officer
By: /s/ Paul Snead
Chief Financial Officer
Dated: May 12, 1996
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