SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended September 30, 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 November 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 - September 30, 1996 and June 30, 1996.............. 3
Statements of Operations - Quarter Ended
September 30, 1996 and 1995...................................... 4
Statements of Cash Flows - Quarter Ended
September 30, 1996 and 1995...................................... 5
Notes to Condensed Consolidated Financial Statements............... 6-12
ITEM 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................ 13-14
PART II- OTHER INFORMATION............................................. 15
SIGNATURES............................................................. 16
<PAGE>
VTX ELECTRONICS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, June 30,
1996 1996
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash....................................... $ 269,028 $ 73,230
Accounts receivable, net of allowance
for doubtful accounts of $222,000 and
$221,000 as of September 30, 1996 and
June 30, 1996, respectively.............. 5,942,124 5,734,965
Inventories, net........................... 4,560,022 3,293,924
Prepaid expenses and other current
assets................................... 391,013 620,747
----------- ----------
TOTAL CURRENT ASSETS....................... 11,162,187 9,722,866
PROPERTY, PLANT AND EQUIPMENT, net........... 2,970,263 3,006,709
DEFERRED CHARGES AND OTHER ASSETS............ 448,085 398,813
----------- -----------
TOTAL ASSETS................................. $14,580,535 $13,128,388
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Current portion of long-term debt.......... $ 15,556 $ 21,747
Accounts payable and accrued expenses...... 5,868,198 4,535,025
Preferred stock dividends payable.......... 123,750 86,625
----------- -----------
TOTAL CURRENT LIABILITIES.................. 6,007,504 4,643,397
LONG-TERM DEBT............................... 7,293,541 6,388,495
SECURED SUBORDINATED DEBENTURES, net......... 3,142,465 3,107,908
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIENCY:
Redeemable, Cumulative, Convertible Preferred
stock, stated value $100 per share,
authorized 5,000,000 shares, 12,375 issued
and outstanding, net..................... 1,082,815 1,073,530
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............................ 9,416,226 9,416,226
Accumulated Deficit........................ (13,628,102) (12,763,881)
Cumulative foreign currency translation
adjustment............................... 886 (2,487)
------------ -----------
TOTAL STOCKHOLDERS' DEFICIENCY (1,862,975) (1,011,412)
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS'DEFICIENCY $14,580,535 $13,128,388
============ ============
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
September 30,
1996 1995
----------- -----------
Net sales.................................... $ 7,743,931 $ 7,578,044
Cost of goods sold........................... 5,976,325 5,805,996
----------- -----------
Gross profit................................. 1,767,606 1,772,048
Selling, general and administrative expenses. 2,251,244 2,188,423
Interest expense............................. 349,335 169,649
Other (income) expense....................... (5,880) (2,537)
----------- -----------
Net loss..................................... (827,093) (583,487)
Dividends on preferred stock................. 37,125 -
------------ ------------
Net loss attributable to common stock........ $ (864,218) $ (583,487)
============ ============
Share Information
Loss per share............................... $ (.07) $ (.05)
============ ============
Weighted average number of common shares
outstanding................................. 12,652,000 12,652,000
============ ============
The accompanying notes are an integral part of these financial statements.
<PAGE>
VTX ELECTRONICS CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
September 30,
1996 1995
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss attributable to common stock.............. $ (864,218) $ (583,487)
Adjustments to reconcile net loss to net
cash (used in) provided by operating activities:
Depreciation and amortization................... 152,203 145,992
Provision for losses on accounts receivable..... 1,000 -
Change in operating assets and liabilities:
Increase in accounts receivable.................. (208,159) (19,192)
(Increase) decrease in inventories............... (1,266,098) 111,832
Decrease in prepaid expenses and other
current assets................................. 229,734 123,748
Increase in other assets......................... (66,862) (15,068)
Increase in accounts payable and
accrued expenses............................... 1,370,298 375,382
Net cash (used in) provided by operating ------------ ------------
activities...................................... (652,102) 139,207
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.............................. (54,328) (35,435)
------------ ------------
Net cash used in investing activities............ (54,328) (35,435)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under debt agreements.................. 8,493,864 7,591,201
Debt repayments................................... ( 7,595,009) (8,043,404)
------------ ------------
Net cash provided by (used in) financing
activities...................................... 898,855 (452,203)
------------ ------------
Effect of exchange rate changes on cash............ 3,373 2,852
------------ ------------
NET INCREASE (DECREASE) IN CASH.................... 195,798 (345,579)
CASH at beginning of period........................ 73,230 583,388
------------ ------------
CASH at end of period.............................. $ 269,028 $ 237,809
============ ============
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ 292,369 $ 169,649
============ ============
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 September 30, 1996 and the related
consolidated statements of operations and cash flows for the three months
ended September 30, 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 September 30,
1996 and for all periods presented have been made. Results of operations for
the three months ended September 30, 1996 are not necessarily indicative of
results of operations that may be expected for the year ending June 30,
1997.
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, 1996.
Certain amounts in the prior years' condensed consolidated financial
statements have been reclassified to conform to the current year
presentation.
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 September 30, 1996 and June 30, 1996, the reserve was approximately
$575,000.
September 30, June 30,
1996 1996
------------ ----------
Raw Materials $ 102,209 $ 77,011
Work in Process 30,093 33,555
Finished Goods 4,427,720 3,183,358
------------ ----------
Inventories, net $4,560,022 $3,293,924
============ ==========
<PAGE>
VTX ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. LONG-TERM DEBT
Long-term debt consists of the following:
September 30, June 30,
1996 1996
----------- ----------
Revolving asset-based loan (a).............. $ 6,010,875 $5,097,664
First mortgage loan, net of imputed
interest (b)............................... 1,029,474 1,029,053
Second mortgage loan (b).................... 248,931 250,000
Capitalized lease obligations (c)........... 19,817 33,525
----------- ----------
7,309,097 6,410,242
----------- ----------
Less current portion of long-term debt...... 15,556 21,747
$ 7,293,541 $6,388,495
=========== ==========
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%(11.0%
at June 30, 1996) 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 September
30, 1996 and June 30, 1996, the Company had $6,675,000 and $5,431,000
availability under the eligibility terms of the facility, of which
$6,011,000 and $5,098,000 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, amended on March 15, 1996,
to include 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 second mortgage loan is with substantially the same group of lenders,and
is payable over five years in monthly installments of $3,630, inclusive of
principal and interest at 14.875%, commencing August 1, 1996, with a final
installment of principal of $204,206 payable on July 1, 2001 and
collateralized by a second mortgage lien on the Company's corporate
headquarters. In connection with such loan, the Company issued 1,250,000
common stock purchase warrants, which are exercisable beginning April 1,1999
through March 31, 2009 at an exercise price of $.125 per share. The loan has
prepayment penalties which are calculated as a percentage of the prepayment
amount. The percentage is determined based upon the date of payment as
follows:
Period when prepaid Percentage
------------------- ----------
Year 1 5%
Year 2 4%
Year 3 3%
Year 4 2%
Year 5 1%
The loans contain covenants prohibiting certain types of transactions and
limiting capital expenditures to $250,000 per annum without the prior
consent of the lenders. The loans will be prepaid upon the closing of the
sale of the corporate headquarters as discussed in Note 5e.
<PAGE>
VTX ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
c. 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 (excluding the secured subordinated debentures,as described in Note 4):
September 30: Total
-----------
1997 $ 15,556
1998 6,030,246
1999 1,039,535
2000 10,660
2001 12,100
Thereafter 201,000
-----------
$ 7,309,097
===========
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
"debentures") 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 debentures are due on June 19,2001 and accrue interest at an annual rate
of 2% over the published prime rate of interest (10.25% at June 30, 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 mortgage loans 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 $.25 per common share, at the option
of the Company. The preferred shareholders are entitled to receive dividends
quarterly at an annual fixed rate of 12%, the effect of which is cumulative
to the extent the Company does not make such quarterly payment on the
prescribed basis. Since June 1, 1996 and through December 1, 2000, each
preferred share may be converted into common stock of the Company at a
conversion rate of$.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, 1995 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 April 1,1999
and expiring March 31, 2009 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, and June 19, 1996, the Company received an additional
$1,237,500 and $1,290,000, respectively, from the new investors and certain
additional individual and institutional investors,in exchange for additional
Secured Subordinated Debentures for a principal amount of $1,237,500 and
$1,290,000 and warrants to purchase 24,750,000 and 25,800,000 shares of
common stock of the Company, respectively.
The debentures are substantially identical and pari passu with the
debentures issued on December 1, 1995. Accordingly, such debentures are due
on June 19, 2001 and accrue interest at an annual rate of 2% over the
published prime rate of interest, payable quarterly over the life of the
debentures. Such debentures are secured by all of the assets of the Company,
however, subordinate to the secured debt under the revolving asset based
loan and the mortgage loans as described in Note 3.
The warrants to purchase 50,550,000 shares of common stock of the Company
are exercisable at$.125 per common share 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 the March
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
secured subordinated debentures of $247,500 and $258,000 in March and June
1996, respectively, 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 and $174,000 in March and June 1996,
respectively, relating to various legal, accounting and other fees incurred
in connection with the financing have been recorded as a deferred charge and
are 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 Agreements
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, charged to fiscal 1996 operations and is payable
monthly through March 1997.
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 provide for monthly compensation
payments of $11,250 each.
On May 1, 1996, the Company entered into an agreement with another
executive officer which provides for compensation of up to a maximum of
eight months of the executive's current base salary, approximating
$67,500, upon termination of employment for any reason other than for
certain circumstances, as defined in the agreement. The term of the
agreement extends through May 1, 1999.
b. Management Agreement
On January 1, 1996, the Company entered into a management agreement with a
consulting firm whereby the Company has retained one of the consulting
firm's 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. Leases
The Company's minimum annual lease commitments under noncancellable operating
leases for premises at September 30, 1996 are as follows:
September 30:
1997 284,676
1998 142,868
1999 72,795
2000 25,656
----------
$ 525,995
==========
Rent expense, including related real estate taxes and other operating
charges, was approximately $186,400 and $139,200 for the three months
ended September 30, 1996 and 1995, respectively.
<PAGE>
VTX ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
d. 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.
e. Sale of Building
On September 2, 1996,the Company entered into a agreement to sell its 45,000
square foot corporate headquarters to an unaffiliated third party. Under the
terms of the agreement, the Company will receive cash proceeds of $2,331,621
for the sale of the property, a portion of which will be used to retire the
first and second mortgages described in Note 3b. The transaction has a
closing date of November 30, 1996, but, in any event, no later than December
31,1996 and is subject to the consent of the secured lenders of the Company,
to the extent required. The Company does not anticipate that it will
recognize a material gain or loss from sale upon closing the transaction.
The Company expects net cash proceeds of approximately $800,000 from this
transaction.
6. SUBSEQUENT EVENTS
On October 3, 1996,the Company signed a letter of intent to purchase the net
assets of Elcan Technologies, Inc. ("Elcan") through the issuance of a
combination of cumulative convertible preferred stock, and other debt and
equity securities. Under the terms of the letter of intent, through the
receipt of 12,375 shares of $100 stated value, preferred stock, which may be
converted into 4,950,000 shares of common stock and contain all of the
rights as the existing preferred stock outstanding, and long-term notes and
subordinated, secured debentures with detachable warrants to purchase
70,350,000 shares of common stock at an exercise price ranging from $.10 -
$.125 per share, the owners of Elcan will possess an equal ownership in the
Company on a fully exercised basis with the new investors and will have
equal representation on the Company's board of directors. In addition, the
current principle owner of Elcan will become the Chief Executive Officer of
the Company upon completion of the transaction. The transaction is subject
to the negotiation and execution of a definitive agreement, approval of the
Boards of Directors of the Company and Elcan, and consent of the secured
lenders of the Company, to the extent required.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Results of Operations
Quarter Ended September 30, 1996 and 1995
Net sales for the quarter ended September 30, 1996 increased $165,887 or 2% to
$7,743,931 compared to $7,578,044 for the quarter ended September 30, 1995.
Value added distribution sales decreased approximately $613,000 or 12% to
$4,485,000, for the quarter ended September 30, 1996 from $5,098,000 for the
quarter ended September 30, 1995. Sales of manufactured cable assemblies
increased approximately $776,000 or 31% to $3,259,000 for the quarter ended
September 30, 1996 from $2,483,000 for the quarter ended September 30, 1995. The
slight increase in sales is attributable to a re-established sales force and the
return of certain key customers.
Gross profit for the quarter ended September 30, 1996 decreased $4,442 or less
than 1% to $1,767,606 from $1,772,048 for the quarter ended September 30, 1995.
Gross profit as a percentage of sales was 22.8% for the quarter ended September
30, 1996 compared to 23.4% for the quarter ended September 30, 1995. The slight
decrease in gross profit margin is due to a slight decrease in unit selling
prices.
Selling, general and administrative expenses increased $62,821 or 3% to
$2,251,244 for the quarter ended September 30, 1996 from $2,188,423 for the
quarter ended September 30, 1995. The slight increase in expense was due to the
increase in sales as selling, general and administrative expense as a percentage
of sales remained constant at 29%.
Interest expense, including dividends on preferred stock, increased $216,811 or
128% to $386,460 for the quarter ended September 30, 1996 from $169,649 for the
quarter ended September 30, 1995. The increase was due to the subordinated
debentures and preferred stock outstanding during the quarter ended September
30, 1996 which were not outstanding during the quarter ended September 30, 1995.
Liquidity and Financial Condition
As of September 30, 1996
Current assets have increased $1,439,321 to $11,162,187 at September 30, 1996
from $9,722,866 at June 30, 1996. This increase resulted primarily from a
$1,266,098 increase in net inventory. Cash increased $195,798 due primarily to
the cash proceeds received in August from the second mortgage executed on June
19, 1996 for $250,000. The Company has net working capital of $5,154,683 at
September 30, 1996 as compared to $5,079,469 at June 30, 1995 as the
aforementioned increase in current assets was offset by a $1,364,107 increase in
current liabilities. Total borrowings outstanding were $10,451,562 at September
30, 1996 as compared to $9,518,150 at June 30, 1996. The increase was due
primarily to a $913,211 increase in the amount outstanding under the Company's
revolving credit facility. Additional credit available under this facility was
approximately $664,000 at September 30, 1996 as compared to approximately
$333,000 at June 30, 1996.
As described in footnote 5e, on September 2, 1996, the Company entered into an
agreement to sell its 45,000 square foot corporate headquarters to an
unaffiliated third party. Under the terms of the agreement, the Company will
receive cash proceeds of approximately $2,332,000 for the sale of the property.
It is estimated that approximately $800,000 of net cash proceeds will be
available to the Company for working capital purposes after retiring the first
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
and second mortgages currently outstanding and paying expenses incurred in
connection with the transaction. The transaction is subject to the approval of
the secured lenders of the Company, to the extent required.
Notwithstanding the above, the Company anticipates that its cash on hand coupled
with amounts available under its revolving credit facility and anticipated net
cash proceeds from the sale of its corporate headquarters may not be sufficient
to meet its cash and working capital requirements based upon expected sales. The
Company intends to issue additional debt and equity securities 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.
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) Reports on Form 8-K
A Form 8-K was filed on August 20, 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: November 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: November 12, 1996
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